Pepsi and Facebook: The Continued Ascendancy of Online Advertising
By Nadav Manham
I'm not sure this news got much notice, but one day we may look back on it as a turning point:
For the first time in 23 years, there will not be an advertisement for Pepsi during Super Bowl next weekend. Instead, PepsiCo, the soft drinks maker, which in previous years has wowed audiences with dazzling spots featuring Cindy Crawford and Britney Spears, is going online.
With a major digital campaign that features its own website and a heavy presence on Facebook, PepsiCo is betting that a more interactive approach will resonate with consumers in the always-on age of social networking sites.
I often fall into the trap of analyzing media companies from the point of view of a consumer of media. I consume a lot of media, so that's how I naturally think. But it is a trap: the truth is I'm not really a consumer of media. The true "consumers" of media, the ones that pay most of the bills, are the advertisers.
At the end of the day, advertisers are investors. They have scarce resources to spend on advertising and they want to maximize the return on what they spend. If spending $20 million on carnival barkers promises the best return, that's what Pepsi will spend it on. If spending $20 million on Super Bowl ads promises the best return, that's what Pepsi will spend it on.
In this case, Pepsi has decided, for the first time, that $20 million spent online promises the best returns, in terms of the number of people reached, their demographic attractiveness, and the likelihood of converting them into Pepsi drinkers. It's potentially a very big deal: Super Bowl ads have historically enjoyed tremendous pricing power, and now at least one company thinks it can do better elsewhere.
So the thing to keep my eye on is advertisers, the true consumers of media. The expected return on investment to an advertiser, relative to the alternatives available, is what will ultimately determine the revenue of most media companies. And then, if the cost structure required to deliver that advertising is low enough--an independent question--you have a good business.
The author of this post is president of Elera Advisors LLC, an investment advisory company focused on value-oriented manager selection. Mr. Manham is a Manual of Ideas contributor and editor of The Investor's Consigliere.