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The Year in Media

Here’s our annual look at Razorfish ad spend, along with the results of our media team poll to identify the “Best of the Web” and trends for 2012. As we’ve done in the past, we polled the Razorfish media team to discover the “Best of the Web,” asking a variety of different questions to get a directional perspective of upcoming trends. The questions revolved around creativity, performance, quality and overall general satisfaction.

The past year in digital media was heavily influenced by the rapid adoption of new channels like tablets, the explosive growth of new consumer platforms like Twitter and new innovations in media buying such as ad exchanges. Overall, investments in digital continue to grow year-over-year, playing an increasingly critical role in our clients’ marketing plans. Consumer migration to digital media, the emergence of new media powers and the sophistication of performance metrics made the year in media one of the most dynamic in decades.

Ad spend in review

Razorfish ad spend is projected to grow by more than 25 percent in 2011, marking the third consecutive year of more than 20 percent growth in overall ad spend for the agency. The growth is a result of success in new business and from increased investment from long-standing clients. After just two years, Publicis Groupe has proven to be a great fit for Razorfish and our clients.

Now more than ever, the function of media planning is about understanding consumer behaviors and needs — and how to craft experiences that deliver on the opportunities presented by those evolving behaviors. This is fundamentally different than simply accumulating reach and exposure through mass media. Our paid media spend was distributed across five main channels, illustrating the increasing complexity faced by clients and digital marketing teams.

A closer look at the distribution of ad spend reveals several emerging trends:

1. Growth in ad exchanges

Razorfish has been active in buying through ad exchanges since the early days of auction-based display media. We were one of the first agencies to launch a trading desk to directly access the growing pool of inventory and have continued to be at the forefront of data integration through the creation of client-side data mart solutions, now commonly referred to as DMPs.

Our continued expansion into the auction-based media marketplace has resulted in tremendous benefits for our clients in terms of more effective pricing, better targeting and stronger ROI overall. As we continue to grow and expand our efforts in this area, we will be focused on integrating first- and third-party data to build the most sophisticated targeting offering possible. These efforts will, of course, be balanced by the industry’s important and ongoing efforts to provide sound self-regulation around data management and privacy.

Our investment in ad exchanges grew by 66 percent in 2010 and is projected to grow again by more than 60 percent in 2011. Even with that growth, there is still plenty of upside in this category since it represents less than 10 percent of our total ad spend.

2. Consolidation of publisher partners

The emergence of new technologies and consumer channels continues to provide opportunities for the emergence of new publisher partners. In 2010, we purchased media across 598 sites, down from a high of 1,832 in 2007. While we expect many of those buys to be consolidated through the growth of audience buying across ad exchanges, we still see the need to test new platforms and technologies.

However, we have continued to increase our concentration on fewer and more strategic partners. This focus on more complex, strategic partnerships has resulted in strong benefits for our clients in terms of scale, price, innovation and access. The breakout of our spend shows that 55 percent of our aggregated budget goes to our top five strategic partners, 25 percent to the next 32 largest partners and the remaining 20 percent in our long tail of 584 publisher partners.

3. Increased investment in paid social media

The rapid rise of social media has impacted digital and our clients’ business in many ways. As social media platforms continued their explosive growth in the last year to reach massive scale, leading marketers adjusted their plans accordingly to begin a two-way dialogue with current and potential customers.

This has led to the emergence of Facebook as a leading partner in paid media for Razorfish in the last year. Since our early tests and inclusion in Facebook media programs in 2008, the social network has gone from being in the lower tier of our top 200 publisher partners to catapulting to one of our top five media partners (as measured by total spend). The growth can mostly be attributed to the fact that Facebook has innovated in terms of media offerings and that these new opportunities are helping our clients meet their marketing goals. Facebook’s growing audience makes it a platform that our clients need to include in the development of their marketing plans. Our projections for 2011 point to continued growth and show no evidence that the rise of paid media on Facebook will slow down.

4. Shift from paid to earned and owned

The scale of leading social media platforms such as Facebook, Twitter and YouTube had a strong influence on the overall marketing mix for our clients. However, the overall amount of dollars invested against social media still pales in comparison to search and display. The advertising models of these emerging media titans are still evolving, but they will undoubtedly garner a growing share of marketing dollars.

In addition, the investment in social media management on third-party and owned platforms is not to be overlooked. The vast majority of our clients now have earned and owned media strategies to complement their paid media strategies. Over the last year we’ve seen tighter coordination between the paid, earned and owned channels. We now manage relationships with close to 10 million fans and followers on behalf of our clients, not including audiences on Web sites and microsites that we manage. That’s roughly nine times what we managed just a year ago.

Our research into social media analytics has given us great insight into the impact and the amplification effect of earned and owned media. As we continue to refine our practices, we fully expect that investments in content and relationships will continue to grow rapidly.

5. Accelerating growth in mobile

Our mobile media and search business nearly doubled last year and represented close to 10 percent of our total paid media business. The major factors that affected this accelerating investment represent trends that will continue to make mobile one of the fastest growing categories:

Increase in mobile transactions. Our clients are investing in fully functional mobile experiences where consumers can start to transact and purchase in the mobile channel. While mobile commerce is still small and nascent, mobile is becoming an important touch point in the consumer experience. As marketers increase the quality and quantity of mobile experiences, the mobile media and search spends will follow. For example, one of our clients is seeing pay-per-call increasingly drive significant scale and ROI.

Growth of tablets. The proliferation of tablets in the marketplace is creating an entirely new channel. As consumers increase their consumption of media on tablet devices, it will provide a scaled medium for advertisers to reach their audience. Innovations in tablet computing will lead to advertising opportunities that differ significantly from those on PCs or phones. The ability to bring touch interactivity together with sound, sight and motion will enable marketers to provide new, rich experiences to their customers.

Always-on phones. Multitasking with mobile while watching TV is driving higher consumption of mobile media and providing new opportunities for marketers to engage with their audience. Razorfish conducted a study in collaboration with Yahoo! to understand consumer behaviors and marketing opportunities across multiple screens. One of the conclusions from our research is that mobile is emerging as an indispensable activation vehicle for the massive investments in TV advertising. The complete details of the study are covered later in the Outlook Report.

“Best of the Web” — A planner’s perspective

As we’ve done in the past, we polled the Razorfish media team to discover the “Best of the Web.” We asked a variety of different questions to get a directional perspective of upcoming trends. The questions revolved around creativity, performance, quality and overall general satisfaction.

Here are some of the results:

Themes that will shape the next year in media

There is no doubt that digital media continues to be the most dynamic and innovative sector in marketing. One of the byproducts of the rapid pace of change in digital media consumption is the constant struggle for the industry to evolve traditional delivery models. Over the next 12 months, agencies must focus on adapting to the proliferation of new consumer behaviors and new marketing tactics. In particular, next year will be dominated by challenges such as how to manage video across multiple screens, how to rapidly incorporate changes in social media, how to plan in a cross-platform landscape and how to scale mobile advertising.

While those trends will certainly dominate the conversation around media and marketing, it’s our perspective that there are also four major themes that will work to reshape digital media in the next year.

1. Content as media

Most marketing professionals admit to having been in a vigorous debate sometime in the last year about the classification of a particular tactic as paid, earned or owned media. The construct is very useful in helping marketers broaden thinking around marketing strategies. But perhaps the real value is in helping reinforce the notion that content is media. And content can exist in many forms. The notion that agency planners are responsible for content leads to strategies and plans that can have a much greater impact. In the next year, progressive marketers will be the ones that begin to integrate all their brand assets into a single communication platform, creating a unified brand experience that puts the needs of the consumer at the center.

2. Data management

In the last five years, we’ve increased the amount of data that we manage in our own servers from 3 terabytes to 90 terabytes. The ability to manage large and complex data sets has shifted from being a core differentiator to an absolute requirement. Data sources are more vast and complicated than ever. Building a single view of the consumer across all channels is the only way that marketers can truly build effective marketing programs. More than 80 percent of our media clients rely on a data management platform that we have custom built to make their digital marketing more targeted and more effective. Over the next year, these platforms will continue to become more sophisticated, taking into account an increasing number of data sources. Data management pays off for marketers — we’ve been able to improve return on ad spend more than five times by serving personalized ads to dynamic segments enabled by a unified marketing database.

3. Real-time buying

In the last year, we have more than tripled the number of real-time impressions we’ve purchased. On average, we’ve seen performance improvements of more than 40 percent for our clients. The real-time nature of digital data has simply changed the way we buy media. Those who are able to understand data and act upon it immediately — in real time — have a strategic advantage over their competitors. Long gone are the days when companies and their agencies could buy media months in advance, then wait several more months to understand how those media investments performed. Today, agencies and brands have seconds in which they must respond, or potentially leave millions on the table in lost value. Brands need partners who can collect, translate and take action on that data in real time. Agencies that are well-versed in bid-management systems, and that invest in the tools and processes to manage those systems, will become industry leaders. The real-time and highly complex nature of digitized media allows marketers to develop a sustainable competitive advantage.

4. Attribution

For the last decade, we’ve been building attribution models for our clients to help them invest their marketing spend more effectively. In the pioneering days, this type of analysis was done infrequently and was limited in breadth and scope. Today, with the data and processing infrastructure we have invested in over the last 10 years, and the growth of the marketing analytics group to more than 100 professionals, we are actively building these kinds of models for our clients on a regular basis. In fact, we’ve seen return on ad spending improve by as much as 3.5 times through smarter allocation of media investments. While it’s a discipline that demands constant iteration and analysis, that type of improvement makes attribution modeling a crucial strategy for marketers.