What Telcos Can Teach the Digital Ad Industry About Convergence

Four Lessons in Playing a Long, Disruptive Game

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The convergence of digital and linear business models and operations may be the hottest and most important strategic topic in the digital ad business today. Certainly, it is changing how major stakeholders -- publishers and media properties, brands, advertisers and agencies -- view the industry's immediate-term growth horizons and the longer-term outlook. Major, long-term disruptions appear inevitable.

Digital publishers see convergence as a way to tap into the much larger budgets associated with traditional brand advertising and to give their advertisers fuller visibility and broader reach into and across all segments. That is a potentially huge advantage, though considerable work is required to gain it. A relevant historical precedent -- the telecom industry in the mid- to late-1990s -- provides four lessons for digital media and publishing organizations sorting through the implications of convergence:

1. Rethink the offerings. Consider how local phone service and long distance -- mainstay products for decades -- were suddenly secondary to wireless, internet and video offerings. Yes, these new products were mostly logical additions to the portfolio (they were all about connectivity and communications). But they came with significantly different customer expectations and pricing structures. They also presented unprecedented opportunity to increase revenue and build stronger customer relationships.

A similar shift is going on in advertising as content consumption habits morph. A wide range of video ad products -- traditional linear TV, on-demand TV via time-shifted TV, TV everywhere, internet TV accessed through a cable provider and internet video -- must be pulled together.

2. Bundling starts with integration. Telcos used bundling to make it easier for consumers to buy more products simultaneously -- and publishers should do the same today. Advertisers are clamoring for cross-platform video buying and would flock to bundled products if they resulted in more effective (and cost-effective) cross-channel campaigns. Conversely, billion-dollar mass-media and TV budgets are hugely appealing to publishers, and offer big upside for first movers.

To seize the opportunity, digital media companies need to improve their cost modeling and measurement capabilities and manage the move from GRP to impression buying. They must integrate the supporting technology, processes and teams so they can go to market as one company, through one sales organization. Telco firms spent hundreds of millions of dollars and countless hours integrating their systems and service organizations. It was a huge undertaking, but they had no choice as consumers came to expect that one contact center rep could (theoretically) answer questions about three or four different products and that one monthly bill would cover all services. Increasingly, advertisers expect such efficiencies from publishers.

Today's technology is generally much lighter-weight, more agile and simpler to manage than telcos' cumbersome legacy systems. However, the technology landscape is more fragmented with iOS, Android, set-top box platforms, DVR and linear platforms, not to mention multiple selling and measuring paradigms. This presents something of a "VHS vs. beta" scenario playing out, as publishers must choose between different technologies (Blackarrow, Canoe, Nielsen, comScore, Google measurement or others). Building on the wrong one could mean future pain.

3. Organizational work is essential. The merging of teams and breaking down of organizational boundaries challenged telcos years ago. Some lines of business operated autonomously, with their own clients, systems, and even their own P&Ls. Similar fiefdoms exist in advertising today. If those businesses are well established or generally successful, trying to integrate them with newer product lines or other parts of the organization can be painful. But that work was necessary for telcos then and it is necessary for ad organizations today.

4. Huge stakes require a long view. Perhaps the biggest similarity between the telco and advertising versions of convergence is that this is a long game, with huge stakes. Important strategic decisions (like what should be sold to whom and for how much) are best made before the time-consuming work of system and process integration begins. Sales and service, billing and accounting and nearly every part of the organization must be involved in transformations of this scope. Though the process will be evolutionary, there must be urgency about it because the chance to reach a 10-times larger market doesn't come along every day.

As they face a similarly long journey, digital ad teams would be wise to learn from the experiences of telcos. As such, they must take a proactive approach to managing convergence -- rather than letting convergence happen to them and allowing the customers and competitors to dictate the rules of this very long game.