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The Internet will squeeze inefficiencies out of advertising. Just as automation did in manufacturing and IT in business processes. 4/30/08

Posted by Steve Boriss in AdAgencies.
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For about a century, one of the most inefficient functions in U.S. business has been advertising. Legendary department store founder John Wanamaker captured this frustration best in his famous remark “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” The primary beneficiaries of these inefficiencies have been ad agencies, many of whom (and let’s be honest) have earned a great deal of money for not much work and with even less accountability. With fees typically based on a percentage of ad spending rather than on actual business results, agencies have had the perverse incentive to encourage higher and higher programming production costs, and higher and higher ad rates to cover them. So, it is understandable that ad agencies have not been all that anxious to push their clients toward the Internet, which threatens to end these cozy deals.

But perhaps ad agencies are finally beginning to accept the inevitable, at least based upon what the NY Times witnessed at at a recent leadership conference of the American Association of Advertising Agencies. Attendees listened intently to the nation’s top agency executives, who berated the industry and urged them to “stop wallowing in self-pity and get on with the challenges ahead.” They even listened to Google CEO Eric Schmidt paint a rosy picture of underappreciated opportunities the new environment will create, something that will not ring true to the audience, but most certainly is. U.S. manufacturing has become more efficient by opening its doors to automation, and U.S. business practices did the same through IT. Advertising will now take its turn, and the U.S. economy will be the better for it.

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