Three years ago, Tim Armstrong, Google's top advertising executive, sat down in a crowded Starbucks in New York's Astor Place, grabbed a piece of paper and sketched out his vision of the future of advertising. He filled one end of the paper with dots, dozens of them, which then funneled into a large box, out of which came many arrows pointing in different directions. In the not-too-distant future, he predicted, advertisers will digitize their entire asset bases, with "smart machines" (like Google) allowing them to advertise thousands of pieces of information about a brand to the right consumers at the right times.

The critical fuel for the machine he envisioned: customer information, used for targeting, altering creative and measurement. In short, data. Lots of it.

Three years later, the world imagined by Armstrong is on its way to becoming a reality, with far-reaching consequences for every step of the advertising ecosystem, from client and agency to publisher and consumer. With Google's pending acquisition of DoubleClick and Microsoft's addition of aQuantive, two enormous data platforms are emerging. Meanwhile, agencies and clients are beginning to see this information as their most precious commodity, to be mined for targeting, analysis and, yes, even creative insights.

The wrenching changes the advertising industry is undergoing are not unprecedented, even for an industry this size. To understand the future of advertising, it's helpful to understand the past of financial services. Before the development of electronic exchanges and sophisticated trading techniques, Wall Street was not unlike the ad world. Relationships were paramount, data was uncertain and qualitative analysis trumped number crunching.

One proponent of the Wall Street analogy is Rishad Tobaccowala, CEO of Denuo, Publicis Groupe's digital media consultancy. Agencies and advertisers, he says, could soon have at their disposal a marketing dashboard to act much like the Bloomberg terminals on every trading desk.

Google, Microsoft and Yahoo, he explains, have laid the foundation: They use ad serving, fueled by consumer data, to create distribution platforms, on top of which ad exchanges can sit. And companies like Spot Runner, Visible World and Publicis Groupe digital production firm Prodigious serve as creation tools to funnel digital assets to consumers through the platforms.

The change under way is evident, Tobaccowala adds, in advertising's new vocabulary, which includes "marketplaces," "exchanges" and "arbitrage": "[Those are] the exact terms I used in my University of Chicago finance classes."

The new emphasis on data is affecting creative as well, as metrics make the effectiveness of ads more obvious. The need for measurable results has led to new tools like the Global Marketing Navigator, which Publicis is rolling out to its media and creative shops. Navigator pulls together data on whether creative executions are leading to transactions, generating search activity and/or lifting brand metrics.

Goodby, Silverstein & Partners' Mike Parker, who joined the shop as director of digital strategy a year ago, immediately saw a need for analytics. He brought in Web analysts to prove whether the creative is working, and to use the results to adjust creative regularly.

Sarah Fay, CEO of Carat, believes the data genie is out of the bottle. "We're starting to see ways to look under the hood of campaigns and see what happened," she says. "It's not just about what the audience is going to see, but what [it's] going to do. ... The Holy Grail is to get to predictive modeling," where agencies can forecast results before they even deploy assets.

New tools are also incorporating data into the creative process. This is necessary to solve the biggest problem of a hyper-targeted ad world: How can all the messages be built? While outsourcing production to low-priced markets is one approach, technology is set to play a leading role by using data feeds to turn 10 creative executions into 100 or 1,000. Yahoo's SmartAds is allowing advertisers to build creative on the fly by tapping data feeds of offers that are in turn matched to user behavior. Visible World and Spot Runner are taking similar approaches to enable advertisers to create hundreds of variations of video ads.

"It's up to the companies to organize their mind-sets from a world of using 5-10 percent of their assets to tell their brand stories to using 100 percent of their assets," says Armstrong.

Turning Knowledge Into Wisdom

Ironically, most companies are already drowning in data. One Web site can give off terabytes of data, notes Jonathan Nelson, the chairman of Organic and digital strategist for Omnicom. "Most companies have access to huge amounts of information and don't know what to do with it," he says.

"There's this concept of data overload that everyone is grappling with," adds Konrad Feldman, CEO of Quantcast, a digital media measurement firm. "The raw data is not necessarily a valuable asset. The valuable asset is the processed data that provides insights."

So while the focus has been on ad-targeting capabilities, that's only half of the story. Advertisers and agencies also need to build their own data warehouses, which can be used to plug into the systems built by Google, Microsoft and others.



Despite the Web's rep as a highly accountable medium, holes remain in everything from determining how many people visit a Web site to gauging which ads lead to sales. To address the former, Quantcast, for one, hopes to overhaul the current survey-based panels for measuring Internet audiences with a tagging system that directly measures audience segments across sites of all sizes.
 
"We aren't going to be talking about GRPs anymore, but audience segments," predicts Adam Gerber, Quantcast's CMO and a former top MediaVest digital exec. "There's going to be a massive transformation over the next five to 10 years."

Even when it comes to measuring ad effectiveness, the Web is far from precise. As it stands now, marketers and agencies overrate the final click before a purchase, ignoring what went into making that click happen, according to Young-Bean Song, vp of analytics at Microsoft. "Advertisers have blinders on about what advertising is working and what is not," he says.

One pilot Microsoft has undertaken shows ads to consumers on digital screens attached to shopping carts at ShopRite. Users create a shopping list online, at which time Microsoft drops a cookie into their browser that is linked to the ShopRite loyalty card. At the  store, users swipe their cards in the screen. This matches their lists with available coupons and, thanks to wireless technology, can help them, among other things, locate items in the store. But the system's real power? Its data collection. Microsoft can now match an ad a user has seen with a user's actual purchase.

Consumer Control

It's required for ad execs to embrace the notion that the "consumer is in control." But what does that mean in practice when it comes to data?

As it stands now, consumers don't have much control over their information. Direct marketing firms routinely buy and sell personal data offline, and online, ad networks, search engines and advertisers collect reams of information such as purchasing behavior and Web usage. Google, for instance, keeps consumers' search histories for up to two years, not allowing them the option of erasing it.

Legalities, however, preclude ad networks from collecting personally identifiable information such as names and addresses. Ad networks also allow users to opt out of being tracked.

But as the value of data continues to rise, the question of control will invariably become a hot-button issue. The rocky introduction of Beacon, Facebook's strategy to collect data on users' shopping habits and broadcast it to their friends, illustrated the dangers: Facebook was forced to change the system after complaints that it required users to opt out of the system.

And privacy groups have objected to Google's deal to buy DoubleClick, crying foul at one company having so much data about consumer habits.

Internet executive Omar Tawakol believes consumers will gain greater control over their data when they realize the extent to which they're giving away valuable information. Tawakol, after spending years as a top executive at behavioral targeting pioneer Revenue Science, is starting a company, Bluekai, that aims to reward consumers for sharing their information with marketers and publishers. Consumers "should be able to know what the data is there and be able to control it," he says.

Google's Armstrong points out that the infinite choice of digital media makes the marketplace the best guard against abuse. Services will crop up to cater to those concerned with how their data is collected, he says.

Ask, for instance, Google's rival, is trying to lure users with an option that allows users to erase their search history.



The People Paradox

As technology and data flows become more important, so, too, do the people needed to manage those systems. To get back to the financial analogy, what separates a Goldman Sachs from its peers is not just its technology, but its acumen, strategies and appetite for risk. Tobaccowala says it's true "if you don't have access to technology and data, you cannot play-but it's not sufficient to win."

That's why data evangelists agree the industry's biggest challenges are to find analytically minded employees, and to create the proper culture.

"You're going to see many more quantification people," says Mark Read, CEO of WPP Digital. "More engineers, more technologists, more econometricians."

David Kenny, CEO of Digitas, believes the greatest challenge for Publicis is creating a "data-driven culture." For instance, Navigator not only shows creative and media agencies campaign results in real time, the dashboard is open to clients as well. That level of transparency is anathema in many agencies, Kenny says.

"The challenge for agencies is how to change their skills and their cultures," he adds. "You need to train the people you can train and trade out the people you can't to be ready for the next phase of advertising."

Key Insights:

-- Madison Avenue should look to Wall Street to understand the future of advertising.

-- Those who find a way to turn "knowledge" into "wisdom" will end up ahead.

-- As consumers catch on to the value of their data, expect them to want a cut.