Beyond Advertising: Opportunities for creativity and growth Karen Feldman Global M&E Lead, IBM Institute for Business Value.

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1 September, 2009 Beyond Advertising: Opportunities for creativity and growth Karen Feldman Global M&E Lead, IBM Institute for Business Value This report is solely for the use of Client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the Client organization without prior written approval from IBM. [Optional: This material was used by IBM during an oral presentation; it is not a complete record of the discussion.]

2 IBM provides primary research and insight on digital media distribution, most recently advertising-focused 2

3 As dollars continue to migrate to digital, companies need to focus Beyond Advertising Consumer behavior and technology innovations are blurring the lines between advertising and marketing Addressing consumer needs through relevancy, integration and choice offers opportunities But business models and capabilities need to be put in place 3

4 Dual strategies required to address distinct segments Consensus Endstate for 2012 Open Kool Kids Gadgetiers Content Access Generational Generational Chasm Limited Massive Passives Passive Consumer Media Control Involved 4 Source: IBM Institute for Business Value (IBV)

5 Digital content adoption outpaces expectations, but with varying levels of engagement 100% 90% 80% 70% 60% 50% 40% 30% 84% 89% Consumer Interaction with Online Video 68% 45% 40% 25% Aggregate Kool Kids 31% 36% Gadgetiers Massive Passives Influence and Interaction driven by the digital savvy 25% 25% 20% 10% 13% 7% 0% Passive Experiencer Engaged Influencers Authors % who have watched online video % who regularly watch online video % who have rated video content online % who have uploaded videos Source: IBM Digital Consumer Survey. Total responses = 2800 across six countries: Australia, Germany, India, Japan, UK, US

6 Let s hear directly from the Kool Kids 6

7 An eye towards the future is there a role for traditional brands with the Kool Kids? Kool Kids are more than twice as likely to visit a social networking site on a daily basis than an online newspaper site Close to 50% suggest online television viewing is impacting their regular television viewing 10% state the PC is now the primary source for accessing video content Source: IBM Digital Consumer Survey. Total responses = 2800 across six countries: Australia, Germany, India, Japan, UK, US

8 Advertisers shift spend to measurable, interactive channels 100% 90% 80% 70% 60% 50% 40% 7% 46% US Advertising & Marketing Share E 13% 46% 27% 42% Alternative, Interactive Channels (e.g. online advertising, branded entertainment, word of mouth marketing)) Traditional Marketing (e.g. Direct marketing, promotions) Share Change +20% - 4% 30% 20% 10% 0% 47% 41% 32% (E) Traditional Advertising (e.g. TV, print, radio, outdoor) - 15% 8 Source: Veronis Suhler 2008 Communications Forecast, IBM Analysis

9 and expect to pay for impact, not impressions In an IBM study, 50% of advertisers expected 20% of deals to be impact-based within 5 years Source: Forrester Research, Advertisers Face TV Reality, April, 2006 Source: 9 IBM Advertiser Survey

10 Digital migration blurs the historical distinctions between advertising and marketing platforms There is no longer a clear distinction between marketing and advertising disciplines. Every contact with a consumer is now an opportunity to impact your brand/reputation as well as an opportunity to drive action. (CEO North America, Global Advertising Agency) Source: 10 IBM Advertiser Survey

11 Participants roles in the ecosystem also blur Bypassing media, becoming Media Producers Shifting advertising dollars to marketing Advertisers Agencies Media Taking on creative roles, working directly with advertisers Consumer Automating the advertising process, selling the audience, not the content Networks/ Exchanges Device Manufacturers Becoming media distributors, measurement providers 11

12 As dollars continue to migrate to digital, companies need to focus Beyond Advertising Consumer behavior and technology innovations are blurring the lines between advertising and marketing Addressing consumer needs through relevancy, integration and choice offers opportunities But business models and capabilities need to be put in place 12

13 Relevancy: Consumers will trade information for value 80% Willingness to Provide Information About Yourself 72% 62% 60% 50% 49% 45% 40% 20% 0% Australia India Japan UK US Source: IBM Digital Consumer Survey. Total responses = 2800 across six countries: Australia, Germany, India, Japan, UK, US

14 Integration: Consumers desire integrated content and messaging 100% Desire for Content Portability Across Devices (Global) 80% 60% 40% 41% 50% 58% 31% 20% 0% Total Kool Kids Gadgetiers Massive Passives Source: IBM Digital Consumer Survey. Total responses = 2800 across six countries: Australia, Germany, India, Japan, UK, US

15 Choice: Sizeable segment will pay for content Business Model Preference Ad-supported versus paid content online 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 83% 69% 73% 70% 62% 64% 31% 38% 36% 30% 27% 17% Australia Germany India Japan UK US Would watch advertising before or after content Would pay to avoid advertising 15 Source: 2008 IBM Digital Consumer Survey. Total responses = 2800 across six countries: Australia, Germany, India, Japan, UK, US

16 Beyond Advertising = Relevancy + Integration + Choice EVOLUTIONARY BUSINESS MODELS Insights ROI-DRIVEN ADVERTISING CONSUMER-CENTRIC MARKETING Level of Granularity TRADITIONAL ADVERTISING CROSS- PLATFORM REACH Impressions Single Platform Degree of Integration Integrated Cross- Platform 16 Source: IBM Institute for Business Value (IBV)

17 Consumer-centric marketing: Nike Plus creates a seamless consumer experience and shifts ad dollars to marketing 17

18 Consumer-centric marketing: Vitamin Water creates Facebook App to crowdsource new product development 18 Source: Facebook.com, Fast Company.com

19 Consumer-centric marketing: Hearst develops contextually relevant, integrated campaigns for LG 19

20 Consumer-Centric Marketing: BabyCenter and First Response create online/mobile campaign, Booty Caller + = "Booty Caller is the new and modern way for busy women everywhere to keep up with their fertility timing and options," said Linda Murray, editor-in-chief, BabyCenter.com. 20

21 As dollars continue to migrate to digital, companies need to focus Beyond Advertising Consumer behavior and technology innovations are blurring the lines between advertising and marketing Addressing consumer needs through relevancy, integration and choice offers opportunities But business models and capabilities need to be put in place 21

22 Industry realities continue to hinder progress in moving towards consumer centricity Current Industry Realities Industry Choices NEW FORMAT UNCERTAINTY How to spend and allocate investments in light of current economic situation (e.g. targeting, video, social media)? FRAGMENTATION How to drive standards in metrics, processes, and formats? SILO D OPERATING MODELS How to integrate across platforms to offer consistency and relevancy to the consumer? DATA GLUT How to turn the explosion in information into realtime, actionable insights? 22

23 Competing in the new era requires new capabilities Historical Going Forward Creative Media centric development Cross-platform innovation Insights Data Glut Insights and Impact Collaboration Proprietary models Open collaboration Workflow Manual and analog Automated and digital processes 23

24 The music industry is a clear example of the impact of risk US $B $14 $12 US Music Industry Retail Revenues CAGR: -4% CAGR: -5% Historical CAGR Future CAGR $ $8 $6 $4 Digital (Internet, Mobile) 84% 19% $2 $ (P) 2010 (E) 2011 (E) 2012 (E) Physical -9% -12% Sources: PwC Global Outlook ; Billboard Magazine; Apple Annual Report 2007; 24 Nielsen; IBM Analysis

25 Lessons from music -- value was not lost, but shifted closer to the consumer Music Value Chain Create Manage Distribute Consume Service Record Labels Retailers Devices In-Home Services Global CAGR* -3% CAGR -1% CAGR 18% CAGR 11% 2008 Size: $20 billion Size: $8 billion Size: $37 billion Size: $2 billion US CAGR -5% US CAGR -5% KEY Digital Distributors Promoters Decreasing share Increasing share CAGR 118% Size: $4 billion US CAGR 90% CAGR 10% Size: $13 billion Sources: PwC Global Outlook ; CEA Market Research 2008; Veronis Suhler, 2007; emarketer, 2007; IBM Analysis CAGR 25 is

26 Focus on multiple business models is required Payer Innovation Beyond traditional advertising Pricing Innovation Tiered pricing strategies Product Innovation Seamless experiences across the value chain 26

27 In summary, the ongoing evolution of advertising will continually disrupt, and provide opportunity for players The industry is moving beyond advertising to consumercentric marketing Supply chain must evolve through dual emphasis on insights and integration Regardless of path, players need skills in innovation, collaboration, analytics and workflow 27

28 For more information: Karen Feldman Global Lead, Media & Entertainment Institute for Business Value IBM Global Business Services 28