new frontiers in advertising business models

Microsoft’s Steve Ballmer, recently honored as Bureaucrat of the Month, has identified advertising-funded business models as Microsoft’s top concern:

Today, the big phenomenon that we can embrace – the big fat thing for us to think about, embrace, endorse, compete with – is what does ad-funding mean? Whether it is for search, or whether it is for business-services, or whether it’s for other online services, what does that funding mean as a competitive business model and do we embrace it as is? Do we modify it? Do we just compete with it, with more of a transaction or subscription model? But how we deal with that is a Job One issue.

Advertising spending as a share of GDP has been relatively constant across large changes in media. This past constancy provides useful background for thinking about innovations in advertising business models.

Google targets textual ads to moment-specific user desires indicated by user search queries. Demographic and interest segmentation and targeting has long been a central concern in the advertising business. Targeting advertising based on search queries effectively segments individual persons. Ads depend on what you want right now.

Less noticed has been innovation in another direction of advertising. Brand advertising typically has depended on expensive, mass-media ad campaigns. Online marketing campaigns, in contrast, depend on more diffuse patterns of example and influence. New sorts of online advertising relationships, such as pay per post, sponsorship of bloggers, or endorsements by bloggers, require working out norms of integrity, respect for personal relationships, and fair disclosure. But the challenge of working out online advertising norms shouldn’t be exaggerated. Logo-branded clothing typical requires users to pay extra to advertise fashions in their daily interactions with others. That’s not even controversial. Ethical online brand advertising is likely to be a major advertising growth area.

Consider, for example, Life of a Farm blog. As Jonathon Trenn notes, the blog offers the authentic voice of Joel Combs, a small farmer, describing details of his life. Joel uses a Mahindra tractor. Mahindra Tractors clearly sponsors the blog, which is hosted on a Mahindra domain and includes a Mahindra logo on the right. Mahindra Tractors’ connection with Joel through this blog speaks to how they understand who they are as a company and contributes to the meaning of their brand. At the same time, each post seems to include at least one link to Mahindra Tractors. Those links don’t detract at all from the personal quality of the posts. But it seems to me that the brand value of the Life of a Farm blog is not in its explicit links, but in bringing Mahindra’s brand into the real life of a particular person.

This is the sort of guy who uses a Mahindra tractor:

Unfortunately my Chevy truck is on the fritz. The stupid thing will just die on you for no reason. It may go a mile or 30 miles then usually starts right back. I suspect it is the PMD (Pump Mounted Driver) on the injector pump. $389 new, wow that hurts! I’m seriously considering changing brands when I get it fixed. I have always been a GM guy, but I don’t think I will ever own another GM diesel truck. That kind of puts me in a bind though because I absolutely worship Trans Ams and I can’t see driving a Ford or Dodge truck and a completely opposite brand car. I’m sure Mustangs are fun to drive like TAs, but I like the T-tops and 6 speed tranny in the TA. Not to mention that thing still runs great at 187,000 miles.

This guy also loves a Mahindra tractor. That’s an impressive endorsement of Mahindra Tractors.