In my routine perusal through the various sites I read I happened upon an article by Bob Garfield in Advertising Age titled: Bob Garfield’s Chaos Scenario 2.0 — The Post Advertising Age. This article is fantastic. Bob details piece by piece, line item by line item how the current infrastructure and cost structure of the players in the brand advertising ecosystem is starting to crumble.

“Both print and broadcast — burdened with unwieldy, archaic and crushingly expensive means of distribution — are experiencing the disintegration of the audience critical mass they require to operate profitably. Moreover, they are losing that audience to the infinitely fragmented digital media, which have near-zero distribution costs and are overwhelmingly free to the user.”

Ad agencies which charge a percentage based on their creation of content for print and broadcast media are also at a crossroads wondering how to make money when their costs are going through the floor. (As an aside I have to admit that I am particularly thrilled when technology shines an unforgiving spotlight on the inefficiencies and fat in a particular industry with those aspects that deliver no actual value looking the most vulnerable.) So are ad agencies ready to make the shift?

“Half of the 109 national advertisers surveyed by Forrester in 2006 said their ad agencies and media agencies were ‘ill-equipped’ to deal with changes in the TV environment.”

In the meantime the audience isn’t waiting for the broadcast networks, magazines, or ad agencies to figure it out. They’re going ot the internet.

“The refugees — audience and marketers alike — flee to the internet. There they encounter the second, and more ominous, Chaos component: the internet’s awkward infancy. The online space isn’t remotely developed enough — nor will it be anytime soon — to absorb the advertising budgets of the top 100 marketers, to match the reach of traditional media or to fulfill the content desires of the audience.”

OK. No surprises there. People are running to the internet. I even agree with his description of the internet’s “awkward infancy” though I believe we have a solid answer for getting to the toddler stage (but more on that later). But then Garfield heads in the same direction as everyone else in terms of assumptions about how the transition will happen.

“…video advertising on the internet, according to eMarketer, will amount to a paltry $775 million in 2007. On TV, it is $65 billion. But economics will have its due. The law of diminishing returns will eventually prevail. Those who have perennially spent more and more for less and less will finally say, ‘No more,’ and take their money online — whether there is sufficient ad inventory or not.”

So everyone assumes that the money will follow the eyeballs. Video content on TV is where the ads have been, so why wouldn’t the ads follow the video content to the net? Garfield then cites the following report:

“In February, citing the pioneering efforts of Wal-Mart, Amazon and iTunes, Adams Media Research projected that paid streams and downloads will quickly overtake advertising as the revenue model for video content. ‘By 2011,’ according to the report, ‘advertiser spending on internet video streams to PCs and TVs will approach $1.7 billion, but movie and TV downloads will generate consumer spending of $4.1 billion.’ Likewise, in a January report titled ‘The Digital Consumer: Examining Trends in Digital Media,’ the investment firm Oppenheimer & Co. concludes the same: Content ‘is not likely to be ad-supported.'”

Oops! OK. We all agree the money is coming online, but now video isn’t going to be the vehicle for it. At least not the way it has been on television. And then Garfield says the following:

“You’ve read the Ten Commandments; not one of them is ‘Thou shalt finance hourlong dramas’ — nor is there a word in there about scale. So why assume that either must transition to the new model?”

Aha! He’s exactly right. The eyeballs and dollars will come to the internet. But the assumptions won’t. So what will happen? Garfield does an incredible job in this article painting the landscape, but he stops short of answering the question of “What’s next?”. Here’s my answer: Branded Software Experiences.

Software is more than just content on the internet (not that there’s anything wrong with that). Software has the power to engage users in deep and emotional ways. In ways that not only entertain and inform but in ways on which users come to depend to live their lives. What TV show do you really need to live your life? Take away my online calendar however, and I am screwed. (Yes, I know that I could get by without that if necessary, but I’m talking about what you need to live your life as you do today.)

There have traditionally been two broad buckets… Slate is content, and Excel is software. The first an online magazine and the second a spreadsheet. I believe that Slate and Excel exist on a spectrum. They may be at far and opposite ends of that spectrum but it’s a spectrum nonetheless. There is enormous opportunity in the middle of that spectrum as well as in the more software-oriented side of it. Content is expensive to produce. Most software (given its long shelf-life relative to its more content-oriented cousin) costs much much less to make.

Software is where millions of people are spending countless hours. This is where those media minutes are being spent in enormous quantities by the average consumer. Sure, watching a YouTube video is something many people do from time to time. But why should brand advertisers limit themselves to that small portion of a user’s online time? They are using their computer and the software on it and the internet for hours at a time. The opportunities to put innovative brand messages in places other than video content are numerous. And it’s possible to do it in such a way that not only doesn’t pollute the user experience, but in a way that improves it.

Why do most of the players in the existing brand advertising ecosystem assume that online content is the place to be? It’s simple. That’s what they know how to make. They know how to make TV shows, short videos, music, articles, photographs, etc. They have hammers and so the problem looks like a nail.

OK. Then why don’t the software companies make software that gives brand advertisers new and innovative places to feature their messages, as well as deep and consistent feedback and measurement tools. The answer here is more complicated. Look at Apple for example, they make some of the most emotionally connective software there is, but they make their money on their hardware. It’s not clear that they have huge incentive to innovate in terms of bringing advertising into their software experiences. Microsoft is heading in this direction with MSN doing branded experiences for brand clients. Google, the king of online advertising is doing great work for direct response advertisers, but their efforts for brand advertisers are still nascent. Yahoo has declared that a focus on brands is their strategy but they are still early as well. The main problem for the big software companies is that even though they have the talent and resources to deep branded software experiences they are always looking to scale. Doing a quality job here requires attention to detail and a laser-focus on one brand and one set of messages. Scaling their solutions across multiple brands does not necessarily make for a tailored solution that uniquely expresses the brand message.

Not sure if it needs to be said, but the reason we’re so passionate on this topic is that addressing this need is our raison d’etre here at Jackson Fish. We’ve started our business to create branded software experiences. We believe we can deliver unique and tailored software experiences that both customers AND brand advertisers love. We think we can have productive partnerships with the ad agencies that represent the advertisers helping them grow in their understanding of the kind of “content” (read software) that can be created on the internet. We’re not looking to jam ads in software experiences that didn’t used to have any. We’re looking to create fantastic user experiences that customers love including the innovative and forthright way we’ve incorporated a brand advertiser’s messaging.

More important than our specific role in this ecosystem is the fact that this is clearly where the industry is headed. Bob Garfield’s insights are superb. That said, he stops just short of predicting what will happen. In our minds Branded Software Experiences are clearly the destination for a significant percentage of those brand advertising dollars that are looking for a home. The only real questions are how long will it take for everyone to figure this out, and who will be left standing when the industry finally does?