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MITCH JOEL: Let’s talk digital marketing. How do you think we’re doing in terms of digital marketing and how far have we come?

DAVID WEINBERGER: Some of the most important changes are exactly the ones we already take for granted. Retail sites now routinely put up spaces for uncensored, unfiltered reviews by customers. The idea that this is an OK thing to do is radical, revolutionary, and a huge shift in how retailers think about their markets. The basic idea that networked markets are more trustworthy sources of information than the companies themselves is a transformative idea that we now take for granted. It’s a sign that we’ve actually seen the transformation we were hoping for.

JOEL: Charlene, your focus tends to be on social channels. What would you add to David’s take?

CHARLENE LI: I agree we’ve come a long way in the past 15 years in terms of digital marketing. We’ve gone from [a time when] it didn’t exist to now it’s a standard. You cannot put together a marketing plan today without a digital component. Given that it’s established, [marketers] are still struggling with how to be effective, especially in the social channels. People are really confused because you have 200 million people on Facebook, but they don’t respond to traditional advertising. There’s a whole rethinking about what advertising is, what marketing is, and especially what’s effective. This is causing a lot of turmoil and pain because the way most marketers traditionally do marketing isn’t working anymore.

SETH GODIN: It’s a little bit like space travel. If your vision of space travel is the moon is interesting, then you could say we’ve come pretty far and all we need is more efficient space shuttles. But if your view of space travel is more closely aligned with what goes on in Star Trek, then you can say we’re nowhere even close to the beginning. My feeling is once we have an Internet generation that understands what it means to always be connected, the stuff we’re doing now will seem like a Keystone Cops silent movie. Most organizations continue to insist the Internet bend to their will instead of the other way around.

JOEL: Shelly, as someone in the TV industry, what’s your take?

SHELLY PALMER: I would echo the sentiment that was just espoused, but I would take it a step further. Digital marketing is an oxymoron. Digital anything is silly. If you’re a marketer, you’ve got a bunch of tools and your job is to get people down the purchase funnel. Digital tools make us faster communicators but they don’t make us better communicators. And there’s one profound difference: it’s the scale of the one to one. You’re used to talking to an audience [where it’s] one person on the stage and 3,000 people in the audience. Your brain is not wired to have all 3,000 of them talk to you at once. It’s no wonder everyone’s confused because there’s nothing in your day-to-day analogue experience as a human being that lets you interpret this amount of data points coming back at you. So we’re in a very funny place in the digital marketing world. I like the space analogy. Yeah, we’re not even close.

WEINBERGER: I disagree, actually. The space metaphor is useful but it also masks something: that first step is a really big step—the one where you leave the planet. It’s true we haven’t gotten very far but the thing that has changed is there are certain principles in place that are going to abide at least for a while. The old premise of marketing was you could control your markets, and you do it by controlling their attention. You do it by selectively releasing information so [consumers] only know what you want them to know. We know that’s gone. A new principle is you cannot control them, that networked markets are smarter and know more about the products than the company ever will. One of the big principles that has changed is the one to one; it’s actually many to many. If that relationship wasn’t possible before, now it’s inevitable. There’s going to be a tremendous amount of collaboration, and frankness and transparency are absolute requirements.

GODIN: I think [marketers] are feeling pain but they’re associating it with exactly the wrong things. They say it’s because of the economy, or off-shore or the competition. One of the things you learn when you’re swimming is you have to hold your breath. But there’s a difference between holding your breath for a second knowing you’re going to stop, and learning how to hold your breath on a regular basis so you can actually swim. And there are organizations out there that can plug their nose and put up with the Internet for a while. But they haven’t figured out that they need to be of it and by it and for it. And what Shelly understands is 75 years of endless profits from the TV mindset isn’t going to be erased in 10. [Companies from] Procter & Gamble to Nike to GeiCo are organized on this interruption model. To change it doesn’t involve just changing the CMO and the six people that work for her. To change it means fundamentally reorganizing. And that’s not going to happen right away. The pain people are feeling—and they don’t know it—is the current place they work [at] is a dinosaur and it’s dying.

JOEL: Charlene, your book is called Groundswell. Are we past the groundswell now? Are these new platforms really impacting marketing or are marketers still scared?

LI: It is becoming very real to them because it is becoming much more mainstream now. [In the past] marketers put out a message; it’s beautifully crafted, it’s well researched, 24- to 34-year-old women will respond to this message and they will regurgitate back the product attributes that we have so carefully set out for them. We’re beyond that. The 75 years of mass media that we’ve had is actually quite the anomaly rather than what we’re growing into in the future. The anomaly is that we could actually control what people were saying through mass media, we could with impunity interrupt people’s attention. Well, that level of control is gone and we’re never going to get it back. Marketers are staring into the abyss and there’s this great unknown, that the traditional ways of doing business are being completely rewritten. Now, they can put blinders on and just say ‘I’m not going to deal with it, I’m just going to hope that it’s a fad.’ But this is not something that’s going back into the bottle, that genie is out. And it has so much power. As soon as marketers give up that need to control, the sooner they will realize where that power really is—and the sooner they can get on with this.

PALMER: This isn’t happening in any kind of homogenous way. This is happening in dribs and drabs in the most speckled, bizarre, atomized way. And yeah there is a groundswell, that’s a nice way to put it. But it’s going to take so much longer than anybody believes it’s going to take. The [bad] economy has shown us a lot of things. You’re going to see 150 TV stations change hands in the next 90 days. A year from now, it is my suspicion that both ABC and NBC television networks will be spun off or taken private because they can’t be part of a public company as zero growth businesses. This is unprecedented! This is a business that put 70 cents of each dollar on the bottom line for seven decades. And it’s over!

JOEL: Charlene made a very provocative statement in that perhaps mass media as we have known it was an anomaly. Is that possible?

GODIN: Every marketing media gets the products that work in that media. So when we had the souk and people bringing stuff to the town centre to sell things, the kind of things that got sold were things that could be sold in the souk. When we had television and mass media and radio, the things we sold were the things that could be sold in that media. When something else comes along, like the Internet, why do we think that Duncan Hines and Betty Crocker and average stuff for average people made in quantity will work in this media? It doesn’t. So the giant transition here is that everything is an anomaly because it changes what we make. And it’s going to happen this time, too.

WEINBERGER: I agree with Charlene. Broadcast is an anomaly. It’s in line with the industrial revolution in which we started making things that were exactly like every other thing because we could de-scale workers and drive down the cost of production. And yeah, we end up with uniform objects—every pen looks alike. On the other hand, it fuels the economy. I do think mass production is going to continue. And mass producers of commodity products will continue to use the Internet as a way to market. The interesting thing is the way in which the mass production of goods in the industrial age matches so well [with] the mass production of information in the broadcast age. The idea that there’s a single broadcaster who gets to send out the same message to everybody and thus is trying to get a message that appeals to the lowest common denominator has been a huge drag on society. It’s a terrible thing in our culture to have these economics driving ideas down into the lowest common denominator. And one of the ways of viewing the web is a reaction against this dehumanization.

PALMER: A couple of things have to change, and I think the Internet will change. First, no corporation that’s publicly traded gets rewarded for innovation. They get rewarded—they’re governed—based on their quarterly earnings and share price. Innovation is nobody’s job in corporate America. When you report your success in a current marketing campaign you’re reporting three metrics to a CFO: brand awareness, lift and purchase intent. As long as the governance is that narrow, parochial and archaic, we’re not going to see gigantic changes in the big money because they don’t have the governance to allow it to change. And I don’t know how quickly you’d change Procter & Gamble, but I’m going to take a wild guess and say it’s not that quick.

GODIN: I agree. What tends to happen to a Western Union or to a Chrysler is the governance is too hard to change. The momentum is too hard to shift, the status quo is too rigid and they just get supplanted by a new guy who shows up next to them. So if you look at [a company like] 37 Signals, which is the poster child for a new kind of software company, Microsoft can see exactly what they’re doing every day and Microsoft does not respond because Microsoft can’t respond. Eventually, if the guys at 37 Signals choose to, they will be making hundreds of millions of dollars instead of millions of dollars.

WEINBERGER: That’s true in some sectors, but not as true in other less glamorous sectors. I’m going to continue to buy the cheapest damned laundry detergent I can find and that is very likely to come from the most efficient manufacturing and distribution operations there are. And that is unlikely to be somebody with a better idea or even a better formula of soap.

GODIN: I completely agree and I’m so glad you brought up [laundry soap]. Tide gets one third of its sales from Walmart... Walmart makes all the profit on sales of Tide now because they determine the price and distribution... My point is, what used to be a good business—nationally advertised laundry detergent—no longer is. People will still make it, but it’s a commodity product. And the last person in the chain, the one who gets to decide the relationship with the customer, owns all the profit. Amazon is doing the same thing to every business they can find on the Internet.

LI: The point that the brand actually has value is what marketers cling to. They say, ‘I’ve invested so much in my brand, I need to protect it and I can’t let go of control of my brand to the groundswell.’ I admire what P&G has done. I was actually sitting next to their CMO recently at a dinner and we were talking about their efforts in the social media space. This is one company that is absolutely focused on it, primarily because they know the power of a company like Walmart, being the last person in the chain. So [P&G] wants to make sure they have a direct relationship with consumers. They see that to sustain that brand, they can’t rely on traditional media, they can’t rely on the relationships with people who they sell through. They actually have to inspire people to say there is some value in that brand.

GODIN: Mr. Procter and Mr. Gamble did something brilliant—they looked at television, mass media, and the supermarket and they said, ‘What series of products can we invent that will make us insanely rich?’ And they did it over and over and over again. They didn’t look at these things and ask ‘How can we use these tools to maintain our little tiny soap business?’ Well, the CMO at Procter & Gamble is doing the shareholders a disservice because the only shot they have is not ‘How can we use social media to get people to care about Tide?’ because we don’t care about Tide and we’re never going to care about Tide. They need to say ‘How do we use our chemists, our distribution, our insight, and our emotional connections to build new stuff, new processes, new distribution models and new relationships that make money from what’s happening,’ as opposed to, ‘How do we play defense?’

PALMER: That’s sort of like the railroad story. The railroads were never going to be in the airline business, they were never in the transportation business, they were always in the railroad business. Procter & Gamble is in the mass production of cheap soap business at a margin that is diminishing because of its enslavement to its old two-step distribution. So I don’t think they can make that change.

JOEL: Can a brand with the size and power that Tide had in the golden age of mass media reach that size and power in this day and age?

WEINBERGER: Of course it can. It’s a different process and brand means something different. It’s much closer to reputation and it’s something that’s not done to the consumers but is done by the users. But brand in the sense of a wide recognition about what product or service is—and what sort of emotional meaning it has—I think the answer has to be yes.

PALMER: Twitter is a great example of creating value in the new world without any way to translate that value into wealth. The guys at Procter & Gamble made soap suds and they translated the soap suds into wealth by using mass media as a communication medium. Twitter is a ones and zeros business that creates immense value or immense annoyance. I believe it creates a lot of value but translating that value into wealth is as elusive as it is in IM or Skype. So the Internet allows you to create value very quickly, but the direct translation into wealth is astoundingly elusive to most people.

GODIN: We need to be really careful. The word brand means so many things to so many people. I may define it as the stories, expectations and feelings I have about a placeholder. But someone else may define it as the return on investment you get by buying a lot of mass media. The reason the TV networks made so much money for so long is that [large organizations] can spend a million dollars on an ad and make $10 million in profit. If you say ‘can we build a brand like that using digital media?’ the answer is no. I don’t think you can build something as powerful as that using digital media mainly because television was designed to do this. It was organized to this. That’s why television exists.

LI: When I think of brand, I think of what I call experiential memory. The experiential memory that we share from a 30-second commercial is the humour, the visual reaction, the emotions that come with it. When it comes to digital media though, it’s something very different. It could be a conversation you share on Twitter, it could be what H&R Block is doing: providing tax advice to people on Facebook. That’s a different kind of experiential memory—you will remember that H&R Block gave you good tax advice so you might go back to them for tax preparation in April. So [it invovles] redefining what branding actually means: you’re putting out a message and an experience with someone so they remember you when you come back, and the recall is there for them to take that next step.

JOEL: Can you create those types of brand experiences and if you can’t, should marketers be scared about the future?

PALMER: No, they shouldn’t be. They should be thrilled out of their minds that they have an opportunity for the first time in history to go many-to-many and one-to-many and one-to-one at their discretion. What they need to do is get some of their ducks in a row and get into the culture. If you think going on Twitter means you say you got action last night, or writing a blog is writing what you had for breakfast—if that’s your headset, then you’re doomed. This is the most exciting time for marketers. And anybody who’s petrified by it will only be petrified if they’re in a corporate structure that is so inflexible that they won’t be able to do what they need to do with the new tool sets.

JOEL: The challenge is companies are often pushed every quarter to have better and better results and are never given the slack to say, ‘we need a year and a half to innovate. We’re not going to make those profits because otherwise we won’t be in business in two years.’ Added to that is the downturned economy and the digitization of media. Is this the perfect storm?

PALMER: We’re in the middle of a transition that is unprecedented in our history. We’re leaving the industrial age and we’re fully racing into the information age and there’s not a whole hell of a lot anyone on the phone [right now] can do about that. We just have to embrace the idea that there’s new opportunities and we have to try and help our friends—who are going to quietly pass into the night—to make as much money as humanly possible.

GODIN: Do public companies need sympathy because they can’t possibly do what they need to do while Wall Street is demanding they do something else? I have little sympathy for these guys. Zero. When I spoke to the Newspaper Publishers Association eight years ago, I described in precise detail what was going to happen to them and what they ought to do about it. I got a great ovation and they did nothing. Because their bonuses were in danger. Fine. They’re going to go out of business. But it’s not Wall Street’s fault. It’s just that [the business leaders are] chicken.

WEINBERGER: I’m not all that interested in who’s to blame or whether we have sympathy. The depth of the transformation is not simply about being smart or reading the right book or listening to the right speaker and then taking action. The changes are so deep and so profound about the very basics about what it means to be in business that many companies are not going to be able to learn. A bunch of them will fail. These are gigantic, fundamental changes that are occurring. Companies feel they need to profit every quarter and for the reasons stated, that’s just inimical to innovation. The changes are so profound that some companies are just never going to be able to make the change.

JOEL: If you could give one simple word of advice, where would you direct marketers in terms of the digital marketing opportunities?

LI: The most important thing is to get your hands dirty and to actually experience it. It’s not enough to look over your teenager’s shoulder to experience this new digital experience that’s out there. You have to live it, you have to make it personal, so you can actually sit in the shoes of your customers because they’re the ones who are engaging in this new medium. They want to engage with you as a marketer. And how can you begin to dialogue with them in this space if you don’t know how to talk to them?

GODIN: The people who didn’t do things a year ago, five years ago, 10 years ago didn’t do it because they weren’t willing to be brave and that’s easy to defend. It’s always easy to defend not being brave because in the moment, it’s difficult. You risk your job, your livelihood, your company, your stock price, but the reward for being brave is [you come] out ahead. The penalty for not being brave is your newspaper goes out of business. And the organization makes it hard to be brave. Your boss makes it hard to be brave, the stockholders make it hard to be brave. If it was easy, everyone would do it. So to fail in public, to go out there and make a kerfuffle and a thousand people call you an idiot and laugh at you, requires bravery but that’s what these times call for.

WEINBERGER: All that I would add is try to lose your reflex to control. Marketing has been built on control and that fundamental premise is getting in the way. It’s stopping us from being brave and getting our hands dirty because it looks to us like being brave, getting your hands dirty means giving up control and being irresponsible. At this point the reflex to control is so deeply baked in that it’s going to kill traditional marketers. They need to learn to let go of that sense that they succeed if they control their markets.

BIOS

SETH GODIN is the author of 10 best-selling marketing books, including Meatball Sundae, All Marketers are Liars and his latest book, Tribes: We Need You to Lead Us. He's also a renowned speaker and blogger, and is the founder of Squidoo.com, a recommendation website.

CHARLENE LI is the co-author of Groundswell: Winning in a World Transformed by Social Technologies. A former vice-president and principal at Forrester Research, Li now runs her own research firm, The Altimeter Group, and blogs about social technologies at blog.altimetergroup.com.

SHELLY PALMER is the host of MediaBytes, a daily news show about technology, media and entertainment. He is managing director of consulting firm Advanced Media Ventures Group and president of the National Academy of Television Arts & Sciences in New York.

DAVID WEINBERGER is the co-author of The Cluetrain Manifesto and author of Small Pieces Loosely joined and Everything is Miscellaneous: The Power of the New Digital Disorder. He currently serves as a fellow at the Berkman Center for Internet and Society at Harvard Law School.