Corporate Barter More Important Than Ever

(Editor’s note: Brian McMahon, CEO of Orion Trading, authored this article for Adweek magazine.)

Many in the industry wonder if, given the economy, barter is still relevant. My answer? More than ever. Just ask WPP and Havas, both of which recently opened internal barter units. The evolution of agencies, new technologies and media formats — as well as a de-levered corporate philosophy — will continue to sustain and expand barter for years to come.

In the past couple of years, the explosive growth in technology and social media — coupled with the global economic recession — have left agencies with a difficult task: to drive enhanced value for their clients with less money (in many cases, a lot less money). Procurement is often cited as the culprit, blamed for viewing agency services as a commodity. Peter Stringham, CEO of Young & Rubicam Brands, compared procurement-driven pitches to a “car dealer negotiating price before showing you any models.”

Barter is one of many solutions. It drives value to the client without impacting agency fees/commissions. Barter companies operate at net rates and do not charge a fee for their services — proving barter is a powerful means of sustaining ad budgets while generating significant cash flows and optimizing asset dispositions.

Forrester Research’s 2010 report “The Future of Agency Relationships” states that we are entering the “adaptive marketing era” — one driven by new technologies and media formats. This will shift advertising messaging from outbound to surround, campaigns to experiences and from segmented “audiences” to individuals.

While global ad spend forecasts differ, there’s little debate that the worst is now behind us. Magna Global, a division of Interpublic Group, predicts that media expenditures will hit $490 billion by 2015 — eclipsing 2007 levels by 20-percent. This growth will be driven by the online sector, which is expected to grow at three times the rate of all other advertising formats. New technologies in the online sector open up a multitude of opportunities for advertisers.

Barter can be a strategic solution for advertisers looking to invest in these new formats, but want to do so with limited risk. Consider Conan O’Brien’s 30-city “The Legally Prohibited From Being Funny On Television Tour” that sold out in less than three hours. The only advertising for the tour was a single tweet by O’Brien.

How should we calculate the ROI of that tweet? Simply, the millions generated from ticket sales minus the 10-cent cost of an SMS message, divided by the millions generated from ticket sales. Or is it the millions generated from ticket sales minus the SMS message plus all the branding and marketing that has gone into O’Brien over his career, divided by the millions generated from ticket sales? We contend the latter. While O’Brien's tweet triggered the ticket sales, it was his brand equity (built through traditional advertising) that made that tweet so powerful.

The point: New technologies and formats such as Twitter will continue to redefine advertising. There’s little dispute that without an integrated 360-degree approach (comprised of social, experiential, press and traditional formats) the efficacy of these emerging technologies and formats will be severely limited.

In order for barter agencies to be relevant and successful they should be full-service shops with global capabilities across all media formats. As barter continues to grow as a function of advertising, the benefits of barter will enable advertisers to efficiently invest in these emerging areas at a lower risk and without adversely affecting the advertiser’s more traditional communication strategies.

Probably the greatest lesson that corporations have learned, and continue to learn, from the recession is that debt is a risky endeavor — especially in a global marketplace.

Following the dot-com boom, between 2002 and 2007 the U.S. economy experienced tremendous growth; the S&P 500 Index grew by more than 300-percent. This growth, however, was primarily driven by an unsustainable economic platform: debt. At the time debt was cheap and readily available; this is no longer the case and won’t be for the foreseeable future.

Our industry has seen a trend where existing and potential partners are looking at barter as a driving force behind their corporate financial strategies. First, cash flows generated through barter help organizations to de-lever themselves in a faster time frame. Second, barter enables an organization to clean up its balance sheets without losses. Third, barter enables organizations to increase marketing efficiencies to drive top-line growth. All these factors help to raise credit ratings, lift market cap and strengthen brand equities.

The global economy is one of dynamism and constant evolution. Organizations consistently react, contract and grow accordingly in order to remain relevant and be leaders in their respective industries. The barter industry has evolved from interpersonal trading of goods and services into a sophisticated global exchange that enables advertisers to partly fund billions of dollars of media each year with assets other than cash.

While we are confident that all signs point to a robust future for barter, we eagerly anticipate new and unique uses of barter in the equally exciting works of media.