From Radio Days to the Internet

With the introduction of the radio, advertising both benefited from and helped to popularize the new broadcasting industry. Agencies not only created advertisements, they also produced much of the programming. N.W. Ayer produced the first sponsored radio series, the Eveready Hour, in 1923. Three years later, eager for a piece of the action, The Postum Company (which eventually became part of General Foods) ordered its advertising agency, Young & Rubicam, to move from Philadelphia to New York -- where it would be at the nerve center of the burgeoning radio broadcast business. The agency went on to develop a variety of sponsored radio programs, including The Jack Benny Program and the General Foods Cooking School.

The Depression -- Americans cast a questioning eye on the industry

By 1929, total U.S. advertising had grown to $2.85 billion, an increase of more than 500 percent over 1900 expenditures. But at the onset of the Depression, people began questioning the value and effectiveness of advertising. Agencies needed numbers to justify their business, so it wasn't long before psychiatrists, market researchers, and statisticians began to overrun Madison Avenue. In 1932, Young & Rubicam hired George Gallup, the creator of the Gallup Poll, to lead its media research department. Five years later, the Advertisers Research Foundation asked the Harvard Business School to analyze the industry. The results of that study were published in 1942 in a report entitled "The Economic Effects of Advertising."

Though ad spending dropped considerably during the Depression, the business continued to mature. As it did, it began to exert a profound, if questionable, influence on society. Advertising promoted celebrity worship, and helped to feed consumer anxiety. Agencies found that, as Stanley Resor put it, people want to receive "news, education, and entertainment through the medium of personalities." So advertisers hired actors, famous authors, war heroes -- even the Queen of Romania -- to endorse everything from Colgate Toothpaste to Pond's Cold Cream. And while tobacco companies were convincing women that cigarettes would keep them slim, General Motors' Alfred Sloan developed tactics to encourage what sociologists call "conspicuous consumption." When coupled with strong branding, the concepts of planned obsolescence (by introducing new models each year) and "trading up" were seen as the means to guaranteed profitability. By the 1930s, advertising was so pervasive that President Calvin Coolidge called it "the most potent influence in adapting and changing the habits and modes of life."

Ad spending finally rebounded during the economic expansion and the rush to suburbia following World War II. By then, radio had become the dominant advertising medium -- but it would soon be replaced. When television was introduced in 1946, advertisers jumped to capitalize on the new medium. As they did with radio, agencies produced the programs and the commercials. While television contributed to overall industry growth, it took a considerable amount of business away from other media. Radio was affected the most; for example from 1949 to 1953, Bob Hope's radio audience decreased 75 percent.

The '50s and '60s -- the industry heyday

Many of the images traditionally associated with the advertising business were created in the 1950s and 60s. That was when "Madison Avenue" truly became synonymous with the business, and well-paid advertising executives discovered the fabled (and now extinct) three-martini lunch. The concept of the art director and copywriter creative team, now standard, was first conceived in the 1950s by the newly formed Doyle Dane Bernbach agency. Darren Stevens, the gray-flannel-suit-wearing creative/account executive from the television program Bewitched, embodied an American ideal -- though his character was not exactly reflective of agency reality. The yes-man part was right, but in the real world, underappreciated creatives were called "wrists," and were not even involved with strategy development.

Ad spending tripled between 1945 and 1956. With the 15 percent standard commission, agencies were bringing in a veritable king's ransom. Faced with pressure from the IRS, agencies spent the excess cash on any and everything. They built libraries and research facilities, test kitchens, and packaging studios; they hired statisticians, jingle writers, and "bullpens" of artists. Clients became increasingly intolerant of these "bloated" agencies, and in 1956, the U. S. Department of Justice ruled that clients could demand rebates on commissions left over at the end of campaigns.

In the 1960s, the advertising industry picked up on lessons from the rest of the business world. Ogilvy & Mather was the first agency to handle major accounts on a fee basis -- a practice that would become commonplace by the 1990s. Going public was all the range, a trend that set the stage for the rash of takeovers during the 1980s. Several agencies expanded overseas, and industry icon Marion Harper began an acquisition spree -- the result of which was the first advertising conglomerate, Interpublic. Meanwhile, ad spending slowed at the onset of the Vietnam War, and worsened when tobacco advertising was banned from broadcast media in 1969. By 1970, Harper had been ousted, and the ad business took on an industry-wide initiative to cut excess staff and amenities.

In the early 1970s, the country faced an oil embargo, an energy shortage and a recession. Needless to say, ad budgets were not a main priority. In 1976, however, the recession lifted. It was a presidential election year and the nation's bicentennial. The GNP rose 10.9 percent, and ad spending soared to $33.3 billion. Despite high fuel prices and rising interest rates, ad spending continued to grow in the early 1980s, and was further bolstered by industry deregulation -- airlines, hotels and resorts invested heavily in promotions to fill seats and rooms.

New developments

As they did to the rest of the world, PCs transformed the advertising business. They sparked the advent of database marketing, and allowed for more effective media research and planning. In addition, new developments in communications -- fax machines, modems, and overnight delivery -- helped popular regional and West Coast agencies compete with Madison Avenue for national campaigns. The decade was also marked by a shift to integrated marketing campaigns, which incorporated non-media forms of marketing. Following in Marion Harper's footsteps, a few agencies began their own shopping sprees towards the end of the decade. The result was the coterie of international advertising behemoths that dominates the industry today.

A major theme of the 1990s and early 21st century has been media fragmentation. With a flood of highly specialized new cable channels, agencies began offering more effective, targeted campaigns. When advertisers realized they could make more money by directly addressing minority groups, a space opened up for highly targeted marketing agencies. Niche media soon spread to magazines, and reached new heights with the Internet. Though newly merged advertising giants each offered a broad range of services, the increasing complexity of placing ads in so many outlets led clients to split the media planning and buying segments of their accounts. Specialized media-buying shops, familiar with the vast media options open to a advertiser, also charge smaller commissions. To capitalize on this fact, big agencies acquired, created, or spun off their own independent media companies.