Strangers in the Night

NEW YORK One day last month, a dozen startup executives gathered in downtown San Francisco. Instead of the usual tech gathering to discuss APIs, Web services and data portability, the subject was Advertising 101. Interpublic Group agency Universal McCann invited the execs there to learn how an ad campaign is put together, the campaign life cycle, how budgets are allocated.

The project, dubbed the Media Combinator, is an effort to bridge the persistent gap between Silicon Valley and Madison Avenue, which continues to hinder the development of new forms of advertising and marketing. As the technology and advertising worlds continue to collide, their mind-sets and mores remain worlds apart. In Silicon Valley, the engineer is king, the focus is on usability and utility, problems are often solved by math. Madison Avenue, while a far cry from its Mad Men heyday, continues to be a relationship business, specializing in building brands through emotion-fueled creativity.

“We realized we speak different languages,” said Brian Monahan, social media lead at Universal McCann, who conceived of the Media Combinator after seeing many misconceptions of advertising among startups. “They don’t understand our process. Our folks often don’t have the time to understand their value proposition.”

This divide is probably best exemplified by Google, the undisputed star and idol of Silicon Valley. Despite selling billions of dollars in advertising, Google continues to insist that it is not a media company. Many on Madison Avenue still don’t know what to make of Google, which at times steps on the toes of its agency partners by going directly to clients and presenting its products in a take-it-or-leave-it manner.

The goal for many Web 2.0 firms is to build the next Google. Some see whiffs of Google behavior in Silicon Valley’s current darling, Facebook. CEO Mark Zuckerberg arrived on Madison Avenue a year ago to brashly proclaim, “Once every 100 years media changes.” Agency executives chuckled at his hubris, while a centerpiece of Facebook’s effort, Beacon, fell flat under privacy concerns over streaming updates of people’s activities on other sites to their friends.

“That was an engineer who created an advertising model and it fundamentally didn’t work,” said Cory Treffiletti, president at Catalyst SF, a San Francisco firm that works with startups on ad strategies.

The view from Silicon Valley is Madison Avenue can still be slow-moving, often inefficient and stuck in old ways of doing business. Agency business models tend to compensate them not for strategy. “They don’t have the time to sit and think about all these new platforms,” Treffiletti said. This is most evident in agencies insisting on scale when making media buys. The result can be seen in the Interactive Advertising Bureau’s ad spending figures, which show the top 10 Web properties getting 69 percent of online ad spending in 2007, even as consumers spend more of their time on specialized destinations and services. If new opportunities don’t fit on a media planner’s spreadsheet, chances are they’ll get passed over.

“Madison Avenue is so focused on reach and frequency because of their experience,” said Mark Kvamme, a partner at Sequoia Capital, which backed Google and is invested in several tech companies with advertising business models. “In the past, it was all about reach and frequency. In the future, it’s reach and frequency divided by engagement.”

But to get there, technology companies and agencies will need to get on the same page. Google’s succes in direct response is hard to replicate in attracting brand budgets.

“They’ve forgotten the other lessons in the glow of Google’s success,” said John Battelle, CEO of FM Publishing, which works with brands on coversational marketing campaigns. “Ninety-eight percent of their revenue is direct response advertising. But Google is seen as this amazing brand. They may conflate the two.”

Many Silicon Valley firms concentrate single-mindedly on getting their Web service, application or site used by as many people as possible. The “if you build it, they will come” — in this case the “they” are advertisers — leads to business models that seem to think advertising is akin to a spigot that can be turned on.

“Many Web 2.0 companies are caught in the middle,” said Monahan. “They don’t know if they want to be an engagement play and they don’t understand what it means to be a scale play.”

The transition from tech business to media isn’t easy. Matt Sanchez began Videoegg in 2004 as an easy way for consumers to stream video online. “We were trying to solve an Internet tools problem,” he said. But soon Sanchez and his team recognized they were really an advertising network. The company is now focused exclusively on building a video-based ad network optimized for engagement. That meant Sanchez, who got his degree in electrical engineering and computer science at Yale, immersed himself in the ways of Madison Avenue. The company has shifted to be more sales focused, bringing on former Organic executive Troy Young and building out a 30-person ad sales force. The entire mind-set of the company has shifted, he said.

“Technologists tend to get lost in what’s possible, not practical,” he said. “You have to ask whether an advertiser like Reynolds Wrap wants this. Very little of the [Silicon Valley] ecosystem has a media background.”