In my forthcoming book on game theory and social media marketing (See how I slipped a mention of my book in there? Bet you hardly noticed. That’s called contextual marketing. It works because it’s subtle.), I set out to prove that game theory has something to teach us about how the testy relationship between marketers and consumers has evolved online over the last decade. In fact, game theory worked so well in analyzing this conflict that I now use it to analyze all conflicts, including why my neighbor insists on heaving his dead Christmas tree into the alley behind my house every year.

And since all marketing and no fun makes Eric a dull blogger (it’s one of the factors, anyway), I thought I’d set out to prove just how fun game theory can be by demonstrating its relevance to Battlestar Galactica, Season 3, Episode 6: A Measure of Salvation. Yes, it is actually possible to out-geek sci-fi.

I know, I know, the show ended like three years ago. I fully admit that I am late to the cause of BSG’s greatness, but I am filled with the evangelistic fervor of the recently converted. In the episode in question, the humans, who have been relentlessly pursued by the Cylons throughout the series, stumble upon biological weapons that have the potential to destroy the Cylons for good. These weapons are, in fact, diseased Cylons captured by the humans. When Cylons are killed, they are automatically “resurrected” among their own kind, so executing the captured Cylons would cause them to transmit the disease to other Cylons, setting off a chain reaction that could wipe out their species.

I’ll spare you a recap of the many brooding conversations that precede the humans’ decision to use the biological weapons; the upshot is that they use the weapons, or attempt to, and it is this decision that stirred me from the couch and prompted me to write this post, convinced as I am that game theory would have led them down a different decision path entirely.

This actually isn’t much of a stretch. Game theory was originally developed to analyze geopolitical conflict in the Cold War, especially in regard to the use of potentially world-ending nuclear weapons. As you may have heard, we didn’t end up launching any nuclear weapons in the Cold War, but they were very useful anyway in the practice of deterrence, which was basically a matter of convincing the other side that you had the weapons and were willing to use them, so that you wouldn’t have to use them. If you think deterrence worked out better for us than the grim alternative, then you have the original game theorists (partly) to thank for it.

Deterrence, I’m suggesting, is the other option available to the humans on BSG, though it’s never discussed – it’s all a lot of hand-wringing and should-we-or-shouldn’t-we. But it’s a real option. In game theory, the most basic conflicts are analyzed in terms of two options: cooperation (pursuing self-interest that aligns with your opponent’s self interest) and defection (pursuing self-interest that is contrary to your opponent’s self-interest). Self-interest is always a given; we are not altruists when it comes to our survival.

Deterrence is an interesting gambit: it is a form of cooperation with a strong threat of defection. You are demonstrating to your opponent that you’re more than willing to defect in the next round if they don’t immediately cooperate, and you have to be willing to follow through on that threat in order for future deterrence to carry any weight. In iterative conflicts –the Cylon-human conflict has been repeated for five seasons – deterrence often emerges because the cost of defection is very high, as both sides engage in a downward spiral of bloodletting.

By Season Three of BSG, both sides are sick of the fight, but neither trusts the other enough to cooperate; each believes the other will always end up defecting. The decision to use the biological weapons threatens to worsen the downward spiral. Since it is implausible that the weapons would succeed in wiping out all of the Cylons, the humans would then face a decimated foe that believes the humans are capable of anything and must be destroyed at all costs.

Using the weapons would have a positive outcome for the humans in the short run, but in the long run the outcome would be irreversibly bad for all concerned. This is a classic game theory dilemma: weighing the cost of an action that produces a short-term win against the risk of a long-term loss.

The humans and the Cylons find themselves in this dilemma because they both violated, from the other’s point of view, a cardinal rule of game theory in iterative conflicts: Never be the first to defect. The Cylons’ preemptive strike against the humans, which destroyed most of civilization, convinced the humans that the Cylons want nothing more than their total annihilation. And the Cylons claimed that they attacked in the first place because the humans’ willingness to destroy their own creation – the Cylons – proved they could never be trusted. When both opening moves are defection, cooperation is nearly impossible to achieve.

But deterrence offers a possible way out: it is a way of signaling that you are capable of inflicting a devastating act of defection, but you choose to cooperate instead, and so it engenders a degree of trust. On BSG, deterrence could involve making the Cylons aware that the humans possess the biological weapons and have the means to keep them safe until they can be used (it’s been established that the diseased Cylons can be kept alive, though not cured, with medication). The humans would only use the weapons if the Cylons defected, thus preserving their potency as a deterrent. If the humans could continue to wield the deterrence with some authority, a fragile truce could take hold.

Easier said than done, both in life and on BSG. Game theory analysis assumes perfectly rational action, and the chief proponents of using the biological weapons, Admiral Adama and his son, both have major daddy issues that cloud their judgment. Remind you of any recent office-holders? The final decision-maker, President Roslin, is locked into a story arc that includes an authoritarian streak running through her mother-hen persona. And how much fun would a show about deterrence be?

The point is, well, the point is I love me some BSG. But the other point is that deterrence is too often the option we overlook, because we’re drawn to the unhealthy extremes of either doing everything or doing nothing. The middle path is rocky. But the fate of humanity lies in the balance. So say we all.

The following is an excerpt from Chapter Three of my forthcoming book: Social Media Marketing: A Game Theory Perspective, to be published by Springer in June 2010. For more excerpts, updates, an opinions on game theory and social media marketing, follow me on Twitter @unsettler, or email me at eanderson@whitehorse.com.

It all began innocently enough, with a fuzzy rectangular graphic perched atop a Hotwired.com page on October 25, 1994. The world’s first banner ad read, “Have you ever clicked your mouse right here? YOU WILL.”With stunning prescience, AT&T had extended to the Web its popular “You Will” campaign, which predicted future consumer technology, into a prediction that users would blindly click on a banner ad that offered nothing specific in return (D’Angelo). Remarkably, users did click, and that first click set Web marketing down a zero-sum path from which it is only now recovering. For nearly a decade, the click was all that mattered. It was a measurable action that brought the user in direct contact with the offer. In other words, it most closely resembled the zero-sum game of direct mail, with even better measurability. And because banner ads could be switched out easily, the ability to improve the minimax point through randomization was vastly simplified, if often overlooked.

The obvious problem is that banner ads are only partly like direct mail. For the most part, direct mail’s practical purpose is simply to get consumers to respond. If the consumer throws the envelope unopened in the trash, it accomplishes nothing. But banners could do more. As with print and broadcast advertising, the banner appears alongside free or subsidized consumer content and helps to offset its cost. As in these other media, consumers can absorb a “brand impression” while they focus on other content.

And marketers generally agree, though they may lack the game theory framework to describe it, that a brand impression sits outside of the zero-sum game. Branding is not directly transactional; it demands no immediate action by the consumer, allowing instead for the cumulative impact of repeat exposure. In its purest form, branding is a form of cooperation, inviting the consumer to participate emotionally in defining the product’s meaning. The brand marketer seeks a long-term relationship that depends on consumer goodwill in a way that direct response marketing does not.

There’ll be more on where branding fits in to game theory later. The point here is that banner advertising stood at those divergent paths from the start, and it took the path more travelled, consigning itself, perhaps forever, to the realm of direct response. The allure was irresistible: here was a medium that offered immediate, highly measurable feedback on its effectiveness, allowing the marketer to track the actual value of a given ad and media placement.

If marketers had known how that value would fluctuate, they might have chosen a different path for the medium from the start. Recall the previous axiom that any single direct market technique over a long enough span of time will produce an inexorable shift in the equilibrium point toward the consumer. It’s also axiomatic that marketers will chase their losses with more aggressive direct response tactics, producing short term gains but ultimately making a bad situation worse.

And that is, in essence, what happened to banner advertising. Fearful of missing out on the next big thing, advertisers threw money at the Web. Publishers, trying to gain dominance quickly in the race to monetize content online, obligingly raised rates. In 1998, advertisers could expect to pay an average of $37 for every 1,000 impressions (Morgan Stanley Dean Witter), which was made digestible only by the 1-2% response rates that the ads still commanded.

But from 1998 onward, that response rate slid. To sate advertisers’ appetite for impressions, publishers began saturating their content with ads. When Microsoft’s car-shopping portal, Carpoint, debuted in 1997, there were no ads on its home page. By 2001, there were at least eight, not including sponsored links and pop-ups. As a matter of simple mathematics – even the most willing user can only click on one ad at a time – click-through rates declined accordingly.

But there were other factors that hastened the decline. The most obvious is the axiomatic one: consumers in a zero-sum game become inured to marketer’s tactics over time. Tactics that produced incremental gains quickly become overused dogma, whereupon they become ineffective. Because advertisers now had to compete for eyeballs in much bigger arenas, their methods became increasingly intrusive and deceptive: strobing ads, fake interfaces, and ads camouflaged as real content.

The most notorious example, still spoken of ruefully among Web marketers, is Treeloot.com’s “PUNCH THE MONKEY AND WIN 20 BUCKS” ad, which invited the user to brandish a virtual boxing glove to punch a virtual monkey. Millions of users were duped into clicking, only to discover that they’d won 20 “banana bucks” that could be parlayed into real money only by playing even more games. The ad was so often decried by the industry’s doomsayers that some still hold it accountable for the near-death of the medium.

The truly tragic aspect of the direction that Web advertising went is that marketers saw the writing on the wall very quickly. From its debut in 1999, the Web marketing forum Clickz began fretting about the industry’s over-emphasis on direct response, believing it would lead to a crash. Topics covered the first year included “Escaping the Cult of the Click-Throughs” (Graham 1999), “Tracking Non-Click Conversions,” and “Between a Rock and a Hard Place,” which contained the quaint observation that click-through rates were “at an all-time low” (Hespos 1999). (The average response has since declined another 500%.)

It’s easy to be smug about the inevitable consequences of the new medium’s direct-response myopia, but in truth individual marketers were simply powerless to invert the widely accepted perception that banner advertising’s primary function was as a direct response medium. The industry produced study after study showing how exposure to banner ads increased brand awareness by some measurable delta. The Internet Advertising Bureau was formed mainly to advance that agenda, by standardizing ad sizes around more brand-friendly specifications and running studies on the impact of rich media. Certainly the evidence was persuasive, but it didn’t matter, because of another axiom: given the choice between hard and soft data, marketers will always choose hard. So unless the entire industry simultaneously stopped measuring click-throughs, it remained the only metric universally accepted as an indicator of campaign performance.

Then the crash came. Advertisers were more or less content to throw bad money after good in banner advertising as long as the Internet economy was strong. But when dot-coms started to bomb with greater intensity in late 2000, dragging the rest of the economy with them, online ad money dried up overnight. Start-up online media companies canceled IPOs, and public ones like rivals Avenue A and Doubleclick watched their value vanish. The mainstream media wasted no time in declaring the era of online advertising well over, and the Web’s ad volume shrank for the first time since its inception. It remained in decline for nearly two years.

In retrospect, it seems unfair that Web marketing was sent into the desert like a scapegoat, carrying marketers’ sins on its back. To this day Web marketers still complain, and quite justifiably, that the level of accountability between online and offline advertising is badly misaligned. We still argue about brand impact and still tout statistics to persuade advertisers to accept other metrics. But none of that really matters when we look at this story through the coolly objective eyes of the game theorist. Web advertising went the zero-sum route, and zero-sum is what it got. Its zero-sum mathematics went the only direction such mathematics can: the minimax point shifted toward the consumer. But it’s also true in game theory that that which does not kill us helps us find equilibrium, and that’s what happened here.

Interestingly, at least one business journalist observed the relationship between game theory and banner advertising’s race to the bottom early on. In a piece for Business World entitled, “The Unbearable Lightness of Ad Revenue,” Frank Yu declared, “Ad budgets are a zero-sum game and so are users’ attention spans.” He predicted that as “jaded, cynical consumers” learned to tune ads out, only the top content providers could afford to stay in the game, and severe “clustering” of content and media revenue would occur. He further predicted that new platforms like PDAs would challenge the Web and force new content monetization models (Yu).

Yu was at least partly prescient, if too cynical. Web traffic did indeed cluster around top content providers, but smaller players were able to stay in the game as a result of the Web’s transparency. Media planning tools like Nielsen Online (formerly Nielsen NetRatings) were able to ascertain the dimensions of the audience on more niche sites and allow advertisers to trade volume for relevance. The predicted changes brought on by new platforms are only now beginning to occur, with marketers taking notice of the growth of mobile applications as a small but rising threat to the now-traditional online advertising model. But the fundamental problem Wu raises – that of consumers tuning out – remains the industry’s greatest challenge.

What truly saved Web advertising was the equilibrium that occurred between response rates and media costs. While the minimax point shifted inexorably toward the once-bitten-twice-shy consumer during this period, the industry survived because the cost model shifted too. The cost has stabilized around a proportional rate of return that direct-response marketers can live with; in other words, the cost of impressions dropped alongside the rate of response. This has, in turn, eradicated most of the least tolerable tactics. Pop-under ads are largely a thing of the past, and fake interactions are mostly passé.

The limitations of this outcome are the same as they are for Sierra Trading Post: a more stable zero-sum game is still a zero-sum game. It leaves marketers with the basic problem of trying to eke out performance gains from a medium that is shifting inexorably away from direct consumer engagement. The stark reality of this marketer-consumer relationship was made plain by a 2007 study that sent shock waves through the digital marketing community. A joint study by media research company Comscore and media agency Starcom showed that a stunning 50% of all clicks on banner ads came from one small slice of the Web population: Web users aged 25-44 with a household income of less than $40,000 per year. Dubbed “Natural Born Clickers,” these users spend four times more time online than average users but purchase products at significantly lower frequency. Such users tend to favor gambling, employment, and auction sites – a much narrower pattern of surfing behavior than the Web population as a whole. A 2009 update to the study showed that the minimax point was continuing to slide. The percentage of monthly clickers fell from 32 percent in July 2007 to 16 percent in March 2009, with only 8% of Web users accounting for 85% of clicks (Comscore 2009).

From a game theory perspective, the implication of the “Natural Born Clickers” phenomenon is that it undermines the precarious equilibrium in click-based banner advertising. That equilibrium is based on the idea that the cost of finding and prompting action from the right targets compensates for banner advertising’s low response rate. If, however, that low rate of response also falls short of finding the right targets, the advertiser is no longer in equilibrium. Advertisers are then paying too much for the wrong kind of results.

Obviously the industry is in need of a game-changer – a shift in the use of the medium that moves it outside of the stark give-and-take of zero-sum. Fortunately for the banner ad medium, that game-changer has come in the form of more advanced metrics that account for the effects of advertising beyond direct response. Any of us can recall an instance of having seen an ad or a series of ads and having some later decision, e.g., which cars to research, informed by those previous impressions. This is, in fact, the way that advertising has always been understood to work: as one of many factors that add up to a purchase decision. Banner advertising, by contrast, had been operating under the fallacy that only a direct and immediate action, irrespective of whatever else the user might be doing, is the only way to account for the ad’s impact. Such an outrageous supposition easily leads to the Natural Born Clickers phenomenon, as clicking on an ad bears the lowest cost for a user who is at their leisure and has no intention of purchasing.

But the advent of advanced metrics disposes of this fallacy. Advertisers can now account for “view-throughs” of an ad, i.e., the perfectly natural phenomenon of a user seeing an ad and responding later. In rich media advertising, one can now account for interaction with the ad – certainly important in making a brand impression – as well as the brand impact of the ad. And banner advertising can be evaluated for its contribution to sales rather than to the fallacious clicks metric.

The digital marketer might rightfully protest that no other advertising medium is required to justify its existence in this way; it is the equivalent of demanding that billboard advertising account for consumers that spotted the sign and then later went to the store and purchased the advertised item. But again, game theory provides a ready explanation: once the payoffs in a game have been established, no single player can unilaterally change the rules. No bottom-line focused marketer wishes to give up hard metrics in favor of more logically persuasive but softer arguments concerning brand impact.

This is precisely why the advent of social media marketing is so important to the health of digital marketing as a whole: it provides the game-changer that demands different metrics, none of them easily obtainable, for how online conversations with consumers impact brand relationships. When viewed in the context of (as opposed to in conflict with) now-traditional tactics like banner advertising, social media marketing becomes a way of continuing a conversation that may be initiated in traditional ways.

How precisely social media marketing works in symbiosis with other forms of advertising is a topic for a later chapter. The main point of recounting banner advertising’s tumultuous journey is that its evolution away from direct response and toward a more nuanced role has led the way for more radical evolutionary stages represented by social media. And that evolution is reflected in the numbers: while marketers’ investment in banner advertising dipped, then stabilized, at a fraction of its former value, their total investment in the Web has grown year over year. This has occurred because interactive media has begun, albeit slowly and with no shortage of false starts, to offer a way out of the zero-sum game of direct-response marketing. The chapters that follow will demonstrate how zero-sum has evolved into more complex gaming scenarios that involve varying degrees of cooperation. These games offer an alternative to the uneasy truce of mutually assured destruction and pave the way toward a very different future for both players.

The news this week that digital behemoth 360i has been snapped up by agency uber-behemoth Dentsu will no doubt be seen by industry soothsayers as yet another sign that the era of the independent digital agency is drawing to a close. That empty prognostication has been trotted out on a near-daily basis in the industry press nearly since the birth of digital agencies 15 years ago, and it’s no truer now than it was then. So I’d like to offer this by way of preemptive rebuttal: HA!

OK, I have a little more to say than that. What’s troubling to me from the perspective of a fiercely independent digital shop – an apparent dinosaur wandering bewilderedly among the mammals, if the industry press is to be believed – is not the acquisition itself, or others like it. (Mazel tov to you, 360i! May your balance sheet grow ever-longer!) No, what’s troubling is the attitude in the industry – and, let’s face it, among many clients and prospects – that these acquisitions are like missing Lego® pieces that have been snapped together to form some beautiful creation, magically filling out an agency’s capabilities so that they can now truly do anything. Again I say, HA!

The reality is that agencies that have grown through acquisitions have, in most cases, only truly integrated their balance sheets, not their capabilities. More and more, the role of uber-behemoths like Dentsu is simply to acquire, not to define – they no longer stand for anything in particular, and how could they, with so many distinct cultures and capabilities all folded under one umbrella? But when industry standing is defined by size alone – as Ad Age does, however benignly, with its Top 100 index – then it creates easy misperceptions about what you’re getting when you hire a big shop.

Take Sapient, for instance – recently listed among the top five digital agencies. To those of us who grew up as digital agencies, Sapient’s late arrival is like watching an oversized party-crasher bogart the keg. Weren’t they an IT consulting firm? No, no, because they acquired digital agency PGI in 2008. So they must be great at digital marketing by now, right? I ate a chocolate chip cookie at lunch today, so now I’m a Keebler elf.

Industry analyst Sean Corcoran, who covers digital agencies for Forrester Research, argues that in order to understand what an agency is good at, you have to look at their DNA – where they came from and how they grew. Companies that grew through acquisition have many different strands of DNA drifting through their systems. I don’t at all claim this as a reason not to hire them; I’m merely arguing that you should know what you’re getting. In many cases, a small to mid-sized agency that has organically developed a team of seasoned veterans may actually have a much deeper bench in a given area than an agency many times its size. Look to the DNA, people! Look to the DNA.

Now if you’ll excuse me, I need to get back to the treehouse.

Is that too much to ask? Because it would really help out my agency, White Horse. Let me explain:

Did you ever read Douglas Adam’s Hitchhiker’s Guide to the Galaxy, in which the protagonist Arthur Dent—a very nice, well-intentioned guy—keeps inadvertently killing this hapless creature, Agrajag, over its multiple lifetimes, purely by chance? No, you didn’t read that? Anyway, it’s like we’re Agrajag, and you’re Arthur Dent.

OK, that’s a bit of an exaggeration, because you’re not killing us, you’re killing our efforts at getting top search ranking, and you’re not doing it so much as your insanely popular song, “White Horse,” is doing it. And since making Web sites more search-friendly is a small but important part of what we do for a living, well, you can see why our request for you to stop being famous is entirely reasonable.

It’s not easy being White Horse. We’ve already suffered unsavory comparisons to Portland’s thriving heroin scene and to the White Horse of the Apocalypse. And then there was that unfortunate period in our brand history in which horse puns like “solutions for the open range” were used freely, but then we brought that on ourselves.

But you, Taylor Swift, you brought this on us. Your song started climbing the charts right around the time we started to get search engine traction with our redesigned site. Then it showed up on Grey’s Anatomy, guaranteeing another surge of popularity among that show’s weepy fan base, very few of whom, I’m willing to bet, are in the market for Web services, so I can’t credit you with any cross-pollination there. And then there was the whole Grammy nomination.

How do I know so much about your song? Because there’s an entire friggin’ Wikipedia page devoted to it. There is no Wikipedia page devoted to White Horse, one of the nation’s oldest and most reputable digital agencies, because anything we put up there is deemed promotional by the site’s army of power-mad, deletion-happy volunteer editors, and of course there is nothing promotional whatsoever about being a pop diva.

There is, however, a Wikipedia page devoted to “white horse,” which states that it is a horse “with a white hair coat and mostly unpigmented (pink) skin.” So we’ve got that going for us.

And don’t even get me started about YouTube.

But in deference to our mutual financial stake in the popularity of white horses and the fact that even the greatest pop song can’t reign forever, I was prepared to bury the hatchet for the new year. Until today.

We just put out a press release for what promises to be a great little Webinar on social media monitoring for the healthcare industry, and I tapped our name into Google News today for the cheap, but dependable, thrill of seeing our release at the top of the heap. But no. We happened to have chosen the same day that Kelly Clarkson released a cover of “White Horse,” which apparently is a big damn deal because she looks like she’s riding your coattails. Take a number, Kelly.

But the last laugh will be mine, Taylor Swift. Not the ideal kind of last laugh, in which I roll around in a large pile of money after winning a bunch of music awards, but a laugh nonetheless, in which I swipe back some of your search traffic with a blog post devoted to you! Ha-ha! Yeah, that did make me feel a little better. Sort of.

To paraphrase one of the great cultural commentators of our time, in one of the great Internet memes of the bygone era of 2009: I’m happy for you, Taylor Swift, and I’m gonna let you finish, but White Horse is the greatest “White Horse” of all time! Of all time!!

Yes, it will. I may live to regret this claim if paid tweeting turns out instead to be a multi-billion-dollar contextual marketing ploy on the level of paid search, but I’m willing to take that chance. A report in the New York Times this week on the growth of paid tweeting was for me the canary in the coal mine (that pun was only slightly intended), signaling the potential ruin of not just Twitter, but of all social media marketing models that confuse word-of-mouth with being a paid mouthpiece.

The idea is for advertisers to identify relevant influencers on Twitter and pay them to slip the occasional sly endorsement in-between their itemization of their daily carb intake and their meta-commentary on the last episode of Gossip Girls. This presents obvious credibility problems for both the Twitter star and the brand being endorsed. It creates what economists refer to as a perverse incentive, i.e., the influencer is being influenced by the something other than his/her genuine love of the product, which in turn diminishes his influence and does nothing for the reputation of the product.

Consider the example—and I wish I could say I am making this up—of musician Ernie Halter’s Twitter endorsement of, yes, Cheese Doodles: “sponsored: yo! cheese doodles is giving away sweet prizes in the “rock the cheese” video contest. Check it!” Suffice it to say that neither the Cheese Doodle brand nor the Ernie Halter brand is elevated by such moments.

The money quote in the Times piece comes from the co-founder of a Twitter sponsorship service, who defends the practice by saying, “All we are trying to do is get consumers to become marketers for us.” Exactly the problem. Consumers are not marketers, and when consumers gush about brands they truly love in social media, their credibility comes from the fact that they are not marketers.

It is much, much harder work for brands (and their agencies) to build social media followings from scratch, and to build the kind of brand relationships that produce authentic word-of-mouth, but that is the task before us. And if anyone would like to make an unpaid endorsement of White Horse on Twitter, please use the following text: “yo! White Horse has mad skillz in the digital media and what-not. Check it!” Thank you.

The digital marketing press seems to be in a contrarian mood lately, especially when it comes to emerging media. In the last month, we’ve seen professional hits carried out against social media, influencer targeting, and now engagement tracking in rich media advertising. Is this some kind of nascent Luddite movement taking shape? Or maybe nostalgia for traditional advertising, prompted by the untimely and unfairly overshadowed death of infomercial pitchman Billy Mays? If this reactionary trend keeps up, we’ll all be buying prime time network broadcast space on B.J. & the Bear by the end of the summer.

In the latest salvo, no less esteemed an observer than Forrester Research has declared that “Marketers Should Ignore Engagement with Rich Media.” (No word on whether we should also ignore this whole “Internet” craze). Seemingly determined to throw the baby out with the bathwater, Forrester declares that the fact that engagement metrics are not yet standardized and not firmly tied to ROI means that the “promise of online measurement is mostly unfulfilled.”

I would argue that the opposite is true: the promise of online measurement is mostly overfulfilled. From our early reliance on the dreaded click-through rate to the current mania for social media ROI, we have lost sight of the fact that advertising is advertising. Its primary function is to drive awareness and engagement, becoming one of many, many myriad factors that drive traffic and produce sales. To the extent that rich media engagement metrics measure something much closer to what advertising is actually meant to do, it is a good thing. To the extent that it prompts marketers to build more interesting ads that do more, say more, and are more pleasing to consumers, it is a very good thing.

The Forrester article argues that ad engagement doesn’t necessarily increase the likelihood that the consumer will take a hard-ROI action like buying something. Very true. See The Purpose of Advertising as described above. But thanks to the magic of ad-serving technologies like Mediaplex (full disclosure: a White Horse technology partner), we can indeed determine a correlation. We can determine which high-engagement rich media ads also influenced sales, and we can optimize our campaigns accordingly. This is a vast improvement over the bad old days when click-through alone determined whether an ad drove action, and marketers resorted to ever-more charlatan-esque methods to induce users to click.

To be fair, Forrester’s not suggesting a reversion to CTR. They are suggesting that pre- and post- brand surveys are a more accurate measure of ad effectiveness. Not really. We use these surveys quite a bit at White Horse, and what they tell us is whether the target population was more aware of the brand/message after the campaign than before it and how their impression of the brand/message evolved. That’s only one dimension of an ad’s effectiveness; engagement is another. Engagement tells us down to a creative and placement level whether the ad was worthy of the consumer’s time, and presumably we can all agree that a consumer that interacts with an ad is also aware of the ad.

I relish being a contrarian more than your average marketer, but even I have to call a time-out on this. Let’s give these newer advanced tactics a little room to breathe. And if rich media execution and measurement seems overly daunting, well, then I’ve got your rich media advertising solution right here.

In the soft and squishy science that is marketing, it doesn’t take much to declare a trend. My own rule of thumb is to say that two seemingly related data points drifting past me in the cultural flotsam within one week of each other are enough to declare a full-blown Mega-Trend. And so I declare the trend of Influencer Demystification, whereby we marketers finally admit that we have glutted ourselves on an idea that, while tasty and filling, may be half-baked, and is therefore causing some gastrointestinal distress. I refer to the idea that mass marketing has now been replaced by the much more refined business of targeting key influencers.

The two data points that drifted past me (actually they were sent by colleagues who are more diligent than I am about watching the data stream) are the Harvard Business School study Do Friends Influence Purchases in a Social Network, and Brandweek’s interview with a research scientist on the Yahoo! payroll, amusingly titled “Scientist: Influencer Theory is Bogus” (well, as long as a scientist said so).

Both of these studies belong to the time-honored genre, Simmer Down Now, Marketers, in which we marketers take jibes at each other over how mistakenly excited we got about something. As a native Midwesterner, I’m genetically disposed to feeling that everyone needs to simmer down all the time, so I like this genre.

To summarize their respective arguments: the Harvard study showed that users on social networks fall into three categories in terms of how easily they’re influenced: The low-status group members (48%) aren’t heavy networkers and are not easily influenced. The high-status group members (12%) are super-connected and actually respond negatively to influence. But the soft creamy center, the middle-status group (40%), is moderately well-connected and shows a strong propensity to influence and to be influenced.

This cranky research scientist at Yahoo! is, by contrast, pretending to throw cold water on the whole concept of influence, claiming it lacks empirical data, but ultimately he’s promoting Yahoo!’s own set of empirical data–soon to be productized, no doubt–that shows that “the network attribute that was conducive to diffusion [of social influence] is: Easily influenced people influencing other easily influenced people” (emphasis mine). Hey, same conclusion as the Harvard study, just one week later! How ‘bout that!

I think this points to a very interesting idea: we get all worked up about finding the “alpha,” the uber-influencer who decides what’s cool for everybody else. But to the extent that these alphas exist, they’re not easily persuaded (indeed, perhaps negatively persuaded) by our marketing messages. But that soft, creamy center looks very appealing. The people in the center care about their status, and they work hard at staying current and connected. They easily flip roles between influencer and influenced within a single transaction: somebody sends them a funny video, and they send it on, pleased to be the “alpha” within their own network for people who hadn’t seen the video yet.

And that’s how the alpha thing really works. We’re not operating within one vast network of coolness here, where a bunch of permanent alphas define things for the rest of us: we as marketers are talking to a vast number of ever-shifting micro-communities of mutual influence, trying to get the message to the people most likely to care about it and pass it on. That target shifts with every product and every network, but defining the target in terms of connectedness is a good place to start. If you want to influence tea purchase, you target people who like tea and are moderately connected. Am I missing something about how the difficulty of doing this? Let me know.

A colleague at White Horse brought to my attention a recent screed by Matt Jones in Ad Age Digital, entitled “Why I Hate Social Media.” Let me tell you Why I Love this Article, despite the fact that as the head of White Horse’s emerging media practice, I’m hanging my hat on the continued growth of the very practices that Jones decries.

I’ve always been a fan of the shameless rhetorical gambit of taking an extreme position in order to bring the conversation back to center, and that is, in substance, what Jones has done. He ultimately argues for a measured and judicious use of social media to support traditional marketing tactics that start with better content. Rather than trying to retro-fit crappy content–stuff that no one wanted to look at when it was paid media–we ought to focus on doing more interesting work and letting the inscrutable laws of what’s worth sharing and what isn’t take effect. I think you’d have a tough time finding a social media strategist that would disagree with this logic.

I welcome arguments like Jones’ because I’ve worried for some time that social media marketing is due for a backlash (you’ll find this worry threaded throughout most of my past posts). We ought never to embrace social media as an end in itself, but only and always as a means of brand dialogue where and when such dialogue is meaningful. That’s probably stating the obvious, but take a look at some of the more parlous content that brands are Tweeting, just so they can be on Twitter, and tell me if those aren’t backlash clouds gathering on the horizon.

In a presentation on social media earlier in the year, I used the example of Ford, one of the top 10 brands in terms of social media presence, with over 90 million mentions in 2008 alone. Impressive? Yes, but that’s less than one-tenth of one percent of the impressions Ford allocated to paid online media in the same year. Paid media continues to get most of the budget, but very little strategic mindshare, because we’re all too busy going gooey over social media. Might a discussion around the integration of the two be useful? I think so, and so does Jones.

Call it self-justifying, but I believe that being a little jaundiced on social media helps me to be a better social media strategist; I owe it to my clients to look at their marketing budgets holistically and not chase after shiny objects. But my perspective is still different than Jones, who proposes that we ignore this phenomenon until the hype dies down. Instead, I borrow my social media philosophy from Woody Allen’s satirical essay on the French Existentialists, in which he professed that he hated reality but found it was the only place he could get a good steak. Social media is in many ways overblown, chaotic, and unreliable, but when it comes to true brand dialogue, it’s the only place you can get a good steak.