It's not that internet advertising isn't effective. It's that all the content it's wrapped around is too engaging.
The reason ads in real-life are effective is that they traditionally haven't had to compete for your attention. Examples:
(1) Standing on a subway platform you are looking straight at a piece of advertising for minutes until your train arrives.
(2) Driving down the road, you're staring at a billboard for 1/4 of a mile (15 seconds at 50mph).
(3) On TV and on the radio, inertia to change the channel means you often listen to ads.
The problem for those media is that we are now reaching the point where content is portable enough that we now never have to be subject to ads in those public spaces because we can direct our attention to our mobile devices. Over the next for years you're going to see a massive drop in the effectiveness and reach of ads in real life because people will no longer be directing their surroundings.
The only one of the above examples that will survive a while are billboards and even they will only last until we have self-driving cars. Once we have self-driving cars, why even bother looking at the road instead of our iOS and Android devices?
I find it fascinating that, with all the talk about new and creative ways to do ad business, the only ads that I find myself interested in are Youtube ads, which are, in some way, a very old school and tv-like technique.
I tune out ads on Google search, on websites, and ads on Facebook are about as relevant to me as the spam I get in my inbox ([0]). But, on Youtube, I'm stuck with them, so I might as well try to enjoy them. The fact that they are somehow relevant also helps.
[0] Facebook (or advertisers) seems to infer that if I'm in Sweden, I'm interested in ads in swedish. That's kind of unfortunate. Plus, even ignoring that, just like spam, half of them are just referrals to AdultFriendFinder or the likes.
Honestly, I don't feel a need for AdBlock. I don't consciously see most ads (with the exception of Youtube ones, like I said). They don't even reach my mind. I instinctively know where they are, and my gaze just routes around them.
And in that, I think I'm not the only one. I would guess quite a lot of people have been "trained" the same way.
Yes, the equivalent of web ads would be ads displayed in a little square on the corner of our TV. We would ignore this square and focus on the main content instead. TV ads are efficient because they interrupt the program and takeover the whole screen. In print media, there are more and more ads that take a whole page if not two, for the same effect. 'Takeover ads' are obnoxious on the web, mostly because of their low quality. Not that I know how to do it right.
"Over the next for years you're going to see a massive drop in the effectiveness and reach of ads in real life"
The good news is that most forms of traditional ads are only mildly calibrated to what purpose they are supposed to achieve. With the exception of coupons (highly trackable) an ad on a billboard for a new type of liquor isn't going to be noticed in non-effectiveness immediately. It will be a slow death.
"that will survive a while are billboards and even they will only last until we have self-driving cars"
Otoh, ordinary car occupants, if not engaged in conversations are more likely to be on a mobile device and not looking out the window. And maybe conversing with the driver about what they read on the mobile device instead of sitting there looking out the window looking at the billboards. Same with billboards viewed from trains (riders on devices certainly more than would be reading books or magazines..)
I look forward to a future where everyone producing every product and offering every service comes to the conclusion that product and service discovery tools are so effective that they render the concept of advertising completely inept and the only two vectors on which they can realistically compete are value (price x quality).
Good of you to submit this with the canonical URL. All four of the previous submissions (none with any comments, per HN Search) were of noncanonical URLs with appended referrer strings or format-preference strings.
After edit: So the article's essential claim, which I guess we haven't discussed here on HN before (unless I missed a link) in relation to this exact article is that the Web is a fundamentally unfavorable environment, long-term, for advertising-supported sites. That's an interesting idea. I usually run ad-blocking software, so maybe I believe this already. I've never tried to monetize my personal website with advertisements--they just seem too schlocky.
My hope is that advertising, as an industry, dies (or morphs) sooner rather than later.
At best, it is visual pollution, and at worst employs subtle forms of mind control to encourage people to do what the advertiser wants. No thank you!
However, it is useful: it helps disemenate information. Didn't know about the all new BMW i3 electric car? Thanks to some ad, now you do. Most of the time you don't care, but when you do care, it can be useful.
The Internet is much better at dissemanting relevant information than advertising, however. Why should I watch an ad for a movie if rottentomatoes.com has all the info I need? Why look at car ads when websites will happily tell me the pros and cons of various cars? My hope is that eventually the best products and services for me will be peer identified an given to me when I need them. Ads will no longer be necessary. The peer review process must be paid for somehow; manufacturers may end up footing the bill, or perhaps ads from unpopular products will; either way I cannot wait for this garbage/propaganda called advertising to vanish from the earth.
What happens to all the newspapers/ news sites that run on ads? Advertising money has allowed the public access to non-subscription news on the web for some time now.
If you take all that money away, doesn't the free content mostly dry up?
I don't think internet advertising ever has actually funded that much news. For the 1990s and 2000s, non-subscription news on the web was mostly cross-subsidized by print subscriptions. Taken purely as an online operation, sites like wsj.com and nytimes.com didn't make nearly enough money from ads to pay for the cost of their reporting.
It's only recently that newspapers seem to be trying to make the online business actually fund the reporting, and the NYTimes, at least, is going back to a quasi-subscription model to try to make that work.
Now there are some sites that are purely ad-supported, but imo most of them don't produce particularly high-quality news. Stuff like, say, TechCrunch or Gawker.
That's where we NEED to move toward some easier way of frictionless micro-transactions that are secure, safe, and ubiquitous... how to do it is unclear, but perhaps a mega-site like Facebook could create such a thing.
If you are referring to micro-transactions whereby readers pay content authors, tipjoy and others have already tried the "e-tip" model and failed.
Also, paypal's donate feature has existed for some time now but it doesn't seem to be able to replace ads. If anybody could implement the safe, seamless microtransaction model I'd think it'd be paypal as they have the existing infrastructure already. Either they have overlooked it or they've decided that the model wouldn't work.
Paypal? No. I just signed up for an account using my debit card. Instantly, my account is suspicious. They then demand access to my bank accounts and scans of my social security card, birth certificate, photo ID, etc. No thank you.
Many good ideas have to be tried a few times before someone gets them right. Witness Sun's "network computer" ideas in the '90s. As far as I can tell Flattr is doing well and gradually growing.
There is more than enough will to write. If newspapers are providing anything more valuable than amateur bloggers, people will start paying for it. If not, then I guess their time has come.
1. Advertisers can see if it worked. In traditional advertising you accept that a lot of your money will be "wasted" on people who will never buy your product or service. In online advertising you can track a customer from first viewing an ad to purchase. This gives advertisers a lot of leverage in price negotiations -- "your site only has a 0.05% conversion rate, why should I pay that much?"
2. Inventory is growing faster than demand for inventory. In advertising terms "Inventory" means "I have a place to show your ad". Well every new web page can contain inventory. Given how fast the supply of webpages is growing, compared to the total pool of customers and businesses ... well let's just say that the supply-demand curve on this does not favour the sellers of inventory.
I am of course fascinated by this problem and my startup (currently in stupid unfunded single-founder mode) aims to resolve this exact economic problem with a different model.
Here's the core problem as I see it: the old (advertising) math no longer works, and that's getting people into trouble. For traditional advertising in print, radio, or television the math is simple and it's been refined over decades. Generally speaking you take the number of eyeballs or ears, you multiply by a certain factor which takes into account things like demographics and whatnot and then you're done. In large part it doesn't matter whether someone is watching murder she wrote or magnum PI or reading the paper, for each format there's a degree of effectiveness of advertising and a degree of lucrativeness for the target demographic. There are of course complications, but in broad strokes this is the way things worked.
Those assumptions completely fall apart on the web. Because the web is not just passive. It's interactive. And that changes the equation tremendously because it means that the effectiveness of ads can vary by an enormous degree depending on activity. When people are searching, for example, relevant ads (not just random eyeball hijacking brand promotions) are actually useful, and thus highly effective. When people are trying to communicate with their friends there probably isn't a good advertising context at all most of the time and almost all ads will be seen as useless interruptions and thus vastly less effective (they won't be relevant and can't as easily be made relevant). And there is a huge variety of other activities on the web that don't fit into convenient molds.
Now, does that necessarily mean that advertising revenue is a thing of the past? Obviously not, as in some cases there are circumstances where the potential for effective advertising is even greater than with traditional media. But it does mean that the math is far more complex. And it might mean that just because you have a direct line into a huge amount of eyeballs you may not be able to monetize that traffic to the same degree (by orders of magnitude) as an equivalent amount of traffic of people engaged in a different activity.
Additionally, we've seen the writing on the wall in terms of "eyeball hijacking" highly interruptive advertising in the modern age, it's just out of date and out of touch. Monetizing web traffic effectively requires a much smarter approach. In the ideal case advertising is so well targeted and so effective that it is welcomed and often not even seen as an ad.
Advertising is a $600B a year business, and the Internet still has yet to catch up with other media in terms of share of total budget versus time spent on the medium.
Google just reported revenues up 35%. It's all advertising, driven by high quality algorithms and lots of data. Internet advertising is more effective than other media and we're still just scratching the surface.
I'd like to comment on all the specific ad startups and their revenue and growth rates but I'm not able - you'll just have to wait and see it.
Happy to make a $1 bet on the subject with any naysayer here or with the author of this shoddy article.
But internet advertising is a relatively lousy form of advertising. Compare to print and radio ads.
I hear a radio ad. It is interesting. I write down the number and call the person. Not ideal, but I am reminded by the medium that I must act now or else I lose the info of the ad. Same with tv ads. But even to ensure people can follow up you have to have the ad repeated over and over.
With print ads, I can cut them out and save them. Less urgency, and a lot of durability.
Online advertising, with the possible exception of advertising on search engines, provides the illusion of durability without delivering it. So it's an inferior medium.
I am not saying that online advertisements are doomed. I think we haven't figured out how to do it, and borrowing print analogies isn't sufficient. Or perhaps, if we are going to borrow print analogies we ought to take them all the way (selling ad space on specific pages on a non-rotating basis for example).
I agree that there are a lot of advancements to be made. However, my experience is that Internet ads are already more effective.
But forget all that, are you ready to bet me $1 over the future of online ads? Go ahead and formulate the terms. I'll take the optimistic side and you can have the pessimistic side of whatever you come up with.
I will say that in my experience, depending on audience, I have found radio ads and general PR efforts to both be more effective at reaching consumers than I have found internet ads. Speaking strictly of ROI.
I am willing to say that the following forms of advertising are doomed:
* rotating banners
* rotating in-content image ads
* pop-up ads (whether div- or window-based)
* side-bar ads in content
The real challenge I think is to replicate the success at search engine advertisement (which seems to be good) elsewhere. For this reason I think that whatever ends up working will be very different than what we have now.
I'm asking for a bet on the future of Internet advertising generally. Not to take a collection of the shittiest known implementations of advertising and bet on them.
I'll interpret your response to mean you think Internet advertising (considered broadly) will be successful, and I agree with you. In contrast with the technology review post which predicts some sort of bizarre general "collapse" of the Internet (presumably of advertising as a business model).
If not please reform your bet accordingly.
ps, love to engage in an email discusion to hear more about the radio and pr(?) campaigns you have run that have worked better than Internet media.
Are you willing to make a $1 bet predicting the general demise of the Internet advertising business? (I think the article called it a "collapse")?
I'm having a hard time understanding exactly what concrete outcome you are predicting based on your post. Are you predicting a 1:0.9 ratio? 1:0.001? 1:1.1?
I'd put $1 on the following proposition: 30 years from now, the advertising industry (i.e. in which sellers of products pay directly for advertising - advertising which is not content and does not attempt to confuse the receiver about this) will have less than 1/10th the revenue it does today, as a proportion of the total revenue of all industries put together (I'd say "GDP" but I think that may be defined in terms of profit rather than revenue - and I expect margins to shrink everywhere).
(I think we'll see a big rise in viral marketing, shill and semi-shill reviewing (Klout, amazon's programme where they send products to highly rated reviewers), product placement and sponsored content (the my little pony cartoons; mad men with jack daniels; akb0048), which will blur the line between advertising and content creation. But I think outright ads will collapse)
I love the position you're taking on this. It's a specific view of the future that is plausible, and contrary to my position. Nice work.
To restate: I bet $1 that the ratio of total ad revenue (not including product placement revenue) to GDP will be substantially greater than 10% of what it is today.
Hope we're able to track each other down in 30 years, love to see how it turns out!
> Facebook not only is on course to go bust but will take the rest of the ad-supported Web with it.
Perhaps that's just a juicy opening line to draw people in to the article - but it sure sounds like predicting a demise to me.
Some of the things the article says are reasonable - but I wouldn't bet a dollar on facebook going bust and taking the entire ad-supported web with it.
I don't like ads (typically). But as ads get more and more targeted (ie., when i haven't gone to the dentist in 2 years and the ad says, "great dentist with promo offer just 2 miles from you", that's kind of enticing). I think it will migrate to where ads need to be helpful (ie., google ads). Search was easier because Google could target on the search term. But it's harder when the user isn't proactively searching for something.
But I think it can be done. The ads just need to be super-targetted and helpful.
it's not just health. look at Google Now on android 4.1. they're going to know everywhere you went and a lot more info. sooner or later, this will likely lead to targeted ads if they can deliver high-value ads the user actually wants. ie., [you're driving past your favorite pizza shop] Pizza Boy is offering $5 off today your normal order. Should i place the order for you?" the reason most everyone will opt in is because of the high value-add it provides. my wife quickly opted in to Google Now on her android phone cause she wants the extra features.
I'm skeptical of the "driving by the pizza place" examples. Physical proximity to the pizza place usually doesn't imply any intention to consume pizza. There has to be a stronger signal. I'm physically close to a pizza parlor and I just searched for "dinner and beer" would be enough to assume I have some intention of consuming pizza hence advertising the pizza parlor at that moment is valuable to both myself and the business.
Advertising based entirely on physical proximity could be almost useless. Imagine driving through downtown at 11 PM on a Friday night. As you pass the dentist you're prompted with "50% off your next teeth cleaning!". As you pass the park you're prompted with "Sunday Parade at the Park!". As you pass the liquor store you're prompted with "Beer sale!". Finally something useful. However by this point I would probably be ignoring the ads.
The pizza example would be more like you're driving home from work at 5:30pm on Wednesday on your typical route which passes by the pizza shop. Google Now knows that it's dinner time and that you've purchased from that pizza place before on a Wednesday for dinner. Thus, it "alerts" you of a special deal if there is one.
Yes that would probably work. I think the pieces of the signal in decreasing importance are: you purchase from a business frequently, the current time is close to the average time at which you purchase from that business, you're physically close to the business.
I wonder if physical proximity really matters relative to the other two pieces? Pizza places can deliver so even if you're across town the ad could still have value. Corner case is when you're on travel and physical distance is very large.
Sharing location with apps is trivial to avoid (just don't use them if you're not comfortable), it's not an iphone secret file that stores everything until someone exposes it (zing!). Besides, 'you are on main street' vs 'your daughter has herpes' are far different levels of invading privacy, the former is not a particular secret at all.
I don't understand why people are so focused on Facebook's ad revenue and it's supposed unsustainability, since Google has been around longer, are way bigger, and you know what? The overwhelming majority of their income is also from online ads.
And you know what? Before that we had TV, Radio, and newspaper ads. Those industries didn't implode (or start to) until better ad delivery systems (the web) showed up?
So you know what's going to kill Facebook (and google)? Not some realization ads "aren't working". A newer and even better ad delivery system. (also unlike old media, there doesn't yet seem to be a reason to say FB or google won't be behind this new system either).
The reason I hate ads is that 99% of the time are interrupting me and telling me about things I do not want to know about. If I am chatting with a friend on Facebook, there's no way any kind of ad is going to do anything but get in my way. If, however, I am actually looking to solve a problem, I go to a search engine and start bringing up web pages. In this scenario I am actively seeking something -- perhaps something an ad might be able to help with.
So content ads on informative sites and as part of search seems to me like a lesser evil of all ads. I have a few sites and ideally I'd like to remove all Adsense from my site and replace it with links to stuff people want. The problem is that there's such a long-tail phenomenon going on when people go looking for stuff. For instance, if I have a informative site on dinosaurs I know people coming there via a search engine want to know more about dinosaurs. But would they like a book? A museum trip? Tickets to a dinosaur movie? A college education in paleontology? The answer is yes: some of them would like all of that stuff. And even more. The only way that I know how to assist these people is somehow rotating ads that solve a large variety of problems. Ideally you'd use some kind of machine learning to gather what you can and continue to optimize. Google does this for me, so while I hate ads, providing people with a _little_ bit of randomized assistance from a large catalog of options in a location where they are already looking for stuff seems like a pretty good deal for both the reader and me.
In social media you are no longer trying to respond to a searching reader. Instead you have readers that are doing other things that you are trying to interrupt. Perhaps using their friends as interruptions might work. Perhaps if you only interrupt by providing material related to what they are already doing. But no matter how you hack it, as a social media advertiser your game is to take a reader that is doing one thing and get them doing something else. We've gone from ad-supported radio and television, where listening to the ads were a form of saying "thank you" to the advertiser for providing the material, to a place where advertisers are using technology to try to pry into and control every part of our lives. And yes, it's because of everybody wanting things for free. This is not a happy symbiotic relationship anymore.
ADD: In fact, it's mind-boggling if you think about it. Facebook is trying to take a billion people and make them do things they would not normally do. Yes, people waste their time anyway, but not everybody, not all the time. Wonder how much lost productivity are they creating? How many man-years? How many people making purchases for things they never wanted? How many people playing games with imaginary farms and such for hundreds or thousands of hours? People said the television had an on-off switch, and so does the net. But people are social animals, and the net is the way we communicate. If all of your friends and family are on Facebook, you're going to want to know what they are doing. Facebook uses your friendships against you in order to purposely divert you from things you'd normally do so that you'll spend all of your time on their site playing, gossiping, and purchasing. Ouch. Doesn't sound like an imminent failure. Sounds like a new form of crack. If that much social damage were done by a drug, it would have easily been outlawed by now.
Someone posts "aargh damn I'm locked out" on Facebook - Needium converts that into a lead for local businesses.
Think that's interesting because it seems to me to be the essence of the discussion - active vs passive. You can actively solve your own problem by going to Google and / or you can take the passive step of complaining about your situation on Facebook and have Needium convert that into a lead for you. This passive model of solving your own problems seems to me to be pretty weak but perhaps it works if your have have a large, docile audience ?
I have an idea: how about a "this is interesting, save it for later" button on ads? So if something comes up that's useful, you can minimize the distraction for now. Maybe it would wait a while to put another ad up. Advertisers still pay per click in the "looking at it later" phase.
Of course you would need a natural way to put them back in front of the user. Some of my app ideas already have a natural "deal with it later" mode. I'm sure Facebook could come up with something.
I mostly hate ads. But I go out of my way to look at my amazon recommendations, which are basically ads, and work the way you describe (wishlist). I can see a future where they or something like them (I guess pinterest is kind of similar?) displace most advertising - as long as people who want your product (whether they know it or not) can find it, you don't need ads.
"Wonder how much lost productivity are they creating? How many man-years? How many people making purchases for things they never wanted? How many people playing games with imaginary farms and such for hundreds or thousands of hours?"
How much of a difference is there with that and time spent on HN?
Before anyone jumps at that you might say FB is pure entertainment, voyeurism and HN is learning with bits of enjoyment and entertainment (and maybe some voyeurism as well).
But the truth is much learning is actually enjoyment not something you have a reasonable chance of needing at any time. Sure it enhances your life and sure maybe it makes the rest of your day go better. (But so would a nap in the afternoon, right?) And all of these things create "addicts" in a way and the question is also "how many people". HN has setting for to much activity so this has been recognized as an issue.
The problem with all of these things (FB, HN, Twitter) is that they are addicting and so there is no doubt lost productivity. So is TV. But that was generally confined to being in the right place (around a TV) at the right time (not at work).
Targeting ads based on activity is a dangerous game. I was once shopping online for underwear. For the next couple of days ads would show up from this site showing pictures of men in underwear, trying to make me go back and buy the garments in question. That is very annoying, and creepy. Surely the more profitable the product, the more creepy it will seem.
Anyway, it raises a very important point, not just for the advertising web but for IT in general.
it seems part of the catalytic nature of IT, that it does both increase efficency and reduce effectiveness of ads. because the increased exposure reduces the effectiveness in our minds, the omnipresence of ads online will cause their prices to fall, causing the need for more ads. it's like a death spiral. however I'm wondering then how could print and tv ads survive for so long? maybe one solution might be to actually decrease the number of ads on the web - to maybe one prominent, shortly displayed ad per page (could there be a study measuring the average screen/page share for ads in print and online media?).
or if that fails: IT costs have also been decreasing every year, hence even if facebooks revenues might stall, ever lower server costs might allow them to keep a profit. nowadays a one man show can in many instances run a small business on the web with thousands of clients.
I think facebook should try a groupon style model. They have locations and intentions of users. They should just have a deal feed, or some type of email listing with possible low prices they could get if they join in a deal. To filter it better, maybe ask each user for a list of things they want cheap.
Facebook has tried copying Groupon. This is their Groupon Now! clone announcement (http://www.facebook.com/blog/blog.php?post=446183422130). www.facebook.com/deals appears dead so not sure if they've abandoned the project entirely.
Why can't Facebook start charging for its API, and for business pages? Banner ads were big in the 90s before people realized they were that effective. I don't see why Facebook would need to rely on them forever.
Facebook should look at doing financial services. Price credit based on who your friends are. If you don't keep up with repayments you get a permanent blot in your profile. It is a sector in need of disruption, and Facebook have the worlds best dataset for assessing risk. You could start out with small transfers between individuals. Then move on to group based credit card rates.
The reason ads in real-life are effective is that they traditionally haven't had to compete for your attention. Examples:
(1) Standing on a subway platform you are looking straight at a piece of advertising for minutes until your train arrives. (2) Driving down the road, you're staring at a billboard for 1/4 of a mile (15 seconds at 50mph). (3) On TV and on the radio, inertia to change the channel means you often listen to ads.
The problem for those media is that we are now reaching the point where content is portable enough that we now never have to be subject to ads in those public spaces because we can direct our attention to our mobile devices. Over the next for years you're going to see a massive drop in the effectiveness and reach of ads in real life because people will no longer be directing their surroundings.
The only one of the above examples that will survive a while are billboards and even they will only last until we have self-driving cars. Once we have self-driving cars, why even bother looking at the road instead of our iOS and Android devices?