(I originally wrote a brief post to the AIMS discussion list on this topic and was then asked by Direct Marketing News to write an extended commentary based on that post. Here is my original draft of the column which inexplicably differs significantly from the in print (but not online) version. Consider this the true version please.)

The Death of Offline Advertising — And The Birth of “New Marketing”

At the end of March, Microsoft CEO Steve Ballmer sang a sweet song to online marketers looking to forget the dark years that followed the heady days of the Internet ad boom.

During the company’s MSN Strategic Account Summit, Ballmer told the 500 or so US ad executives in the audience that 100% of ad dollars will be spent online by 2010. That’s no typo. He said all marketing will be online in six years.

Given that major consumer packaged goods advertisers are generally spending less than 1% of their budgets online and that many advertisers are still unsure of how to market online, why would Ballmer make such a bold prediction?

Certainly it is in Microsoft’s best interest to tell advertisers to up their online ad budgets to 8–13% now in preparation for the day when all their budgets are online. MSN counts on online ad revenue, so it seems natural they’d want ads online instead of in channels Microsoft does not (yet) own. And more online activity means more devices, and that means more software, and that means more money for Microsoft.

But — looking beyond self-interest — might there really be a basis for Ballmer’s assertion? There may be more evidence that Ballmer is on to something than you would think.

Bye-Bye Bomb-times

First, if you haven’t been paying attention to online ads lately, you may be surprised that, in the US, the first quarter of 2004 was the biggest quarter ever for online ads, according to Interactive Advertising Bureau and PriceWaterhouseCoopers. And that’s hot on the heels of the last record breaking quarter, the 2003 holiday season. With the online ad industry now bigger than it was at the peak of the boom, “Bomb-times” seem to be behind us.

And while some sectors are lagging behind in online ad spending, others have figured out that online ads can be more efficient than other channels. In the US, the travel and financial sectors are leading the way with 15 and 17% of budgets online respectively.

So online ads are commanding a greater share of the ad budget. Is it possible they will command it all?

One IP To Rule Them All

Let’s deconstruct Ballmer’s exact words to get a better understanding of his vision.

Ballmer is quoted as saying “All marketing will have the characteristics of online marketing”.

I would argue that the “characteristics of online marketing” that make it compelling are that it is targetable, actionable, and trackable — all in real-time. These four characteristics give online a unique advantage that marketers are just now beginning to comprehend.

Ballmer is also quoted as saying that “everything will go over intelligent IP [Internet Protocol]”.

This echoes Chairman Bill Gates’ vision of a “seamless computing” future where all devices are Internet enabled and can easily speak to each other and to the Net. This intelligent network will use the same underpinnings as our present-day Internet but it will be so embedded in all our devices and business practices that it will disappear from consciousness; like electricity.

So while many have dismissed Ballmer’s comments as more Microsoft FUD, I don’t believe that Ballmer meant that someday we’d all be shilling banner ads for a living. Rather, I think that he is wisely noting that the ubiquity of Internet access in all locations and through all devices will allow most media to become targetable, actionable, and trackable. And if a particular media cannot evolve to share these characteristics with online marketing, it will be relegated to a minor supporting role in larger, IP-based marketing campaigns.

For lack of a better term, let’s call it “new marketing” and define it as “marketing through channels that allow companies to target specific consumers based on context, behaviour, location and other factors in order to create measurable responses that can be tracked in near real-time”.

If we look carefully we see the seeds of “new marketing” blooming all around us, just as “new media” once did.

Here are a few early sightings:

1. ROI Marketing Hits The Tipping Point

There is a strong move towards accountability for all major business expenses. Marketing won’t be spared from the drive to measurability and accountability. CxO’s are asking tough questions like “What do I get for my ad dollar?” and “Did this campaign make or cost us money?” These are questions that traditional “awareness” marketing can’t answer except anecdotally. Marketers will be forced to adopt direct response models in order to justify their budgets and their jobs. Once enough people move this way, everyone will suddenly make the switch because their careers will be on the line if they don’t learn to go with the ROI flow. Any marketing vehicle that can’t help marketers justify their spend will be hard pressed to keep up with New Marketing opportunities that do.

2. The Perfect Response Tool

As companies look for ways to measure marketing ROI, more and more cross channel marketing will be directed towards the Net. Search Engine Marketing is catching fire because marketers who “get direct” see that they can now build testable, trackable campaigns online and that means budgets will be diverted from less measurable channels. And as we get smarter about what works and what online marketing is worth, watch for other DM channels to have to fight for attention and ad dollars. Response marketers look for the most cost effective channel, and if it’s the Net, say goodbye outbound telemarketing and direct mail.

3. The Net Generation

We’ve already seen reports that young males are “missing” from TV audience figures. Look for today’s young adults — raised in a web-based, multi-tasking world to become the core consumers of the next decade, meaning that the Net will be a natural place to find consumers in their peak buying years. And these kids expect everything to be online, instantaneous and under their control. Will they accept “ol’ skool” media for much longer (if they ever did)?

4. All Bits Move To The Net

Over time, anything that can move over the Net, will move over the Net. When was the last time you received a fax that wasn’t junk or wasn’t sent because to provide a signature? The last time your wrote a letter?

In the mid-90’s I witnessed Nicholas “Being Digital” Negroponte tell a ballroom full of music industry executives that they were in the “bit radiation” business and that as soon as someone figured out how to make it more efficient to radiate bits over wires rather than stamping them on shiny discs they’d all be out of jobs. Those execs laughed at the time, but they are now scrambling to cut deals with Puretracks and Napster to try and correct the damage done by free download sites.

But the music industry is just a canary in a coalmine. The movie industry and phone companies are next into the breach, struggling to cope with BitTorrent and Voice Over IP (VoIP) respectively.

In six to ten years I’m sure that the majority of voice, TV, radio, music, and movies will be entering our homes over a Net connection. And many non-measurable, non-targetable media will soon be replaced by new and improved online versions. Is it hard to imagine radio stations moving online and targeting ads based on past behaviour and the listener’s physical location? What will happen to radio when ads are addressable, measurable, and immediately actionable online?

Will the “marketing bits” you radiate be the only ones to avoid this inevitable move to the Net? Are you sure?

5. Media On Demand

Consumers are just now beginning to see the joys of an “on demand” approach to information and entertainment. WiFi is making the Broadband home a reality, iPods are allowing us to put a lifetime of music in our pockets, and PVRs are taking time-shifting to a completely new level.

Once the user is in control of the when and where of media consumption, the impact on advertising will be considerable. If there is no primetime, only “my time”, won’t ads need to provide the same responsiveness to a consumer’s desires?

6. Online, All The Time

Increasingly we live in a world of three screens — a TV for communal viewing, a computer screen for individual work, and a “Third Screen” for accessing information while on the move. As “unwired” PDAs are replaced by phones and hybrid products that allow for voice, e-mail, SMS, IM, web access, and digital photography all from one device, ads that are aware of their location in the world will increase. Adding toll-free order numbers, e-mail and web addresses, or text numbers to outdoor and transit ads is a logical first step towards our devices actually interacting with the ads.

How would your marketing change if transit ads were part of the Net? If Google on a cell phone was everyone’s default yellow pages?

7. GPS Pop Cans

Coke’s “Unexpected Summer” promotion is taking “New Marketing” to a new level. Coke has randomly placed 120 GPS-enable cell phone “cans” in pop cases across the US. If you find a can you can use it to phone in and have your location tracked so that your grand prize can be airlifted to you wherever you are in America.

If products are already being hooked to the Net and electronically enhanced, what will happen when RFID tags allow retailers and manufacturers to track each unit individually?

Ramping Up

As much as I’d like Steve Ballmer’s world of targetable, actionable, trackable, real-time advertising, my guess is that we’ll never quite arrive at this marketing nirvana. There will always be those that espouse brand at any cost, those that believe they have too little time and too little money to “bother” with tracking their marketing. But that’s not you.

How do we get to this “new marketing”? I concur with Steve Ballmer and recommend that we get busy now. It’s time that marketers learn to allocate budgets differently and drive all ads to a measurable channel. And then we need to begin driving all measurement to standards-based net apps so results can be analyzed and adjusted in real-time.

The challenge for ad suppliers is to figure out how they can create New Marketing channels that, like online ads, are targetable, actionable, and trackable. If you sell ads for a living, what will you do to prepare for the New Marketing? Measurable billboards? Commerce-enabled transit signs? POP that changes based on the weather?

What will your ads do tomorrow that the Net can do today?