While Internet advertising executives are basking in the glow of the medium's newfound prominence, attention is turning to the hurdles that could slow this segment of the industry from building scale beyond a niche medium. Among the problems discussed during Advertising Week events were the complexity of dealing with a fractured media landscape, a paucity of qualified talent and the creeping concern that the current traditional agency structure could impede the move to more digital advertising.
Unlike the early dot-com days, major shifts in consumer behavior and marketer demands appear to be tilting in favor of online advertising. Nielsen//NetRatings reported broadband use among Net users now tops 60 percent, compared to 51 percent a year ago, making Web video available to 121 million users and piquing brand advertiser interest. And Banc of America Securities stated in a report last week that the Internet is beginning "a multiyear share grab of ad dollars" from newspapers, magazines and TV.
The Interactive Advertising Bureau offered evidence of the Internet's momentum at the opening of its MIXX Conference (of which Adweek Magazines is a sponsor) by releasing industry spending figures compiled by PricewaterhouseCoopers showing Web ad spending at $3 billion in the second quarter, up 26 percent from second quarter 2004 and up 76 percent from 2003.
Despite the rosy assessments of the industry's health, several interactive agency and media executives pointed to the inevitable growing pains in a medium experiencing sharp expansion. For the most part, executives said the challenges are manageable but could slow what they think is the inevitable—advertising's move from the broadcast model to a targeted digital future.
Fragmentation is affecting all media, but it affects the Internet at warp speed. The various new interactive formats, such as mobile, Podcasts and video games, have made reaching the right consumers in the right place a complex endeavor. Google and Microsoft are betting on automation to solve this problem. Tim Armstrong, Google's vp of ad sales, sketched out this future scenario: Advertisers and their agencies will digitize all of their assets. Google's AdWords system, which today runs ads on search and Web pages, could then match advertiser messages to relevant consumers through many types of channels, including non-Internet media. "The barriers between online and offline will be removed," Armstrong said. "The system will remove them."
Microsoft endorsed this approach early in the week with the announcement that its MSN adCenter platform would begin operating in the U.S. in October. Yusuf Mehdi, svp of MSN Information Services, said MSN adCenter would serve as a "one-stop shop" for advertisers to control campaigns that involve ads in search, Web display units, video games, ad-supported software products, mobile phones and even interactive TV.
While Google, Microsoft and Yahoo! angle to bring some order to the fragmentation, interactive agencies are building their own dashboards to comb through reams of information in order to pinpoint clients' messages on any number of digital avenues to reach elusive consumers and return measurable results. "You really have to know your clients a lot better in the Internet space than the traditional space," said David Kenny, CEO of Digitas. "We're not measuring communications, we're measuring productivity."
Agencies' ability to cut through clutter with tailored messages is increasingly critical, said David Verklin, CEO of Carat North America, at the OMMA East conference. "In the digital age, we have to manage thousands and thousands of placements," he said.
Complexity on the Web has brought up another problem for agencies: finding qualified talent to pull off campaigns. McKinney + Silver executives closed their keynote presentation on the North Carolina agency's Audi A3 "Art of the Heist" Web campaign, which won top honors at the MIXX Awards, with a final PowerPoint slide: a pitch for job seekers to contact the agency's HR department.
McKinney is not alone in its hunt for talent. As advertisers shift budgets into online initiatives, several agencies are struggling to find the requisite digital manpower. AQuantive's Avenue A/Razorfish and Digitas are both looking to fill 150 positions, according to the shops. Carat Fusion has 30 positions regularly open, said CEO Toby Gabriner.
Digitas' Kenny said the No. 1 challenge for his agency is locating talent with the right skill sets to think strategically in a fast-changing business that knits together media, customer relationship management data and creative to build campaigns. In many cases, this means attracting talent outside of advertising with experience at consulting, direct marketing or technology companies. "Our biggest constraint to growth is [finding] talent," said Kenny.
Carat Fusion's Gabriner said the interactive industry had plenty of high-level and lower-level talent, yet lacked a critical mass of seasoned mid-level strategists. "With the bust that occurred, what we saw is a lot of people left the industry altogether," he said.
Interpublic Group's R/GA, one of the hotter shops, is the lead agency for three clients already, and will be able to take such a role in more client relationships only with more resources, said Dawn Winchester, vp of client services. "It's going to take our ability to scale what we're doing," she said.
Another hurdle to digital's ascendance, according to several interactive agency and media executives, is an ad industry dominated by traditional agency infrastructures that are still wedded to the broadcast model. "The agencies are somewhat incented to spend on TV," said Jonathan Miller, AOL's CEO. "That's a lot easier to do than make 20 online buys that might get better ROI."
Wenda Harris Millard, chief sales officer at Yahoo!, echoed that thought, calling the fact that broadcast-centric agencies find it difficult to make money on Web campaigns "a serious problem." She said, "There's no incentive for traditional agencies to cooperate with the digital side, other than cooperation."
Clark Kokich, worldwide president of Avenue A/Razorfish, said interactive agencies are growing so fast because they are unencumbered by a sprawling organization built around creating TV spots: "Their calcified structure is our opportunity."