The Rise of the Internet as a Marketing Tool

On Saturday, January 30, CBS hosted its annual Private Equity and Venture Capital Conference. The morning keynote address was delivered by Bob Pittman, Founder of Pilot Group LLC, a consumer brand focused private investment firm, and former-COO of AOL Time Warner. His address centered around how businesses, in this difficult economy, can survive by reconnecting with their consumers. He explained that consumers are 'brand buyers' and 'convenience is King.'

Mr. Pittman went on to point out that the U.S. consumer tends to have two boxes in the home, an 'Entertain/Inform Me' box (the TV) and a 'Manage My Life' box (the personal computer). The television is a public resource, shared by all in the home, and requires passive interaction. On the other hand, the computer is a private resource, requiring active participation. The boxes are quite different in terms of how they touch the consumer and, in many ways, do not compete. Mr. Pittman believes that convergence may occur, but that we will continue to have two boxes in the foreseeable future.

The computer has brought much more convenience to our lives which, in turn, has prompted business to develop the internet into a prime marketing channel. Concurrently, American consumers no longer 'comparison shop,' preferring the security of buying well-known brands. With the rise of the internet channel and the ongoing development of brands, we have seen increasing attention on the part of marketers to the internet.

Some posit that marketers are increasing ad spend on the internet channel by decreasing their outlay on television ads. Mr. Pittman debunked this theory, arguing instead that the additional spend on internet marketing is coming from newspaper budgets. In fact, he cited the internet as the biggest threat to the newspaper business model, which has traditionally relied on revenue from classified ads for its profitability. In contrast to newspapers, he said the internet allows companies to stay in constant contact with their customers (for example, car owners now receive regular service reminders and model updates by e-mail). Television ad spend, on the other hand, remains robust, since it touches the consumer through the 'Entertain/Inform Me' box.

The switch from newspapers to online marketing is a gradual one, however. On a relative basis, looking at budget $ / consumer interaction time, there is still much more money spent on newspapers versus internet. Mr. Pittman blames this on stasis and expects this to change over time, with internet taking a much higher share in the future and perhaps even reaching par with television.

W.Denton