ON a recent Thursday, Darren Herman, the president of Varick Media Management, was sequestered in his SoHo office. He wasn’t scrutinizing a television ad or images from a photo shoot. He was combing through graphs and Excel spreadsheets.
Mr. Herman had run 27 ads on the Web for his client Vespa, the scooter company. Some were rectangular, some square. And the text varied: One tagline said, “Smart looks. Smarter purchase,” and displayed a $0 down, 0 percent interest offer. Another read, “Pure fun. And function,” and promoted a free T-shirt.
Vespa’s goal was to find out whether a financial offer would attract customers, and Mr. Herman’s data concluded that it did. The $0 down offer attracted 71 percent more responses from one group of Web surfers than the average of all the Vespa ads, while the T-shirt offer drew 29 percent fewer. And Mr. Herman didn’t just compare the messages in the ads — he also looked at the sites where they ran, when they ran and what groups of people responded.
From the “Mad Men” era until now, advertising has been about a catchy tagline, an arresting image, the Big Idea. But Mr. Herman and his competitors are bringing some Wall Street-like analysis to Madison Avenue, exploiting the huge amounts of data produced by the Internet to adjust strategy almost instantly.
“It’s putting numbers to an industry that never had numbers before,” says Mr. Herman, 27, who started and sold three media and technology companies before founding Varick last summer. “It’s nice to be able to tell your brand manager or the chief marketing officer which audience is interacting with the unit, what time of day, what day of the week, and what the response is on certain types of offers. Before, nobody could really tell you that.”
This approach turns marketing “upside down,” says Ron Proleika, the vice president of marketing communications at Windstream Communications, an Internet service provider and a client of Mr. Herman’s. “It forces marketers to stay on their toes and think of thousands of small great ideas instead of one great big one."
Major advertising holding companies like WPP, the Publicis Groupe, Havas, MDC Partners and the Interpublic Group are starting data practices, hoping to latch onto what is expected to be the fastest-growing category of online advertising in the next five years.
Where the data guys were once an afterthought in a marketing presentation, now they are at the core of the online strategy. What’s more, they can help advertisers save money in traditional media by testing different phrases or images online to see what works before producing an expensive television commercial or magazine ad. Who attracts more clicks in a grape juice ad, for example — the blond girl or the brown-haired boy?
The shift to data-based campaigns is forcing marketers to learn new skills and drawing a new breed of worker to Madison Avenue. While most data executives now in the field came from media backgrounds, they are recruiting Wall Street math geniuses because the job requires hourly adjustments in strategy based on numbers.
Mr. Herman is trying to hire people from Citigroup and Bank of America, and he hopes that the layoffs in the financial industry will help him do it on the cheap.
“It mirrors the financial markets in many ways,” he says, so “that’s where we go."
Still, getting advertising agency employees to rely on data is difficult, agencies say. And as people trained on Wall Street migrate to Madison Avenue, executives anticipate battles between creative types and wonks.
Traditional ad agencies still don’t have budgets that allow for a lot of digital experimentation, Mr. Herman says. He notes that most traditional agencies “make the bulk of their money in print, radio and television.”
So even as this area becomes increasingly technology-driven, old ways of doing business and clients reluctant to embrace radically new approaches mean that the advertising culture won’t change overnight.
“At the end of the day,” Mr. Herman says, “the entire process isn’t digital because our clients aren’t.”
UNTIL the Internet, advertising required heavy research at the front and back ends. Millions of dollars went into television and print ads, so the advertisers had to get the idea right before they produced one. Determining the effectiveness of those ads was hard. It required follow-up surveys and interviews. And once advertisers began a campaign, they were locked into it — they usually booked TV spots four months before the season began, for instance, and even if a show tanked, they couldn’t always abort their plans.
1 2 “In the olden days, the consequences of planning were great, so we’d spend nine months before air date” doing research, says Barry Lowenthal, the president of the Media Kitchen, a media planning and buying company that, like Varick, is a unit of MDC Partners. “Then, nine months after we’d been running the ad, we’d finally figure out whether it was working or not.”
Online, though, advertisers get instant measurements and can make instant changes to a media plan.
Varick and its handful of competitors cement their strategies around a system called exchanges, a mechanism that helps online publishers like NBC.com or Yahoo.com sell ad space. While publishers have some ad space no company would bid on in advance — few advertisers would book a random Yahoo mail page, for instance — publishers still want to show an ad when someone loads that page. So the publishers let an ad exchange like Right Media, from Yahoo, or DoubleClick Advertising Exchange, from Google, sell that space instantly, through an electronic auction, and get a cut of sales.
Such random, seemingly unwanted space could be virtually worthless. But because ad agencies can now use multiple sources to gather very specific demographic data about visitors, such space gains value and can be brokered on an exchange.
Among the sources agencies rely on for data-mining is information gathered from other sites. Imagine that every time someone entered a store while shopping, she received a stamp on her hand. By the time she got to Macy’s, the clerk could see she had visited Williams-Sonoma and Home Depot and could direct her to housewares. A similar principle is followed online.
When someone visits a site like Expedia or Autobytel.com, that site captures valuable information: Someone is a first-class traveler, for instance, or shopping for a hybrid car. Those sites have deals with data companies, like , to place a so-called cookie — a small text file — on that visitor’s hard drive, indicating those preferences. An advertiser like Varick bids on those cookies, instructing an exchange that it will pay a certain amount for an ad when a certain cookie is for sale.
Other companies, like Media6Degrees and 33Across, analyze the world of social media, using cookies and interaction data to find “lookalike” groups among friends on Facebook, Flickr or other social sites. Their theory is that friends share values and are likely to respond to similar marketing messages.
Finally, companies can add cookies for anyone who visits pages on their sites — if someone gets to the checkout page, then abandons his shopping cart, the company will probably pay lots of money to advertise to him again.
This combination — real-time data and ad exchanges — has monetized what was once considered throwaway space online. ThinkEquity, a research firm, estimated that advertising based around Web publishers’ extra space brought in $4.1 billion in 2008, up 32 percent from 2007, and it expects it to be the highest-growth segment of the online advertising market between now and 2013, outpacing even search. (It is still a small part, however, of what ZenithOptimedia, a media agency, estimates to be the overall $487 billion advertising market.)
All this tracking has raised privacy concerns. Some privacy advocates have asked Congress and the Federal Trade Commission to investigate the issue, seeking clear policies about sensitive data, more information on the way companies are tracking consumers and options for consumers to avoid online tracking.
So far, the commission has recommended that the industry police itself. But Jon Leibowitz, one of the commissioners, warned in February that the industry needed to do a better job or face new laws and regulations.
Without much regulation, says Michael Brunick, vice president and media technology director for Cadreon, a competitor of Varick’s, “the data game right now is a little bit of the Wild West.”
WITH so much information to trade on, several advertising firms are creating their own data-based practices.
“We have, over the last year or so, gotten more and more interested in the ways that you can use data to make advertising more effective online,” says Matt Greitzer, the vice president of search marketing and auction-based media at Razorfish, which is building its exchange group.
In addition to what an ad should say, and where and when it should run, advertisers have to figure out how much each ad, or “impression,” is worth. The data helps them do that. “You’re making, in some cases, real-time decisions about how much to pay for a specific impression,” Mr. Greitzer says.
In a simple example, if an advertiser knew that his ads attracted more clicks on profiles.yahoo.com than on movies.yahoo.com, he would pay more when space was auctioned for the first site.
Edward Montes, the managing director for North America at Havas Digital, who oversees its exchange group, says that his data analysts are “basically looking for anything that affects performance — any time they find variance in the matter of how the media performs, that’s what they go in and exploit, and that’s what the exchanges are perfectly set up to do.”
As data executives continue to build on their research, this arena could resemble Wall Street even more: yield managers could hedge their purchases, buy futures to lock in prices and use other trading strategies. And this type of sophisticated testing and trading will require changes in clients’ attitudes.
Mediabrands, a unit of the Interpublic Group, has been quietly running a data practice called Cadreon for nine months that it soon plans to roll out more publicly. In addition to buying standard Web site ad space, Cadreon also buys mobile advertising, online video slots and, soon, spots on digital billboards and other new media.
Traditionally, marketers allocate certain amounts of money for each medium. Quentin George, the interim chief executive of Cadreon and the chief digital officer of Mediabrands, says Cadreon instead would base its strategy on the audience, not the medium.
For a campaign it’s now running for a technology client, Cadreon bought data on visitors to Web sites of the client’s competitors. It divided them into groups that its client already used to segment existing customers offline — like new parents, gamers or designers.
By examining clicks and other data, Cadreon determined the demographic profile of groups that were most interested in the ads. In this particular campaign, new parents responded at high rates so Cadreon emphasized pitching ads online to that group.
As more ads are bought and sold through exchanges, it could transform the ad marketplace. “It is foreseeable that you can go into the system, select an audience and not know whether you are ultimately buying” a cellphone ad or a video ad on a Web site like Hulu, Mr. George says. “That’s a very, very big change.”