Changes in advertising, attribution and offline retail

Earlier this week I joined Google’s telecom team at their Atlanta offsite to talk about mobile, attribution and related topics. My presentation is embedded at the bottom of this post but we actually spent the entire hour doing q&a. Attribution continues to be a central theme in advertising; more specifically, how do you build models that appreciate the value of channels like mobile and their contribution to offline sales?

Mobile and offline attribution are costly and complex

Today Google started roll-out of AdWords enhanced campaigns designed to simplify the process of multi-device advertising. Scoutmob’s work with thousands of SMBs has reinforced the challenge of selling complex advertising solutions. Most restaurant or boutique owners are more concerned with day-to-day operational challenges than marketing or attribution. Partnerships like Datalogix and Facebook are designed to bridge this attribution gap but complexity—both integration and lack of analytics resources—are still barriers to adoption for local businesses.

Elsewhere, upstream properties like Facebook are fighting an advertising spend battle against last-click channels like search. Just this week Twitter acquired Bluefin Labs to help marketers understand the impact of social media:

At least part of Bluefin’s job will be help close [advertising] sales, and get them to buy again by proving out Twitter’s value to both programmers and advertisers. You can think of it as an analogue to the well-respected research teams that already exist at the big TV networks — except the TV guys have decades of tradition and research backing up their pitches. Twitter’s job is much harder.

Ad spend shifting toward quantifiable formats

Secular trends away from media channels with difficult-to-quantify or weak returns create an even more difficult challenge for sales teams. It’s two years old but Hal Varian’s share of advertising chart succinctly conveys the magnitude of these shifts:

This trend is even more pronounced when you drill down to SMB spend. Between 2010 and 2015, BIA/Kelsey projects that 98% of growth will come from online, commerce and solutions with traditional media flat:

BIA Kelsey - Advertising by US SMBs

Retail sales key to ad spend changes

In three posts last year, Andreessen Horowitz partner Jeff Jordan chronicles the changing face of retail as online business models flex their muscles:

  • The case for e-commerce acceleration: “Online retail is relentlessly taking share in many specialty retail categories… Physical retailers are highly leveraged and often have narrow profit margins. Material declines in their top lines [due to online competition] make them unprofitable and quickly bankrupt.”
  • When Black Friday comes: “Physical retailers are not inept; they’re cemented to a business model that is uncompetitive.” Online wins on price and selection and offline’s convenience advantage is being undermined by Amazon Prime, ShopRunner, etc.
  • Why malls are getting mauled: “… I believe we’re seeing clear signs that the e-commerce revolution is seriously impacting commercial real estate.  Online retailers are relentlessly gaining share in many retail categories, and offline players are fighting for progressively smaller pieces of the retail pie.”

It’s easy to rain on the offline parade; it’s much harder to rain online. But although verticals like supermarkets skew the overall data, offline is still massive. Despite 726% growth over the last 13 years, the most recent seasonally adjusted data shows offline accounting for almost 95% of total retail sales:

US Census Quarterly Retail Sales (2013-02-07)

More interesting to me is the increasingly blurred line between online and offline, a trend that owes much to smartphone and app innovation. Scoutmob drives millions of dollars in offline sales to local businesses through our mobile apps—what we call the “cost per door swing” model. Promotions like our partnership with Crif Dogs have used a sense of urgency to drive real volume in very short time frames (e.g. 1K+ in < 1 week).

Bigger brands are aggressively pushing online-to-offline as well, taking advantage of the best parts of line and offline respectively. Results from Walmart illustrate this point well:

In April [2012], Walmart began allowing shoppers to order merchandise online and pay for it with cash… Even without the cash option, in the six years since Walmart has allowed online items to be picked up in stores, customer demand has been high. More than half of the sales from Walmart.com are now picked up at Walmart stores

If trends continue, online will continue to eat into offline’s share of market in CPG, electronics and other verticals. As attribution tools struggle to keep pace with changes in ad channel mix, marketers will continue to struggle with uncertainty in ROI calculations and naturally gravitate toward direct and last-click channels which are easily quantifiable.

Scoutmob presentation on mobile advertising