We have been following a 3 part formula for each market we investigate in our Creative Destruction 7 Act Play.

Part 1: the current incumbents, the current cash cows

Part 2: the current innovators, the startups that may make a difference

Part 3: the science fiction future, what the market will look like if some of the innovation we are seeing gets real traction.

The Part 3 for two markets are now due – Advertising and eCommerce. We decided to do one post rather than two, as we see these markets converging in the semantic future.

Picture via Flickr, courtesy Erik Mona.

Online Advertising And eCommerce Convergence Theory

Here is why we think that Online Advertising and eCommerce will converge:

1. Once advertisers taste performance based advertising they want more. Paying for a click is better than hoping somebody has seen your ad. But paying for an action deeper into the conversion funnel is better. And that logically takes you to paying for revenue. Which is what eCommerce sites like Amazon do with partner merchants.

2. Nobody will beat Google at their own game, you have to change the game. So the future of semantic advertising is unlikely to be CPC.

3. Mobile changes the rules. Now you have consumers closer to the point of purchase – they can get the pizza right now. And traditional advertising on a tiny screen with limited attention time is a major challenge.

4. Real Time changes the rules. With real time you allow for both “freshness premium” (buy now, the fish has just been caught/the dress is just off the runway/the band has just releases the song) as well as “staleness discounts” (the fish is still edible but a bit old, the clothes are functional but no longer fashionable).

Will The Future Look Like Affiliate Marketing 2.0?

Adsense is affiliate advertising. Amazon’s affiliate program is also one of the most popular forms of monetization in the long tail.

Amazon’s model cuts out all the steps from clicks to cash. All those steps happen within Amazon’s servers. That is good for merchants. Except for one problem – Amazon take a big % of the action.

Amazon is semantic the old fashioned way – they create the categories/ontologies and everybody enters their data in the forms they put online.

If somebody can offer what Amazon does but at a fraction of the % cut, merchants and publishers will flock to that vendor.

Merchants still need the affiliate publishers. That is the discovery mechanism. Without that they are dependent on Google to find their semantically marked up products. Which Google will do – for a price that is similar to Amazon.

A disruptive innovator has to offer a stunning value proposition to both parties:

a) to merchant they offer a lower % commission

b) to affiliate sites they offer a higher payout %.

That is feasible if merchants will do the work of marking up their products in a consistent way.

It is also feasible for the upstart to take a smaller piece of the pie because the size of the pie is increasing rapidly.

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