CREATIVE DISTRACTION THE DIGITAL TRANSFORMATION OF THE ADVERTISING INDUSTRY

Diploma

Abstract

This thesis is primarily based on a case study on how the Internet affects the advertising industry in Oslo, Norway, and on how the digitization of advertising adds to our understanding of the geography of innovation and urban and regional development. The study argues that the Internet fundamentally changes and challenges the advertising industry, and that advertising merges into market communication and even user experience and product development. The interactive nature of the Internet and its parallel social and commercial worlds contribute to transcend the role of a traditional medium and to coalescence between production and consumption. Despite the fact that those involved in online and traditional advertising are located close to each other in Oslo, the extent of collective learning, knowledge externalities and innovation has been scarce. The study shows that the creative destruction of this industrial sector is ignited by actors outside the traditional advertising industry. Due to path dependency along one-way mass communication media incumbents within the advertising industry have left room for new actors, such as web agencies and technology consultants, to explore and take market share in online market communication services. The reconfiguration of market communication is regarded as the result of an industry mutation across advertising and ICT, and creates a need for bridging skills and competencies across creative, strategic and interactive domains. The implications of such an industry mutation across diverse sectors are used to discuss the evolutionary potential of the related variety perspective. The study argues that localized industrial change may be conceptualised in terms of a cyclical relationship between externalities from localisation economies and urbanisation economies respectively. The implications of the findings from the case study are in this way used to discuss more general drivers of urban and regional development. 


Introduction

These are exciting times for anyone interested in technological change and urban and regional economic development. We are living through a period of rapid industrial change and shakeout. This is caused not only by the current economic recession, but also by the pervasive implementation and adaptation of the new logics and dynamics of the Internet. New technologies, new media habits and new digital content production causes massive changes and challenges not only to market communication or to the cultural industries, but across the entire economy. 

The digitization of the cultural economy represents a threat to industries such as the music industry (Leyshon et al. 2005), the film industry (Currah 2006) and publishing (Hibbert 1999). For some time these industries have been struggling to adapt to new digital and online paradigms, and have been unwilling to adapt their core products and business models to new technological platforms. Along with these industries, the advertising industry similarly finds itself in the midst of a process of significant technological transformation and industrial restructuring (Garber, Hyatt, and Boya 2009; Law et al. 2009; Sweney 2009; Bradshaw and Edgecliff-Johnson 2009;

Edgecliffe-Johnson 2009; Gapper 2009; Palmer 2009; Palmer and Rappeport 2009; Waters 2009; Whitehead 2009; Scott 2009). The current transformation and adaptation process seems to arouse much debate and uncertainty in advertising and market communication. Whereas the implementation of enterprise information technologies into existing business systems to increase productivity and automate processes is now well understood among both businesses and service providers, the adaptation and understanding of social media still seems immature. As social media allows new and uncontrollable types of business and communication such as viral marketing and independent consumers’ reviews, rankings and recommendations reflecting their consumption experiences, this automatically implies great challenges and possibilities for service providers within market communication. 

Recent theorizing in economic geography has called for a closer focus on the ability of the discipline to get to grips with the underlying mechanisms for economic change (Boschma and Martin 2007; Grabher 2009; Feldman 2009). Against this background, this thesis seeks to add to our understanding of the geography of innovation and some of the driving forces behind technological transformation, industrial change and urban and regional development. The study focuses on the creative destruction of the advertising industry in Oslo brought about by adaptation to the Internet as a growing channel for market communication. 

The thesis should be seen as part of a wider theoretical field and framework. This broader background is made up of a number of observations. Firstly, since the theorizing on creating national systems of innovation (Freeman 1987; Porter 1990; Lundvall 1992; Nelson 1993) was supplemented by a focus on the role of regional innovation systems throughout the 1990s (Cooke 1992; Asheim 1996; Asheim and Isaksen 1997; Cooke, Uranga, and Etxebarria 1997; Isaksen 1997; Malmberg and Maskell 1997; Cooke, Heidenreich, and Braczyk 2004 (1998)), much work within economic geography has focused on how institutional, cultural and systemic capabilities and underpinnings serve as a structuring context for urban and regional economic development. 

Secondly, much emphasis has been put on exploring the systemic and contextual nature of localized industrial agglomerations (Coe and Townsend 1998), but less has been said about how they transform from within (Boschma and Martin 2007) into new constellations, and how they serve to cause industrial change and economic transformations at a wider scale (Storper 2009). This has got to do with the composition of actors and knowledge in agglomerations, and nonetheless also with the value chains that these tap into. 

Thirdly, focusing on particular, defined and well known industries and categories may prevent understanding the broader and more underlying mechanisms behind cross-sectoral technological development and industrial change. The reason for why there is still much uncertainty around the relationship between geographical proximity and innovation is a lack of links between knowledge forms and innovation (Gertler and Wolfe 2005). This leaves us with a need to take a closer look at how different forms of knowledge relate to each other in order to achieve a better awareness of how innovation occurs and unfolds. In order to obtain such an understanding it thus becomes natural to go beyond industrial borders and delimitations. 

This dissertation may be seen as a response to these observations, as it focuses on the knowledge composition within a localized cluster and seeks to see how an industry changes and transforms due to altered technological and socio-economic preconditions. The greater part of this thesis rests upon a study of how the advertising industry relates to and adapts to generic Internet technology, and what the Internet does to the advertising industry as we know it. As such this study redirects attention from localized learning and innovation within a sector to a focus on how different spheres of the economy converge and merge.

More recent approaches in economic geography and beyond, such as evolutionary economic geography (Boschma and Martin 2007), the related variety approach (Frenken, Oort, and Verburg 2007; Boschma, Eriksson, and Lindgren 2009; Boschma and Iammarino 2009), the knowledge base approach (Laestadius 2000; Asheim and Coenen 2005; Asheim and Coenen 2006), Jacobian clusters (Cooke 2008) or the policy platform approach (Cooke 2007) apply a broader perspective on innovation and regional development, and may be seen as a response to how increasing globalisation and distribution of knowledge networks constitute new preconditions for industrial agglomerations. These later approaches may serve to improve our understanding of the relationship between how regional capabilities influence on economic growth, through what seems to be bridging localisation economies and urbanisation economies and bridging various types of skills and forms of knowledge. In the wake of the urban turn (Glaeser 2000; Florida 2002) these developments may signal an increased awareness in economic geography of the need to improve our understanding of emerging economic activities. 

Aims and objectives

The present study draws upon four papers of which three present the findings from a study of how the advertising industry in Oslo, Norway relates to and is affected by the Internet; and one paper that applies Richard Florida’s thesis on the creative class to a Nordic context. The aim of the study is two-fold:

1.       First, through a study of creative destruction within the advertising industry the thesis aims to show how this particular industry is altering due to new technology and the wider society’s adaptation of the Internet. 

2.       Second, in response to the lacunae identified in the literature the thesis aims to improve our understanding of the driving forces underpinning economic transformation, industrial change and urban and regional development. In particular the study emphasises the relationship between industrial agglomerations and innovation, the relationship between existing and emerging industries, between specialization and diversity and between production and consumption.

The thesis focuses on the spread of information and communication technology (ICT) as an important and generic driver of innovation across the economy, and how this contributes to redefining the economy. The study investigates to what extent and how evolving business areas emerge within or outside existing industries, and how this can be understood and conceptualised in relation to knowledge dynamics in industrial agglomerations. The study also investigates how various forms of diverse and specialized knowledge in industrial agglomerations influence the ability to adapt to new technology and how it manages to explore and incorporate new knowledge. Finally the thesis discusses how productive and consumptive factors influence urban and regional growth and development. 

It has been stated that many studies within economic geography lack a sound integration of empirical and theoretical focus[1]. Yet others have called for more systematic empirical ground work in economic geography. It is therefore part of the ambition for the present case study to try to link the ongoing empirical industrial change to relevant conceptual and analytical tools in economic geography.