FUTURE FORUM: AS THE INTERNET EMPOWERS CONSUMERS AND RESCULPTS THE MARKETING LANDSCAPE, THESE VISIONARIES TELL WHAT IT WILL TAKE TO SURVIVE

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, chairman, The New York Times Corp.

Which challenges will define the 21st Century? Advertising Age convened a panel of top executives representing a broad range of disciplines, from high- to low-tech marketing, traditional to new media, independent to consolidated agency groups. The roundtable was conducted in New York, London and Redmond, Wash., via videoconference, and moderated by Editor Scott Donaton. An edited transcript follows.

Advertising Age: What will be the biggest trends affecting advertising and marketing in the next decade?

Martin Sorrell: The first is overcapacity in branding. The fact that most of the industries which our clients are operating in have significant overcapacity and therefore differentiation -- either tangible or intangible -- is critically important.

The second is new channels of distribution. The new technologies do two things: One, they disintermediate established businesses very violently, but the more venal and the more disturbing issue is that they disintermediate at lower margins and lower profit models.

The model that these companies employ is not the classic business school model, it's not a margin model, it's an operating cash flow model, which basically attacks the heart of many traditional businesses.

And, finally, the third one is internal communications. Most chairmen and CEOs of the companies that we deal with, and indeed those that we don't, are going through significant strategic and structural change. As a result, getting the internal communications on site is probably more important than the external communications.

Arthur Sulzberger: The issues of branding and how branded organizations can succeed in this world, especially in a world where we're going into tremendous profit squeezes, is critical. I think we're in the middle of a period that is still immature, although it's maturing at a tremendous rate.

William Johnson: One of the things that I think all of us are going to be confronted with, particularly on an industry-specific basis, is the imbalance of talent going forward.

As a consequence, your ability to access information, your ability to accede to the changing demography and the changing landscape, is going to be greatly limited or enhanced by your ability to attract people.

And I suspect in our industry, as I suspect I'll hear from my peers in the advertising side -- our ability to bring young people into this industry has been greatly compromised in the last few years. And we have to find a way to attract them.

Bob Herbold: I think the important thing is to think about this problem externally, from the consumer standpoint. And there are going to be nothing but exciting new capabilities for the consumer.

Our dream in the information technology industry is that, literally, every home on the planet Earth has a box sitting in it that has a wire coming in -- hopefully, a couple of wires so that they can compete with one another -- and those wires carry a tremendous amount of bits of information.

And then this box basically sorts out the bits and sends some of them over to a monitor, which does things that remind us of a TV of the past. The other set of monitors might be involved in an Internet session. Another device would look somewhat like a traditional phone, [and] does in fact carry on a phone conversation.

And all of that is just melding together because it's just bits. That's why people are investing in broadband. That's why the cable industry is hustling to take advantage of its existing fixed assets. That's why telephone companies are worrying. That's what software companies have their eye on. And we're making good progress.

But from a consumer standpoint, it's sheer excitement because choice is in their hands. And one of the things that will be dramatically different than the past is that your ability to capture that individual for a period of time and almost force them to watch something will be greatly diminished.

Even the last two years have provided a lot of insight as to how marketing will change. If you look at great advertising on the Web these days, it's not banners, it's sponsorship of exciting Web sites that, in fact, have valuable services for people.

I think Charles Schwab & Co. got off to a tremendous start in regard to online trading by making it exciting for the consumer and a very rich place to visit. So the consumer is in for a ton of fun because the technology is continuing to romp along.

Peter Georgescu: Well, I would like to suggest that there is, in fact, one dominant trend that will influence almost everything that will happen in the early part of the 21st century, and that is the Internet.

And I believe it'll impact traditional media, it'll impact the way business is going to be conducted. The Internet, [is] a powerful means of distribution that will become an added force in the linkage between the customer and the brand.

The early battles of the Internet to me are pretty much just skirmishes. I think the Internet battles are three to five years away, or two to four years away.

And the reason is that most of our traditional clients, the big players in the game, are not ready yet to play on the Internet. Their internal technical infrastructures are not yet ready to implement e-commerce transactions. So we're going to have to wait until many of the players in the marketplace are really prepared for the Internet distribution system.

And very quickly the old model that Martin talked about, the price model, is going to go out the window. Sooner or later the financial communities will look at the revenue model, if you will, and that's going to be rendered, in my opinion, obsolete pretty fast.

And then we'll get to the real battle, and it's going to be the battle of the brands. Because that's going to be the only way people will be able to conduct profitable business. And we're going to get back to profitable business.

To me, one of the fascinating lessons of history is that none of the old media will just disappear: poof. In fact, many of them will thrive. The New York Times is thriving. The radio business is at a height that it's never been at in its history. So we're going to have successes continue to exist across businesses in the 21st century.

AA: One of the most significant things that the new media technologies of all forms do is put the consumer instead of the content provider in charge of the information process. How is that going to change -- that control switching hands?

Mr. Johnson: Clearly, the consumer is going to be in greater control than they've ever been before. And that creates huge issues of customization and interactivity and how you communicate with consumers.

I think the other issue is the massive amount of data that's going to be available both to consumers and to manufacturers. One has to be careful not to be sort of overwhelmed by it. Because as manufacturers, we've got to find ways -- and I'll use an internal example -- to sell ketchup in 75 countries in the world, potentially 75 different ways.

And yet the homogeneity of the audience -- such as teen-agers around the world, who you can reach pretty much with the same kind of message -- is going to create real opportunities that we've never had before.

AA: Martin, do you want to pick up this issue of when the consumer is in control, how that changes marketing communications?

Mr. Sorrell: The first is that what we've seen is a significant shift in the way that we're conducting our business. A lot of the things that we are doing are building transaction-based models for our clients, as opposed to doing traditional advertising, public relations, specialist communications and research.

It goes back a little bit to what Bob said: It's really not advertising on the Net that's interesting. That's a $4 billion industry. It's the $330 billion industry that is e-commerce or e-business based which is the really interesting development.

The second issue -- and we see it, for example, with digital TV -- this year [our business] will be about 25% marketing-research based, what we call information consultancy based. It is clear that with things such as digital TV that we are going to get so much data about consumer viewing habits [and] their consumption of media habits, that they will underline yet again that no longer is information power, but interpretation of information is absolutely critical.

The data dump is no longer good enough; what we have to do is to interpret the information in a much more significant way.

And the third little element, which I think is very important to get into perspective: Currently, it's sort of fashionable to focus on the U.S. and Europe, particularly on the U.S. with the strength and dominance of the U.S. economy. I don't think we're going through a process of globalization; we're going through a process of Americanization.

It may be fashionable at the moment, but over the next few years Asia Pacific and Latin America are going to reassert their importance, ignoring the current difficulties, particularly in Latin America.

There's one simple statistic which underlines this and that is by the year 2014, two-thirds of the world's population will be located in the Asia-Pacific countries.

And just one [more] thing. These new channels of distribution are not only potentially destructive in terms of our business lines but in terms of the talent and the people that we have coming into our businesses.

The biggest competitor to talent in the advertising business, or the PR business, or the research business or, indeed, to package-goods clients such as H.J. Heinz Co. -- the biggest competitor is no longer McKinsey & Co. or Goldman Sachs, it's Silicon Valley.

And the attractions of these industries to our brightest and best people -- not only people we want to recruit, by the way, but the people that we have in the organization -- are very difficult to deal with. And we're going to have to adapt our organizational, incentive [and] remuneration structures -- and the way we think about our businesses -- in order to cope.

AA: Arthur, if it's true that the interpretation of information, rather than raw information itself, is power, how is that going to impact media brands and their role in this consumer control mix?

Mr. Sulzberger: Martin is absolutely right. Information isn't power, information has become ubiquitous. Understanding might be power.

Martin talked about the power of American politics and the American economy as critical elements of why Americanization is taking place. The other part I'd add is the power of American information. The fact that our Internet sites are so open, that the quality and access -- not just one or the other, but the combination of the two -- is so vast.

As I go to other countries or meet with [people from abroad], I discover how limited they are, even when they get on the Internet, to what they can access. It's the power of American information that adds a third element to what's happening right now.

AA: Candice, what are your thoughts on the trends that will have the most dramatic effect on marketing?

Candice Carpenter: Another major trend is what's happening with women. We didn't start our company knowing that, or thinking that's how it was and that we were geniuses and saw it. But I am struck every day at how much dollar power is going in the hands of women that wasn't there 10 years ago.

So we see that converging with interactive marketing. Since most advertising is targeted to women, most commerce is really done by women, and the intersection of that and the Internet is a very big development.

In terms of how to get power in the hands of the consumer, I think the most interesting trend we're seeing is the creation of a spectrum from [which] brand building, new-product launches, all the way to transactions, are really living side by side; there are alternative ways a company can relate to an audience. And we're seeing companies employ each of them at the same time on our network, in some cases.

AA: What's happening now is consumers are often frustrated and almost paralyzed by an overabundance of marketing and brand information. How is that going to affect your company in terms of reaching customers?

Mr. Herbold: Well, from the standpoint of how do you use the bits -- and you're going to have more and more capacity for sending bits to consumers -- I think that most people will use the power for visualization of information.

Marketing will change, I think, quite dramatically. You're going to see more brands do good things for people in terms of providing service, as opposed to running a traditional message that pounds the attribute of the brand.

I think marketing is going to take a turn where, in order to establish your branding, your values and your capabilities, you're going to have to demonstrate by giving people useful services and information.

And that's what will cause the formation of brand in the mind of the consumer -- as opposed to what we've thought about for the last 20, 30, 40 years, in terms of stopping the consumer and making them watch something, or stopping the consumer and hoping they read that magazine ad.

Mr. Georgescu: Bill Johnson said something that we all sort of nodded at and moved along. He said the customer is in charge and we're in a customer-driven world. And I'd like to focus on that statement.

I want to acknowledge the importance of what Bill said. The truth is the customer is going to drive many things, including the degree of the utility of technology.

I don't think we should just pass by this so casually, but focus on the importance of aligning all of our organizations on all sides of this: For 10,000 years the battle has raged on, and the providers always have been on the winning side. And, finally, this war is over and the customers have won.

AA: Candice, as someone who deals right now in a new media environment, are advertisers ready for this, or are they just trying to push old models into a new medium?

Ms. Carpenter: I am really impressed over the last six months with the change. It's a big watershed. It isn't necessarily that consumers want more choice. In fact, that is overwhelmingly frustrating to them. But what they do want is companies to engage them.

Ford is the company I'm most impressed with, although we see more and more companies understand that this isn't just build a Web site -- there's something going on [that's] pretty powerful, and there's a lot more humility about not understanding it, which to me is 90% of making real progress on it.

But I think this concept of going in and listening, and letting people ... help build product direction, is a very powerful trend you're going to see.

Mr. Sulzberger: I think a lot of us are seeing just that. That this is about targeting, and about measuring, and about building knowledge. And that's where a lot of these old-line companies are at right now -- they're adapting, or trying to adapt to what this new technology has to offer them.

Mr. Johnson: I'm going to come back and add something to a comment that Peter made, that I'm sure in our industry we have a complete grasp of, but others in here may think it's somewhat foreign, and that is the whole concept of push.

We are a company, for example, that spends over a billion dollars a year in marketing. The majority of that, as is the case of most of our peers, is oriented towards pushing products through to the consumer, as opposed to finding out what products the consumer wants [and] how they would respond.

You have to remember the whole issue of fundamental basic goods distribution. I just came back from tromping around the back waters of Indonesia, where 206 million people were buying our products. Most of these people don't have a clue of what we're talking about, and yet we have to fundamentally find a way to get this product in their hands in a fungible, affordable manner.

It goes back to the comment that Martin made that I think we've sort of glossed over, which is new channels of distribution not only pertain to new technologies, they pertain to different ways to get your goods to people.

And I have one sort of cynical comment to make about the speed with which we're moving. I've been an outside observer for what has been called euphemistically the FAST (Future of Advertising Stakeholders) conferences (organized by Procter & Gamble Co. to bring together Web advertisers to talk about how to make online advertising work), and I've always wondered if FAST really should've been a euphemism for slow.

Mr. Sorrell: I fundamentally believe that we are going to see tremendous change over the next five years, but if you think we've seen tremendous change over those five years, wait for the next five, 10, or 15 years after that.

This is nothing against anybody here who is over 50 years old, but the basic fact is that most of the companies that we work for and most of the companies that we compete against are run by people who are over 50 years old. At about that age you tend to be a little bit too focused on the status quo, and a little bit more concerned about retirement, and not making quantum changes when things are changing very rapidly.

I think what you'll see in the next five to 10 years is when the next generation gets to work with it -- and as Nicholas Negroponte said, the next generation is only three five-year plans away -- then you will see even greater and swifter change.

And to deal with that change, we and our clients have to do two things. The first is to make sure that what I can call the traditional channels move very quickly. In other words, your established businesses, your established brands, try and embrace this technological change rapidly. But it's sad to say that no traditional channel ever moves fast enough.

One of the interesting things [about the Internet] is it's the retailers who've reacted faster than the manufacturers. And I think the reason for that is that the retailers are more closely connected to the consumer than the manufacturers. The manufacturers tend to relate more closely to the retail trade or the wholesale trade as, in a sense, their consumers. And they are not as close as retailers are to it.

And that's why I think the pace of change at the manufacturing level in relation to new channels of distribution has been slower. They tend to spend high proportions of their budgets on trade allowances rather than on direct-to-consumer operations. And the Web provides for the very first time, or in a long time, a direct channel of communication directly to the consumer.

Mr. Sulzberger: I don't think it has a thing to do with age. I think that the dilemma is the difference between sustaining technology and disruptive technology, and the ability of all of our organizations to move incredibly quickly and effectively, regardless of how old our senior management team might be, in meeting the needs of a change that sustains the business we're in.

We're now facing changes that disrupt the business we're in. I think whether you're 60 or 40, the challenge there is so immense that that's why we're seeing so many major companies, and even minor companies, fail to make it. Because everything inside [and outside] their organization is telling them to go one way, and they are -- they're making their core product better, faster, cheaper and more available.

And all of a sudden, this new business -- which is totally disruptive, which is coming from nowhere, which can't be measured because there's no business there to measure yet, which is incredibly hard to monitor, and which the rest of the organizations are saying don't pay attention to that, put your money where your profit is -- it comes out from nowhere, and all of a sudden you're out of business. So I don't think it's an age thing at all. I think it's the distinction between sustaining and disruptive technologies.

Mr. Georgescu: Manufacturers have a much greater degree of change that's required of them. We know change is hard, and letting go of all the things that have brought you success in the past and embracing a new world is counterintuitive. And so the degree of difficulty that our clients have is tremendous.

It all goes back to the simple premise that Bill set up -- the customer's in control. In essence we have bet the farm that the Internet is going to be, in fact, driven by a database. Which means in essence knowledge about individual customers, so that you can treat the customer with greater respect, with more understanding, with a better sense of what their wants and needs are.

And, again, as Arthur was saying, it's a new kind of segmentation, it's a behavior segmentation that looks at the market, sees what people want, what people do, and then we begin to embrace their behavior, we can help them along and guide them. But they are leading this dance.

All of us have to embrace this change and move towards the consumer. I give credit to our clients because they have the hardest task. And we in the

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