Don't you want to find out which half of your advertising is wasted?

Some time in the early 20th Century, John Wanamaker, one of the fathers of the U.S. department store business, said "Half the money I spend on advertising is wasted; the trouble is I don't know which half." Kantar Media Intelligence reports that $144 billion dollars was spent on advertising in the U.S. last year. If Wanamaker's Rule is still in effect, that means that $72 billion was wasted.

How much television advertising do you pay attention to? Do you mute your television when the ads come on? Do you prefer to watch television from your DVR and skip over the ads? How about radio--like me, have you given up on commercial broadcast radio because there are simply too many ads? Do you instead listen to satellite radio (which still has ads, but fewer of them), a service like Pandora, or music on your iPod or phone? How many print ads in magazines do you pay attention to? When was the last time that you paid attention to a newspaper ad, or looked through the classified ads? Do you read the flyers and other junk mail you receive, or do you throw them in the recycling bin as soon as they arrive? When you're browsing the web, do you use an ad blocker?

The fact is that, with a few exceptions, we really have no way of directly measuring advertising effectiveness--no way of knowing how much of our advertising is wasted. The only way to scientifically test is to not only compare one ad against another, but to also test against a control of no advertising whatsoever--and no company is going to risk the potential harm of eliminating all advertising in order to test the difference between some form of advertising and none at all. While you're testing, you'd better account for macroeconomic effects as well: A test in 2007 would have had very different results than the same test in 2009.

So, we're at the same place as the ancient Egyptians and Greeks were when they performed highly symbolic, but ultimately ineffective, animal sacrifices. We don't sacrifice animals anymore; instead, we waste tens of billions of dollars that could be used for other, more productive, activities. Could we do without it? If we did, what horrors would the gods rain down upon us?

I'd argue that most large advertisers could cut their advertising expenditures by 50% with little or no effect on sales, and a big positive effect on their bottom lines. And, I believe that we're heading in that direction. Marketers are finding success with approaches that look little or nothing like conventional advertising, such as product placement and social media.

Advertisers who do try to cut their expenditures on conventional media in half are going to face tremendous pushback. Ad agencies and media buyers will tell them that their plan is risky, if not insane. (Ad agencies and media buyers get a large portion of their income from purchase of advertising space.) Media companies will sow fear, uncertainty and doubt within advertisers' management. Even advertisers' managers may fear that cutting the expenditures in half may result in "turning the field over" to their competitors. Making such a decision is going to take enormous courage on the part of executives. However, if it causes earnings before advertising and promotion expenses to fall more than the savings from the decrease in ad expenditures, companies can always ramp advertising back up.

For their part, media companies have to prepare for a future where they get the majority of their revenues from subscriptions and other income instead of advertising. As for media startups, building your business plan solely, or even primarily, on advertising revenues is a fool's game.

Separating the medium from the message

Wikipedia defines the word medium as follows: "In communications, a medium is the storage and transmission channel or tool used to store and deliver information or data." It's the means of getting information from point A to point B, not the content or structure of that information. However, it's virtually impossible to consider a medium without including its usual content and structure. For example, we have expectations of what we're going to hear when we turn on the radio, and what we're going to see when we turn on the television. We don't expect to find the nameplate and headline of a newspaper on an inner page; we expect to find them on the front page.

Content and structure have been an integral part of our understanding of what a medium is, until we got to the Internet era. The Internet is a medium that can reproduce the content and structure of radio, television, movies, compact discs, books and newspapers. The Internet decouples the physical medium from its content and structure.

The Internet's flexibility is both a blessing and a curse. It makes it relatively easy to copy the content and structure of other media, but history shows that copying one medium into another isn't a successful long-term strategy. Radio copied theater, concerts and vaudeville, but it didn't come into its own until unique styles of entertainment were developed specifically for radio. Television initially copied radio and the media that radio itself originally copied, but like radio, television didn't take off until artists started taking advantage of television's unique capabilities.

The Internet can be a replacement for today's radio and television, with the added benefit of time-shifting, but with its sometimes tinny sound and small displays, it's a poor substitute. You can make a website or app look just like a newspaper page, but experience shows that people read in a different way online than they do in print. Despite apps, most magazines available online look just like their print editions, with a few additional features. These "digital magazines" are often very hard to read, requiring lots of zooming (some readers only allow one level of zoom), panning and scrolling.

One can argue that webpages are themselves a unique form of structure, if not content; with the exception of interactivity, they're an amalgam of text, audio and video forms that existed well before the web itself. What are some of the other unique capabilities of Internet media that can differentiate them from existing forms?

• Interactivity: Video games and interactive CD-ROMs predate the web, but the web brings interactivity to a new level, and mobile apps are accelerating the trend.
• Multi-way creation: Instead of the "one creator to many consumers" model inherent in incumbent (old) media, the Internet enables many creators to reach a few or many consumers. It also enables creators to interact with each other, and makes the roles of creators and consumers fluid--one can become the other, and one can play both roles simultaneously.
• Support for most kinds of existing media: The temptation to simply copy one medium's content and structure onto the Internet is great, but the ability to integrate the capabilities of multiple mediums into a single composition is very powerful.
• No gatekeepers: Creators can reach consumers and other creators inexpensively, without having to go through distributors, retailers and networks.
• Low production and distribution cost: The Internet has helped to drive the cost of the software and services needed for content creation down to a tiny fraction of the prices paid by old media companies, and Moore's Law has driven down the prices and increased the capabilities of the devices needed to create and access the content.

Simply taking a radio show and moving it to the Internet, either as a webcast or simulcast, won't cause the Internet to displace radio; it only creates a poor substitute. The same goes for television. Magazines that simply reproduce the content of their print editions in electronic form aren't reversing their downward circulation and advertising revenue trends--the best they're doing is slowing down the decline. Newspapers aren't adding enough extra value on the Internet to make their paywalls work.

One-to-many media don't work on the Internet, or more accurately, they don't work well enough to maintain the business models of incumbent media companies. Native Internet media have to be highly interactive and incorporate an audience of content creators, not just content consumers. If any content consumer can instantly and painlessly become a creator of virtually any kind of content, and if consumers of that content can in turn create their own content, that's when Internet media becomes very different than any incumbent media.

Twitter, YouTube and The Huffington Post are all early examples of true Internet media, although they have limitations:

• Twitter's is the kinds of content that can be delivered in-line with its 140-character messages (which itself is a limitation).
• YouTube's is the amount of effort necessary to create a video that doesn't look amateurish.
• The Huffington Post's is that it's very text-based; the HuffPo is adding more video, but it's primarily produced in-house and represents a regression to the "one-to-many" model. Also, anyone can submit posts to the HuffPo, but that doesn't mean that they'll be accepted.

If you think about how those three companies' models can be mixed and improved, you can come up with some very interesting new visions of Internet media.

The death of "mass"

No, I'm not talking about some physics discovery that portends the end of the universe. I'm talking about "mass" in the context of mass production, mass media and mass education. We're in a transition period that, perhaps fifty to 100 years from now, will clearly mark the end of one era and the beginning of another. The industrial age led to the era of mass production. Mass production, electrification and the invention of wireless technologies led to mass media. Demand for skilled workers and the migration from farms to cities led to mass education. All of these trends were well-established by the early 1920s, and now, almost 100 years later, the post-mass era is beginning.

Mass production, as implemented by Henry Ford and others, brought the cost of manufactured goods down to a price that almost anyone could afford...at the cost of the humanity of people who work on production lines. However, we're now replacing everything physical that we can with bits, and bits have no need for mass production. A single copy of a song, eBook, video, television show or movie can be endlessly reproduced at effectively no cost, and sent anywhere in the world that can be reached by broadband or a wireless connection.

Today, our demand for new products and new technologies is stretching the ability of mass production to respond. We've taken all the slack that we can out of production systems--implemented just-in-time manufacturing, minimized inventories, and created processes to eliminate defects rather than fix them after they've occurred. However, the mass production environment we've built doesn't work well when chains of supply break (as with the Japanese disaster), or when wars break out that increase the cost of raw materials or interfere with transportation.

Our mass production systems also don't work well when markets can change at a moment's notice. Rapid hikes in the price of gasoline killed demand for gas-guzzling trucks, undermined the business strategies of U.S. car manufacturers, and ultimately led two of the Big Three to file for bankruptcy. A one-hour presentation by Apple announcing its iPad 2 made most of its competitor's tablets obsolete overnight. Samsung was able to respond and reengineer its Galaxy Tab 10.1 to compete, but Motorola faces the prospect of taking huge losses on its Xoom and replacing it with a new model much sooner than expected.

By definition, mass production requires making a commitment to manufacture of large numbers of products in order to keep costs down. However, those large commitments increase the risk of having to discount unpopular or obsolete products, or of having to scrap some inventory entirely. The solution is to manufacture products only in the way that consumers specify them, when customers are ready to buy them. That means a return to localized, bespoke manufacturing that uses the same technology as mass production, but in smaller, less capital- and space-intensive forms. It also means that manufacturing will once again be done close to the customers, rather than thousands of miles away in plants chosen for the lowest possible manufacturing cost. This doesn't mean that mass production as we know it will go away completely, but it does mean that an ever-increasing percentage of what we buy will come from local manufacturers, reversing a forty-year trend.

The next "mass" that's evolving out of existence is mass media. The very concept of mass media is fairly young; even in the golden era of newspapers, each one served a single city, and Hearst, the largest newspaper chain owner, covered only a small percentage of the U.S. It wasn't until the advent of network radio broadcasting that media in the U.S. truly became mass, and that didn't occur until the 1920s. Starting in the 1950s, we entered a period where everyone watched the same television shows and got essentially the same news and the same viewpoints, whether they were reading newspapers, watching television or listening to the radio.

The mass media era first began to break down when talk became the dominant radio format, which eroded the influence of the original radio networks. The next crack in the wall was when the viewing audience for cable television networks exceeded that of broadcast networks, and the third break was the erosion of newspaper circulation, which actually predates the Internet era.

The Internet, however, represents the death blow to the mass media era. There are more sources of entertainment, information, news and opinion available to more people today than at any time in history. Anyone can write articles, record audio and shoot video, and they can make their work available to a worldwide audience without going through a publisher, distributor or broadcaster. An increasing number of people find out what to pay attention to not from editors, but from people they follow on Twitter. Writers still write, producers still produce and editors still edit, but the process of curation, of deciding what's worth paying attention to and what isn't, is now in the hands of ourselves, our friends and people whose opinions we respect.

The average age of print newspaper readers, television viewers and radio listeners has been increasing for years. The most likely advertisers on U.S. national television news programs and late night talk shows are makers of denture cleaners and adhesives, arthritis and pain medications, and drugs to treat gout, erectile dysfunction and depression. Younger consumers get their information and entertainment from the Internet, and when they watch television, they increasingly watch it online or use DVRs that allow them to skip commercials.

The number of cable television subscribers has been declining for almost a year, and the growth of multichannel video services (cable, satellite and IPTV) in the U.S. has just about come to an end. The audience for broadcast radio is being eroded by Internet services like Pandora and Spotify. Newspaper publishers are "circling the drain". In short, mass media as we've known it, especially advertising-supported mass media, is on its last legs.

That brings us to the last "mass", mass education. The modern public education system in the U.S. dates back to after the Civil War, when huge demand for educated workers in factories coincided with a mass migration of people from rural areas to cities. The single-room schoolhouses that were found in most communities, and provided all the education for students from the first to eighth grade, were replaced with factory-like buildings that applied mass production techniques to education. Curricula were standardized and the subjects taught were based on the knowledge that employers believed that their employees needed to master in order to succeed. Even sports programs were introduced to improve the fitness of workers for factory jobs; this was especially true in areas with heavy industry such as automobile manufacturing, steel and mining.

Today, however, the mass education techniques used in most primary and secondary school districts in the U.S. are failing to engage students and meet their educational needs. For example, a high school student in the Chicago Public School district, one of the largest school districts in the U.S., has only a 50% chance of graduating. Schools and school districts have hierarchies of teachers, unions and administrators that are every bit as as bureaucratic and sclerotic as the worker/union/management hierarchies found in the most backward, old-guard factories. The U.S. government has responded by implementing national standardized tests, which try to fix the problems of mass education by applying yet another mass production technique.

The solutions to the problems of mass education have to come from individualized instruction, education based on mastery of subjects rather than completion of a certain amount of time sitting in a chair, and tearing down the bureaucracies found in schools. We need to go back to the one-room schoolhouse, but with 21st Century technology and the latest thinking in educational theory. Otherwise, the mass education system will collapse under its own inefficiency and ineffectiveness.

We've entered the post-mass era--the decline and fall of mass production, mass media and mass education--but we'll truly understand what's going on only when we can look at it in hindsight.