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Why is digital advertising so lousy? Industry is too smug to innovate.

Digital advertising high-tech products sold and bought in the most low-tech way. One after the other, most technology aspects of the advertising business have slipped out of the hands of those who were supposed to own them: ad serving, data management, behavioral targeting, analytics -- all are now controlled by engineering-driven companies.

In the process, the added value of media buying outlets has shrunk to a bare minimum, in which a bunch of twentysomethings are negotiating discounts with their counterparts in media. That's the exact opposite of yield management.

Everyone laments that Google, the ultimate geek machine, has absorbed a large part of the digital advertising business, but that's just the logical consequence of an inability to invest in technical talent.

Three trends should cause the advertising community to stop and think hard about its future.

-- The technology dimension of the business will intensify. Competence and imagination will tend to be in the hands of small companies. As they already do, the biggest and the smartest ad outlets will want to acquire such talent pools. But they will face tech companies ready for a bidding war; see what happened in the mobile ad sector with the AdMob's acquisition by Google and Quattro Wireless' takeover by Apple -- with the subsequent launch of iAd.

-- Media will have a strategic interest in boosting their CRM. They'll invest in developing this crucial asset for their digital properties.

-- Media will tend to move up the ad production chain by having their own creative teams, working more closely with big advertisers. On that matter, Apple could give an interesting pitch: "We are the media, we spent time and money designing a good interface; we don't want our work ruined by substandard advertising; let's work directly with brands and concoct great campaigns that will benefit us, the advertiser, and the reader." This could become a broader trend, spreading to other media, such as broadcast radio, neglected by today's ad creatives.

Does this lead to the extinction of big advertising shops? Certainly not. First, there is the inertia factor; these companies remain quite wealthy, thanks to decades of solid rainmaking. Second, agencies still enjoy profitable strongholds in which their value-added is undisputed, such as outdoor, display, television and print -- and the associated media and strategic planning. Third, they have no shortage of good managers able to organize a turnaround . . . in due course.

It is hard to reform a fat-cat culture -- from heavy margins, captive clients, cozy cronyism -- to a more agile one in which technology and innovation drive the business.

In this very respect, advertising and news media converge: Both have been late in hiring developers who understand the specifics of their business. Because of their intrinsic vulnerabilities, the media have been the first to take a hit. If advertising wants to avoid a Jivaro-like downsizing, it needs to listen to the clock: It's ticking away.

Frederic Filloux is the editor of the Monday Note, where this first appeared, and a contributor to Slate.fr.

-- The Big Money


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