NEW YORK: Online adspend reached a record high in the US during the last quarter, but many agencies are still struggling to build models and processes tailored to the digital age.
Industry body the IAB and consultancy PricewaterhouseCoopers reported that internet ad revenues hit $6.4bn (€4.7bn; £4bn) in Q3 2010, a 17% improvement on Q3 2009.
Based on the year to date, the web seems set to surpass its largest ever annual expenditure, $23.4bn in 2008, and easily beat the $22.6bn posted in 2009 when the downturn meant companies trimmed budgets.
"Advertisers are shifting more of their brand messaging online," said David Silverman, a partner at PwC.
"This trend reflects the accelerating shift in consumer behaviour towards the internet and away from traditional media."
Fernanda Romano, Euro RSCG's global creative director, digital and experiential advertising, argued agencies must respond in kind.
"The tipping point was last year when the massive advertisers – Unilever, Procter & Gamble, Coca-Cola, Sony and PepsiCo – really got scared about the internet and started to put a load of money into digital," said Romano.
"Finally, the brand owners – the ceos and cmos – and the mainstream agencies understood that digital is not an afterthought; it has to be at the core of advertising, because that's where many people are living today."
However, although the choices available to marketers have increased exponentially, effectively engaging the target audience is similarly complex.
"The irony is that while there have never been more ways to reach consumers, it's never been harder to connect with consumers," Brad Jakeman, chief creative officer at Activision, told Fast Company.
Another major issue facing the ad sector is the advent of new remuneration systems, not least as the web is considerably cheaper than TV, but is technically labour-intensive.
"Creating more work for less money is the big paradox," Matt Howell, president of Modernista, an agency in Boston, suggested.
New players are also entering the fray, with Accenture and Sapient providing new media services, Google, IBM and Microsoft delivering analytics, and MediaMath and DataXu mechanising media planning.
"With infinite ad inventory on the internet, you just can't have people do [media planning] anymore," Dan Salmon, analyst at BMO Capital Markets, said. "It's now being done by a piece of software."
John Winsor, formerly of Crispin Porter + Bogusky, recently opened Victors & Spoils, operating "on the principles of crowdsourcing" and boasting clients like General Mills, Virgin America and Harley-Davidson.
"Many agencies are hanging on to this idea that creativity is theirs to own and sell," said Mark-Hans Richer, Harley-Davidson's cmo.
"[Victors & Spoils] offered a great place to start versus sitting across from a creative who spent weeks crafting the perfect idea and gets upset if you want to change a word."
PepsiCo's SoBe also decided solely to employ specialist shops in fields including digital, promotions and PR following a review last year.
"I didn't see it as us ditching a creative agency. We were going beyond traditional," said Angelique Krembs, SoBe's marketing director. "We realised it was unlikely we'd find everything we wanted in one place."
Elsewhere, when relaunching Athenos Hummus, Kraft worked with GeniusRocket, an online firm collecting original TV spots from communications experts worldwide, and charging as little as $40,000 for seven ads.
"For an agency to be on the cutting edge, it must have heavy overhead … versus GeniusRocket, which is a lean team focused on new ideas" said Marshall Hyzdu, the Athenos brand manager.
"I wonder if that becomes the new model."
Data sourced from IAB/Fast Company; additional content by Warc staff