The Advertising Barbell
Trust or Outcomes and Not Much In Between
The advertising market is roiling. Ad budgets are moving down funnel at an accelerating rate. The gravitational pull of the big platforms seems to be picking up. TV ad dollars are shifting to CTV. Retail media, which barely existed a decade ago, is now a $50 billion business in the U.S. Most of the agencies’ stocks are struggling.
What happens when GenAI floods the system with content?
In Trust is the New Oil, I made the case why this content overload will likely undermine the “attention economy,” the primary funding mechanism of the web for the last 25 years: all that content will reduce the signal-to-noise ratio online, devaluing raw attention; and consumers will increasingly turn to conversational chatbots, answer engines, and agents to manage this noise, introducing new intermediaries that render many ads worthless.
The question I got back was: Ok, but if the attention economy falters, what takes its place? In this follow up, I try to answer that question and put a finer point on the implications for advertising. In short, the “attention economy” will likely be replaced by a “trust economy,” an “outcome economy,” and an emerging “agent economy.”
Tl;dr:
Across the broader economy, many industries are gravitating toward barbell outcomes and the middle is dwindling. This will happen in advertising too.
Zooming out from the marketing funnel, advertising has two main functions: to make people enter the market (demand creation) and, once they’re in market, match that demand with supply (coordination).
As the volume of content and noise increases, demand creation will likely gravitate to the most trusted environments and the tightest integrations (the “trust economy”). Or, brands may take control of their media themselves.
For coordination, risk will likely shift away from brands, who have the least visibility and control over advertising efficacy. It will likely shift in two ways: to the platforms (the “outcome economy”); and to agents and/or consumers (the “agent economy”).
The likely end state is a smaller traditional media business driven by high-touch, custom integrations; even more concentration in the massive, scaled platforms that are uniquely able to sell on outcomes; and a potentially large reallocation of advertising spend—directly or indirectly—to AI intermediaries.
Traditional media needs to lean into its natural strength, trust. Brands should embrace the barbell, pushing budgets toward trust on one end, and outcomes on the other, and minimize their spend in the middle. Platforms should keep driving toward outcome-based pricing, while recognizing the likelihood that AI intermediaries will slice off a big part of the ad pie.
The Middle of Everything is Going Away
Over the last few decades, many industries have gravitated toward barbell outcomes: large, scaled, low-touch, high-volume, on the one end; and high-touch, low-volume, on the other. The middle gets hollowed out. Consider a few examples:
Retail: Amazon and WalMart at one end; boutiques and DTC brands on the other; department stores and large specialty retailers have suffered.
Financial services: Chase, Citi, Vanguard at one end; family offices and boutique wealth managers on the other; regional banks and insurance brokers have dwindled.
Healthcare: UnitedHealth, Kaiser Permanente at one end; concierge medicine, functional/integrative medicine, Mayo Clinic on the other; mid sized hospitals and practices have been forced to merge or gotten squeezed out.
Education: Online education on the one end; elite colleges and universities on the other; small regional colleges are failing.
There are several dynamics at work here. In his 1980 classic, Competitive Strategy, Michael Porter argued that there are only two fundamental ways to achieve competitive advantage: cost leadership, which is most often derived from scale economies and operational efficiency, or differentiation. Since it’s hard to differentiate at scale, you could recast this barbelling as Porter’s theory in action: as industries mature and competitors’ strategies solidify, they tend to barbell. In The Myth of Capitalism, Jonathan Tepper argues that most U.S. industries are dominated today by monopolies or oligopolies partly due to lax antitrust policies and regulatory capture. Clearly, the internet has also played a big role. Structurally, it favors these barbells for a few reasons: it is subject to positive feedback loops, that make big things bigger (as I wrote about here)1; it eliminates geographical constraints to competition; and price and feature transparency online squeezes out middling players who can’t compete on either.
Whatever the confluence of reasons, the middle is under tremendous pressure across the economy. Let’s pin this idea. We’ll come back to it.
The Two Roles of Advertising
What’s the point of advertising?
In marketers’ language, advertising is intended to move consumers down the so-called funnel. There are many versions of this funnel, but the basic idea is in Figure 1: consumers progress through a process (or “consumer decision journey”) from awareness, to consideration, to intent, and finally to purchase.
Figure 1. The Marketing Funnel
Source: The Mediator.
All advertising basically serves one of two functions: to create demand or match demand with supply.
But let’s forget about the funnel for moment. If you zoom out a bit, all advertising serves one of two purposes:
To make people want something they didn’t know they wanted and encourage them to enter the market. This encompasses both what marketers call awareness and consideration, but since both are intended to make people want to enter the market, we’ll call it demand creation.
To match demand with supply for those consumers who are in the market. We’ll call this coordination.
We’ll take them in order.
