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The Unfinished Marketing Revolution

2010 February 10

Why are the Mad Men so mad?

The marketing world is changing as never before.  The backslapping, clubby culture of Madison Ave. is being transformed in a world of bytes, databases and algorithms that is increasingly ruled by geeks rather than suits.

The old order is gone but the new order has yet to arrive.  The fate of marketing services companies is still an open question.

To get an idea of where we’re going, it makes some sense to look back and see how we got here.  The best place to start is the financial revolution that preceded the present marketing upheaval.

The Financial Revolution

In the midst of a global financial crisis, it’s easy to lose sight of the enormous progress that was made in the financial industry in the 70’s and 80’s.  A genteel, stodgy industry was transformed into a hi-tech marketplace.

The banking industry was characterized as an industry of 3-5-3.  Fine old men would borrow at 3%, lend at 5% and be on the golf course by 3:00 in the afternoon.  Stockbrokers solicited clients more through personal relationships than by touting performance.

The revolution was largely an American one and it was created by a confluence of seemingly unrelated events in the US during the early 1970’s.

A New Market: In April, 1973, the Chicago Board of Trade opened a floor for trading stock options.  Investors could purchase the right to buy or sell the underlying asset without actually having to buy the stock.

In effect, it was like buying a form of insurance.  If you owned a stock you could lock in the price by paying a “premium.”  If the stock went down you wouldn’t lose, but if it went up you could still gain.  Of course, you could also not buy the stock at all and just bet on the price.

A Pricing Model: Coincidently, one month after the exchange opened the Black-Scholes pricing model was published which used a differential equation to determine the value of financial options.

Previously, there was no known method of determining a fair price.

The achievement deemed so important that the authors of the model won the Nobel Prize for Economics in 1997

Computing Power: It was also at around the same time when programmable pocket computers came on the market.  The Black- Scholes pricing model was too complex for traders to calculate prices in their head, the new devices were small enough to use on the trading floor.

It didn’t take long for Wall Street to become Silicon Valley’s biggest customer.

The Moon Landing: The 1969 moon landing effectively ended the Apollo program at NASA and created a glut of quantitatively talented people.  Seeing the advantage of powerful mathematics on the trading floor, the financial industry was eager to transform the rocket scientists into financial engineers that they called quants.

It wasn’t long before every investment bank had its own team of quants busy creating complex models and new financial instruments.  The world of finance was transformed.

The Marketing Revolution

The marketing world has been transformed by technology as well.  What used to be a business of ideas is increasingly one ruled by numbers.

In the 70’s and 80’s the cable industry broke up the large network TV audiences into smaller, more targeted niches.  The emergence of the web in 90’s brought even greater fragmentation.  Increasingly, advertising has become less about what you say and more about finding the right people to say it to.

The new marketing world has also been changed by computer technology.  When I started out in the media business, expensive mainframe computers were still used to crunch audience numbers.  Today, even large expenditure databases can be run on a cheap laptop.

TV buyers soon saw the emergence of their own version of Black Scholes.  Computer programs called “optimizers” helped them massage coverage curves into just the right shape to deliver campaign goals efficiently, much like the Wall Street quants shaped financial products.

Today, no new business pitch is complete without a section about the agency’s proprietary tools that take in mountains of data and spit out slick graphs that will tell the client exactly where the money should go.

The Missing Piece

The marketing revolution is similar to the financial revolution that preceded it in that they both are dependent on powerful computer technology and sophisticated mathematical models.  However, for the marketing industry, this similarity begs an important question:

Where are the quants?

They exist, for sure.  Big holding companies like Interpublic, Omnicom and Publicis have econometric divisions that can build expensive bespoke models for clients.  However, these divisions are considered special and are therefore integrated into core operations.

As I’ve pointed out before on this site, mathematical skills among marketing professionals remain atrocious and don’t show much sign of improving.

How Much Will Google Own?

When profits disappear, industries consolidate and that’s precisely what has happened with marketing services.

Although companies who look seek service from marketing professionals have a wide array of brands to choose from, in actuality those brands are largely owned by four large holding companies.

A quick look at a chart prepared by advertising age graphically shows the stunning array of services and enormous market share that these firms possess.

With a little more checking, it’s not too hard to estimate the total market value for all four of these behemoths combined is less than $30 billion compared to $180 billion for Google.  It is quite possible, if not probable, that Google is worth more than all marketing services companies in the world combined!

And it’s not just Google.  Look at some media company valuations:

Disney: $55 Billion

Time Warner – $36 Billion

Viacom- $20 Billion

Yahoo: $20 Billion

Total: $131 Billion

These companies don’t have any where near the market footprint of the marketing behemoths, but are worth far more.  What kind of clout does the marketing services industry have today?  Will it be less or more in a decade?

The Future of Marketing Services

Now we can see why the “Mad Men” are so mad.  While their industry is being transformed and everybody else is getting rich, they live in a world of diminished expectations and shrinking fees.

The problem is serious but the solution is simple:

Get some quants.

– Greg

13 Responses leave one →
  1. February 11, 2010

    Your comparisons of the two revolutions is well done and very interesting. I think the quants are working their way in, via web analytics. Eventually they will become a larger part of the marketing mix.

    One common thread between these two revolutions that I would like to point out is that technology has given the small guy more power. Computing power has given small investors an inexpensive way to invest, without the high cost of financial advisers. The same is true in advertising. Small business owners can now run their own online ad campaigns, without the help of an agency.

    Now, granted, ad agencies and financial advisers can ad value. But they aren’t as necessary as they used to be. The small guy can now start to carve out their own businesses, without diverting their scarce capital. Then, when they have grown and their budgets are larger, they can go the agency route.

  2. February 11, 2010


    Thanks for your input.

    – Greg

  3. February 12, 2010

    This is a valuable post. Technology is necessity in a fast moving world, and definitely in marketing. Getting some quants though – for instance in the area of web analytics which Greg Campbell mentions – is one side of the coin. Probably the first one. The other side is what methodology these quants use. Here we need industry agreed standards. Since my teen age I have been involved in software and web projects and have been waiting for standards to emerge. Too slow. We still have browsers that display different versions of the same page. Web analytics also need standards otherwise it is hard to tell what metrics tell us and more often than not it is impossible to compare reports from different providers. Take for instance the ongoing scandal with comScore, a company that wants to make publishers pay in order to have their traffic metrics corrected. And these metrics have been incorrect for years, at least for smaller players. Funny or arrogant – depends on the point of view.

    Quants + industry agreed standards is what we need.

  4. February 12, 2010


    As always, thanks for your input.

    For sure, the quants are out there, but as Greg mentioned, where they end up may shift the center of gravity. The global agency networks centered in New York and London are at a demonstrable disadvantage to Silicon Valley.

    They understand the problem and a recruiting talent, but integrating it into daily operations is another matter.

    – Greg

  5. February 12, 2010


    The point about shifting the center of gravity by using technology is clear. I guess I went a bit off topic.

  6. Mike Lynn permalink
    February 14, 2010

    Greg, as always, a stimulating and insightful perspective and discussion. But where is the discussion of human behavior? After almost 40 yrs in the business, while the computing power has changed the speed and accuracy of eyeball/ear/body counts, I am no more confident now than I was when I started in 1972 that we are actually reaching the right people at the right time with the right message. In fact, I believe the quants are to blame for mesmerizing us all with their clicks and time spent metrics which to me are no more valuable or meaningful than the old Eyes On research (ever read this study?)or Percy Meter (an insight into viewing behaviors that was rejected by the industry because it provided evidence of what peoiple really did during commerical breaks).

    A gentleman named Gus Premier (head of SC Johnson marketing in the0s-80s)championed a behavioral approach way back then based on research and observation re:real people under real circumstances. Can’t get into his work now but he was ahead of his time.

    Anyway, I ramble.

    One last note. I was at a Chicago Internet Marketing Assoc dinner a while back and Patrick Hounsell of Razorfish was on a panel discussing the wonderful new world of online metrics. After several long winded speeches about the magic of simply following clicks and all the other digital metrics, Patrick turned to the panel members and asked (not a direct quote) “But do you have any idea of what was motivating them to click on your ads? Do you know if they were having a delayed reaction to other messages or stimulii? Don’t you want to know what was behind the clicks? If you knew this, you could refine and duplicate the experience.” Not one of the panel members responded. They didn’t seem to understand.

    PAtrick did/does and I think Razorfish gets it.

    Thanks again for great piece.

  7. February 14, 2010


    Thanks. Lots of good points, many of which apply to the world of finance as well.

    However, there is no question that Google has added efficiencies to the direct response market, although Patrick Housel’s remarks do still apply to the display market. It should also be mentioned, that the quants are rarely the ones overselling their models (Scholes and Merton notwithstanding). They know the limitations.

    – Greg

  8. February 15, 2010


    Applying quants to which areas of the marketing industry do you think is likely to most definitely “shift the center of gravity” and bridge the gap to Silicon Valley?


  9. February 15, 2010


    Wherever they go they shift the balance. Marketing services companies used to be the center of knowledge. However, that has shifted to clients and suppliers.

    It’s both a function of the fact that big clients have invested heavily in training and technology and the rise of the web as an advertising medium as well as the segmentation of the advertising industry. What used to be made up of full service agencies that had to deliver a holistic approach is now a collection of specialist companies that concentrate on a particular set of skills.

    – Greg

  10. February 21, 2010

    I think this offers a good perspective and having been a part of the marketing services industry for some time now, I can say I think there’s a whole unspoken but well understood symbiotic relationship between many marketers and their agency partners. The advertising industrial complex still exists as it has for the last 100 years primarily because clients are still supporting it, even if it is somewhat diminished. For all the tough talk from clients about the system no longer working at advertising conferences they still spend an inordinate amount of the marketing budget on traditional advertising when the evidence is abundant that the audience hates advertising but loves engaging content. Why? 1. It’s easier to manage than the new digital communication and marketing. 2. Clients don’t have the talent in house to understand what needs to be done and their big agency partners don’t either and they’re in no position to push for something better. 3. Most marketing is still generated against the outdated notion of the purchase funnel. McKinsey released landmark research last year showing this was an antiquated approach to marketing and that in the active evaluation stage of the purchase process, which looks more like a feedback loop than a funnel, 2/3rds of the marketing consumers use to make their buying decisions, in a number of categories, comes from other consumers! 4. Clients, for all their talk about the importance of integration, are still siloed in their approach to budget allocation, divving up the marketing pie into functional slices, which in turn encourages the hiring of disparate agencies to manage all these different slices. 5. Clients are enamored with the perks…the glamor of seeing their results on TV or in a magazine, going on the production shoots, staying at Shutter, hanging with celebrities, getting the free tickets. You may laugh but you can’t underestimate the irrational decision making component to the continued spend on antiquated marketing practices in the face of evidence they are a source of diminishing returns. Brands and marketing services providers have a golden opportunity to leverage the new realities of the empowered consumer, who pulls terabytes of content to them daily. To do this, several changes must occur in the industry, in addition to the incorporation of science to a practice that’s been mainly art. Measurement and proving ROI are givens from this point out. So, I assume these have to be a part of any marketing solution. And, by measurement, I’m referring not to eyeballs but to actual behavior that leads to purchase and recommendation. We see three distinct components to a successful marketing approach for the new realities: First, the marketing-agency-media ecosystem will need to work together to create CONTENT consumers really want to pull to them. Second, CONTEXT, as you correctly point out, is as important as CONTENT. Identifying where consumers want to access content is not hard…it’s online, on their mobile devices, in store and through compelling, real world experiences. The rules of human story telling still apply…you have to have an interesting tale to tell. Advertising has rarely been interesting. To this point, our final criteria is this: Orchestration is more important than integration. Some marketers have taken the very intellectually ignorant or lazy approach that integration means “the same thing everywhere”. Nothing could be more boring. Imagine going to a symphony concert where every musician played the same note on their instrument at the same time. Yet, this is how some marketers approach the layering of their communication across multiple touch points. Rather, we believe new layers of interest and information need to be discoverable across different touch points at different points of time during a campaign or marketing initiative. My final point is that marketing services providers have business models that are not currently set up to foster and reward this kind of innovation. They have large staffs and much overhead. They must feed the beast. We believe a new kind of marketing services firm is poised to emerge…one that has a small team of strategy and business people to help create the new content-centric communication and then an on-demand team deployment system, so the work can get done better, faster and cheaper. Let me know your thoughts on these ideas.

  11. February 22, 2010


    Interesting perspective. Thanks.

    – Greg

  12. Bob Lewis permalink
    May 10, 2010

    Some good points here. In my (considerable) experience most CEO’s & advertising vice presidents are indeed mathematically illiterate. (They should at least know when a market research company is trying to sell them a rubbish survey that challenges the basics of statistical sampling certainty.)

    What worries me is the ‘geekist tendency’ that creeps in occasionally – that computers can somehow replace human imagination and insight so that we can all learn to press the right buttons in order to get the right answers and spend the afternoon relaxing with our favourite extreme sport.

    Technology has brought many good things but its greatest danger is that it is too often used to impress clients, CEOs, etc. rather than getting to the heart of problems. There’s an old saying that market research “is used much as a drunk uses a lamp post – more for support than illumination.”

    Much the same accusation can be levelled at many high-tech computed ‘solutions’. What happened to the GIGO principal for heaven’s sake? We need to remind ourselves of it more today than back in the stone age of computer technology. Funky graphics and a weasel vocabulary can hide fundamental errors which create ‘information’ houses of cards.

    And finally, electronic ‘solutions’ are based on logic. Year one Human Behaviour makes it clear that humans hardly ever behave logically for any sustained time period. ‘Else, why are the techno-geek designed ‘help lines’ of just about every big corporation universally despised and hated. Do their CEOs ever try using them? No, because the numbers – sorry the Metrics – show they’re working just fine. Another glowing paragraph in the Annual Report – ‘millions of calls an hour answered within 30”. (And another 100 000 pissed off clients, because if there has to be a choice -and there usually is – people want quality before speed in having their problems solved.)


  13. May 10, 2010


    Lots of good points. Thanks.

    I would also add that there is often a numbers and math are often confused. As I wrote before, it’s more math that we need, not more numbers.

    But you’re right. Math shouldn’t be used as a substitute for intuition. Good decision making requires both.
    – Greg

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