Increased innovation in online marketing is driving up costs

Marketers are always looking for new and innovative ways to break through the clutter and get their advertising message across. This is true across all media. In TV, some advertisers are looking beyond the 30 second spot to sponsor a whole show, do product placement and even user generated ads on TV. In print, some advertisers are looking beyond standard 4 color full page ads and have experimented with buying out a whole issue, and even scratch and sniff ads. But in traditional media, as you can tell from the links- these events are rare enough to be newsworthy.

In online, advertisers look beyond standard ad units (buttons and banners) as a matter of course. Everyone wants to do something innovative, whether it be widgets, viral video, sponsorships, takeovers or immersive campaigns.

I’ve recently seen a few examples of this increase in innovation in online creative. At Widgetcon earlier this month, one of the panels was Widget Marketing in the Media Mix, where reps from boutique online agencies Denuo + Droga5, crayon, Organic and Fleischman-Hillard discussed their views on widget marketing. One of the most telling quotes from the panel was from Chad Stoller of Organic who said, “If you can count it then it’s not innovation, it’s not new. You have to be just as creative with how you measure something, as creative as you are with your execution.”

This novelty-seeking mindset is increasingly typical of the new, online-focused, boutique agencies. They are all looking to demonstrate their creativity and thought leadership. A couple of weeks ago New York magazine had a great article about the new guerrilla ad agencies and the viral ad campaigns that they are creating. It highlights one of the most successful viral marketing campaign to date, a viral video where Marc Ecko purportedly tags Air Force One with their “Still Free” graffiti logo.

Apparently, “including media coverage” the video has had 115m impressions. Despite its “homemade” feel, the video cost nearly $400k to shoot ($150k went towards repainting an old 747 to make it look like Air Force One). That implies a CPM of around $3.50 on production costs alone – pretty good for online video advertising if these were the only costs.

The demand for new media creative talent to make these innovative campaigns has increased salaries, and hence costs, across the board:

Salaries for digital creative directors rose 60 percent nationwide in 2006, from an average of $115,000 to $185,000, according to a survey by the recruiter TalentZoo. “We’re trying to hire two people right now,” says Charles Rosen, “and we cannot find them.” Rosen is one of the co-founders of Amalgamated, which started with six people in 2003 and has just hired its 40th employee. “People who were juniors when we left Cliff Freeman, where some of us used to work, want $250,000 or $300,000 now. ”

These increased costs are not confined to the startup boutique agencies either. At GM Planworks (the division of Starcom MediaVest dedicated to managing General Motor’s $3.2bn ad spend) the number of employees has grown from around 200 in 2000 when the group was formed to about 500 today, primarily driven by the increase in people dedicated to new media. Yet GM spent only 10-15% of its ad budget online last year. The cost of online creative and production as a percentage of ad spend is much higher than it is for traditional media, in large part because of the urge to do more innovative creative executions online.

Often advertisers and agencies don’t have the in-house capabilities to even do the creative for the “something new” that they want in new media. At the Ypulse Teen Mashup conference last week, Craig Sherman (CEO of Gaia) spoke about Gaia’s recent immersive campaign for Scion which will allow Gaia users to buy Scions, trick them out and race them. It’s an exciting embedded advertising campaign, but a significant custom integration effort on Gaia’s part.

Similarly some big advertisers have started to launch widget marketing campaigns through partnering with Clearspring. But it’s been up to Clearspring to supply the professional services to make the widgets; the advertisers don’t have that skill in house.

This custom work isn’t something that only startups have to do either. Even Yahoo and AOL have teams within their ad sales groups dedicated to doing custom creative for special sponsorships and promotions that involve non standard ad units. Often this creative work isn’t charged for but is “eaten” by the portal to sell the whole advertising package.

The quest for innovation in online advertising comes with higher production and creative costs. As the online ad industry matures, I would expect it to evolve to look more like print, TV and other more mature ad markets. In these more mature markets the majority of campaigns are more standards based and less customized, and the costs of production and creative come down as a proportion of the overall marketing budget.

I’d be interested to hear about readers’ experiences with highly customized campaigns and their costs and effectiveness.