Wednesday, January 25, 2006

Advertising isn't dead, but it is dying

The new york times just ran this article entitled "Advertising Is Obsolete. Everyone Says So."

Advertising is dying because it is being replaced by better methods. The death of advertising is going to be a good thing.

First step: Why does advertising exist in the first place?

My theory: Advertising bridges a fundamental gap in human's ability to gather and process information. We can only gather and process a finite amount of information.

Why is this important? Because commerce at its most basic level is the fulfillment of our wants and needs. In the modern world hundreds or millions of people come together to create every good or service; there are hundreds of potential means to fulfill our needs; and, an almost infinite number of potential desires. With this many potential products to consume or use, we can't possibly consider the full set of possibilities before making our decisions.

In the pre-modern world, this was less of a problem because we had less choices. We had the natural world around us and our own work to fulfill our needs. In this situation we could reasonably understand most of the world around us. Further, we created very little surplus and therefore had very little wants to worry about.

Currently, I believe 2% of the US workforce is involved in producing food (and we are a net exporter) I don't know what percentage covers shelter and clothing, but I assume it is less than half. That covers pre-modern needs. Then you need to add in education, communication, and transportation to cover modern pre-requisites of participaiton. Once you have totaled up all of our pre-modern and modern needs, there is still an amazing amount of surplus that can either be consumed as leisure or that can go to fulfill our "wants." Long story short, there are a lot of things to consume and each of us has the ability to consume a lot of things.

What the hell does this have to do with advertising?

Near Infinite Amount of Things that can be Conssumed --> Near Infinite Amount of Information

Near Infinite Amount of Information + Limited Ability to process that information --> Information Overload.

We simply cannot process all of the potential information.

Enter advertising. In a world where all possible information cannot be processed, it is efficient to take some shortcuts.

Advertising is a shortcut. It is efficient for producers of products to advertise that these products exist to create either: the desire to use the product to fulfill their needs; or to consume the product as part of their leisure consumption.

(digression) The line between want and need isn't completely clear, and I think it is very possible that advertising can create the illusion of their product as fulfilling a need when it doesn't really. (end digression)

So, advertising is a solution to the problem of information overload, and it has been a decent solution but not one without problems. (to begin, see digression above) The most important reason why advertising is an incomplete solution is that it connects people to the products that producers want people to buy, not the products that are going to make people the happiest.

Thus, my elation at the impending death of advertising. It's not here yet, but it is on its way. The NYT story that sparked this diatribe mentions as one of the key new advertising tricks the impetus to try to get word of mouth advertising by creating "evangelizers." Put another way, they have to create noteworthy products that people like enough to tell their friends about. Put another way, they have to spend their 'advertising' dollars into making their customers happier.

But, that's only the beginning of the change. Word of mouth advertising is basically people saying "We're similar, we usually like similar things, I like this, you should check it out." Instead of the producers of products overcomming the information problem, people who like the product share the information with other people like them.

Word of mouth, however, is not a complete solution to the problem. The collection and processing of information is spread among more people, tens or hundreds instead of only one. This is progress, but not enough to analyze all potential possible information.

But, if you take a quick look at, you'll see how computers, reviews, and a thing called collaborative filters (a.k.a. the find good things algorithm) is going to put the next and near final nail in the coffin. Computers take and process more information than humans ever could.

Collaborative filters and "find good things" for the uninitiated: Basically, it works like this. Imagine that there are two people - Jack and Susan. Jack likes things 1, 2, 3, and 5. Susan likes things 1, 2, 3, 4, and 6. Looking at the similar tastes Jack and Susan have for 1, 2, and 3; there is a good chance that a correctly programmed computer could recommend 4 and 6 to Jack and 5 to Susan. By looking at patterns of prefferences collaborative filters can find things people will love that they didn't know existed. In many ways, it is a huge system of "word of mouth" refferals aided by a computer.

But, advertising isn't dead yet and collaborative filters aren't quite ready to step in and sort our information and prefferences for us. As I see it, there are two barriers to getting to this better system:
  1. Integration of more information. This is a three-part step. To be truly effective at finding hidden value for people, there needs to be 1) an integrated centralized system for all the information to be gathered in, 2) all potential products and services need to be agregated, and 3) a sufficent number of expressed prefferences for the algorithms to work.
  2. Improvement of the algorithms.
Advertising as we know it is on its way out. Once an advanced integrated system of prefferences and refferences is developed (based on a collaborative filter) ads will no longer be efficient. Those annoying non-targeted ads that you get in the middle of your tv programs won't exist as they do now because they will no longer be the best solution to the problem.

I give it 5 to 10 years. Amazon has already made significant inroads and everyone loves their book suggestions. Claria (the people who brought you Gator and GAIN advertising systems - the height of annoyance, but the pinacle of effectiveness - Behavioral targeting is king) is working on a search engine based on this (although it could probably be gamed). And I am sure some company I've never heard of has already secured millions of dollars from venture capital firms to build just such a system.

The death of advertising is going to be good for consumers because it is going to be replaced by a system that will help us find things we actually want. The ability to force shoddy products onto people with cleaver advertising and brilliant marketing is going to dissapear, and the only way to move your product is going to be: create the most value for consumers.

Sure it's not going to evolve exactly like this. But expect the death of advertising as we know it. It is currently the best sollution to a problem of information, and a better solution is on its way.


Dan said...

Great post. Some really interesting material. I agree with the death of advertising as we know it replaced by product placement and references. I found your digression to be the pinnacle of efficacy for advertisers. Once people begin believing that a want good or service is a need good or service, advertisers have reached their goal. Do we want Coke? Yes. Do we need it? No. Do we believe we need it based on advertising. You bet.

Amdollar said...

I had an information overload just now reading that. Great content! What would this system generate if I wanted to try something new? What if I wanted to eat healthy for a change or decided to go with a different brand? I think being overwhelmed with items that I like would become boring and ultimately lead me to a change from the monotany. That's why I hate spam and popups that "think" they know what I like. :)

Flexo said...

Interesting. I read the NY Times article... not impressed. The advertising industry is struggling to figure out how to survive, now that more and more people have access to better information, that is all. The 30-second commercial spot will be replaced by product placement and word of mouth, but that stuff isn't new, and it's still a form of advertising -- just less direct.

The Amazon product recommendation engine is not a replacement for advertising. The consumer has to get to first.

You're right that advertising is convinving consumers that their wants or needs, but that's not dying. That will never go away as long as we have a consumer-based culture. Some methods may change.

I was going to write more about the ridiculous statement about marketing to Christians but it isn't worth it. It should have been left out of that article.

Flexo said...

Ooops... "...that their wants *are* needs..."