An advertising shoot for the new Toyota Auris Hybrid

East London, under a railway arch in Shore ditch, on a dark September evening, a crowd gathered to watch an advertising shoot for new Toyota Auris Hybrid  . The commercial – which involved a crew of 45 and seven projectors – used a complex technique known as projection mapping to throw a mix of "key frame, 2D, 3D, algorithmic and dynamic animation" on to an Auris, bringing the car to life in a blaze of pulsing ice blue lights. Made by the digital agency glue Isobar, "Get Your Energy Back" set out to dramatics the technology within the car, which recycles energy as it drives. Glitzy and costly TV car ads are nothing new, of course, but what sets the Auris campaign apart is that it wasn't conceived as a 30-second TV spot. Rather the Shore ditch event itself, along with its digital afterlife, was the advert.

The event was repeated on a loop that night and watched by handpicked influencers, including key bloggers, plus passers-by who were encouraged to film it on their phones and share pictures and footage on social networking sites. "Some of those videos were getting 6,000-7,000 views, so [the event] created its own buzz," says Andy Kinsella, glue's innovation director. "We could track the reaction online and store it all on a campaign hub. It wasn't your typical Toyota brand communication where it's 'Sell the car, sell the car!'. Nowadays great advertising builds communities and inspires participation. It gives people a reason to interact with a brand."

From branded events and art installations to social network-based innovations such as peer-to-peer recommendations and "real time" geo-location promotions, the advertising industry is being rebooted. Traditional agencies are scrambling to reinvent themselves, as brands seek to open digital "conversations" with their customers. "The industry has gone through a massive flux and the pace isn't easing up at all," says Kinsella.

In the process, modes of advertising such as digital and "experiential", once viewed as experimental add-ons, have become mainstream – and even, as with the Auris shoot, the entire campaign. It is a seismic shift, says Fernando Romano, the global creative director of digital and experiential advertising at Euro RSCG,  that is long overdue. "In Brazil we have a saying that if the water hits your ass then you'd better start swimming. The tipping point was last year when the massive advertisers – Unilever, Procter & Gamble, Coca-Cola, Sony and PepsiCo – really got scared about the internet and started to put a load of money into digital.

"Finally, the brand owners – the CEOs and CMOs [marketing heads] - and the mainstream agencies understood that digital is not an afterthought, it has to be at the core of advertising, because that's where many people are living today."

Last month, the Adam & eve agency and the digital specialists upset media broke new ground by covering the full spectrum from branded art installation to commercial micro site in a campaign for John Lewis.

The Guillemots' Fyfe Dangerfield performed, with a synchronized lighting display. Over the ensuing 18 hours, passers-by queued at a touch screen to choose from 10m songs, with their choices then lighting up the house like an audiovisual jukebox – in effect, writing with light. The online campaign allowed visitors to click through to the products.

"This was about putting advertising in an art space," says Matt Cook, upset media’s co-founder. "The South Bank get a lot of requests to do branded promotions, but they turn most of them down for being too corporate and they have an arts-based remit. We were able to put our installation in there because it was primarily an experiential public event."

The event generated social media traffic, with visitors posting pictures and sharing songs. Cook says the venture offered the client benefits unobtainable in traditional advertising: "They can get very specific information about their customers from the website – such as which products they're going to, in what sort of numbers." He adds: "We always try to have a Face book component to what we do. One of the first things clients say to us now is 'how will this help us populate our social media platforms?'"

Populating social media platforms is a specialty of Stockholm- and Amsterdam-based Perfect Fools, a digital shop that produces quirky, disruptive content. The featured the stunt artist David Phoenix challenging the Face book community to submerge him in the sweets over 24 hours in a central London shop-front. Every visitor who clicked through to the live event via the Skittles Face book page (which has 1.65m "Likes"), added Skittles that were then showered on Phoenix every 15 minutes. "It ended up taking about 10 hours to completely cover him," says Patrick Gardner, Perfect Fools' chief executive. "The job was done with 1.8m Skittles."

"The shift to social is about growing and deepening a conversation with a group of people who are interested in your brand," he explains. "Instead of just running campaigns which say 'Buy our product' and 'Here's our latest message', it's about maintaining a long-term discussion, fueling it with entertaining things to talk about. The smartest brands today are developing robust Face book groups with up to millions of active users."