what-is-advertising

What Is Advertising? A Business History Of Advertising

Modern advertising was born back in the early 1900s intended as the use of madd media (from Radio going forward) enabled companies to communicate at scale with a simplified message. With the advent of the Internet, digital advertising with all its facets took off, and it enabled companies to reach small audiences with customized messages.

How the guide is structured

This is a guide about market segmentation, the technologies that allowed marketers to create more and better-segmented audiences and how the way of communicating changed from mass marketing to one-to-one marketing starting the 1920s until today.

Second, you’ll learn all the aspects of market segmentation. From how, why and when to create market segments. To the requirement necessary for creating market segments and the types of market segmentation.

Third, you’ll learn what tools today marketers can leverage to create audiences and small segments with the utmost details.

A brief history of advertising

Marketing has evolved through the technological devices that allowed marketers to convey the same message to millions of people a the time, like mass media.

To technologies that instead allowed marketers to speak to millions of people with customized messages, like social media and SEM.

Let’s dive a bit into the story of marketing associated with the technological devices that made it possible for marketers to develop new ways of reaching an audience.

I argue that as new technologies at the beginning of the 1900s became available for marketers, those allowed to speak to vast audiences.

That also meant crafting a message that could be understood by the masses. It was the rise of pop culture.

As technology has evolved, it allowed marketers to have accurate data about users. Thus, the marketer could finally craft a personalized message for each user.

It is interesting to notice also the change in terminology. From masses to users. From television viewership to the user experience.

That is also why marketing is now back to building communities, tribes, and personal relations. This is the story of how we went from mass markets to one-to-one conversations.

The rise of Radio and Mass media

As reported in the book The A to Z of Old Time RadioFrank Conrad, an electric engineer who worked for Westinghouse held more than 200 radio-related patents he started off with his own radio transmitter.

Initially, radio broadcasts consisted just of transmitting the location and equipment used. Yet Mr. Conrad was soon to be bored by this kind of set up.

That is why in 1920 he started a new format called The Radio Amateur News. During the show, Frank Conrad took his phonograph and began to transmit it. At the time 400 people listened to that show.

When another executive at Westinghouse noticed the potential for advertising, he understood they should test the same concept with a broader audience and more structured programming.

The chance to test that came with the Election Day:

When KDKA became the radio’s first commercial programmer, it started by asking “Will anyone hearing this broadcast, please communicate with us, as we are anxious to know how far the broadcast is reaching and how it is being received?”

On that occasion, more than a thousand listeners were reached.

Technology and marketing walk hand in hand. In the 1920s, radio had become the primary medium of communication. 

Across the U.S. and Europe, broadcasting stations such as KDKA and British Broadcasting Company (BBC) began to rise.

The power and potential of mass media were still hard to foresee at the time. Experimentation allowed those first marketers to understand its potential.

In fact, disciplines like growth hacking claim to have brought the scientific methodology into the marketing world. In reality, good marketing has always been about experimentation.

Also, Frank Conrad was an electrical engineer, and for what we know he might have been the first mass media marketer. Even though he reached just a few hundred people, he changed the rules of the game.

We think of Sergey Brin and Larry Page or Mark Zuckerberg as a new expression of a tech world dominated by engineers.

Yet as this story shows broadcasts made it possible for companies to send advertising messages to large, undifferentiated audiences at once, giving birth to the mass market concept and the first mass marketing techniques.

Then television came, and mass markets became even more prominent.

Television and mass marketing

The Brooklyn Dodgers are playing the Philadelphia Phillies. It is July 1, 1941. Suddenly, before the game begins a 10-second advertisement from a watch company – called Bulova – gets broadcasted:

This ten-second spot was the first TV commercial US people saw. Imagine the effect of it – if any. From there a multi-billion industry was born. A bunch of commercials became part of the pop culture:

TV dominated the advertising together with other media outlets dominated the advertising industry:

advertising-history
Source: eprints.lancs.ac.uk

Until 2017 came:

digital-ad-spending-vs-tv-ad-spending

One of the things for which 2017 might be remembered is the take over of the advertising spending by digital over TV.

The end of mass marketing and the beginning of niche targeting

As we’ve seen so far, back in the days, marketing budgets would be spent primarily on mass media channels. This enabled companies to channel the message toward the largest number of people possible.

Which in turn made it possible to create mass cultures, and manufacture mass consumer behaviors which spurred growth and profitability for these companies in years to come. Those brands which mastered demand generation managed to be on top of their game for decades.

Until the web reshuffled the rules of the game. Finally what used to be an odd person or a nerd who could not recognize herself in the mass culture. The web became a person who belonged to a small community spread across the world.

Thus anyone no matter how weird she felt during the mass culture age; could find other people like her around the world, through the Internet.

That opened up new ways of communication and marketing.

Before becoming a tech giant Amazon was a niche player

niche-marketing

When we become grown-up it’s hard to remember when we were kids. That seems to be the case for tech giants.

As we see them today as trillion empires, spanning across geographies it’s hard to remember that once a company like Amazon was simple e-commerce sold books on the web. Amazon, like any other tech giant, picked a niche, dominated it. Expanded to adjacent, larger niches, until it dominated an entire industry.

That applies also to Facebook. Started as a social network for top universities (it was open to just a few initially), it then rolled out only when there was massive demand from new colleges.

facebook-timeline-2004-2006

The Facebook timeline between 2004-2006 according to its S1

As you can see, while Facebook grew pretty quickly. It opened the registration to workplaces only in 2006. Interesting fact, Facebook rolled out the News Feed in the same year.

No doubt a feature like the news feed was a key element to enable Facebook to broaden its reach.

In other words, the rise of the web and the enablement of digital business models created a need to start from specific niches.

Below we’ll see the case of two companies, in particular, who have changed the way to segment the market: Google (with AdWords, now Google Ads) and Facebook (with its Facebook Ads Platform).

The internet, Google, and its AdWords

Mountain View, California – October 23, 2000, Google makes the following announcement:

Google Inc., developer of the award-winning Google search engine, today announced the immediate availability of AdWords(TM), a new program that enables any advertiser to purchase individualized and affordable keyword advertising that appears instantly on the google.com search results page. The AdWords program is an extension of Google’s premium sponsorship program announced in August. The expanded service is available on Google’s homepage or at the AdWords link atadwords.google.com, where users will find all the necessary design and reporting tools to get an online advertising campaign started.

The beta debut saw the involvement of 350 businesses and advertising agencies worldwide. However, Google AdWords would be rolled out broadly in 2002:

google-adwords

In 2003 Google reported over $790 million in turnover!

Google’s advertising revenues have grown exponentially to monopolize the digital advertising market together with Facebook. google-sales-breakdown

In 2017 Google’s revenues from its properties came primarily from AdWords. Revenues reached almost eighty billion in 2017!

On Jun 27, 2018, Google announced Google Ads:

The new Google Ads brand represents the full range of advertising capabilities we offer today—on Google.com and across our other properties, partner sites and apps—to help marketers connect with the billions of people finding answers on Search, watching videos on YouTube, exploring new places on Google Maps, discovering apps on Google Play, browsing content across the web, and more.

The aim is to provide under the same umbrella access to Google Marketing Platform:

Google Marketing Platform

Social networks, Facebook, and its advertising network

Facebook announced Facebook Ads:

“Facebook Ads represent a completely new way of advertising online,” Zuckerberg told an audience of more than 250 marketing and advertising executives in New York. “For the last hundred years media has been pushed out to people, but now marketers are going to be a part of the conversation. And they’re going to do this by using the social graph in the same way our users do.”

facebook-sales-breakdown

If you want to know where the advertising money is, just follow the eyeballs

New technologies influence human behaviors for better or worse. Companies or people operating in the business world use those technological advancements to understand how to alter the responses of people to specific stimuli.

Technologies like Radio and TV allowed companies to speak to a broad audience. They also created a monologue between corporations and the public.

This also incentivized companies and marketers to use a sort of “universal language” that could be understood by anyone. It was the era of pop culture.

This kind of advertising model made sense because companies knew little about who they had on the other side.

Thus, they either used mass marketing campaigns that were undifferentiated, or they used invented customer groups based on what they thought were their ideal customer.

When tech giants like Google and Facebook entered the advertising industry, it all changed. Advertising was no longer something “magical.”

Those companies founded and run by engineers looked at advertising and tried to make it accountable, and measurable.

So that any business paying for advertising could stop focusing on metrics used in TV advertising like gross rating points (audience reached by the frequency of its exposure to the message during a given period); and focus more and more on conversion targets with PPC (pay-per-click) also known in the business as CPC (cost-per-click).

The reason why in the history of modern advertising I included mainly Google and Facebook is that those two companies combined took over the advertising industry. In fact, as Statista points out:

Over the past two decades, advertisers have gradually shifted their budgets away from traditional media (e.g. TV, newspapers and magazines) towards online ads. The rise of the smartphone has only accelerated this shift, as smartphones have fundamentally changed the way that people consume content. Ad dollars have always followed eyeballs and thus it doesn’t come as a surprise that mobile ad spending is currently growing at a breathtaking rate.

As reported by Statista 25% of global ad spend goes to Google or Facebook.

Part of this process has been driven by the change in behaviors of users driven by new technologies. In fact, as mobile devices are becoming less and less expensive, most of the consumption of content and information is connected to those devices. That is why ad spending has followed.

This short history of advertising could have well been called the “history of eyeballs.”

In this landscape, we’ll see also how advertising has changed and how it has evolved from mass marketing, with the so-called shotgun approaches, to hyper-personalized approaches.

In other words, market segmentation moved from undifferentiated to highly personalized.

The rise of microniches and AI Marketing

microniche
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.

In the era of platform business models driven by algorithms and AI, micro-targeting had become the rule and engineers have become the designers of incredible advertising machines, that can work at scale.

This leads us to the era, or perhaps the nightmare of AI marketing.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here