Will the Internet and increasingly intelligent users mean the end of advertising?

Frederic Filloux has a very interesting post in the Washington Post that posits the theory that advertisers have become proud and pompous and are failing to innovate.

Here’s a snippet which captures part of what he’s saying -

Is advertising the next casualty of the ongoing digital tsunami? 

… excessive confidence in one’s body’s past performance, mixed with a state of permanent denial and a deep sense of superiority, all aided by a complacent environment.

The digital graveyard is filled with the carcasses of utterly confident people who all shared this sense of invincibility. The music industry and, to some extent, the news business built large mausoleums for themselves. Today, the advertising industry is working on its own funeral monument.

Advertising needs to innovate?

Not sure whether Mr. Filloux means that advertising needs to get more persuasive and manipulative or whether he misses that part of the equation completely.

It’s a beautiful post – However, it puts too much faith in the ability of advertisers to continue to innovate and too little faith in the ability of customers to get smarter at a rate faster than advertisers.

Most importantly, Mr. Filloux is discounting some very smart and deceptive companies that are becoming the new advertisers and are replacing advertising with manipulation of a higher order. Perhaps the industry has already innovated and the stragglers just don’t realize it.

This post will look at three trends -

  1. The fall of traditional advertising. 
  2. The rise of customer intelligence and awareness.
  3. The rise of what will attempt to replace advertising. 

A little on advertising and it’s ongoing decline

Advertising is communication intended to persuade. You could argue that all communication intends to persuade – However, for now let’s focus on advertising.

Advertisers are basically talking to you and me and putting the notion into our heads that purchasing their product or service will improve our lives in some way. It’s gotten to the point that they aren’t just advertising the benefits of their product – they’re creating a void in our minds and filling that void with their product.

Advertising is based on advertisers being smarter than customers

At a fundamental level advertising requires that the user be one of two things -

  1. Really in need of the product and not have realized it. 
  2. Not in need of the product and open to suggestion. The latter being an opening advertisers can wiggle into and use to convince users they fall into the first category.

As advertising became stronger and stronger more and more people fell into the second category. This was really helped by the rise of TV – in fact the growth of the ‘consumer’ mindset can be linked directly to the rise of TV.

Video not only killed the radio star it killed the intelligent customer. TV was such a huge leap in advertising’s influence and impact that for decades users were simply overwhelmed. Plus they had no idea of the type of psychological manipulation that was being done to them.  

The Internet and How it killed the power of Advertising

The first reason the Internet began to kill Advertising is that there was just too much of it and it was shown to be weak and annoying -

  1. As opposed to TV where the user was mostly captive (unless they changed channels) on the Internet you couldn’t really take up the whole screen or all of the users’ attention. 
  2. Advertising was very poor and weak compared to the high quality and highly influential advertising on TV.
  3. To make things worse these was too much of it and most of it in annoying forms. With the complete lack of supervision there came an unregulated stream of advertising – flashing ads, banner ads, low quality ads that were hardly convincing, obviously unethical ads, and so forth.
  4. The other thing weakening advertising was that we had people unhindered by the need to make profits putting up pages and forgoing advertising. Not only could users see that ads were annoying they could also see that ads were unnecessary.
  5. Finally, ads were rarely entertaining or powerful – which meant it became very easy for users to disregard them completely.

Basically, advertising went from ‘something that is necessary to pay for content’ to ‘something that is optional and something annoying, evil people tend to indulge in’. In parallel adverts went from the polished, powerful influencers on TV to the annoying, appallingly bad banner ads on the Internet.

Hand in hand with this came about a far more important change.

The Internet makes customers more intelligent and better informed

The first part of Advertising is very effective advertising – which the Internet’s paradoxical duality of ‘sites with too many ads, sites with no ads’ began to kill. The second part is naive users who believe most of what they see and are easily convinced.

Well, the Internet totally blew away the ignorance that most users used to live in. Consider buying a car -

  1. You can go on a forum and find out what prices people paid – the best and the worst.
  2. You can go to a site like Edmunds.com and figure out MSRP, the dealer’s price, the bonuses dealers get for hitting sales targets, the total cost of ownership, and exactly how much profit the dealer stands to make.  
  3. You can search and find out what the market is really like, what the prices are in different states, and the price as a function of the time of year.

Suddenly you know a lot more about the dealer and their profit margins than the dealer knows about you and your finances and desires. It evens up the playing field a little bit given that the car dealer does this negotiating for a living (10-30 times a day) and you do it 3-10 times in your entire life.

The rise of infinite competition and the resultant penalty for dishonesty

Hand in hand with the rise of customer intelligence is the rise of infinite competition. The dealer in your home town now suddenly has to compete with -

  1. The dealers in the neighbouring towns. 
  2. National chains and online sites selling cars. 
  3. Users like you who are selling their used cars.

The competition is dangerous and constantly increasing.

Not only is it harder to fool customers they also have other options – some of which (other users, etc.) are not in the business of misleading customers.

Misleading Advertising (you could argue it always is) has gone from being a benefit to a liability. If a company advertises a false claim not only will users be smart enough to figure it out they will probably also be told about it by competitors and other users.

Suddenly, false advertising goes from being an asset to being a major liability.

The Two Strategies that companies will use to replace Advertising

Fundamentally, you can make money in two ways -

  1. Give people what they desire and get what you desire – a win-win strategy. 
  2. Fool people into giving you their money for nothing (or more money than is fair).

Well, we are going to see the same thing -

  1. We will have super-ethical companies that always work for customers. Companies that create win-win situations.  
  2. We will have super-unethical companies that use things more advanced than advertising to trick customers.

Let’s consider a few examples.

Companies that are creating win-win situations

Here are a few examples -

  1. Walmart and Amazon. They are constantly cutting prices and making things better for customers.  
  2. Companies like Zappos that focus on customer experience.
  3. The whole microfinance revolution is another good example.  

You could argue that even they are doing it only for profits. That’s fine though – As long as the customer also wins.

In some ways it is the smartest strategy – they are building strengths that are not illusory. They are ensuring that the user wins by choosing them and in a world with smart, informed customers that’s a winning strategy.

Companies that are using very advanced forms of manipulation

The fundamental thing here is the creation of debt which customers are unaware they will have to pay back later. Two easy examples stem from Facebook’s ecosystem -

  1. Facebook is promising a service that’s free and also promising to preserve privacy. What they are actually doing is trying to covertly sell user information and also build up databases of user intent. These databases of user intent can be used to advertise to users more effectively i.e. manipulate them into buying things they don’t really need or want.
  2. Zynga are using advanced psychological tricks to get users hooked on to their games and are then getting them to buy virtual goods.

At one level this is pretty impressive -

  1. Advertising has moved from selling people on goods they might or might not need to selling them virtual goods they almost certainly don’t need.  
  2. Facebook is getting all this user information and routing it to customers without customers even realizing (until now).
  3. It’s done very gradually and discretely. Most people don’t even realize that something is happening.

At the same time this goes a level beyond advertising in terms of evil. At least with ads and TV supported by Ads you knew what you were getting into. Now we have the promise of ‘free’ to customers while in reality databases of customer information and customer intent are being built that will eventually allow advertisers ridiculous levels of insight into users’ desires and psyches.

The Four Types of evolved advertising/manipulation that might work

There are basically four types of advertising that are going to work very well in the future (there may be others) -

  1. The ‘very smart and also very stupid’ advertising strategy i.e. Facebook and Zynga. Here users are promised ‘free’ and trapped into spending in ways they don’t fully understand – their data being sold, them being psychologically trapped. It is, however, a free market and users willing to be exploited in this manner will continue to be exploited. There is also a very strong ‘we can get things for free without paying for them’ attitude prevalent on the Internet so perhaps it’s not as manipulative as we fear.  
  2. The indoctrination strategy i.e. associate the brand with the person’s identity or something they really, really want as part of their identity. In a way you could say this is the top 5% of advertising where everything goes right – You identify a need, perfectly fit the need to your product, and constantly maintain the illusion that your product is fulfilling the need. If done right then in the customer’s mind there is literally no difference – if you look carefully you’ll notice the holes. However, to the user and to people who don’t look carefully it will literally seem as if the product does everything it promises.
  3. The ‘build up a store of reciprocation’ strategy. This is where you do things for users – offer them benefits, offer them free services, and do lots of other things. This first part is what a lot of Internet start-ups are doing. If the intent is to create a win-win situation then this is fine. However, for some companies the aim is to get the user hooked and ‘grateful’ to the company and thus make it easier to exploit the user down the line.
  4. The ‘Get users invested’ strategy. This is where you get the users involved so deeply into the product (or the creation of the product) that they almost don’t have a choice. By investment we don’t mean passive participation like watching a banner ad or even clicking on something. We mean active participation – helping create the product or some aspect of it.  

We will gradually see these replace traditional advertising and then we will see users become smarter and understand the dangers and perhaps a new set of advertising/manipulation strategies will rise. It’s a never-ending cycle – advertising/manipulation Vs customer intelligence/awareness.

Note that at every level we do leave behind some users. For example, some users are always going to be susceptible to TV ads and other users are always going to be susceptible to promises of free. There will also be users who don’t care or are OK with what advertising is. 

However, the great thing is that the Internet lets users who want to free themselves of manipulation free themselves. It’s a combination of actually ethical companies and other users that combine to make this happen. This is the real reason that traditional advertising is dying – customers are just too intelligent now.

It’s amazing to see newer and newer unethical strategies emerge and it’s quite amusing that most of the really effective new forms of manipulation consciously put so much effort into seeming altruistic and benevolent.

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