On the surface, the most noticeable effect the digital revolution is having on advertising is in the way production has gone digital. Since advertising agencies earn part of their revenue on the markup of production expenses, the digital revolution has proved costly to ad agencies. Advertising agencies gave digital production the same enthusiastic welcome a man reserves for a six hundred pound grizzly bear running at him. Unfortunately for agencies, the real problem is the 3,000 pound elephant chasing the bear. In this case, the elephant is the Internet, and given how big and how dangerous the elephant is, agencies may find that working out a deal with the bear may not be such a bad idea. In fact, getting to understand the elephant might not be such a bad idea either.
So far, agencies have been making the same mistakes with the Internet they made with desktop publishing, evidently having learned nothing from their previous experience, despite the cost. This is also unfortunate for ad agencies, since the Internet is quite capable of killing the advertising industry as we know it.
Even now the Internet is having a corrosive effect on conventional advertising. The most noticeable effect is on the balance of power between agencies and client. The Net is diverting part of advertising budgets to Website design shops instead of to the ad agencies who previously created all of their client's advertising graphics. The result is a three way balance of power instead of a two way balance.
Even more importantly, the Net is connecting companies directly with their consumers, bypassing both ad agencies and conventional media in the process. At same time, the Internet is integrating with databases to create a fundamentally new way of marketing. Unlike any other media, the Internet collects information about every consumer it exposes to the company's products. The amount of information about consumers the Internet can collect is only limited by the ability of the company to talk the consumer into volunteering the information. The evidence is that consumers frequently are willing to give very useful information to companies, especially if they think they can get a better product or service if they do.
For instance the Internet's Official Babylon 5 Fan Club asks members signing up to fill out a form with data fields including age, sex, and approximate salary. The enticement is access to a special section featuring postings by the mega-hit's creator, and the requirement hasn't stopped thousands of people from signing up in the few weeks the B5 Website has been on the Net. As a result, the B5 production company can find out reliable demographic information about their audience at the click of a mouse.
In the past, in-depth consumer surveys have tended to be expensive and time consuming, and something only the bigger ad agencies handled for their more affluent clients. Now, with the Internet as the ultimate opinion pollster, elaborate surveys can be done by modest local stores, with only minimal investment.
One of the biggest growth markets for personal computers will be in the sale of systems to collect and process all of the newly available information about consumers. With the advent of DVD disks, and their higher capacity over CD-ROMS, businesses will be able to acquire and use extremely large datasets.
The development of "Desktop Marketing", or DTM, will create another category of advertising agency services that can be done by businesses in-house for less expense than by their agencies. Even if businesses opt to have the work done outside, they may well send it to their Web design agency instead of their ad agency.
Other agency services are under attack by the Internet as well. The Net will eventually offer a complete replacement for the agency media buyer. It's only a matter of time before radio, TV, and print media automate media buys on the Internet. Inexpensive and off the shelf software will allow in-house advertising and marketing departments to find the most cost effective media buys available for their target markets, inexpensively, and nearly immediately.
For decades, media buys were made over lunches, and had more to do with relationships, and the art of wining and dining, than anything related to solid fact. By the eighties, media buys had become a matter of "just show me the numbers." Since the numbers come from computers, it's becoming obvious that it would be more efficient to simply let the different computers process the media buys directly, and avoid the additional expense of paying for the lunches of people who work for other companies.
Digital technology is going to work wonders for advertising, there just may not be any advertising agencies left to notice. To survive, agencies will have to be the leading edge specialists in advertising technology, not the trailing edge. If they choose to remain in a technological dark age, their clients will learn how to do the work in-house, for less money, and drop them like typewriters at an MS Word convention.
So far, businesses are way ahead of their ad agencies in adopting new digital technology. Businesses have already noticed the charging beasts of the digital revolution, and realized that even if they can't out run the beasts, they'll still be better off if they at least out run their ad agencies.