Since Malcolm Gladwell defined The Tipping Point in 2000, advertising, media and marketing executives have debated when and whether the tipping point would hit their particular businesses, or in the case of some businesses such as newspapers and yellow pages, whether they would go from tipping to toppled. There is growing economic evidence that 2012 is the year when shifts from analog to digital marketing will finally reach critical mass, the threshold, the boiling point. The unexpected reality is that these shifts will impose greater changes on marketers themselves than on many traditional media companies, emerging digital leaders, or on advertising agency holding companies. Here are ten economic tipping points impacting the marketing industry in 2012 and beyond. Next week, Jack Myers Media Business Report will focus on the implications of these shifts for marketers, media companies and agency holding companies. (The source for all economic data in this report is the Jack Myers Media, Marketing & Advertising 2010-2020 Data and Forecasts, available to corporate subscribers at www.jackmyers.com. All data is U.S. only.)
1. Marketing Communications Budgets Begin a Steady Slide
Between 2000 and 2010, total marketing budgets grew from $547 billion to just under $593 billion. 2012 will be the last year in this decade that marketing budgets will increase, with a 2012 forecast of only 0.8% year-to-year growth. From 2013 to 2019, marketers' total communications investments will decline an average -0.75% annually, bringing total annual spending down to less than $555 billion. Factoring in inflation, this represents a dramatic reduction in marketing spend. The decline results from economic realities and digital media's increasing functionality, value and power.
2. Trade Promotion's Inexorable Slide Accelerates
Trade promotion, including retail slotting allowances, captured 31.2% of total corporate marketing budgets in 2000, and declined to only 29% in 2011, when marketers increased trade spending by 2.4% over 2010. Beginning in 2012, more marketers are shifting the focus to direct-to-consumer digital marketing programs, including direct commerce initiatives. While retailers continue to dominate marketers' strategic relationships, 2012 begins a period during which direct manufacturer-to-retailer -funding of vendor support and co-op programs will erode. By 2020, direct-to-trade promotion spending will decline an average 4.0% annually to $126.5 billion, representing only a 22.5% share of total marketing communications budgets compared to 31.2 in 2000.
3. Traditional Forms of Consumer Sales Promotion Collapse
In 2000, marketers invested $130 billion, or 23.8% of their total budgets, in consumer sales promotion, primarily in the form of coupons, sweepstakes and contests. By 2010, their investment in these traditional tools had grown to $146 billion and 25% of their budgets, with an additional $1.5 billion invested in digital forms of coupon distribution and sales promotion. By 2020, traditional coupons and promotions will capture only $61.5 billion of marketers' budgets, slightly more than 10% of their total investments. Digital forms of sales promotion will generate an additional $25 billion, bringing marketers' total investments in consumer sales promotion to $86 billion, still only 15.4% of the total. Thanks to direct-to-consumer digital opportunities, marketers will be able to achieve comparable ROI with significantly less investment.
4. Snail Mail and E-mail Marketing Slow to a Crawl
In 2000, direct mail marketing generated $42.5 billion, representing 7.8% of total marketing budgets. By 2010, direct mail represented a $48 billion business and e-mail marketing added an additional $2.8 billion, combining to capture 8.7% of marketers' total communications spending. By 2020, as marketers shift to social marketing, snail and e-mail marketing will represent only a combined $23.6 billion business, representing 4.2% of marketers' budgets.
5. Newspaper Industry Continues to Decline
Newspaper companies led by Gannett, New York Times Company, Dow Jones and Digital First are nobly struggling to shift their businesses to digital formats. But the industry's digital potential pales in comparison to the continuing erosion of its print income. In 2000, newspapers accounted for almost 9.0% of total marketing investments, representing a nearly $50 billion business. By 2010, their share had declined to only 5.1% and. less than $30 billion, including $3 billion in digital revenues. In 2020, newspapers' digital revenues will have tripled to $9 billion, but print spending will have declined to $13.5 billion, bringing the combined total to only $23.5 billion and 4.0% of marketers' total spending. While the newspaper industry will have survivors among those companies that can capture the lion's share of the $9 billion in digital budgets, there will be far more losers among those that fail to make the transition, and the newspaper industry will be far smaller in numbers of newspapers than it is today.
6. Television's Value and Revenues Continue to Grow
In 2000, local and national television media accounted for 10.7% of marketers' total communications investments. By 2010, television's share of marketers' spend had increased to 13.2%, a gain of nearly $19 billion in annual TV ad spending from $58.7 to $77.5 billion. With the TV industry aggressively adopting multi-platform distribution models, and video content and enhanced measurement tools gaining increased relevance and value, advertising in traditional television content is forecast to grow in 2020 to $108.4 billion, representing 19.3% of marketers' total communications investments. Marketers will spend even more in online originated video content, cinema, and other video distribution formats, and will be developing their own custom video content for distribution across a wide spectrum of platforms, including television. Television media will also be best positioned to capture marketers' growing investments in social marketing, commerce, gaming and mobile, and local broadcast stations will have the benefit of incremental revenue from retransmission consent agreements with a growing number of content distributors.
7. Social Marketing Grows Almost 40% Annually
Social media, social marketing, social commerce, social gaming, social TV, conversational media and word-of-mouth marketing represents the fastest growing sector of the marketing business, and the most challenging for professionals who are over 30 years-old to adapt to. Even those older than 22 who have not been born into an online culture struggle to connect to emerging social marketing realities and measurement tools. Social marketing was only a $100 million business in 2000. Excluding Facebook banner ads, social marketing had grown to only $1.2 billion in 2010. By 2020, social marketing including socially generated commerce, social gaming, social TV, conversational and word-of-mouth marketing will surpass $25 billion in marketing investments, with even more of marketers' budgets directed to mobile, single player gaming, and other new marketing tools and opportunities. The most successful media companies in 2020 will be those with content brands that are adaptable for social marketing programs. The most successful marketers will be those with socially engaging brand communications strategies.
8. Mobile and Apps Take Their Place as Leading Marketing Tools
In 2000, mobile was non-existent as a marketing tool, generating only $20 million in ad spending, primarily from the carriers and manufacturers themselves. In 2010, mobile advertising had still not broken the $1 billion barrier, a threshold it catapulted past (to $1.28 billion) with 40% growth in 2011. Between 2012 and 2015, mobile advertising is forecast to increase more than 30% annually, with 17% growth projected annually between 2016 and 2020. This will bring the category to $8.3 billion in 2020, representing 1.5% of marketers' total communications investments.
9. Interactive and Addressable TV Finally Takes Off
Interactive and addressable TV were poised for explosive growth all the way back in 1999 and 2000, when the technology and capabilities were fully developed. But the cable television industry elected to stay with dumb-set top boxes for another decade. Those old set-tops are now fully amortized and being moved to the trash heap as sophisticated two-way digital set top boxes are finally being deployed to a growing share of American homes. In 2010, marketers spent only $50 million on addressable and interactive TV, primarily with TiVo, DirecTV and Dish, Cablevision, Visible World, Invidi, Microsoft's Admira and a small cadre of cable operators. With ComcastNBCU poised to dramatically upgrade its commitment to addressability (through upgrades and acquisitions) and with cable operators finally getting onboard the interactive bandwagon (albeit somewhat too late to avoid being overshadowed by two-screen interaction), the industry is about to move into a period of dramatic growth. With 70% spending growth in 2012, 110% annual growth from 2013-2015, and 55% annual growth from 2016 to 2020, interactive and addressable TV marketing investments will total almost $10 billion in 2020, and will surpass mobile advertising with a 1.7% share of marketers' total investments.
10. Media Information Tools Transform to Marketing Knowledge Resources
In his 1992 book Technopoly: the Surrender of Culture to Technology, NYU professor Neil Postman argued that with the ever-increasing amount of information available, "Information has become a form of garbage, not only incapable of answering the most fundamental human questions but barely useful in providing coherent direction to the solution of even mundane problems." For more than a century, advertising has been an incredibly successful business while being saddled with the reality that the information measuring its value has been useful as currency only, and not as an intelligent resource for decision-making. That reality has been most useful for keeping John Wanamaker's legacy alive. With the increase in digital data streams measuring an array of consumer transactions, there has been far more information, but still too little knowledge gained about its relevance for marketing decisions. That's all changing as marketers, media and agencies embrace emerging knowledge resources such as Marketshare, Collective[i], TRA, Simulmedia, Bluefin, Trendrr, Kantar and many emerging knowledge resources. 2012 represents the tipping point year in the marketing intelligence business as marketers, media and agencies shift the focus of marketing research away from transactional currency to return-on-investment intelligence. Research-as-currency will, of course, remain relevant, but its value will be increasingly diminished as it is relegated to the bottom of the media ecosystem where commoditized purchase decisions will be made primarily through electronically managed online systems.
Since the Internet browser was introduced in 1993, the marketing, media and advertising business has held fast to legacy business models, legacy research tools, and legacy relationships. Many legacy businesses are surviving and several will thrive in a world dominated by the Internet and mobility. But it has become increasingly obvious that no companies or industries can effectively compete without understanding and adapting to the role that digital has in the lives and businesses of their consumers. Acknowledging and embracing this reality will become progressively more critical to their future.
Over the past several decades, I've known many executives who have successfully avoided the future by resisting it, resting on the confidence that their core businesses would survive if they maintained stability while others around them changed. That confidence is now mostly eroded as the digital transformation has accelerated. Legacy business models remain relevant, meaningful and profitable. But they cannot be maintained without the integration of digital models and revenues. Consider 2012 the tipping point when digital marketing finally became recognized as the dominant influence determining the successes and failures of companies, business plans, strategies and the executives responsible for initiating and implementing them.
You are receiving this e-mail as a corporate subscriber to Jack Myers Media Business Report. Re-distribution in any form, except among approved individuals within your company, is prohibited. As a subscriber you have full access to all archives and reports at www.jackmyers.com. If you require your ID and password, contact firstname.lastname@example.org