March 17, 2011
C3 Research Memo (2010): Online Advertising - The New Magic by Ravi Inukonda with Daniel Pereira
Online Advertising:
The New Magic

Ravi Inukonda
Graduate Researcher
Convergence Culture Consortium (C3)


Daniel T. Pereira
Managing Director
Convergence Culture Consortium (C3)

Executive Summary

"You are the product.  You feeling something.  That's what sells.  Not them.  Not sex.  They can't do what we do. And they hate us for it." [1]
                         - Don Draper, Creative Director of the advertising firm
Sterling & Cooper, to agency copywriter Peggy Olsen


"You're [expletive] with the magic!"

- Mel Karmazin (in 2003), then the chief operating officer  
  of Viacom, when Google founders Sergey Brin and Larry  
  Page and their recently recruited CEO, Eric Schmidt,
  explained how they only charge an advertiser when  
  someone actually clicks on its ad.




As late as 2007, while e-commerce and digital media had already significantly disrupted other industries, advertising:

". . .was one of the last significant business markets that remains opaque, manual, archaically complex, and requires a large relatively skilled set of humans to perform each transaction. . .every ad campaign can be traced back across a host of human driven processes. The final cost of the inventory is calculated through an opaque process that smells more like 1907 than 2007. The vast majority of hours spent by media buyers and media sellers are related to process and nailing down the minutiae of "the order." The buyer ends up with inventory that had no clear price when the discussion began, and frequently contains inventory they really didn't want or need tacked onto the package in order to meet the seller's sales goals. The seller ends up spending most of their time putting the package together and meeting the requirements of the order-taking process rather than working on strategic relationship sales."[3]

These media "buyers" and media "sellers" controlled the "pie", and the industry still operated on creative relationships, processes and concepts which dated back to the modern industrial era of American advertising which began in the 1950's.

Networked computing, largely due to the growth of online advertising, has played a significant role in revolutionizing this industry over the last decade.  Online advertising grew out of the need to reach audiences over a different medium - forcing innovation and progressively transforming this old advertising model (manual, opaque and labor intensive) to a digital advertising platform based on automation, transparency and simplicity.[i]  This new advertising platform, based on self-forming value networks and exchanges, requires a shift away from the organizing principle of the individual as a "consumer" to a strategic logic of "user engagement" spread across a wide range of transmediated advertising formats (display, video, pop-ups and placements, flash animation, text and mobile) - some of which are accelerating the market by the sheer force of their adoption rate.



Advertising Model since 1950


Advertising Networks and Exchanges through 2025






Manual Creative Processes








Content specific to the delivery medium


Spreadable, platform agnostic, transmedia 



The growth of online video this last year was "blistering . . .with online video views more than doubling from 14.8 billion in Jan '09 to 33.2 billion in Dec '09 . . .Online video usage is now nearly ubiquitous in the U.S."  Smart phones and mobile video figure prominently as well.  By 2011, Nielsen forecasts 90 million smart phone users will be watching mobile video.[4]


Joseph Turow, in his book Niche Envy:  Marketing Discrimination and the Digital Age, also makes a compelling argument for this online advertising system becoming the 'test bed' for the television advertising system of the future:


"Just a bit into the 21st century, then, advertising and media practitioners see "television" very much from the standpoint of the process of database marketing that already has begun to emerge on the internet [sic].  They know that the technology is not yet advanced enough to combine interactivity, targeted tracking, data mining and the cultivation of relationships in one advertising application. They are, however, testing all aspects of these activities with the sense that if they don't understand new models, their competitors will.  The new perspective that is emerging would have been hardly plausible to the medium's gurus only 20 years ago, when audience "tonnage" was still the dominant coin of the realm.  Now network personnel who still often sell tonnage –for example the salespeople at ABC, CBS and NBC - increasingly have to face advertising people at industry conferences who question the long-term viability of their business model.  A new language of television strategy is evolving in tandem with targeting and customization."[5]


One commentator (when blogging about the annual "TV upfronts" in May of 2009) characterized this change in the following fashion:


"For anyone who has worked for a major marketer, media agency or TV
network, the month of May represents an interesting and eventually an evolutionarily outdated event – TV upfronts.  The upfronts (for those that live under a rock) is the time of year that major advertisers and their agencies plan and buy a large share of their TV ads for the coming year. The networks package up their new series and existing hits and provide a dog and pony show that only the advertising industry can do. 

Over the past few years we have witnessed some interesting changes in the upfronts. On the buy-side, in some instances major marketers pulled out, opting to plan and buy ad hoc throughout the year rather than commit to large scale upfront buying (but not to a degree that affected media sellers or the tradition itself).  On the sell-side, we've seen a full on integration of digital channels in the packaging of ad programs, and there are small upfront events hosted by online only entities as well (mainly video), taking full advantage of the planning season. The upfront sessions have as much to do with major networks selling online inventory, particularly video, as they do television. Well. . .maybe not as much, but it's become increasingly more important to the networks."[6]

In 2010, advertisers in the U.S. market are forecast to spend greater than $20 billion on Internet ads, according to the Interactive Advertising Bureau (IAB). That is larger than the whole outdoor advertising industry, about 80% of the size of the magazine ad industry and half the size of the radio advertising sector, according to various estimates. Spending on Internet ads grew at a rate of ~50% last year compared to 10% for broadcast TV and 8% for the advertising industry overall.[7]

This growth has brought more innovation into the business. Buyers and sellers of inventory started looking for new ways to generate revenue. These two groups wanted to sell more of their inventory at the right price to engage the right audience.  Buyers struggled to find the most efficient way to access and target the online advertising inventory they wanted and to secure the right price. Publishers were left with unsold inventory – sometimes as high as 80%.  This surplus is like an airline flying planes with four out of every five seats empty. Over the last decade, ad networks and ad exchanges have emerged to help "fill more seats" at the right price [8]

This Convergence Culture Consortium (C3) Research Memo provides an overview of how these systems fundamentally work.  These networks and exchanges are examined from the perspective of the buyer and seller of online advertising – and attempts to distill further a working definition of "user engagement" within this context.  However, a discussion framed purely by the market-driven dichotomy of buying and selling ("supply and demand") is incomplete without first placing these current innovations in their larger cultural context. 


Cultural History of Advertising

Advertising is experiencing not only a technological and structural transformation, but a profound cultural one as well.  Vital to an understanding of this "major transformation" currently underway in the advertising industry is a discussion of the cultural history which sets advertising apart from other media systems (such as the history of cinema or fashion, for example, both of which have heavily influenced the cultural and creative practices of modern advertising). 

In 2004, Advertising Age editor Scott Donovan suggested the "need for marketers to confront and release their historical biases.  To redefine their world they "must rewrite the definition of the word "advertising" (which historically has operated on a model of lucrative, but inefficient, "magic.").[9] 

Efficiency and inventory currently have an undue influence on this redefining process.  In a potential break from its storied past, the advertising industry is experiencing a re-organization around technological efficiencies - a change brought on by a huge market disruptor: 

"Google engineers . . . have no way to quantify relationships or judgment.  They value efficiency more than experience.  They require facts, beta testing, mathematical logic.  Google fervently believes it is a shaping a new and better media world by making the process of buying advertising more rational and transparent.  In its view, the company serves consumers by offering advertising as information."[10]

Advertising has never been expressly about efficiency and inventory - and it has never allowed technology to define its ethos as an industry.  The component parts of the global advertising system are actually more easily discussed as cultural components of a communications medium dating back to the streets, bazaars, marketplaces and newspapers of cities like London and New York in the latter part of the 19th Century.  Since about 1850, the advertising industry has gone through three distinct periods – all of which have contributed to the construction in the 20th century of a consumer culture driven by a broadcast media marketplace.

The Formative Years (1850-1900):  A Legacy of Mistrust


"The Quack has become King." 

-        Thomas Carlyle[11]

Advertising fought for legitimacy during its formative years as a medium.  As one local newspaper noted during the period: "it is not respectable.  Advertising is resorted to for the purposes of introducing inferior articles into the market."  Others noticed "advertisements in type which three years ago would have been considered fit only for the street hoardings."  A Sears catalog delivered to rural areas was deemed "extravagant in its claims and undignified in its make-up."[12]

It was the spread of newspapers into rural areas by the United States Postal system - and the extension of persuasion methods used by patent medicine advertisements during this period (known as 'quackery') to other goods and services ("the draper, the grocer and their suppliers had followed the quack"[13]) - which has left the modern advertising system with a legacy of mistrust:  "Around 1900, the curative claims of ads for patent medicines were prominently questioned.  Major publishers began to refuse to accept such ads, and the 1905 Pure Food and Drug Act was intended to get rid of the most dangerous patent medicines (which routinely contained alcohol, cocaine and even arsenic)."[14]

It is this legacy of mistrust which Joseph Turow points out continues to this day, although the issues are specific to the new online advertising platform: "the digital media environment has brought new concerns about consumers' unease.  One risk of going online is that you may be bothered by advertising that you don't want.  Another is that you may be giving personal information that you wouldn't want them to get. Database marketing is beginning to engender new forms of suspicion and institutional distrust" which "works against a sense of social belonging and engagement."[15]

Industrial Mode of Advertising Production and Delivery: 1900 – 1950


"The Consumer is King.  His preference is law and his whim makes and unmakes merchants, jobbers, and manufacturers.  Whoever wins his confidence controls the mercantile situation; whoever loses it, is lost."

– C.C. Parlin[16]

"He who had been a boy very credulous of life was no longer greatly interested in the possible and improbable adventures of each new day.  He escaped from reality till the alarm-clock rang, at seven-twenty. 

It was the best of nationally advertised and quantitatively produced alarm-clocks, with all the modern attachments, including cathedral chime, intermittent alarm, and a phosphorescent dial.  Babbitt was proud of being awakened by such a rich device.  Socially it was almost as creditable as buying expensive cord tires." 

Babbitt by Sinclair Lewis (1923)[17]

During this period, the frequency and reach of advertising evolved into a model of daily engagement through a direct relationship to the public via urban and rural daily newspapers. The advertisers strived to alter their relationship with the public from one of "quackery" to credibility and profits.  Most notably, the advertising industry integrated some of the lessons learned from World War I posters and advertisements (a time 'when new kinds of persuasion were developed and applied' to unify the nation during the war effort), slowly shifting to methods of "psychological" advertising.[18]  The sellers of advertising in this era started by selling the advertising space and evolved very quickly into the model which ushered in the modern era of American advertising: 

". . .by the turn of the century, the modern system had emerged:  newspapers had their own advertising managers that advanced quite rapidly in status from junior employers to important executives, while the agencies stopped selling space, and went over to serving and advising manufacturers, and booking space after a campaign had been agreed.  Although extended to new kids of product, advertising drew, in its methods, on its own history and experience. [19] 

It is a fundamental shift away from a susceptibility to this "psychological" advertising model (based on persuasion) which Professor Jenkins frames as "participatory culture":  "If old consumers were assumed to be passive, then new consumers are active. If old consumers were predictable and stayed where you told them, then new consumers are migratory, showing a declining loyalty to networks or media. If old consumers were isolated individuals, then new consumers are more socially connected. If the work of media consumers was once silent and invisible, then new consumers are now noisy and public." [20] *


The Mad Men: 1950 – 1994


The time to market, reach and frequency of advertising during this period was organized around broadcast television and a need to achieve economies of scale for national advertisers.  Advertising agencies were at the center of this value chain.  Advertising client relationships moved to serving and advising manufacturers through conceiving, pitching, selling, packaging and delivering advertising campaigns – the golden era of modern American advertising.  A system opaque, complex and wrought with manual processes - but very, very lucrative.  These cultural and creative practices are the 'magic' to which Mel Karmazin refers - and which sets the fictional advertising creative director Don Draper (and his colleagues at Sterling-Cooper) apart from the huddled masses.  Raymond Williams, cultural studies theorist, spoke of this same phenomenon in his seminal article The Magical System:   

"It is impossible to look at modern advertising without realizing that the material object being sold is never enough:  this indeed is the crucial cultural quality of its modern forms.  If we were sensibly materialist, in that part of our living in which we use things, we should find most advertising to be of an insane irrelevance.  Beer would be enough for us, without the additional promise that in drinking it we show ourselves to be manly, young in heart, neighborly. A washing-machine would be a useful machine to wash clothes, rather than an indication that we are forward-looking or an object of envy to our neighbors.  But if these associations sell beer and washing machines, as some of the evidence suggests, it is clear that we have a cultural pattern in which the objects are not enough but must be validated, if only in fantasy, by associations with social and personal meanings which in a different cultural pattern might be more directly available.  The short description of the pattern we have is magic:  a highly organized and professional system of magical inducements and satisfaction, functionally very similar to magical systems in simpler societies, but rather strangely coexistent with a highly developed scientific technology."[21]

Over time, this modern period of the industry focused on targeting the global consumer as well.  In an article entitled Global Scan, D.A. Leslies makes a compelling argument that advertising agencies, because they were already organized in a transnational fashion, were responsible for the very cultural formulation of globalization as a 'social imaginary' in the early 1990's:  "The case of global advertisements illustrates the role of advertising images in reconstituting notions of identity and place and in constructing a mythical or imagined global village."[22] 

Today, Don Draper would work for (and Sterling Cooper would be owned by) one of four global marketing conglomerates - the WPP Group, the Omnicom Group, the Interpublic Group and Publicis - battling over a projected global advertising spend of roughly $450 Billion in 2010.[23]




Advertising in a
Consumer Culture
Broadcast Media Marketplace


Advertising in a
Convergence Culture
Spreadable Media Marketplace


"Quackery" and Misinformation


Trust still an issue:  user data and behavioral tracking still in its infancy


Use of  "psychological" advertising tactics on "The Consumer"


Voluntary participation (psychological, emotional and monetary)
by "The User"


Persuasion by a cultural/creative elite
(advertising as industry)


Value Networks based on self-forming communities of interest
and affinity groups
(advertising as grassroots advocacy)


Framing of social desires:  "Keeping up with the Joneses";  "Babbitt was proud of being awakened by such a rich device";  Beer makes me manly, young in heart, neighborly


Advertising as a vehicle for the positive formulation of a new set of cultural values within a new system of value exchange

The official executive summary and research memo are available at:

content bottom