U.S. Advertising History

The modern ad industry traces its roots to the 1800s, when advances in photography, magazines, the telegraph and other technology brought about national communications, mass production and mass marketing. Volney Palmer, a Philadelphia businessman, formed the first U.S. advertising agency in the 1840s, when he began buying large chunks of ad space from newspapers and reselling them to clients at a higher price.42 At the close of the 19th century, advertising agencies had moved from merely brokering sales to creating advertising content. The industry became more professional and more persuasive.

In the 1920s, the J. Walter Thompson advertising agency hired noted psychologist John Watson, a leader in behaviorism, which explains human action in terms of stimulus and response.43 George Gallup, later famed for his polling firm, joined ad agency Young and Rubicam in 1932.44 Advertising expanded with the growth of radio. Advertising firms backed radio programs such the Fleischman’s Yeast Hour, with crooner Rudy Vallee, and the Lucky Strike Dance Hour; two of the top-rated evening radio programs of 1930-31 season. With the advent of television in the 1940s, advertising was again transformed. As with radio, advertisers initially supported programs—Milton Berle’s Texaco Star Theater and Kraft Television Theater are examples—but costs became prohibitive. Advertisers moved from backing entire programs, to buying one- or two-minute blocks of time.

They still had influence over which programs would be broadcast, but the networks controlled program content. The advertising industry hit creative highs during the 1950s and 1960s. Chicago ad firm Leo Burnett created product icons like the Jolly Green Giant, Pillsbury Dough Boy, and Marlboro Man.  Ad firm Doyle Dane Bernbach’s “Think Small” promotion campaign for the Volkswagen Beetle—which created wide consumer acceptance for a runty foreign
car that looked like nothing on American roads—is rated by many as the most influential ad campaign in U.S. history.

In the 1970s and 1980s prominent ad firms—some with competing clients—were merged or taken over. The ad sector is now dominated by large holding companies such as Publicis Groupe and Omnimedia. The recession of the early 1980s changed advertising patterns as advertisers began relying more on promotions via coupons and direct marketing. By 1990 the advertising industry had lost 25% of its share of business marketing budgets to other forms of marketing communications. Additional changes meant the loss of 13,500 advertising jobs in three years.

By the mid-1990s, advertising budgets were again growing at double-digit rates. The industry took another hit when the dot.com bubble burst in the late 1990s. In recent years smaller, edgier firms have gained prominence. New companies focus on digital advertising and marketing. New ad networks are springing up on the web.

Most online ads are sold on the basis of consumer response. According to the IAB, 37% of online ads sold in 2009 were priced on cost per impression (the number of times viewers saw an ad), with 59% sold on a  performance basis such as cost per click. The rest were sold on a hybrid basis.

There are questions as to the accuracy of such metrics. comScore, a leading U.S. firm measuring consumer digital behavior by tracking behavior of a million U.S. consumer volunteers, says only about 16% of Internet users clicked on an ad in March 2009, and just 8% of Internet users accounted for nearly 85% of all clicks; it contends that advertisers that ignore Internet users who do not click on ads are making a mistake.53 Measurement of clicks can also be manipulated through click fraud, the practice of generating spurious clicks to make ads look more popular and thereby increase website owners’ revenues.

Whatever the imperfections, the new gauges have pushed other media toward more finely tuned measurement tools. For example, technology company TRAnalytics has developed a measurement system combining information from monitoring devices placed atop televisions, household purchase data gleaned from scanners in stores and from advertisers, and demographic data. Other firms are trying to go beyond clicks to things such as “dwell time”—the amount of time a consumer spends with a promotion including watching video, expanding the size of an ad or forwarding it to friends. Nielsen in 2010 announced it had developed a new system for measuring online audience. A coalition of advertising and media companies has formed a consortium to develop a new system for measuring audience across multiple media platforms.

Digital Advertising Measurability

One major difference between established and emerging markets is the availability of advanced tools to quantify consumer response. Advertisers have long used data to determine where to place ads and to glean insight into consumer response. Nielsen measures television viewership through consumer panels and electronic devices. Arbitron Inc. is a leader in radio audience measurement. The Audit Bureau of Circulations measures sales of newspapers. Companies may supplement these audience measurements with other qualitative research on consumer demographics and behavior, as well as separate surveys designed to measure return on investment.

In the digital world, advertisers have access to faster, more granular measurements. Digital advertisers can count the number of people who click on an ad, forward an email, or view a video. “One of the primary benefits of digital advertising is that it lends itself to quantitative analysis. Companies can easily track ad impressions, click-throughs, unique visits and time spent on each page,” according to a case study published by Dartmouth’s Tuck School of Business.