No Mystery: The Slow Growth of Interactive Marketing

It seems odd that growth of interactive marketing didn’t better endure the two- (going on three-) year-old recession in advertising spending. The ability of interactive marketing to economically brand and deliver return on investment (ROI) should have inoculated it from spending cuts meted out to less measurable marketing vehicles.

So what slowed the growth of the interactive marketing? At least one reason is that one of the principal group of advocates, advertising agencies, went AWOL. And agencies have no incentive to rejoin the effort until there is profit in it for them.

The interactive-only shops, born in the early 1990s and personified by G.M. O’Connell’s (he was “Gerry” back then) Modem Media, were evangelists extraordinaire. They were led by bright young people promising paradigm shifts and extraordinary results. An environment undisciplined by market forces of profits and losses resulted from free-flowing venture capital and spending to get online by businesses that didn’t “get” the Internet.

In this environment, full-service agencies had a choice: build interactive departments or acquire an existing operation. Both decisions were made. The result: Virtually all interactive-only shops were swallowed up by full-service advertising conglomerates. Of the 10 interactive agencies in 2000, 8 were interactive-only shops. That dropped to three in 2001.

The incentive for full-service shops to push interactive disappeared along with VC and spendthrift customers in the post-bubble world. Interactive is not as profitable — if profitable at all — as traditional media for the agency. Compared to traditional media:

• There is no money in producing the “creative.”
• There are too many vendors and interactive media choices to make buying efficient and inadequate tools to help clients and agencies evaluate the choices.
• The time required to monitor delivery, analyze results, and optimize placements adds costs that are not part of the equation for other media.

Is it any surprise that the advertising conglomerates tout their interactive capabilities when winning business but pay lip service when the business is secured? Interactive components of campaigns generally start later, are the first to be cut when budgets are cut, and are frequently saddled with unrealistic performance expectations. There is no incentive to advocate increased interactive spending if it is unprofitable business.

Even growth from search engine marketing, arguably the most bullish interactive marketing segment, hasn’t helped. Authoring text links hardly rises to the level of “creative” work for which agencies get paid.

So what’s the remedy? At least three things have to happen.

First, publishers have to do everything they can to make interactive marketing profitable for agencies. Interactive-only properties, such as MarketWatch, SportsLine, and internet.com, are likely to lead in this area, given that they don’t have old media to fall back on.

Second, marketers must insist that interactive components of their efforts are given the proper level of attention. Allowing agencies to play three-card monty with interactive marketing ensures that it will not succeed.

Finally, agencies must get healthy enough to charge enough for interactive marketing services that allow them to be profitable. Interactive marketing cannot grow significantly as long as it is a loss leader for profitable business.

This column originally ran on InternetNews.com.