Faceboogle

At the time of writing, it’s nearly lunar new year.

A time for celebration, acknowledgement of change, and perhaps an eclipse…

Okay, I don’t know much about lunar new year, but I can tell you one thing for sure, the eclipse part is genuine. There is surely a spectacular change just beyond the horizon.

A shift may be about to take place in advertising, and it comes down to a simple choice two huge companies have made.

In internet advertising there is but one champion, Google, the longtime winner of ad dollars online.

It’s concept of selling ads next in search results relevant to the query has netted them close to $45 billion a year on average, and that number is holding steady.

But as Google maintains its successful AdWords concept, companies elsewhere are scrambling to find the next hot craze amongst advertisers.

While there are various strategies to get ads in front of online consumers’ faces, two things are crystal clear:

  • No one is as successful in search as Google, so “direct-response” ads are not a real option.
  • Therefore, the future of advertising for most will be some form of “demand-generation”.

What is demand-generation?

While direct-response ads are based on algorithms, demand-generation involves a more human touch.

It harks back to the traditional style of ads we see on television, where a product is shown to us in an ad that we have to watch between programs, and rather than requiring us to want to buy something right there and then -as direct-response ads do- its job is to subtly establish a connection with the audience that results in eventual brand awareness.

These ads can influence which products we buy as you’re more likely to buy a product you’ve heard of than one whose brand you’ve never seen.

Plus, sites like Facebook can use their data to further guarantee that ads put in front of users are relevant to their likes and interests, which increases the chance of them purchasing their product when they’re ready to buy.

Facebook is also offering advertisers affective data to better track if the ads resulted in an uptick in sales for the advertised product.

In an article on his blog Stratechery, Ben Thompson shows (through some charmingly hand drawn diagrams) why demand-generation ads will eventually eclipse Google’s direct-response ads, much in the same way PCs eclipsed IBM’s mainframes, and smartphones eclipsed PCs.

It simply lies in the choice Google has made to double down on maintaining what’s always worked and will continue to work. In these charts, you can see that businesses like PCs and Mainframes never completely died, they just stopped growing as something else completely took over.

Why can’t Google simply switch to demand-generation?

Google’s issue is that it doesn’t have the content to effectively advertise against. Facebook’s real strength is its stream and data on users. You have to be logged in to use Facebook, and you have to be scrolling through its newsfeed to see their advertising.

Furthermore, Facebook’s advertising model is supremely effective on mobile devices, where it’s getting the majority of its ad revenue nowadays.

AdWords was a game-changer for the desktop search market, but its mobile existence is no more than an extension of this. And, while Google is the reigning champion in online advertising, as companies endeavor to find a viable internet alternative to television advertising -which they spend more on than anything else- demand-generation looks set to walk away with the prize.

Remember, all those new forms of advertising being spoken of in the last few years, including “native-advertising” -which news purists despise as it makes look like the content they’re placed against (e.g news articles)- are all forms of demand-generation.

Google may continue their sales of around $45 billion in search ads for years to come, but when the rest of the $550 billion advertising market begins looking to move that money around, it’s unlikely they’ll move any furhter into search.

And with Facebook capitalizing on the popularity of its native video player, it’s not just Google search’s ad pie the social network could be eating into, it’s YouTube’s.

But more on that next time…