iMedia: It looks like you've always focused on building startups that have a revenue model early on. What do you think about all these popular startups today -- like Facebook, Twitter, etc. -- that worry about building a service and gaining users first, only to find revenue models later?
Steelberg: Facebook just announced that it has over 200 million users, and Twitter.com visits grew 131 percent between February and March to 9.3 million, so it's hard to argue with their success building communities. That said, I wouldn't want their worries in this depressed economy. Chad and I take a very purposeful, revenue-focused approach, and have always built businesses that address tangible market problems for customers ready to pay for smart solutions.
You can make the case that when you have a billion users, a business model will evolve, and revenue will find you. However, at that point you better hope you have a cost structure in place to realize the revenue. An "if we build it they will come" mentality won't endear the average startup to investors, either.
iMedia: What drew you to the online endorsements business?
Steelberg: Celebrity endorsements is a classic example of an offline business that delivers tremendous value, but that for many reasons (such as high costs, long lead times, complex negotiation processes) hadn't translated to online advertising. Second, celebrity endorsements, and the associated media spend, is a large market, totaling more than $60 billion worldwide.
Traditionally, endorsement deals have been concentrated on a few top celebrities and athletes like Michael Jordan, Peyton Manning, and Tiger Woods, and the few Fortune 500 advertisers who can afford six- or seven-figure deals. In fact, 44 percent of sports endorsement fees are concentrated in just 35 athletes. When you think about the exponentially larger pool of athletes that consumers are excited about -- and the exponentially larger pool of advertisers who could benefit from associating their brand with a celebrity -- you quickly see the opportunity.
At BAT we're letting advertisers tap into the power of endorsements in a way that is built for online: You can have campaigns up and running in days or weeks (not months), and target specific geographies with celebrities hand-picked based on their popularity and performance. The online model solves other challenges, too. Advertisers can rely on data, and not just on gut instinct, when choosing who will best represent their brands. The risk is significantly lower, because it's possible to change strategies and talent quickly and easily. Suddenly, endorsement marketing is accessible to, and appropriate for, a tremendous range of national and local advertisers. It's a dramatic shift in the business of endorsements -- for advertisers, as well as agencies, talent management companies, and athletes and celebrities.
Beta results and independent research are starting to confirm that we're on to something big here. Endorsements deliver strong metrics because they allow advertisers to connect with consumers on a very visceral level. Celebrity names, images, video, and/or audio instantly engage fans. Technology has changed the rules of the endorsements game, and we've just scratched the surface of what's possible. I'm excited not only for BAT's own market opportunity, but to see what clients, celebrities, partners, and even competitors will do with this infusion of new possibilities for online branding.
iMedia: What's your take on the state of online display advertising today?
Steelberg: It's harder than ever before for advertisers to cut through the online noise and create a connection -- partly because of the endless supply of inventory! Consumers are attuned to blocking out advertising (either subconsciously or with technology), so we need to find new ways to engage people without annoying them.
To grossly simplify things, you have a major movement to reclaim creativity and branding as the solution for display. Then, there's another camp (still mourning the death of the 30-second spot) basically ready to throw in the towel on display in favor of search and more measurable, direct-response tactics.
I'm optimistic. I think that smart advertisers will find ways to achieve and improve results on both brand- and direct-response levels, and that display advertising will continue to evolve in useful ways. And I believe that smart publishers will eventually regain control of the inventory challenges. There is no getting around the facts that 1) consumers are online, 2) advertisers want to reach them, and 3) that the internet provides more potential for meaningful interaction and instant action than any other medium.
iMedia: Finally, what types of ad types are you eyeing next? What do you see as the most interesting ad format today and going forward?
Steelberg: If I had to pick one, I would say applications. Whether you call them iPhone apps, widgets, or something else entirely, they can connect brands to engaged, opt-in, scalable audiences.
Ultimately, ad types in and of themselves are irrelevant. The solution to bolstering online advertising won't be a new format size or shape. What interests me most is any new approach (technology- or creativity-driven) that engages people with relevant content in meaningful ways. The most powerful ads tap into the existing interests, passions, behavior, and psyche of the people they're trying to reach. They meet the consumer where they are, and press the advantages inherent to online advertising.
Matt Kapko is former deputy editor at iMedia Connection.
On Twitter? Follow iMedia Connection at @iMediaTweet.
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