The Death of Banner Ads – and the Implications

Right around the corner we have iOS9 (just ask Siri for a hint). And with it we get Apple’s adblocking technology. At first blush, big deal, right? But after looking under the covers, I think it’s going to be a very big deal.

First, a little reality for you: banner ads are not effective advertising. Agencies keep selling them and ad buyers keep buying, but the real data is monstrously bad. And there’s a reason for that: (a) most banner ads aren’t visible by humans; (b) visible banner ads are ignored by 82% of the people that might see them; and (c) Most banner clicks are accidental (especially on mobile). All of which leads to horribly bad recall, low interaction and a lack of value in banner ads for marketers and consumers. Including the accidental clicks, the click-through rates tend to be less than 1 per 1,000 viewers. That’s insanely bad marketing spend.

However, banner ads do work in certain instances, mainly around retargeting. If a user visits your ecommerce site then goes to the WSJ or a blog, it’s worth targeting them. Because they are familiar with your brand, they tend to have more awareness of the ad and click through rates are higher. So the modern marketer can use banner ads for other things than burning through all that pre-IPO, pre-revenue cash. And on the other side, they provide content producers with a critical stream of revenue that helps keep content free. Would your favorite blogger work as hard without some ad revenue to make him feel like it’s worthwhile? (Obviously I’m the exception, I don’t make a freakin’ thing on this blog).

Saying all of that, iOS9 only impacts mobile usage, so this doesn’t mean instantly banner ads go to zero. And it needs to be utilized by end users, which will take time. However, marketers need to get ready for ramifications of this change, which I think will be huge a year from now. Here are some conclusions I’ve drawn about what it means to block mobile banner ads:

  • Eventually it means the death of the banner ad as we know it. Mobile is rapidly gaining share on virtually all sites. If you aren’t at 50% of visits now, you’re probably close. This could quickly wipe out half of ad impressions available outside of bots (e.g. non-human viewers) and make 0.06% click through rates look impressive. In the short term, it probably means increased cost per view with lower inventory.
  • It drives up the value of content to marketers. Instead of placing banner ads, we’ll look to place inline content on blogs and heavily trafficked media sites. The banner ad budget might transition more into something like a PR/media campaign aimed at getting space on targeted blogs. And this likely means paid placement along with a content creation budget.
  • Ironically, this isn’t likely to have much impact on sales for ecommerce players. In order to make banner ads look like they are driving sales, you had to do analytical gymnastics with the numbers. All it impacts is those questionable awareness or engagement numbers that implied you were hitting 70% of the target market. Hell, it might make you more profitable.
  • It’s also likely to move banner ad budgets more toward social media. Facebook and Twitter are apps that can find a way to fit and pseudo-target your population. They will become the de facto place to drive online awareness through a mobile device. There are very few ad-friendly other places you’ll be able to find folks on mobile.
  • For content producers, it may lead to app creation and even charging for content. You’ll have to be very good to get folks to pay, but I could see building out an app that can circumvent the ad blocking technology. I’m still thinking through this angle.
  • And, of course, it supports Apple’s new News app, which isn’t likely to have issues with blocked ads. These ads are not nearly as targeted and only for large marketers (read: rich marketers). It isn’t a cheap place to show up, which helps with the brand value of the marketing, but makes those that calculate cost per click very uncomfortable.

Online advertising is moving more and more toward creating branded experiences for your most loyal fans. Immersive sites that entertain as much as they educate will continue to drive visits, awareness and affection toward your brand, which hopefully results in sales. But I think we need to start thinking about a post-banner ad world and how we drive traffic through content.

Banner ads have long been the most pathetic form of online advertising. Bad creative around jumping monkeys or deceptively concealed ads don’t help anyone. Consumers hate the retargeted ads that follow them around the internet. So I’m not sure we lose a lot in throwing out banner ads (except for the publishers, of course). But I think we do need to rethink how to recreate our marketing campaigns without the ad spend toward banners. Search can’t soak up more dollars (everyone is maxed out there). It has to be good creative and good content that can be repurposed across key websites.

Do you agree? Also see Doc Searl’s take on adtech here, which I appreciated.

How I see the World (or Winter is Coming)

One of my side-obsessions is investing. I actively manage an IRA and investment account with my personal money in it, so I’m always trying to look into the future and figure out where we’re headed. Good investing is akin to be a good fortune teller (and has about the same level of accuracy). So I’m writing up my thoughts to increase my personal discipline when it comes to thinking through investments. This is just a start and the big picture view:

Right now the world is awash in debt. Over the past few decades we’ve seen an enormous increase in global money supply and in debt. At the same time, we’ve developed this faith in central banks to remove any negatives from the business cycle and constantly fix any problem that pops up. The world is not okay. I see three big problems all starting to collide in 2015 and I’m still reconciling where the fallout lies.

PROBLEM 1: DEMOGRAPHICS

My marketing work lies in demographic analysis, so this is close to my experience. People drive the economy. This is very visible in the US, but look at Japan as the prototypical example of this issue. When your population stops growing (e.g. people aren’t reproducing above the 2.1 kids necessary to grow the population), then the population ages. As people, we spend money in very similar patterns over our life. Young people buy much more stuff than old people, generally speaking. Young people create inflation, old people create deflation. There’s a lot more behind this assertion, but at a high level it is true (mainly because young people take on debt, old people pay it off). Japan has had to print money like a counterfeiter at Rio’s Carnival to keep their economy afloat. In normal times, this would have resulted in massive inflation. Because of their demographics, it hasn’t. But that leads us to the second problem (which Japan has) …

PROBLEM 2: SOVEREIGN DEBT

The latest numbers I’ve seen show the world debt levels (not just sovereign) at around $200 trillion dollars. Way, way above just 10 years ago. In the U.S., we admit to around $18 trillion dollars in debt (the last two presidents have both doubled the debt while in office), but that’s ignoring our implied commitments (social security, etc) that are likely two times this. Across the world, debt levels are out of control. I don’t have an economics background (which seems to be an advantage), but I’m not sure how countries can continue piling up debt with no remote plans to slow down or start paying it off. Japan is interesting to watch as they, seemingly without any concern, print money as fast as they possibly can. When does Japan become the next Greece? And how long will people continue believing that sovereign debt is risk free? There’s a Lehman moment coming and that concerns me. Also, I believe that the first two problems lead to the bigger issue, which is problem number three.

PROBLEM 3: SLOWING WORLDWIDE DEMAND

Debt slows an economy when it hits a certain GDP level, which I believe we have achieved in the US. In addition, too few young people reduce the need for things. Combined they result in a slowing demand for goods and services that has a rolling impact on the economy. I believe the disaster in commodities is the first place you are seeing this lowering of worldwide demand. This issue is tightly tied into the two problems above and leads to deflation. That’s where I think we’re going: deflation. Because of China’s massive building spree, we have too much production capacity across the world and not enough demand for products. The hope was that China would convert to a consumption economy and pick up the slack from slowing US growth. Clearly that hasn’t happened and I still believe China is essentially hitting a hard, hard landing. There is no country (I see) that has the growth to potentially pick up the baton. And I think the US is borderline recession at this point.

CONCLUSION: DEFLATION

In the end, I think we’re headed for tough times worldwide. This is a global debt hangover that makes our 2008 mortgage disaster look like a mild cold. In terms of investing, I’m long on the dollar (safe haven), short the Chinese market, short the Yen and actually short gold and silver (deflation pull is stronger than their safe haven pull). I also expect the S&P, NASDAQ and Dow to have significant corrections this year, so I’m waiting for a good chance to short those markets (only corporate buybacks are holding them up at this point).

So this is a summary of where my head is at this point. For the past two months I’ve done extremely well with my investments and I think the short-term outlook is good. Long-term I’m still trying to figure it out. But I’m worried. I can’t help but think: Winter is Coming.

Other random predictions:

  • Oil will be below $30 in 2016. Might hit $30 by the end of this year.  And won’t hit $100 a barrel for at least two years.
  • Telsa, Amazon, Twitter and other companies that have huge valuations but virtually no profit (social media) are great short opportunities. But so far I haven’t jumped in.
  • Europe is in worse shape than it appears. I think the Euro falls below parity with the dollar in early 2016.
  • Bonds are a disaster. I think we’re already seeing a move to quality investments and junk bonds are going down fast. I keep thinking I should short Spanish and Italian sovereign bonds, but I haven’t done it yet.

I’m curious as to your thoughts. Feel free to comment below.

Memories of ringing the NYSE Bell

My grandfather was as blue collar as you get. He worked in an Atlanta Ford plant his entire working career – and not in an office. A good man who worked hard and took the lessons of the depression seriously. He saved a lot and invested over and over in one company (Southern Company) which had a cyclical stock. When he died he left his children a sum far above that expected from a blue collar guy. When I think of ringing the bell at the NYSE, I can’t help but think of my grandfather who probably never imagined me being there. He would have loved these memories.

Professionally, this is probably one of the things I get asked about the most. Mainly people wonder what the exchange floor is like (small). Or how the pomp and circumstance plays out (more casual than you think). I have a few extremely distinct memories: standing by the bull (you know the one), being amazed by the technology throughout the exchange, having a huge breakfast, and the moment when we (by that, I mean Teavana’s CEO) rang the bell to open the NYSE. But it was more than that and this is my attempt to detail what happened and how I remember it. This is a personal recollection and I’m not sure it’s valuable for anything more.Our Ritz hotel room

Teavana went public on July 28, 2011. The prior day we flew up and stayed at the Ritz Carlton Battery Park with rooms overlooking the Statue of Liberty. Each room included a telescope for a better look at Lady Liberty – and New Jersey, of course. That night we had a great dinner in a private, second-story room at Megu in Tribeca. The food was good and the restaurant seemed perfect for an Asian-themed retailer to go public. They had a cool ice Buddha sculpture that was changed daily. I particularly remember the Sake and enjoying a fun night with co-workers. That night our CEO announced the higher-than-expected price we were going to launch TEA at. It was fun all around.Megu Ice Sculpture

The next morning everyone woke early and headed over to the NYSE. I walked over with David Staels, our VP of HR, and we made a point to walk directly past the bull. I remember being energized and very excited. The NYSE was adorned with Teavana banners and featured a geisha out front performing the Japanese Tea Ceremony and serving many cups of Teavana matcha.NYSE Teavana launch

One funny story: early in the history of Teavana, we used a specific Japanese model as a geisha in what became an iconic Teavana image. Our CEO tracked down the model to use as the geisha in our NYSE activities. We assumed she knew how to make matcha (it’s not that difficult!). However, when she arrived we found out fast that she wasn’t a tea drinker at all. So she was given a quick lesson in matcha and the Japanese tea service on the morning of our public launch. It worked out great, but you’re never prepared for every eventuality.

Once inside the NYSE, the technology is what struck me. Walls were covered with screens that branded the NYSE and offered information to guests. It’s an old building, but the rebirth of the NYSE as a technology-first company, where the technology is maybe the only thing that matters, really came across. We still think of the NYSE floor as the center of the financial world, but it’s the servers that do the actual work. The floor isn’t pure drama and acting at this point, but it’s also not a necessary component of the NYSE’s trading. That revelation stuck with me going forward and has become more true over the years. How long will people continue coming to ring the bell?NYSE from Bell Ringing Balcony

We started the day with a great breakfast deep inside the NYSE. The room featured a mock Teavana tea wall along with a massive breakfast table. It was a nice meal that ended with the president of the NYSE offering a plaque to our CEO as a reminder of the day. Then, right on cue, we all walked up a hallway to the small balcony where the button to ring the bell is located. It is an actual button that theoretically kicks off the market activities for the day. CNBC was broadcast into our offices back in Atlanta so the rest of the gang could celebrate with us. I stood on the left side of the balcony right behind our SVP of Stores and we were told when our CEO was supposed to push the button. We stayed for a few minutes after and then walked down to the floor.NYSE Small Floor

I’m sure you’ve heard this before, but the floor of the NYSE is very small. It seemed smaller than the room we had breakfast in, but of course it wasn’t. It was much smaller than it looks to me on tv. I was told this repeatedly before going, but I can’t emphasize it enough: that floor is small. We walked down stairs onto the floor and waited near a terminal to hear where TEA (our ticker symbol) would begin trading. It took longer than I expected for us to get the first price, but it was interesting watching the guys in the blue jackets do their thing. It made me think of the old market makers on the floor actually conducting the business in a crazy environment. The floor activities still seem the same: guys yelling what sounds like prices and participating in an event that has driven the world for a long, long time.Trading TEA

Eventually, the floor trader looking at our position turned and announced TEA’s opening price. It was significantly up from where we priced the stock (everybody prices too low these days). Good news all around and a hell of a way to start a day. I think at this point I was half giddy, half dazed and maybe a little amazed at the overall event. We walked out of the relatively dim floor into bright, sunny daylight in lower Manhattan. After ringing the bell, we took pictures in front of the NYSE and walked over to the bull. We also took pictures there, but found out later that the enterprising artist expects a payment if those pictures are used in public way. So I’m not sure where they ended up.bull

It was a pretty amazing twenty four hours in NYC that I’m not likely to forget. And going from a private company to a public one is a pretty significant shift in all things; it was transformational not just personally, but professionally as well.

Afterwards, we enjoyed NYC for a bit and then headed back to the airport towards Atlanta. My grandfather had passed away, obviously, before my voyage to the NYSE. But what I wouldn’t give to have a conversation with him about it. It would have meant so much to me.

Hope you enjoyed my thoughts. Not too detailed, but fun to remember!

The B2B Miss: Ecommerce Excellence

B2B ecommerce is an interesting conundrum. It has the ability to both cut expenses and drive up sales, however it rarely gets the funding or attention needed to succeed. There are exceptions of course, like Staples, that understand the massive value capture that can be made with a solid ecommerce presence. However the development of a B2B ecommerce site usually falls not under marketing, but under a sales executive, who has no experience in driving ecommerce in a way that really gets to the value available.

On the buyer side, B2B ecommerce is in high demand. Business buyers shop online in their personal lives and are very comfortable with it. In fact, research here and here (as examples) show that B2B buyers are digitally moving through the sales funnel without assistance from salespeople more and more. Sales is focusing on closing (as they should) but if your digital isn’t doing the work, you’re missing out on long-term growth opportunities. Add to that the ability for digital to personalize, which translates to upselling and cross-selling to your buyers. This drives real value that is difficult to get through a salesperson in 2015.

The world is moving and many, many businesses are missing the boat.

What is the problem? As I mentioned above, a lot of times the problem is in the structure of the company. B2B sales is under a sales team and lead by an executive who doesn’t really understand why marketing matters. But ecommerce strength comes from marketing, not sales, and requires an experienced marketer to do well. In order to excel, a business needs to bring in the skill set from outside and give them the support they need. Which takes us to the second problem: money.

It takes investment. In a time where we’re cutting costs left and right, investing in a strong ecommerce platform seems expensive. Isn’t it just exchanging one channel for another? In my experience, a good ecommerce and digital marketing arm can give you a significant lift in sales from your current customer base in addition to cutting costs over time (typically you can reduce customer service and sales team members with a good ecommerce presence). The initial bump is seen from your smaller or less important customers, because they aren’t getting the sales attention they need now. But even the bigger guys will respond as well.

Finally, the single biggest problem is that B2B executives often don’t realize the potential value of ecommerce in their business. It takes real digging to understand the costs of taking an order today versus taking one online. And it takes experience to realize how digital marketing can lift sales; e.g. why the investment should be made. This is a cultural shift in the company and a political problem over and above the first two issues. It’s more likely to change due to competitive shifts or threats than it is due to a lightbulb going off in someone’s head. Unfortunately, that means a lot of businesses are going to be eaten alive in the new digital world. That’s already happening now (taxis, department stores, even cigarettes are being eaten by digital) and will continue to happen. Is your industry next?

My recommendation is to bring in talent and invest in the plans. Early on focus on email and paid search to start supporting your sales them. Then add ecommerce and make it world-class instead of focusing on reducing the investment. Long-term it has a massive payoff for most companies. It won’t save a company with poor products, but it absolutely can drive good product to the next level. Your customers are shopping online just as they do at home. You should be there to meet them.