The past six months have seen the relatively quick rise in stature of some key technology and infrastructure players as they race to establish dominance in providing core services and technologies for interactive advertising and "t-commerce."
Most of this movement toward providing interactive enhancements to analog and digital television is based on the anticipated growth of the interactive set-top converter.
The current short list of players includes the likes of Wink, RespondTV and Commerce TV. These "set-top enablers" provide the technology, infrastructure and operational oversight to deliver national and regional interactive advertisements and e-commerce offerings into cable households. They establish the relationships with the advertisers and national merchants; create the interactive offerings and manage the required back-end processes to support their business model.
Each has its own comparatively unique approach to winning the broadband operator's favor. Yet they all have a single, common aspect of their business models that is both a key attraction and a hidden risk that cable operators should carefully weigh as they decide their role in the future of interactive advertising.
The key attraction is that MSOs can offer enhanced advertisements and t-commerce capabilities to their subscribers by aligning with any of these companies. Furthermore, that requires often little or virtually no effort on their part.
The risk for MSOs is that by easing into this passive role in interactive advertising, which is national in scope, they risk losing sight of the biggest t-commerce opportunity: local advertising revenue.
This assertion of the risk is not meant as a rebuke of the interactive-services companies' business strategies or offerings. By offering MSOs a hands-free, end-to-end infrastructure and a rather painless deployment model for delivering interactive ads and t-commerce opportunities, these companies have picked a very logical path for gaining acceptance.
But in accepting this relationship, MSOs must be clear-eyed in their assessment of how they will benefit from the growth of interactive advertising and t-commerce services.
To reiterate-the MSOs' strength is in the local markets. After all, that's where the majority of total U.S. consumer spending occurs and the place where broadband stands to benefit most when interactive advertising begins to reach a critical mass of viewer homes.
By fostering the growth and acceptance of interactive advertising and t-commerce at the national level, MSOs have little to gain, other than having someone else foot the bill for the initial testing and conditioning of interactive-TV users. However, they are also risking little in the near term.
The longer-term risk is that they could be lulled into believing they have acquired a substantial, competitive edge in the local advertising market and continue to avoid the hard question: How do you implement interactive services at the local level?
The deployment path faced by broadband operators is not an easy one. It is likely to be a messy, expensive, and rough road. To integrate interactive-advertising sales, operations and production with an as-yet-unclear revenue stream is a daunting task.
Nevertheless, broadband companies risk much more by not facing up to the integration challenge that inter-active advertising and local t-commerce represent.
Often, the impulse is to look to the technology sector for a painless solution: "Maybe there's some nifty software package we'll be able to buy that will let us create, book, invoice and deliver multiple, digital advertising forms." Don't hold your breath.
A viable solution for designing and implementing a multiple-format advertising sales and management business-convergence-has far more to do with people and process re-engineering and far less to do with software technology than most realize.
Creating an interactive TV spot requires adding staff-yes, adding staff-with some degree of specialized training. Selling an interactive-TV spot requires more time, patience, and an appreciation of the added complexity of the proposition.
Just for these reasons, broadband companies have found it tough to sell anything other than traditional TV spots.
Current t-commerce advertising efforts offer comparatively modest enhancements to traditional advertising-embedded, static hyperlinks over or underneath the main presentation of a commercial or programming. In the mid-term, look for a more mature market for interactive advertising that weaves these elements:
- A full-motion interactive, real-time direct response commercials for local merchants;
- An interactive product and service catalog directories for local businesses-the next generation of yellow-pages offerings;
- A local, interactive personal-trading community that expands upon the old classified- advertising model and the "new" auction model.
Think about the companies that dominate these sectors of today's traditional local-advertising market: the TV stations, newspapers and yellow pages directories. In every case, their job of selling, managing and delivering the inventory represents a huge investment in infrastructure: i.e. people and efficiently designed processes to support them.
Even in a totally wired world, in which broadband interactivity is the norm, these people and processes aren't going to go away. Most likely, they'll be reorganized to suit the convergence of new technologies, products and services.
Consider the old business of classified advertising as an illustration of this point. A large daily newspaper might have 500 employees engaged in direct customer services for classified advertising. Their adoption of simple electronic classifieds has not diminished their infrastructure requirements. What will they need should they migrate to streaming video classifieds?
Assuming volume and scale remain constant, you can rest assured the change will not be downward. The bottom line for broadband is there will be no substitute for the "heavy lifting" required to build an effective, scalable and most importantly, profitable interactive advertising business that serves their local markets.
Today's providers of interactive advertising and t-commerce solutions are focused on building a business that is national in scope. Their solutions-or more appropriately, their business model-may not effectively address the true requirements for exploiting their technology in local markets. Furthermore, one could argue that the means for deploying such a solution might fall outside of their realm of experience and resources.
If the broadband industry intends to offer more than passive TV spots in their local markets, it has a sizeable organizational and infrastructure-building task ahead. On the other hand, if it forestalls a serious effort to that end, perhaps one of the old local-advertising businesses-with its infrastructure already in place-will help it.
In any case, it won't be easy-and it certainly won't be cheap.
Rich Hardesty and Dave Sickert are the founders of The Electronic Direct Marketing Group.
