Brand advertising as we know it will completely disappear, according to Gabe Leydon, CEO of Machine Zone, one of the world’s largest gaming companies.
And what’s killing it? Marketers, agencies, and publishers who can’t prove that their marketing investments work.
CMOs always tell me that their biggest challenge is proving the ROI of their Marketing investments. So I was really intrigued by this video interview from a CEO compelling marketers to take a performance-based marketing approach.
There is a reason the interview is described as a video of a CEO who “freaks out a room full of Media execs” at the Re:Code/Media conference earlier this year.
If you watch the whole thing, you can tell from the questions and the audience reaction, that this was not what advertisers, agencies, and media companies wanted to hear. But don’t worry, you don’t have to watch it (although you should.) I’m gonna break down the key points here.
Never heard of Machine Zone or their CEO, Gabe Leydon? He’s the one responsible for all those Mobile Strike ads featuring Arnold Schwarzenegger and the Game of War ads with Kate Upton. And he is one of the largest media buyers in the world.
You might be wondering, if he doesn’t believe in ads, then why is his company spending millions of dollars every year on TV commercials?
Why Advertise At All?
Just like many other brands, Machine Zone wants to grow its business internationally. Leydon says their goal is to build a game that the whole world can play at the same time, and to do so it would need to market to the entire world so everyone is aware of their game and can play at the same time.
This sounds like the traditional “reach and frequency” argument you’ve heard from many ad execs for years. But he argues that he employs the world’s best engineers to create an amazing product experience. To him, the media is just an extension of his focus on creating desirable brand experiences.
And that is why he doesn’t recommend television to any brands unless they have an amazing product and who have already maximized their spending and measured the results first on digital.
To Leydon, television is overpriced and no one is really watching the commercials anyway. The problem for many buyers though, is that they don’t know this because they are not tracking it.
According to Leydon, “CEOs and boards will no longer accept marketing that isn’t driving real business results.”
Leydon says Machine Zone advertises so much on television because of the social power it has. Television creates a halo effect. “You’re not a brand until you go on television,” he adds.
But marketing to the whole world is extremely expensive. And if they’re going to spend all that money, Leydon says they need to learn to measure the effectiveness of their spend to actual business results.
One thing he’s learned is that the value you get out of buying TV ads is only captured in digital.
If you’re tracking the effect ads have on your digital marketing efforts, meaning you’re measuring the click-through rates, then you’ll see that your advertising prices do go down when you buy on television.
Leydon argues that if you were just on television, your brand will likely go out of business.
You Can’t Rely On One Advertising Medium
If brands are tracking the way they buy and the ROI of their investment, they would see that they make their advertising medium much more expensive by just going to one channel. Leydon says that companies need to work with “absolutely everybody” out there to get the best price.
Brands must diversify their channel strategy because people aren’t just watching television or using Facebook or Twitter. People are using multiple sites, channels and apps every day. When you do so, Leydon says you can price your media much more effectively because you can make everyone compete with each other. Machine Zone reportedly uses over 300 channels for their advertising campaigns.
Why Advertising Is Broken
The problem Leydon sees is that currently there is no ad tech or software platform to make everyone truly compete in an open market. And he blames networks and agencies for this because they all create their own lock-ins that makes it very difficult for buyers to measure and quantify the value of their advertising spend.
Leydon commented that agencies exist “to steal my money.” And publishers intentionally mask their data to keep media buyers in the dark. Ouch!
Networks and media companies talk about how many eyeballs they have, but that is as much (or little) data as you’ll get from them. But to Leydon, that just doesn’t work anymore.
There is a lot of fraud out there, and buyers will increasingly want to know if these eyeballs are real or not and how they are performing. They will want to know the effects of their ad buying, and if they can buy more to scale.
Leydon believes that today’s media companies and networks lack this transparency and performance data. “Publishers are kind of dipping their toes in the water of digital, and they’re only doing it halfway and they’re getting really scared by it,” Leydon says. They don’t know what is happening and they just want to go back to television because they make more money from it than digital.
And agencies are telling buyers that they will help them and get them the best buys. But what is problematic about agencies, in Leydon’s opinion, is that they are worth what their sales are. If they make a hundred million dollars in sales, their business is worth a hundred million dollars in cash. So agencies are not “incentivized to do the right thing,” they are incentivized to convince buyers to buy and spend as much money as they possibly can, regardless of whether their ads are actually working or not.
That is why Machine Zone doesn’t go through agencies to buy ads. Publishers are not incentivized to quantify their audience and price their media, and agencies are working together in that. This allows them to all set prices based on this lack of transparency, without any real performance data to justify their pricing.
So why is there a push to avoid quantifying their media among networks and agencies? Leydon argues that media companies and agencies don’t actually have a real business. The users who consume their media don’t want to pay them anything and want everything for free, and they’re actively trying to avoid paying.
So publishers need to depend on someone else who has a real business and has something people actually want and are willing to pay for, to give them money so they can have a business. They rely on buyers, the ones with the actual business and money, to survive.
The reason why advertising is broken and why media companies are consolidating or even collapsing, is that, in Leydon’s words, they are in denial about “what their business really is, what their true value of their business is, and they’re doing everything possible to avoid real value measurement of what they do.”
The Rise Of Sophisticated Buyers
Buyers like Machine Zone are getting tired and frustrated with this lack of transparency and performance data, and it’s pushing for a new kind of buyers to appear – the “sophisticated buyers.”
As soon as buyers wake up and realize that they are the ones writing all the big fat checks to media companies and agencies, they will start demanding to know what is happening with their money. When this happens, Leydon says that the market will get re-priced very quickly.
Once buyers have insights into how their advertising dollars are spent and the positive ROI of these marketing channels, television-style advertising – the current version of brand advertising – will completely disappear. The new version will be highly measured. Digital will break it all down because it’s all trackable and price and value will become discoverable.
No one will want to do television-style advertising anymore and will focus on trackable digital media. That is why Leydon finds it bizarre and shocking to hear that some platform owners at the conference are trying to bring back television-style advertising and are moving away from programmatic advertising to native, non-skippable ads.
Leydon thinks this makes no sense at all. Why would any brands want to buy that when they could go to another platform and get real measurement and data on how well their ads are performing? When the market becomes more quantifiable, it will be hard for any CEO or executive boards to justify marketing investment they can’t measure. Brand advertising will suffer as a result.
Performance-Based Marketing Is The Future
That is why Leydon thinks media companies and agencies need to embrace and focus on performance marketing. Google is the world’s second largest company for a reason. It’s a performance marketing company. Facebook is worth $300 billion because they’re also a performance marketing company.
People buy and give them money because it’s trackable, measurable and quantifiable media. Leydon argues that programmatic, technology-driven ad purchasing is now and the future, and we’re not going back to the television-style advertising era.
Yet, media companies and agencies are actively avoiding performance marketing. This is why their value is shrinking and why they’re seeing so much failure. It’s because it’s simply just not working.
To survive and thrive in the era of “sophisticated buyers,” companies need to really understand what their buyers – the ones who are spending money – actually want. When your company’s strategy and product is centralized around the buyer and their needs to grow their business, your sales and revenue will grow too.
As a former media buyer with a multi-million media budget, I was committed to proving that marketing can drive real business results! We used our best (and tested) thought leadership content run natively on publisher sites, to negotiate media buys based on CPL (Cost Per Lead) only performance criteria.
Want to make media buyers scatter? Ask them for their terms on CPL-only buys. It takes a lot of media budget to get them just to sit at the table.
But this focus creates a win-win for everyone. Customers are given access to great content. Agencies and publishers get paid based on the performance of their media buys. And brands can quantify the value of their dollars, even after figuring in the cost to nurture and convert those leads down the funnel to actual sales.
I thought this video was so compelling that I actually watched in full-length twice! This is not a CMO or ad buyer. These are shockingly accurate comments from a CEO. Who mentioned multiple times that all the sophicticated buyers in the room would agree with him.
Do you agree with Leydon’s critiques? I’d love to hear your thoughts, so please share in the comments section below!
Are you interested in engaging and converting new customers for your business? Contact me here and let’s talk about how we can help.
Photo Source: https://www.recode.net/
Watch Leydon’s full interview at Code/Media below.