Digital Marketing and Finance: An Odd but Well-Suited Couple

After a decade of closely observing the ebbs and flows of content and advertising on the Internet from the vantage point of Northern California, I’ve noticed an interesting pattern. When marrying practical digital marketing theories with the advertising-based business model assumptions of venture capital, private equity and technology start-up companies, an odd array of metaphorical coincidences takes shape. This ultimately leads us to an intriguing and potentially powerful lesson: digital advertisers can benefit by applying basic financial theory to their marketing strategy.

Let’s begin with what has become an axiom. The Internet and the broader digital landscape are the best means through which to deliver genuinely accountable marketing programs. Actual views, clicks and impressions can be measured and tracked instantaneously by massive computing grids facilitated by clever software applications. Results can then be analyzed in real time and optimized before being redeployed to the consumer.

Add to this mix the viral distribution platforms and deep data profiles of social networking sites and communications platforms like IM, plus marketer-created content, and a landscape exists in which true psychographic advertising can take place. No other media environment can compete with that in such a scalable way — not magazine publishers (who at best deliver ads to ZIP codes which provide some level of insight) and not television broadcasters (who define audiences by aggregating eyeballs around broad niches). In this environment, it is clear that marketing, if executed more strategically than before, can borrow from some of the language and analysis used in the world of high finance.

Digital ‘Hits’
For the first time, “hits” rather than industry awards can precisely measure advertising success. Not hits in terms of clicks on a Web site. Think of a spectacular success, as in a movie that breaks records at the box office, a ratings-reaping TV show or a quadruple-platinum album. The magnitude of digital hits can be evaluated by looking at pass-alongs, views and recurring engagements that happen organically without the help of paid media. Before the digital era, advertising couldn’t be shared virally, re-screened as entertainment, mashed-up by consumers to extend the narrative or distributed more as content than ads. Even if an ad was entertaining enough to want to experience it again or show to peers, there was no infrastructure to facilitate sharing or repeat viewing. As a result the ads that were created sought only to make points clearly and memorably through repetition and exposures. They really couldn’t be genuine hits in the way movies, books and records could explode into the world, driving people to “buy” the experience. Advertising in the pre-digital world was always a forced exposure ecosystem, with some content being better or more iconic than others, e.g., Absolut Vodka, Coca-Cola or Target. 

By the same token, today marketers cannot buy guaranteed share of voice on the Web the way they could with a handful of mass-reach vehicles 30 years ago. Increasingly, therefore, the advertising experiences that people have on digital platforms will need to be exceptional as content or have some recurrent utility associated with them. On the flip side, great marketing can become destination content, which represents a paradigm shift and an incredible opportunity to shape perception or affinity.

Today consumers are going to environments like YouTube to watch commercials. These same people are choosing to spend time on brand-built social networks, using branded applications on Web sites like Facebook and MySpace and subscribing to advertiser-created podcasts and RSS feeds as content experiences. In this world legitimate, large-scale, digital hits are beginning to emerge.

For example, Dove’s “Evolution” spot drove more than 20 million YouTube views — that’s a box-office-style smash. The “Extreme Diet Coke & Mentos Experiment” has been viewed more than 18 million times. And Microsoft’s branded Facebook application, “Office Poke,” developed with McCann Worldgroup, has been downloaded more than 300,000 times in three months, again a marketing hit.

But making marketing hits in the digital world will continue to get harder as the global population grows and as the aggregate content archive on the Web continues to proliferate. The fact that eight hours of video are uploaded to YouTube every minute proves this point. Each new piece of content added to this explosion can get buried in a matter of minutes. As such, the content must be so compelling that consumers opt in daily to these marketing experiences.
 
Portfolio Theory
Like the film, TV, publishing and venture capital businesses, hits are only manufactured by applying basic portfolio theory. It takes 10-20 films to produce even one hit, as it does for television and book publishing. But one hit can open the floodgates, from both a financial and talent perspective. One Facebook-type venture investment out of 30 will not only pay off the fund a thousandfold, but will ensure a great return for years to come. One studio hit will attract hot directors and actors to do production deals. But for every Dr Pepper “Cherry Chocolate Rain” viral video hit, the digital landscape is littered with box office failures: applications that no one uses, videos that no one sees, podcasts to which no one subscribes. 

To ease back into the world of finance, in order to manufacture hits, the advertiser needs to make a lot of content and produce it quickly. Much of it won’t reach that inflection point where it travels behind paid media exposures bought and sold traditionally. But if enough content is made and recast in a variety of ways on different platforms, eventually brands will find hits in the form of map mash-ups, viral videos, broadly used applications and legitimate social communities.

Now brands can and should strive for much more. They need to create a portfolio of content experiences that consumers want to take part in, see or use. Hits will never come easy, but they can be manufactured only by making enough content to cut through the clutter and find an audience like Juno or Lost. Advertisers and agencies need to make more content more often until the hits can pay off their portfolio, freeing them from the shackles of closed-paid media channels.
 
Marketing Annuities
All of this brings us to the ultimate marketer aspiration: the marketing or media annuity. An annuity is most simply described as any “recurring periodic series of payments.” Conceptually, the idea lends itself perfectly to the landscape of digital advertising. By this definition any branded media tool or environment that consumers opt into or choose to use in perpetuity can be considered a marketing annuity. Once a marketer has established a channel or utility with which a consumer interacts, where they are not paying for placement, they have created a marketing annuity. By establishing these relationships once, even if it does require some paid media initially, the cost of these impressions will decrease over time, amortized until the seeding cost approaches zero.

Once these channels are opened, brands will not have to continually replace these media impressions on an ongoing basis to meet reach and frequency goals. One of the best examples of this is the Google toolbar, which delivers a brand impression every time a consumer scans a browser, and even more deeply when they search from the attached search box. A different example of a media annuity is the Nike+ runners’ experience, where millions of registered users visit the Web site on their own accord, trading brand exposures for the utility of logging running times and the networking functionality that connects them to their local community. And the MasterCard “Priceless” campaign started with TV ads but has morphed into a much-visited Priceless.com site where users upload their own experiences and explore others’ contributions on a mash-up repository.

Building and successfully deploying video content, applications, social networking environments or simple tools that create indefinite usage relationships represent a goal that is both lofty and accessible for all marketers. Every brand should create recurring marketing engines, rather than relying solely on paid media exposures that will almost always be ephemeral by nature. The best marketing annuities will live on infinitely. As the global marketplace for products and services continues to expand, and the content archives housed on the Web grow with it, marketers will benefit by using financial theory to exploit efficiencies and capitalize on distributed content. If they do so effectively, consumers and brands will both win.

Marc Ruxin is chief digital innovation officer for McCann Erickson, San Francisco.