Shifts in Advertising Business Models

John Hagel III
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Key Takeaways

What? Advertising as a primary revenue source is less and less lucrative, even as investment into digital ad space skyrockets.  

So what? A better measure of whether ads are are paying off is through return on attention ROA.  

Now what? With ROA as a goal, interaction with the consumer doesn’t end with a successful transaction. Instead, it’s a relationship, extending before and after purchase, in which the vendor works to become more and more helpful to the consumer, personalizing content and interactions to more directly meet their needs.​

Jan. 9, 2018

Ask any marketer to identify the golden age of internet advertising, and you’re unlikely to hear much praise for the present. 

Despite the massive amounts of time, money and creativity being poured into creating and targeting the perfect ads for the perfect receptive audience, margins are unlikely to keep growing forever. Even when targeted advertising works, consumers may view it as annoying, creepy or both. And consumers have gotten better and better at avoiding online advertising altogether.

According to Fortune, advertising as a primary revenue source is less and less lucrative. Use of mobile and desktop ad-blocking software grew by 41% between the second quarter of 2014 and the second quarter of 2015, and use is increasing.

If targeted advertisements are so useful to consumers, why is this software so popular? Could it be that the current advertising business model isn’t sustainable? If so, what’s emerging to replace it?

A New Metric: Return on Attention (ROA)

Even the most cutting-edge ad targeting is based on an old model—a traditional consumer society in which value was based on ownership of physical products. But as value shifts from businesses driven by economies of scale to businesses driven by economies of scope in customer relationships, one factor likely to determine success is return on attention, or ROA. Attention is a primary commodity; consumers could be driven by goals such as:

  • Achieve more value and meaning for each unit of time spent

  • Make the time spent as engaging and enjoyable as possible

  • Reduce time spent where possible, unless it contributes significantly to value received

New Goals, New Mindset

This shift is poised to have far-reaching implications – and just as many opportunities. The result is likely to be a profound change in mindset for marketers. With ROA as a goal, interaction with the consumer doesn’t end with a successful transaction. Instead, it’s a relationship, extending before and after purchase, in which the vendor works to become more and more helpful to the consumer, personalizing content and interactions to more directly meet their needs.

Here are five ways vendors might leverage ROA to build deeper, more rewarding relationships with consumers:

1. Provide value up front.

If customers are to trust vendors, they need to see clear value in the relationship from the beginning. One technique is to ask visitors questions that help personalize content and interactions – pinpointing the minimum amount of information required to deliver maximum value. Successful interactions up front increase the customer's willingness to offer more information in return for even more value.

2. Don’t be afraid to share.

Vendors may be tempted to keep third parties out of interactions with prospective customers. But what if the goal is to help visitors learn faster and retain more value? You could provide third-party information to aid decision-making, connect customers with approaches that could help them maximize value from a product or service after purchase or connect them with other customers, creating a shared knowledge base. One key is to offer a rich set of experiences, shaped by a broad range of resources, regardless of source.

3. Add value through real-world experience.

This perspective on third-party resources applies both online and in physical retail. Stores maximize selection to increase the likelihood of purchase. But this is a losing proposition relative to the infinite shelf space online. Instead, physical retailers should consider offering something available nowhere else – unique “experience bazaars” that serve to amplify return on attention.

That might mean devoting retail space to a broad range of experiences that are enjoyable and informative, before and after purchase. Instead of or in addition to traditional, product-driven focuses (e.g., consumer electronics or activewear), retailers might focus on customer segments with learning at the center – say, people who are about to have their first child or people who are about to retire.

This implies another shift: in business model. Instead of making a margin on product sales (the actual purchase may be executed online), retailers might charge for the value of the learning experience itself. The “showroom effect” dreaded by today’s retailers could in fact define a rewarding future – if they evolve their business models accordingly.

4. Use ROA metrics to drive marketing.

With a focus on experience, vendors are more likely to be driven by a return on attention in marketing. How much will you need to spend to get a unit of attention from a consumer, and how much revenue can that attention generate? New learning experiences aren’t just the domain of consumers. Vendors could learn more about consumers and their unique contexts than they ever did using transaction-based business models. And in turn, they can use what they learn to add more value to those consumer experiences – and to associated products and services.

5. Factor in return on information and skills.

As ROA scenarios evolve, two other metrics become important for consumers and vendors. ROI stands for return on information. Exactly how much value does the consumer receive in return for whatever personal information he or she gives a vendor? And how much revenue can the vendor generate from that information? As for ROS, or return on skills, how many resources must we, as consumers, spend to develop the skills that are most important to us? Vendors, too, need to rapidly improve their skills in serving evolving consumer needs more effectively. How much time and effort are they investing to do so, and how much value might that generate?

Beyond Zero-sum Thinking

It’s not uncommon for advertisers to view the consumer as a prize to be won. But in today’s interconnected economic and social landscapes, what if we flip that thinking? It’s no longer a zero-sum game. What if we worked to ensure wins for as many players as possible?

The fact is that, as vendors become more adept at increasing return on attention, word of mouth will likely play a more prominent role. On the product side, too, curators are likely to emerge, using their deep expertise in particular niches to help customers sort through an ever-expanding variety of offerings. And to support customers, trusted advisors will emerge, whose investment in deep understanding of individual customers will make them more able to recommend products or services that we may not even know to request.

Companies that continue to rely on advertising as a business model will likely experience increased pressure. This could inspire customers to pay for the opportunity to get a higher return on attention, while finding ever more sophisticated ways to evade classic push advertising.

There is still time to evolve and develop new business models. But businesses could fall prey to an understandable but dangerous complacency, not moving aggressively enough to avoid the cliff ahead.

Want to know more? Check out Deloitte Center for the Edge’s take on the future of retail.

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Author Bio:

John Hagel III
John is co-chairman for Deloitte LLP's Center for the Edge with nearly 30 years of experience as a management consultant, author, speaker, and entrepreneur. He has served as senior vice president of strategy at Atari, Inc., and is the founder of two Silicon Valley startups. Author of "The Power of Pull," "Net Gain," "Net Worth," "Out of the Box" and "The Only Sustainable Edge," John holds a B.A. from Wesleyan University, a B.Phil from Oxford University and a J.D. and MBA from Harvard University.
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