The 5 Signs of Cultural Transformation in the Media Business


 

I just finished reading “The Big Short: Inside the Doomsday Machine,” an excellent book about the financial crisis of 2007-2008, by Michael Lewis, one of the most entertaining and perceptive story tellers of our generation.  I actually had the pleasure of meeting Michael Lewis the other day and hearing his views on a number of topics, the common thread being “cultural transformation” in industries where, as he put it, “aspects of what they are doing don’t make sense anymore.” Naturally, this led me to ask him about the business of advertising and media.

In his first book, “Liar’s Poker,” Lewis observed a cultural transformation changing the business of bond and securities trading at Salomon Brothers.  Why?  In his view, cheap computing power led a “rapid intellectualization” of the field.  So Vinny, the high school graduate from New Jersey with hair coming up from under his shirt, now had to run his bond trades next to a PhD from MIT who could use mathematical models to understand the option value of the security.  As a recent Ivy League graduate, Lewis was given the advice: don’t socialize with Vinny – he might hit you!

In “Moneyball,” Lewis chronicled this same “intellectualization” of the sports industry, as Billy Beane and the Oakland A’s relied on complex statistical techniques to scout and hire the most promising baseball players.  Rather than rely on dated but widely accepted measures of performance, like runs batted in and batting average, people like Beane used the new less obvious measures, like on-base percentage, to identify under-valued talent.

With apologies to Lewis, I offer below my thoughts on how he might one day tell the story of a similar cultural transformation of the advertising and media business:

1. Something the industry has been doing doesn’t make sense? Check

  • As the consumer migration to digital media roars on, the business of providing and monetizing the media is more manual and inefficient than ever; basic things like counting, tracking, and improving the performance of advertising are staffed by small armies of low paid workers.

2.    Cheap computing power disrupting the traditional economic structure of the business? Check

  • As advertisers look for “faces rather than places”, engaging audience is emerging as the focus rather than placing advertising is premium media contexts.   Google has shown the world that with the right data and algorithms you can conquer the media world.

3.    Math geeks are using advanced analytic techniques to better predict investment ROI? Check

  • Predictive analytics, data models, and machine learning algorithms are starting to substantially improve the targeting of advertising and reduce waste.

4.    Tensions exist between the old guard and the new? Check

  • There’s a growing stream of angry sounding “algorithms don’t matter” posts from traditional advertising types, although unlike Vinny I don’t think they like to hit people.

5.    The “new math” is creating new winners and losers? Check

  • I recently spoke to a senior manager in a media agency who told me that his algorithm-powered “media trading desk” (which buys media through online ad exchanges) produced more profit in its first year of operation than the entire traditional media buying agency from which it was spun out.

The forces at work in the media business are indeed familiar, and most now agree that we are on the cusp of a transformation of the business itself.   I’m looking forward to perhaps one day reading Lewis’ account of it.  Meanwhile, let’s hope the leaders of this industry learn from the mistakes made by Wall Street.

– Mike Baker, CEO, DataXu

(**This piece was also posted on the MarketShare blog at Forbes.com – http://blogs.forbes.com/marketshare/2010/06/07/michael-lewis-and-the-cultural-transformation-of-the-media-business/ )