1The Marketing/Media Ecology

Charles Warner

Anyone taking a moment to ponder the $2 trillion marketing and advertising sector of the economy “can’t avoid the inescapable truth that capitalism could not exist without marketing,” Ken Auletta writes in Frenemies: The Epic Disruption of the Ad Business (and Everything Else).i The marketing process is vital to the vigor of the American economy, and the media are integral elements in that marketing process and, thus, to the economy’s health and stability. Consumer demand is what drives the economy, and it is marketing that fuels demand. Advertising is a major component of marketing, and it is through the media that consumers and businesses receive advertising messages about products and services. Also, “in the United States each dollar spent in advertising alone spawned nineteen dollars in sales and supported sixty-seven jobs across many industries…”ii

If any one of the three elements (marketing, advertising, and the media) is not healthy, the other two cannot thrive. This chapter will examine the ecosystem-like interdependent relationships among marketing, advertising, and the media and how the disrupted that ecosystem.

What Is Marketing?In his influential book, The Practice of Management, Peter Drucker, “the Father of Modern Management,” presented and answered a series of simple, straightforward questions. He asked, “What is a business?”

The most common answer, “An organization to make a profit,” is not only false, but it is also irrelevant to Drucker. “There is only one valid definition of business purpose: to create a customer,” Drucker wrote.

Drucker pointed out that businesses create markets for products and services: “There may have been no want at all until business action created it – by advertising, by salesmanship, or by inventing something new. In every case it is a business action that creates a customer.” Furthermore, he said, “What a business thinks it produces is not of first importance – especially not to the future of the business and to its success.” “What the customer thinks he is buying, what he considers ‘value,’ is decisive – it determines what a business is, what it produces and whether it will prosper.” Finally, Drucker said, “Because it is its purpose to create a customer, any business enterprise has two – and only these two – basic functions: marketing and innovation.”iii

Notice that Drucker did not mention production, suppliers, or distribution, but only customers. That is what marketing is – a customer-focused business approach.A production-focused business first produces goods and then tries to sell them. In the book Marketing 3.0: From Products to Customers To Human Spirit, Philip and his two co-authors refer to a product-focused approach as Marketing 1.0.iv A customer-focused business approach produces goods or services that it knows will sell based on market research and data that reveals customers’ aspirations, wants, needs, tastes, and preferences. In Marketing 4.0: Moving from Traditional to Digital Kotler, who is often referred to as “the father of modern marketing,” and his co-authors refer to a customer-focused approach as Marketing 2.0.v In Chapter 15: Marketing and Chapter 16: Advertising you will learn more about how marketing has further changed from Marketing 1.0 (product focused), to Marketing 2.0 (customer focused), to Marketing 3.0 (human centricity), and to

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Marketing 4.0 (customer collaboration), but for now, we will concentrate on customer-focused Marketing 2.0.

Another leading theorist, former Harvard Business School Professor Theodore Levitt, wrote an article in 1960 titled “Marketing Myopia” that is perhaps the most influential single article on marketing ever published. Levitt claims that the railroads went out of business “not because the need [for passenger and freight transportation] was filled by others ... but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business.”vi In other words, the railroads failed because they did not know how to create and keep customers; they were not marketing-oriented. Where would makers of buggy whips be today if they had decided they were in the vehicle acceleration business or in the transportation accessory business instead of being in the buggy whip business?

As a result of the customer-focused, marketing approach espoused by Drucker, Levitt, and other leading management and marketing theorists, in the 1960s, 1970s, 1980s many companies asked themselves the question, “What business are we in?” and subsequently changed their direction to focus more on marketing and customers rather than focusing on products. After the Internet became widely adopted by consumers in the late 1990s entrepreneurs, such as Larry Page, Sergy Brin (Google), Mark Zuckerberg (Facebook), and Jeff Bezos (Amazon) asked “What business do our customers want us to be in?” Existing businesses that survived after the Internet disruption had a heightened sensitivity to customers and changed the old-fashioned outlook of, “Let’s produce this product because we’ve discovered how to make it.” The Internet opened the door to a new digital age in human history, and from a business perspective, successful businesses and entrepreneurs in the digital age put the

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preferences, wants, and needs of customers and consumers first as these customer-first businesses shot past traditional companies in market value.

In today’s digital-age economy consumers rule because the availability of information on the web has switched the information asymmetry that existed in favor of marketers prior to the Internet to be in favor of consumers in the post-Internet, digital era. Before the Internet and Google search, someone who wanted to buy a car had to depend on car dealers and their salespeople to provide information about a car’s features, benefits, condition, and price. The information asymmetry favored the salesperson.

Today, consumers can search for the information about the make, model, features, benefits, condition, and price of a car on the Internet and can be armed with thorough information before walking into a dealership, often with more information than a dealer salesperson has. Therefore the information asymmetry has switched to the consumer in the digital era. Any company that does not recognize that customers now rule and put them on a pedestal, wow them, and delight them with an excellent experience will disappear from the business landscape.vii

The Internet and Ad Words Disrupted Marketing and Advertising

The Internet completely disrupted marketing. It switched the focus of marketing from mass marketing in the mass media to marketing to one individual at a time in customized, personalized, and fragmented media. In addition, the Internet allowed marketers to appeal to a

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narrow market of one out in the long tail; to sell less of more, as Chis Anderson writes in The Long Tail.viii

Not only did the Internet allow marketing to be more precise and more highly targeted, it also allowed consumers to discover a new product or service, to get more information about the product in the moment, without going to a retail store or dealership, and, probably most important, it allowed consumers to purchase a product online without going to a retail checkout counter. Thus, elements in the old value chain were upended; distribution costs and transaction costs were reduced to virtually zero – an enormous disruption.

Let’s look at the steps in the value chain that companies had to go through in order to be successful:

Exhibit 1.1

The top step in each box (in gray,

no parentheses) is the original one identified by Michael Porter in his 1998 book Competitive Advantage.ix Porter’s value chain obviously refers to a manufacturing or retail company, not a media or Internet company. The steps in the value chain that are in parentheses are more familiar and helpful in understanding the value chain process as it exists today, especially in companies such as Google, Facebook, and Amazon.

Before the advent of the Internet, large companies that were vertically integrated could control the three creation steps in the value chain (supply, production, and distribution) and could gain monopoly-like market power, charge higher prices, and, therefore, achieve huge

INBOUND LOGISTICS(SUPPLY)

OPERATIONS(PRODUCTION,

PACKAGING,AGGREGATION)

OUTBOUND LOGISTICS

(DISTRIBUTION)

SALES & MARKETING

THE VALUE CHAIN

COMPANY

CUSTOMER

CREATION STEPS

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profit margins. For example, newspapers that controlled the scarce supply of news (skilled reporters who wrote news stories), owned expensive printing presses and delivery trucks and, thus, controlled production and distribution, and, therefore, often gained monopoly-pricing control over advertising. Newspapers, because they had an elastic supply of advertising inventory (they could add pages if demand for advertising went up), charged a fixed, non-negotiable price and gave volume discounts to large advertisers. In other words, newspaper pricing strategy rewarded advertisers for buying more advertising lineage and buying it more frequently, and the newspapers could just add pages as demand went up. This pricing strategy was extremely profitable for newspapers, and also favored large advertisers such as department stores that could buy advertising more cheaply than small retailers because of volume discounts. Thus, it was an advantage to be a large advertiser, and the small corner dry cleaner couldn’t afford to advertise in a major newspaper and had to find other ways to market its business, such as using Yellow Page advertising.

Another example of pre-Internet advertising pricing strategies was how television networks determined pricing. Television programming had an inelastic supply of advertising inventory because TV programs were formatted for a fixed amount of advertising. Thus, a half-hour news program was formatted for eight minutes of commercial time. Because of the inelastic supply of advertising slots and because there was high demand for a limited supply of TV ad inventory, prices were not fixed and were determined by demand. The market determined prices, and thus each television commercial schedule was negotiated anew at the time an advertising campaign was placed. It was a pricing model based on scarcity and demand.

The prices for all media advertising were based on some version of a cost-per-thousand (CPM) model in which advertisers paid on the basis of having the opportunity to capture readers’, viewers’, or

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listeners’ attention. Advertisers purchased the opportunity for exposure, not based on whether anyone read, watched or listened to an ad. Mass media advertising was in a sense, a gamble that someone would see and respond to an ad immediately or sometime in the future.

John Wanamaker, a Philadelphia department store owner, famously said in the early 1900s, “I know that half my advertising is wasted. The problem is I don’t know which half.” So Wanamaker and other advertisers doubled down on advertising hoping that at least half of it would work.

Therefore, newspaper readers and television viewers were inundated with advertising whether or not the ads were relevant to their individual aspirations, needs, or desires. Television advertising was especially intrusive, but most viewers put up with it because of an implicit contract between TV stations and networks and their viewers who got free entertainment and news in return for their attention.x

The introduction of the digital video recorder (DVR) in 1999 by TiVo allowed TV viewers to record programs and fast-forward through commercials in the programs they recorded. This fast forwarding highlighted the fact that people were not happy about intrusive, irrelevant advertising and wanted to skip it.

GoogleAbout the same time that TiVo introduced the DVR, Larry Page and Sergey Brin, who were Ph.D. candidates at Stanford University in the Computer Science department, started a company in their dorm room. The two had come up with a way to organize keyword search results on the Internet based on how many other webpages had links to the website the keyword appeared on. They called their system PageRank after Larry Page.xi

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Both Page and Brin knew they had to find a way to monetize their search results, but they both disliked traditional, intrusive advertising. After Google got funding from two major Silicon Valley venture capital funds, the new company’s first business plan was not written by either Page or Brin, who were both focused on the product and the user experience. The business plan articulated three streams of revenue: (1) Google would license its search technology to other websites, (2) it would sell a hardware product that would let companies search their own content very rapidly, and (3) it would sell advertising.xii Google’s first effort to sell ads was in July 1999.xiii Page and Brin felt that information in advertising should be as valuable to users as the search results Google provided.

From 1999 to 2002 Google sold advertising in the traditional way to major advertisers and their agencies by salespeople who sold on the basis of a CPM pricing model. However, in October 2000, Google “launched a product catering to smaller operations that had not previously contemplated an online buy.”xiv Google named the self-service system AdWords.1

Initially, the automated system allowed advertisers to buy on a CPM basis and pay more for ads positioned at the top of the search results area on the right side of the page.xv Although the system was fairly popular, it was easy to game, and Page and Brin felt it was not scalable. Therefore, Google adopted an online auction system similar to one used by a competitor in the online search space, GoTo. The major difference between Google’s system and GoTo’s system was that the GoTo auction was a traditional auction model in which the highest bidder won. The GoTo auction model is referred to as a first-price auction. However, Google developed a modified Vickrey second-price auction system. In a second-price auction, the highest bidder on a keyword won the bid, but paid only what the second-place bidder bid 1 Google changed the name of AdWords to Google Ads effective July 24, 2018

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plus a penny. This model, counterintuitively, causes people to make higher bids than in a first-price auction, thus raising the final price because bidders know they will pay less than the price they actually bid. xvi

The second-price auction was a stroke of genius because it eliminated buyer’s remorse, which often happened after a buyer won a traditional auction.xvii Google made another decision that finalized the earth-shattering effect AdWords had on marketing. Instead of charging on a CPM model, it adopted GoTo’s model of charging an advertiser only when someone clicked on an ad. It was a cost-per-click (CPC) model.xviii

The third innovation, and one that was purely Google’s was its quality score. A quality score is determined by a complex algorithm that determines how relevant a website is to users. If someone clicks on a keyword search result ad, and goes to a site that is not relevant, that site gets a lower quality score. For example, if someone searches for “jobs,” does Google put up a result about Apple founder Steve Jobs or does it put up results about employment opportunities? The beauty of the ad quality score is that “it makes the advertiser do the work to be relevant,” according to the 2002 Google head of advertising, Sheryl Sandberg, who in March, 2008, was named the COO of Facebook.xix

On January 24, 2002, Google tested the new AdWords auction system and soon not only small businesses with a credit card were buying search results on a self-help, second-price online auction and CPC model, but also major advertisers such as P&G and Coca-Cola were participating. The immediate, run-away success of AdWords not only led to Google’s first profitable year at the end of 2002, but it changed the entire marketing/media ecosystem and the way media would be bought and sold from that time on.

By mid-2018 Google was the most valuable media company and the third most valuable company in the United States. It had more

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than twice the market capitalization of older production-oriented companies such as General Motors and General Electric combined.2 In 2018 Google was by far the largest media company in the world, garnering an estimated $136 billion in revenue, 86 percent of which was from advertising. Google 2018 ad revenue was almost two-and-a-half times more than the second largest media company in terms of advertising revenue, Facebook, which had an estimated $55 billion in advertising revenue. In 2018 the largest traditional media company in terms of advertising revenue was Comcast’s NBCUniversal division, which had roughly $33 billion in advertising revenue.

For the purposes of this book, I am defining media companies as those that are supported primarily by advertising and am ranking them according to the amount of advertising revenue they generate. Bloomberg BusinessWeek and other financially oriented publications and many Wall Street analysts consider Google and Facebook to be technology companies, and both Google and Facebook’s top management also consider their companies primarily tech companies. However, for the purposes of this book, Google and Facebook, often referred to in the advertising and marketing business as ‘the duopoly,” are considered media companies because Google and Facebook’s incredible success as advertising platforms clearly demonstrates that the Internet became the major factor in virtually all businesses’ advertising and marketing efforts, and the duopoly dominates in digital advertising. Also, Google and Facebook might claim that they are technology companies or platforms and often deny they are media companies, but both are conduits for content that flows between advertisers and consumers – a medium as it were – and both are supported primarily by advertising, as most media companies are.

2 Market capitalization, or market cap, is determined by multiplying a company’s stock market price times the umber of outstanding shares of stock.

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In 2007 the growth trajectory of the digital era veered in a new direction because of two innovations: (1) the iPhone and (2) programmatic buying and selling of digital ad inventory. The iPhone fueled Apple’s rise to becoming the most valuable company in the world in 2012 and every year since then. In mid-2018 Apple exceeded a market valuation of $1 trillion, the fist company in the world to reach that market-cap valuation. Technology business analyst Ben Thompson, author of the Stratechery newsletter, calls the iPhone “the most successful product ever.”xx Also, the iPhone drove the phenomenal growth of smartphones and the Internet from being desktop, PC dominated to being mobile dominated, as approximately six billion global mobile phone users “have replaced the desktop and television as the dominant [advertising] platform.”xxi

Also, 2007 was the year that the first real-time bidding (RTB) by Right Media occurred that “allowed advertisers to know in advance exactly whom they are presenting to and on exactly which site it will appear and at what time.”xxii The ability to address specific individuals rather than broad audiences created the rapid growth of programmatic trading that has irrevocably changed media buying and selling practices (See Chapter 18: Programmatic Media and Marketing for more detailed information about RTB, programmatic, and automation). Furthermore, in 2007 Facebook shifted its focus from appealing just to college students to letting everyone join its popular social media platform, which gave its growth an atomic blast upwards to eventually become the second largest advertising platform.

Aggregation theoryIn 2015 Ben Thompson in his “Stratechery” newsletter articulated aggregation theory, a concept that explained the phenomenal success of digital-era companies such as Google, Facebook, Amazon, Netflix, Snapchat, Uber, and Airbnb. Thompson wrote:

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First, the Internet has made distribution (of digital goods) free, neutralizing the advantage that pre-Internet distributors leveraged to integrate with suppliers. Secondly, the Internet has made transaction costs zero, making it viable for a distributor to integrate forward with end users/consumers at scale. This has fundamentally changed the plane of competition: no longer do distributors compete based upon exclusive supplier relationships, with consumers/users an afterthought. Instead, suppliers can be aggregated at scale leaving consumers/users as a first order priority. By extension, this means that the most important factor determining success is the user experience: the best distributors/aggregators/market-makers win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle. The result is the shift in value predicted by the Conservation of Attractive Profits.xxiii Previous incumbents, such as newspapers, book publishers, networks, taxi companies, and hoteliers, all of whom integrated backwards, lose value in favor of aggregators who aggregate modularized suppliers — which they don’t pay for — to consumers/users with whom they have an exclusive relationship at scale.xxiv 

Customers Versus ConsumersYou have been reading about “customers” and “consumers,” and

the two terms seem to have been used almost interchangeably. It is time to clear up any confusion and accurately define the terms: A customer buys a product; a consumer uses a product. Consumers on the Internet are often referred to as users. Sometimes a customer and a consumer are the same person, for example, when a man buys an electric shaver for himself and uses it. Sometimes they are different people, for example, when a teenager says she wants an iPhone and her mother buys it for her. Proctor and Gamble (P&G) year after year is the world’s largest advertiser, and P&G’s customers are retailers such as Walmart and their consumers are people who buy Crest. By advertising to consumers and creating demand for Crest, P&G pulls the

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product through the distribution system. Some manufacturers do not advertise their products but sell them to wholesalers who then sell the product to retailers and, thus, push products through the distribution system. In the media business, the customer is the advertiser and the consumer is the user, viewer, reader, or listener.

In today’s marketing ecosystem, many companies, such as Facebook, are referring to customers as partners, and this trend toward partnership selling will be discussed more thoroughly in 2.

You will also find a more detailed discussion of marketing in Chapter 15 and advertising in Chapter 16 because media salespeople must have a deeper understanding of marketing and advertising than is provided here in this introductory section in order to be effective problem solvers and solutions sellers for the media.

What Is Advertising?

“In a non-state-run economy advertising is the bridge between seller and buyer.”xxv This quote by media writer Ken Auletta in Frenemies defines advertising perfectly and concisely. Theodore Levitt explains branding advertising well. Levitt changed the direction of marketing with his 1960 article “Marketing Myopia,” and he changed the perception of branding advertising ten years later with his article “The Morality (?) of Advertising.” Levitt wrote that “In curbing the excesses of advertising, both business and government must distinguish between embellishment and mendacity.” He presents a philosophical treatment of the human values of advertising as compared with the values of other “imaginative” disciplines.xxvi

Levitt defended advertising against critics who would constrain advertising’s creativity, who want less fluff and more fact in advertising. Many critics of advertising come from: (1) high-income brackets in business and government whose affluence was generated

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in industries that either create advertising (advertising agencies) or distribute it (the media), (2) industries that have grown through the use of effective advertising, or (3) by using advertising to promote themselves (politicians). Thus, advertising’s critics must look carefully at their own glass houses when throwing stones at advertising.

Furthermore, advertising’s critics, Levitt claims, often view the consumer as a helpless, irrational, gullible couch potato, which is far from the truth, especially in a digital age when consumers often have more product information than sellers do. As David Ogilvy, the advertising genius and practitioner par excellence, wrote to his advertising agency copywriters in his book, Confessions of an Advertising Man, “the consumer is not an idiot, she’s your wife.”xxvii Obviously, when Ogilvy made the comment in 1963, most copywriters were men, which is no longer the case.

Levitt, too, believed that “most people spend their money carefully” and are not fooled by advertising’s distortions, exaggerations, and deceptions. He writes that rather than deny that distortion and exaggeration exist in traditional banding advertising and that these properties are among advertising’s socially desirable purposes. Levitt goes on to say “illegitimacy in advertising consists only of falsification with larcenous intent.” Levitt’s thesis is that branding advertising is like poetry, the purpose of which is “to influence an audience; to affect its perception and sensibilities; perhaps even to change its mind.” Branding advertising, like art, makes things prettier. “Who wants reality?”, Levitt asks. When most people get up in the morning and look at reality in the mirror, they do not like what they see and try to change it by shaving, using hair gel, or applying makeup. These things give people hope that they will be better accepted, more attractive and, thus, happier. They aspire to a better version of themselves. The goal of the poet, the artist, and the composer are similar to the goal of most ads – creating images and

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feelings. Much advertising, especially on television and in video, is about feelings and emotions. It is about trying to make people feel good about a product. Levitt writes that, “Advertisements are the symbols of man’s aspirations.”xxviii So, Madison Avenue (as the advertising industry is often referred to), like Hollywood, is selling dreams, and dreams and hope are essential to people’s well-being.

In the digital era Google extended the definition of advertising to include search, or keyword, advertising, and Google’s search advertising is primarily direct-response advertising, which is different from branding advertising, which sells the dreams mentioned in the paragraphs above. Direct-response advertising tries to close a sale or a transaction in real time.  Branding advertising, on the other hand, invests in building brand equity and attempts to establish a brand's value proposition in consumers’ minds. The return on direct-response advertising investment will often occur immediately with a click and a sale, the return on branding advertising investment will take longer, sometimes years to pay off.

However, both types of advertising can develop demand for goods and services, and, as mentioned above, consumer demand drives the economy. Furthermore, the Internet reduces the cost of distributing digital goods and reduces the transaction costs to buy goods. Therefore, advertising can be a major contributor to reducing manufacturing costs, search costs, distribution costs, transaction costs, and thus, ultimately, retail prices for goods. Many products such as personal computers and eyeglasses steadily come down in price as the market for them grows larger and as manufacturing, distribution, and transaction savings are passed on to consumers in the form of lower prices. Consumers get information about reduced prices and increases in features and value through both direct-response and branding advertising.

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Advertising is a vital part of the nation’s economy, and as the nation’s population increases and products proliferate, marketers and their ad agencies will invest more and more in media advertising, especially in the digital media, to influence consumers and to introduce new products and services to highly fragmented media audiences. Therefore, media salespeople must understand the complexities and technologies that create and distribute advertising in order to effectively sell it. You will find out more about how advertising works in Chapter 16, and in that chapter and other chapters that follow, we will try to help you navigate through the maze of those complexities and technologies.

The MediaAdvertising is one of the integral elements of the marketing process. We might look at advertising as the mass selling of a product. Where is advertising seen or heard? In the media. For the purposes of this book, because as mentioned earlier in this chapter, the authors will define the media as businesses that are wholly or in part supported by advertising, e.g. Google, Facebook, ABC, CBS, FOX, NBC, ESPN, CNN, iHeart Media (radio), The New York Times, Cosmopolitan, the New Yorker, and BuzzFeed.

When people talk about the media, they are typically referring to the distributors of news and entertainment content – digital media such as Google and Facebook, plus television, newspapers, radio, magazines, and podcasts. The vast majority of media businesses are dependent in full or in part on advertising, and advertising, as an integral part of a larger marketing system, is co-dependent on the media. Without the media to reach large numbers of consumers with advertising, marketers would have to go door-to-door and try to sell their goods one-on-one through personal selling or consumers would

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have to wander from store to store or website to website wondering which sold the product they needed – both very expensive and time-consuming undertakings. Advertising agencies would not exist if there were no media to distribute the ads they create.

The reason marketers and advertisers are dependent on the media is because the media are pervasive and popular with consumers (users, viewers, readers, listeners), and the media are consumers’ link to the global village. People love their media and depend on their media – their favorite search engine, such as Google; their favorite social media platforms, such as Facebook or Instagram; their favorite television program, such as “Empire;” their favorite magazine, such as People; their favorite country music radio station; or their favorite newspaper, like the Wall Street Journal. Because of this affection and dependency, the media are actually the most powerful businesses in the country – more powerful than the celebrities, industries, or politicians they cover, expose, and glorify.

It is because of this enormous power coupled with a perception that the media emphasize negative news, poor-quality user generated video, fake news, or sex and violence that many people probably have such a low opinion of the media. Americans seem to blame most of the ills of society on “the media,” by which they typically mean the news media. It is for this reason that we have devoted a separate chapter in this book to ethics. Chapter 3 emphasizes the importance for media salespeople to deal with customers ethically, because the reputation of the media is at stake, and that reputation needs to be improved.

One of the roles of the media is to expose consumers to advertising, not to guarantee sales or results to advertisers. The media are just that – a medium, a connection between advertisers and consumers.

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In most of the world’s countries, the media are supported and/or controlled by government; however, most of the media in the United States are kept free from government control and interference because the majority of their revenue consists of advertising. The media from which the American public gets the vast majority of its information and entertainment are free or relatively inexpensive because they are supported by advertising. If Google were not supported by advertising, people would have to pay a few cents for each search. If Facebook were not free, people would have to pay for posting a selfie in a bar with friends.

Finally, in spite of a love-hate relationship between the public and the media, or perhaps because of it, most large media companies are profitable. Many of the great fortunes in the in the world have been built in the media, especially the digital media (e.g. Google, Facebook, Amazon, Snapchat). Even if new products do not survive in the marketplace, the media still receive the advertising dollars invested to introduce a product, just as the media get the advertising revenue from political candidates who eventually lose. The profit margins in successful media companies are, as rule, higher than in many other industries. For example, Facebook’s quarterly profit margins are often higher than 50 percent because it does not pay for content (its supply, which users create), does not pay for operations (producing the content), and does not pay for distribution (it’s on the Internet). Also, top-rated radio and television stations in major markets often have profit margins of 40 percent or greater.

The reason for these profit margins is because in an advertising-supported medium such as Google, Facebook, radio, television, digital newspapers, and digital magazines, the cost of adding an additional ad has no or extremely low incremental costs involved. For example, in television, the time for commercials is baked into most programming, so if a commercial is not scheduled in a commercial pod, a promotion

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or public service announcement will run. A television station does not expand the programming time if it does not have commercials to run. Thus, at a television station, it costs nothing to add a commercial – there are no incremental, or marginal costs involved. On the other hand, if an automotive manufacturer sells a car, it has to build one with all of the incremental, marginal costs involved (labor, materials, transportation, etc.). Once a radio or television station or a website has sold enough advertising to cover its cost of operations and debt payment, if any, all additional advertising sold is virtually 100 percent profit.  In digital newspapers and digital magazines, which often have an additional subscription revenue stream, that, once the cost of operating is recovered, the incremental cost of adding an ad is very low in comparison to the cost of the ad to an advertiser.

What this profitable economic model means for salespeople is that advertising revenue can be quite profitable and, therefore, there is more money to distribute to salespeople in the form of compensation than in less profitable industries. Media salespeople are among the highest paid of any industry.

Furthermore, research about jobs in the future indicates that jobs with more emphasis on clerical and service work (selling is service work) and jobs with more emphasis on communications and critical thinking (sales, again) are jobs that are less likely to be automated or computerized.xxix Although media buying and selling functions are being automated by artificial intelligence (AI) and programmatic trading (Chapter 18), high-level, strategic media planning and selling-as-educating jobs will take on new importance. Chapter 2 will cover the concept of media selling as educating, which replaces the traditional selling the magic of the media in the pre-Internet era.

Hypocrites Not Allowed

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If you agree that advertising is a vital part of the American economy and that advertising supports free Google searches, free Facebook posts, and free broadcast television and local radio programming, then you must believe in the value and efficacy of advertising. If so, then you cannot be hypocritical and use ad-blocking software. If you are selling advertising in any medium, including a digital medium, you must not only support, embrace, watch, listen to, and read all advertising you are exposed to but also understand enough about advertising to be able to evaluate, appreciate, and intelligently critique all the advertising you see or hear. Ad blocking is not allowed if you are a media salesperson.

Test Yourself1. What is purpose of a business?2. In marketing, what is the primary focus?3. What is AdWords?4. Why is Facebook so profitable?5. What is the difference between a customer and a consumer?6. Why are many media companies potentially so profitable?

ProjectMake a list of all of the local media in your market: radio stations, television stations, cable systems, newspapers (daily, weekly, shoppers, suburban, ethnic, etc.), local magazines or journals (local business journals, e.g.), outdoor companies, bus or subway posters, and local websites that sell advertising. Interview one or two sales managers or advertising directors of some of the media that have revenue in addition to advertising (newspapers subscriptions or a website’s e-commerce, for example) and get a rough estimate of what percentage of revenue comes from advertising and what percentage

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comes from other revenue sources such as subscriptions. Then write some notes about what surprised you in this exercise.

ReferencesAnderson, Chris. 2006. The Long Tail: Why the Future of Business Is Selling Less of

More. Hachette.

Auletta, Ken. Frenemies: The Disruption of the Ad Business (and Everything Else).

Penguin Books.

Drucker, Peter. 1954. The Practice of Management. Harper & Row.Kotler, Philip, Kartajaya, Hermawan, and Setiawan, Iwan. 2010. Marketing 3:0: From

Products to Customers to Human Spirit. John Wiley & Sons.

Kotler, Philip, Kartajaya, Hermawan, and Setiawan, Iwan. 2017. Marketing 4:0:

Moving From Traditional to Digital. Wiley.

Levitt, Theodore. 1960. “Marketing myopia,” Harvard Business Review, July-Aug.Levitt, Theodore. 1970. “The morality (?) of advertising,” Harvard

Business Review, July-Aug.Levy, Steven. 2011. In the Plex: How Google Thinks, Works, and

Shapes Our Lives. Simon & Shuster.Ogilvy, David. 1989. Confessions of an Advertising Man 2nd Edition.

Atheneum.Porter, Michael. 1998. Competitive Advantage: Creating and Sustaining Superior

Performance. Free Press.

Smith, Mike. 2015. Targeted: How Technology Is Revolutionizing Advertising and the Way Companies Reach Consumers. AMACOM.

Stewart, Thomas A. and O’Connell, Patricia. 2016. Woo, Wow, and Win: Service Design, Strategy and the Art of Consumer Delight. Harper Collins.

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Wu, Tim. 2016. The Attention Merchants: The Epic Scramble to Get Inside Our Heads.

Alfred A. Kopf.

Resourceswww.adage.com (Advertising Age)www.mediapost.com (Daily updates about all of the media and media research)www.iab.com (Interactive Advertising Bureau)www.oaaa.org (Outdoor Advertising Association of America)www.rab.com (Radio Advertising Bureau)www.tvb.org (Television Bureau of Advertising) www.thevab.com (Video Advertising Bureau)www.stratechery.com (Ben Thompson’s “Stratechery” newsletter)

Notes

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i Auletta, Ken. 2018. Frenemies: The Epic Disruption of the Ad Business (and Everything Else). Penguin Books.

ii Ibid.iii Drucker, Peter. 1954. The Practice of Management. Harper & Row.iv Kotler, Philip, Kartajaya, Hermawan, and Setiawan,, Iwan. 2010. Marketing 3:0: From Products to Customers to

Human Spirit. John Wiley Sons.v Kotler, Philip, Kartajaya, Hermawan, and Setiawan, Iwan. 2017. Marketing 4:0: Moving From Traditional to

Digital. Wiley.vi Levitt, Theodore. 1960. “Marketing myopia,” Harvard Business Review. July-August.vii Stewart, Thomas A. and O’Connell, Patricia. 2016. Woo, Wow And Win: Service Design,

Strategy And The Art Of Customer Delight. Harper Collins.viii Anderson, Chris. 2006. The Long Tail: Why the Future of Business Is Selling Less of More. Hachette.ix Porter, Michael. 1998. Competitive Advantage: Creating and Sustaining Superior Performance.

Free Press.x Wu, Tim. 2016. The Attention Merchants: The Epic Scramble to Get Inside Our Heads. Alfred A. Kopf. xi Levy, Steven. 2011. In the Plex: How Google Thinks, Works, and Shapes Our Lives. Simon & Shuster.xii Ibid.xiii Ibid.xiv Ibid.xv Ibid.xvi Ibid.xvii Ibid.xviii Ibid.xix Ibid.xx Thompson, Ben. 2017. Episode 124, “Exponent.” Retrieved from http://exponent.fm/esispode-

124-thewatch-the-iphone-the-beatles/.xxi Auletta, Ken. Frenemies: The Epic Disruption of the Ad Business (and Everything Else). Penguin Books.xxii Smith, Mike. 2015. Targeted: How Technology Is Revolutionizing Advertising and the Way

Companies Reach Consumers. AMACOM.xxiii Thompson, Ben. 2015. Retrieved from https://stratechery.com/2015/netflix-and-the-

conservation-of-attractive-profits/xxiv Thompson, Ben. 2015. Retrieved from https://stratechery.com/2015/aggregation-theory/xxv Auletta, Ken. Frenemies: The Epic Disruption of the Ad Business (and Everything Else). Penguin

Books.xxvi Levitt, Theodore. 1970. “The morality(?) of advertising,” Harvard Business Review. July-August.xxvii Ogilvy, David. 1989. Confessions Of An Advertising Man 2nd Edition. Atheneum.xxviii Levitt, Theodore. 1970. “The morality (?) of advertising.” Harvard Business Review. July-August.xxix Miller, Claire Cain and Bui, Quoctrung. 2017. New York Times. Retrieved from

http://www.nytimes.com/2017/07/27/upshot/switching-careers-is-hard-it-doesn't-have-to-be.html.