Knowledge Bridge

//Orlando Alvarez /June 26 / 2013

Digital advertising in Latin America: Sustainability in struggling markets

Everything evolves and advertising is no exception. Not too long ago, a new invention called television came into the world and changed the advertising industry worldwide – agencies had to experiment with how they could communicate in an audiovisual format something that used to be in print. Digital is to our time what TV was back then, and its potential is almost limitless.

However, the question remains on how advertisers and news organisations, especially in markets in the early stages of digital development, realise this potential. In major markets both in developed and emerging markets, massive news conglomerates have been able to diversify, building or buying companies to create a multi-platform strategy.

In smaller markets and for smaller news organisations, this strategy isn’t an option. Smaller ad budgets overall and smaller digital opportunities force both advertising agencies and news organisations to be more creative in building sustainable businesses.

The rich, Latin American giants

When talking about digital advertising in Latin America, we need to begin by talking about advertising in Latin America.

When we look at the big picture, we come to one reality: Latin America is a divided market. On one side, there are the bigger and wealthier countries with big budgets, and on the other side are the smaller, less affluent countries with small advertising budgets. This fundamental difference impacts on how digital advertising is developing across the continent.

The Latin American giants, Brazil, Mexico and Argentina, are powering digital ad growth across the region, helping it achieve the world’s second fastest growth rate.

“According to new projections from eMarketer, in 2013 online ad spend in Latin America will grow by 23 percent, more than any other region in the world except for the Middle East”, according to an article on Latin Link, a site that covers Latin American media developments by usmediaconsulting.com.

Mexico will lead this growth with an increase of 32.1 percent in digital ad spend in 2013, Argentina will come second with a rise of 30 percent, and Brazil will grow by 20 percent.

This impressive growth is a result of several factors, one of them being the size of these countries. Brazil, Mexico and Argentina together have 158 m internet users, more than half of all Latin American users, which is estimated to be 232 m, according to a May 2012 projection from Registro de Direcciones de Internet para América Latina y Caribe (LACNIC). Their sheer size makes them attractive to advertisers.

Another factor is the maturity and size of the advertising industries and their competitiveness. Advertisers and advertising agencies, like news businesses, cannot stand still; they must invest in their teams and keep pace with digital innovations in order to achieve a competitive advantage in hotly contested markets.

The industry demand for specialist digital skills is so high in some of the developed markets, that some universities and colleges offer digital communications programmes sponsored by advertising agencies. This is not the case in the less digitally developed markets, where news organisations and advertisers are still trying to come to terms with new digital platforms and how they might be the source of future revenues.

Innovations in sustainability in struggling markets

Another glaring difference between the digitally developed and less developed markets is the size of digital budgets. There are enough digital consumers in the developed markets to allow the advertising industry to charge commercial rates for its work, which means advertisers have specific budgets for digital advertising in addition to traditional ad budgets. This is not the case in the less digitally developed countries where digital budgets must be taken out of the traditional ad spend.

This makes digital advertising financially challenging in the less-developed markets and also means that advertising agencies have to be resourceful, inventive and, most of all, curious. This curiosity has led ad agencies on this side of the Latin American divide to develop some of the most creative and effective advertising in the region.

A huge amount of talent exists in the less digitally developed parts of Latin America, but a lack of knowledge in advertising agencies, advertisers and the media undermine the potential the business has in the region. You can have an international award-winning digital ad, but it can’t command a fee that reflects its sophistication, so it won’t earn a profit for the agency.

While some countries have no idea of what digital advertising is, other countries in Central America, for example, have found a way of making a profit with digital advertising by creating offices with local talent that produce digital platforms for European countries, charging prices only slightly lower than their European competitors.

This shows an inconsistency in how digital advertising is developing even within the struggling side of Latin America. Approximately 95 percent of the digital advertising work in the less developed markets of Latin America could still be categorised as community management, website design and basic app design, while the remaining 5 percent is genuinely creative advertising work that can earn profit for both the advertiser and the advertising agency or digital studio.

Impact on news media

In some of the struggling Latin American markets, legacy media, such as newspapers and TV channels, bundle up their online ad space as a package when advertisers buy space in their traditional media. This makes it more difficult for digital-only media to compete.

Most of the digital-only media in this region that have survived have very defined target audiences. They maintain their editorial content very well focused on that target to build loyalty. These specialist media can defend their costs when selling advertising space, as their selling strategy focuses on connecting brands with specific audiences. This niche strategy allows the sites to sell very targeted advertising based on a narrow content strategy rather than the technology that search engines and social networks use to deliver ad targeting.

One of the known virtues of digital media around the world has been their versatility and ability to reinvent themselves to offer different formats, but a lack of technical knowledge in the less digitally-developed side of Latin America hinders progress. For example, programming limitations mean that the only format on offer is usually the traditional banner ad, which means a media company can’t charge premium prices for a more creative use of ads.

The digital side of news organisations is normally not led by digital experts – most are directed by people with a traditional media background and have limited “know-how” about the potential of this new field. There’s a lack of vision not only in content but also in digital advertising sales. They focus mainly on selling display advertising – banner ads or pop-ups – instead of developing proper and specific digital platforms custom made for the advertiser’s needs. This fuels advertisers’ perception that digital media is all the same, so they end up choosing the cheapest option.

As noted above, digital media and traditional media in the struggling side of Latin America have to fight for the same marketing budget from advertisers, which creates a very confrontational environment, and as traditional media offer digital ads as a bonus for buying traditional ads, there is little room for companies specialising in digital media. The problem is that digital media companies have not yet differentiated themselves from regular digital media placing, and they need to be even more innovative to successfully compete with traditional media.

At the end of the day, if digital media does not offer something truly different and an advertiser has to choose where to spend a single ad budget, they are likely to choose traditional media as it still reaches more people, and they will given some online space for free promote their brands. As digital audiences grow and digital budgets develop, it will be very difficult for these media groups to increase their rates.

Digital education needed

Much of the recognition Latin America has for digital ad spending is due to the few digitally-developed markets. What the struggling side of Latin America needs, is know-how; it needs advertising agencies to invest in technology and education for their teams and clients. Advertisers and digital media need to understand the benefits digital advertising can bring to their businesses, and most of all the relationship that can be established between their brands and their consumers by making them engage through technology and digital platforms.

While I realise there is still only a weak digital culture in most of the struggling side of Latin America, I believe that this represents an opportunity. It is an opportunity for:

• Universities and colleges to open specialised programs focused on digital advertising.
• Advertising agencies to build knowledge, become more competitive and increase income.
• Advertisers to achieve their business objectives and reach their targets in a more engaging manner.
• The developers of digital advertising to be creative in a part of the world that needs people who know what needs to be done.

Digital: Online and on mobile

I believe that digital advertising opens up an entire world of opportunities in emerging markets such as Central America, and this means “digital” not only online. Online will always depend on internet penetration in order for an advertiser to consider it as an important channel that needs more budget, and the growth of internet penetration depends on the capability of technological expansion by every Internet Service Provider, as well as the ability of the population to afford it.

But digital represents many other formats than just online. Mobile is a form of digital advertising and there are more mobile phones than people in these countries. The biggest opportunity will arise when people begin to understand the full potential of digital advertising in struggling Latin America. Advertisers will see something truly different from what they’ve come to think of as community management and online advertising, and start seeing that they are really being offered something that will give them their money’s worth, something that they will believe is worth investing in.

Article by Orlando Alvarez