Ben Thompson’s work at Stratechery has become must read for all of us at Polygraph Media. No blogger quite accurately captures how technology is enabling Amazon, Google, Facebook, Microsoft, Netflix, Salesforce and others to redefine entire industries. Today’s piece on the advertising business is no exception.

In this article, Ben suggests that Google and Facebook have aggregated advertiser demand, replacing the complexity of a highly fragmented marketplace of ad inventory suppliers with technology scale. Google has 80%+ global share in what I’d call “intent” advertising, where it knows who intends to buy something based on the keywords they’re using to research things on the Google search engine. Facebook has dominant global share in “demographic” advertising, whereby they know a lot about people based on profile data, status updates, and interactions with friends.

In addition to the data Google and Facebook collect from their own sites and mobile apps, both companies have extended the reach of their technologies to include the mobile web through the introduction of pixels and other code. Many web developers use embedded Google Analytics code to quantify actions taken on web sites. Similarly, people use the Facebook pixel to help with ad retargeting.

These are essentially “Trojan horses” that help make the Google and Facebook advertising systems smarter and more effective. They’re helping these two platforms better understand the types of people who are more likely to convert to a sale for an advertiser or to respond to the desired advertiser’s KPI. As this data grows, it makes Google and Facebook the best available option for advertisers. It also allows both companies to charge an increasing premium for ads – higher CPMs and better monetized traffic for their sites and mobile apps.

Conversely, it makes other forms of advertising less effective and thus less desirable for the conversion advertiser. And remember, digital advertising is perhaps the most targetable and quantifiable form of advertising ever created. Newspaper, radio, billboard, and even display advertising is scattershot by comparison. As an advertiser, you’d have less confidence knowing you’re hitting your target market investing in these platforms.

So how should you, as a marketing executive, act upon the emerging Facebook/Google duopoly in a way that outpaces your competition? A few ideas:

  1.  Brand advertisers are as empowered as ever to demand transparency from agency partners and companies like ours. Brands should be receiving regular reports on the amount of money spent in working media and the amount charged as fees. That’s job 1, and is happening increasingly. The era of agencies charging 40-50%+ of working media as fees is going away, in favor of a much more reasonable fee structure. If you don’t know the answer to this question as a marketing executive, you should find out immediately.
  2. Brands should hold agencies accountable for return on investment goals, but should also be patient with them. This is all moving in a direction that is decidedly more data-driven. That said, it takes time to collect and normalize inputs into the customer acquisition system, use data to drive ad decisions, and adopt technologies such as Polygraph to direct ad dollars intelligently and ideally without the need for significant human intervention that ends up costing the advertiser time and money.
  3. The skill sets required to succeed in this environment are decidedly different than the traditional agency world, as Ben suggests. Data scientists, normalizers, statisticians, and people who effectively scale your advertising with technology are the new media planners and buyers. Managing complexity to an extent was yesterday’s story. Today, managing complexity is table stakes. The story today is explaining revenue and KPIs with the use of your marketing and advertising budget. If you don’t have an increasing handle on this, you should – as your competitors are likely getting smarter.
  4. It is no longer a differentiator for a CMO to say he/she demands Return on Investment (ROI) or Return on Ad Spend (ROAS). That’s not a genius level observation any longer. What *is* genius, and in our opinion less recognized among senior marketing executives is how to get there, how to fight for the resources & infrastructure improvements necessary to explain revenue, and the types of talent necessary to get there. The marketing department is being invaded by quants, and that’s a good and long overdue development.
  5.  Do not abandon traditional or display advertising. We are not believers in the approach of spending everything on Facebook and Google. However, when we are asked to opine on how a brand spends their ad dollars, we do generally see that most brands overinvest in less quantifiable categories for largely legacy reasons. Investment in Google and Facebook is less than it should be for most brands that we meet for the first time. Google and Facebook can help you get your message to the exact customer segments you need, and likely to groups you may have never considered before. You don’t have to go all-in to see these benefits, however.
  6. Brands should think about their strategy for investing in Facebook and Google that goes beyond the immediate short-term. Are you OK with these companies seeing what customers do on your web site? Do you consider this a risk or an opportunity?

Data-driven advertising is here to stay. The Facebook/Google duopoly is prima facie evidence of that. But to make these things really work in your favor, you need to understand how these various ad channels contribute to revenue and key KPIs. Odds are you need all of the channels, working in harmony, for you to maximize your advertising investments. To do that, you should consider it more of a data aggregation, normalization, and science problem. All the answers lie in the data if you empower the right types of people to find it.