Demand generation versus demand fulfillment

In search for the Holy grail of online advertising

I have recently been thinking about the efficacy of the online ad industry’s ability to generate demand.

Its an interesting problem…and one in my opinion, the industry hasn’t solved yet.

The efficacy of search is a result of its ability to satisfy a prior demand. Its elegant. You want to learn something. You search for more information. You get your results and links to relevant products are presented next to the information. Its no surprise then that 40% of the of the $21.4 billion US online ad market is paid search.

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So the problem then isn’t the fulfillment of demand — it’s an efficient process for those of us that use the web regularly.

According to Chamath Palihapitiya, the VP, Product Marketing and Operations at facebook: “For every dollar spent on demand fulfillment, there are hundreds spent on demand generation.”

He rightly believes that there is a huge opportunity in the demand generation space. Today, Google is a demand fulfillment company worth $217 billion, similarly, Yahoo! is a $33 billion company. If his math is right, then the dollar opportunity for demand fulfillment is represented by $25 trillion.

Today, facebook is groping with this opportunity. While Beacon has had a very rough start and may perhaps end up pushing away many users (teens are notoriously wary of marketers), Beacon was an attempt to use the associations among its users to present brands and products in what they thought was a non-intrusive way. The theory was that if friends saw friends buying Budweiser, they might consider buying Budweiser themselves.

The assumption is that if your friends do it, you are more likely to do it. Unfortunately this assumption also flouts the another key teen ideal: independent thinking. The humorous image below from bokardo.com depicts how these Beacon ads seem to have been received:

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While the Beacon experiment’s final results won’t be seen for some time, facebook should be applauded for trying to innovate and capture a part of the demand generation opportunity. Given the bright minds over there, I am sure the experiment will evolve into something that monetizes the attention of its users and works for all parties.

Yet the big question remains: How will the industry create a win-win solution to demand generation? Obviously, the relevance and timing of the marketer’s messages are critical. However, delivering relevance or timing without the other will come across as intrusive, or even worse: spying. Beacon is an attempt at providing relevance, but its difficult for something like a can of beer to be timely unless those promotions about that product run at 5 PM on Thursday, Friday and Saturday night. If they can get that right, and the ad message comes across as additive to the experience, then they are on the right path.

The problem with demand generation and most of today’s solutions, is that if you don’t get relevance right, its just wrong. Wrong = intrusive, and intrusive = an ignored message or even worse, a negative impression.

The Holy Grail of demand generation hasn’t changed: Right message at the right time to the right user. But I think the solution is more complex than simply showing friends what friends are doing. There needs to be some intelligence to the recommendation of the ad message and that intelligence has to take into account timing and context. Recommendations also have to consider recent behavior of the recommending party and the recommended party. Another problem is that most facebook users present themselves in a way that protrays thier own self image versus who they really are and what they really do. This reality prevents an ad server’s decision from being accurate.
Many smart people are working on ths problem today, becasue of this, I look forward to the day when ads are complementaty to the online experience and deliver a message that is both relevant and encourages me to start thinking about (latent demand) products or services that I normally would not.

So how far away is this Holy Grail???

This post originally appeared on Relevantly Speaking.

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