Own It, Don’t Rent It

For the last 15 years venture capital firms have focused on advancements in paid media.  Paid media is the ~$200BN in advertising spent every year in the US across TV, print, radio, and online, and VCs have funded this industry because the Internet created new opportunities to measure and deliver scalable advertising.  There is a famous John Wanamaker saying from 1886, “Half of the money I spend on advertising is wasted, but I don’t know which half.”  Digital media promised to solve this dilemma 125 years later.

Fast forward 15 years.  There are hundreds of new companies in adtech, a couple technology breakthroughs, and the problem of “paid media waste” still exists.  I believe there will always be waste when it comes to paid media, mainly because consumers are fickle and hard to measure.  For instance, when you sit consumers down, and ask them what they like, they will often tell you something completely different from what they really like.  Daniel Kahneman won a Nobel Prize for this observation, however anyone who watches reality TV understands that as soon as the camera starts rolling people act crazy.

All this aside, the major problem with paid media is that it is ephemeral.  A 30 second Superbowl ad lasts for precisely 30 seconds.  With few exceptions, it takes longer than 30 seconds to change someone’s mind.  For that reason paid media is very effective at making people aware of your product, but I am not sure it is the most effective tool at making people buy your product.

For a number of reasons I think the next decade is going to be the decade of owned media. Common examples of owned media are Facebook pages, Twitter accounts, websites, packaging, conferences, mobile applications, and branded retail stores.  Some brands even have proprietary content, like recipes, children’s cartoons, and music libraries.  In the last two years brands and consumer-facing companies in general have increased investment in this area, and I see that trend continuing.  Microsoft is opening retail stores to compete with Apple.  Ford is on Facebook.  Proctor and Gamble is experimenting with direct-to-consumer eCommerce.  The major lesson from Groupon is that owning the channel to the consumer is important, and people will sample anything if it is delivered in the right context (and at the right price).

From an investor’s point of view, “owned media” businesses can offer more upside than “paid media” businesses.  For starters, they sell direct to a client instead of going through an advertising agency.  This means the quality of the revenue is better, the sales cycle is shorter, the contracts are longer, and the company has a higher customer lifetime value (direct-to-brand deals generally stick, while agencies change every few years).

In order for owned media to really take off major companies need to organize their marketing teams to screen more opportunities in the field.  This is the same trend we saw two years ago before brands hired social media managers.  In the meantime I am always happy to act as a first screen for any brand that wants to meet with the next generation of owned media companies, and I will continue to blog about them here as I see them.

3 comments
Jim B
Jim B

I think paid media is a good vehicle for managing customer retention and upsell/cross sell of products and services. However, for customer acquisition I think brands still need to compete in the paid media channels in order to break through and get their message out there in the market. You are correct that the paid media channel is very ephemeral but that's why optimizing campaign Reach and Frequency can help ensure a message really has a resonating impact on the target audience. Owned channels do tend to be treated as an afterthought and the key to understanding the value of the channel is to measure paid vs. owned in terms of advertising effectiveness. The problem with shifting consumers through the purchase funnel from awareness/consideration to buy is big and complex. Consumers may go to company websites to review and learn about products but there can be a delay between learning and then actually going to buy a product either online or through traditional retail. Its a complex problem to control and isolate the individual media campaign elements that might be driving the actual purchase behavior after consumers are exposed to a multi-faceted ad campaign. However, having effective owned media channels might reduce some friction and make it easier to close that gap between ad exposure and purchase.

Jim B
Jim B

I think paid media is a good vehicle for managing customer retention and upsell/cross sell of products and services. However, for customer acquisition I think brands still need to compete in the paid media channels in order to break through and get their message out there in the market. I agree that the paid media channel is very ephemeral but that's why optimizing campaign Reach and Frequency can help ensure a message really has a resonating impact on the target audience. Owned channels do tend to be treated as an afterthought and the key to understanding the value of the channel is to measure paid vs. owned in terms of advertising effectiveness. The problem with shifting consumers through the purchase funnel from awareness/consideration to buy is big and complex. Consumers may go to company websites to review and learn about products but there can be a delay between learning and then actually going to buy a product either online or through traditional retail. Its a complex problem to control and isolate the individual media campaign elements that might be driving the actual purchase behavior after consumers are exposed to a multi-faceted ad campaign. However, having effective owned media channels might reduce some friction and make it easier to close that gap between ad exposure and purchase. Read more: Own It, Don’t Rent It |

Jim B
Jim B

I think paid media is a good vehicle for managing customer retention and upsell/cross sell of products and services. However, for customer acquisition I think brands still need to compete in the paid media channels in order to break through and get their message out there in the market. You are correct that the paif media channel is very ephemeral but that's why optimizing campaign Reach and Frequency can help ensure a message really has a resonating impact on the target audience. Owned channels do tend to be treated as an afterthought and the key to understanding the value of the channel is to measure paid vs. owned in terms of advertising effectiveness. The problem with shifting consumers through the purchase funnel from awareness/consideration to buy is big and complex. Consumers may go to company websites to review and learn about products but there can be a delay between learning and then actually going to buy a product either online or through traditional retail. Its a complex problem to control and isolate the individual media campaign elements that might be driving the actual purchase behavior after consumers are exposed to a multi-faceted ad campaign. However, having effective owned media channels might reduce some friction and make it easier to close that gap between ad exposure and purchase.