The Death Of Online Advertising Is Greatly Exaggerated

from the precision-targeting dept

Over at his personal blog, occasional Techdirt contributor Tom Lee weighs in on an interesting discussion going on around the blogosphere about who, if anyone, is to blame for the precipitous decline of the newspaper business. My sympathies are with the pessimists: in principle, there are a lot of things newspapers could have done to better manage the transition to Internet-based news, but as a practical matter it's really difficult for large organizations to adapt to disruptive technologies. Tom makes some sensible points about the newspaper business, but then makes a claim about the broader advertising industry that I didn't agree with. Tom suggests that the online advertising market may be fundamentally doomed because now that advertisers can more precisely measure the effects of advertising, they're discovering that it "just doesn't work very well."

I think there are a couple of problems with this. In the first place, advertising has never "worked very well" in the sense that any given ad impression doesn't exactly get the viewer to run out and purchase the product being advertised. In the traditional advertising business, companies didn't know which specific ad will work on which specific viewer, so they adopted a scattershot approach where they exposed millions of customers to dozens of ads and hoped a few of them would have the desired effect. But despite our ignorance about precisely which ads "work" on which viewers, it's pretty clear that advertising "worked" in the aggregate. McDonalds and Coca Cola clearly get some value from the millions of dollars they spend on TV and print ads.

On the Internet, the scattershot approach is no longer necessary. Digital media allows advertisers to be a lot more specific about the users they want to target and to collect a lot more data about their effectiveness. Tom suggests that this is a bad thing because once companies discover their ads aren't working well, they'll stop spending money on them. But the flip side is that advertisers can measure when a particular ad is working, and that ad inventory becomes correspondingly more valuable. Even better, better measurement means that the average ad should improve over time. Ads that don't work can get dropped more quickly, and the ones that perform well can be put on heavy rotation, emulated by other advertisers, and so forth. That can only be good for ad revenues.

Tom also suggests that advertising is doomed because the Internet makes it a lot easier to avoid it. But peoples' hatred for advertising isn't inevitable. It's a consequence of the limitations of 20th century media technologies that required advertisers to adopt "scattershot" approaches to advertising. There was no way to target car ads at the 5 percent of the population that's in the market for a car at any given time, so the other 95 percent of us had to sit through endless car commercials. But online there are lots of ways to more narrowly target ads at people who are likely to be interested in them. In the long run, as we've said before, advertisers are going to have to realize that content is advertising. If you can make ads relevant, interesting, or entertaining, people aren't going to try as hard to avoid them. Search engines do this by only showing ads relevant to the particular keyword a user entered. Other advertisers have figured out that if they make their commercials fun to watch, people will be more willing to watch them. Of course, it's hard to predict whether the total amount of advertising revenue will go up or down over the next decade. But as long as people buy stuff, companies will be willing to spend significant amounts of money to influence their decisions.



Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    wondering, Dec 24th, 2008 @ 3:39am

    Effectiveness can't be known for some ads ...

    Is it important for this discussion to take into account that it isn't possible to measure the effectiveness of some ads?

    Not all ads are aimed at prompting an immediate online purchase. Some are aimed at influencing something that happens entirely offline, some are aimed at keeping the product in the back of the subject's mind so that when a need that product can satisfy arises, the subject is more inclined to select that product. It seems to me that in neither case can the effectiveness of an online ad be measured any better than can the effectiveness of an offline ad. So it seems to me that at least some portion of the online market will tontinue on the scattershot route.

    I really don't know whether or how that should affect this discussion, but since it didn't seem to be mentioned here, I thought it worth mentioning.

     

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  2.  
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    Advertising Executive, Dec 24th, 2008 @ 3:50am

    wtf?

    What a load of old tosh.

     

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  3.  
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    Twinrova, Dec 24th, 2008 @ 4:02am

    And now a word from our sponsors...

    "McDonalds and Coca Cola clearly get some value from the millions of dollars they spend on TV and print ads."
    Sorry, but I'm going to disagree with this statement. About 10 years ago, some study was released to determine if the ads McD's spent actually proved to increase sales, and it turns out they don't.

    It was determined that McD's (and this could be said of any "major worldwide brand") consumers would have purchased the item anyway, given their exposure to the board, not the ad, would have decided their purchase given most consumers hit McD's at least once a week.

    McD's challenged the report, noting an increase of 20% once the ad was released and cited the ads targeted those who don't frequent McD's as often.

    Thank goodness trends don't lie, as McD's rarely advertises the re-release of its McRib sandwich. The group which originally did the release noted the increase of sales of the McRib sandwich was no different without the ads, as the product was valued by consumers due to its availability.

    Another example can be demonstrated by the extreme ad campaign by Walmart, whose customer base has yet to increase despite the number of ads its been running.

    Advertising is dying, yet those who carry ads just can't seem to accept it, especially when those checks keep rolling in. Consumers are finding ways to eliminate ads, either by changing the channel, skipping them via technology, or just outright ignoring them. They're also turning to places in which ads are not intrusive, as some sites tend to "pop up" ads using means not thwarted by modern browsers (thank goodness for FlashBlock!).

    And if you need one more further point to drive it down: The auto industry spends MILLIONS on ads. I guess it's not difficult to see just how effective these are during an economy in which no one is buying new vehicles.
    So, instead, the auto makers would rather waste millions to get that one, maybe two, new customers than to save those millions.

    How effective is that?

     

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  4.  
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    Matt, Dec 24th, 2008 @ 4:25am

    95% sucks, people realize that

    Even if one in 20 websites actually has interesting ads, it doesn't mean people won't still have a negative sentiment towards advertising the same now as we always have. Nobody wants advertising, as it is unsolicited. If we do solicit advertising then it is simply expected, but still not welcome.

    I still run adblock plus on every site I come across, and so does everyone I know (even quite a few non-tech savvy picked it up pretty fast when I showed them). It's not that the ad is good or bad, it's simply unwelcome due to the nature of the internet.

    Let people donate. Have little donate links on every website for things we like, or things of interest to purchase, and people will do so. It's not hard to come up with small things that already have distribution methods, like a plushie for whatever your company's logo is.

     

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  5.  
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    tm, Dec 24th, 2008 @ 4:33am

    Ads are Brand Management

    Advertising is not about selling a product or service, it's about building & maintaining a brand (ie. image), or even re-branding in some cases. This is nearly impossible to quantify.

     

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  6.  
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    Gunnar, Dec 24th, 2008 @ 6:23am

    "Advertising is not about selling a product or service, it's about building & maintaining a brand (ie. image), or even re-branding in some cases. This is nearly impossible to quantify."

    Plumbers don't advertise to build a brand, the advertise to sell a service.

     

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  7.  
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    Michael Whitetail, Dec 24th, 2008 @ 7:39am

    Re: Ads are Brand Management

    I agree with this for the most part, but I don't think it touches all the facets of ads. Advertising in my opinion serves a three fold purpose:

    1) It reminds customers of the brand. Out-of-sight really is out-of-mind with the fickle American consumer.

    2) It gives specific information to the connsumer; Ie a sale, a new item, or reintroduction of a previously unavailable item.

    3) Coupled with points 1 & 2, the add gives consumers looking for similar items or are in the market already, a direct reference to Ie "I need a new car, oh the local Nissan is running a great deal through midnight" or "I'm hungry... oh Red Lobster now has a new menu. I might try that out"

    If people avoid ads, then why do many of them end up on video aggregate sites like youtube? Because people want to be entertained and for whatever reason, those ads did it for a number of people.

    What about the sites that post up the Superbowl commercials? It's obvious that people want to see them, and that advertising campaign becomes content people eagerly consume while still getting the desired message across to those people, and that's the trick.

    If the advertising is treated as content like Tech dirt advises, then it can be effective in giving the consumer a lasting memory of the meaning of the add.

    For instance, despite being a poor game, Mercs 2 had an enjoyable (for some) commercial that made the internet rounds. Sales of the game were boosted for a time till word of mouth got around about how badly the game sucked, but the advertising content is still making the rounds.

    In this case, yes the publicity was bad, but if the game had been good we may have attributed its success to the great ad campaign.

     

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  8.  
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    Michael Whitetail, Dec 24th, 2008 @ 7:43am

    Re: Re: Ads are Brand Management

    Doh! I deleted a portion of point 3 during editing. I meant to say:

    3) Coupled with points 1 & 2, the ad gives consumers looking for similar items or are in the market already, a direct reference to which may possibly sway the choice in that companies favor. Ie "I need a new car, oh the local Nissan is running a great deal through midnight" or "I'm hungry... oh Red Lobster now has a new menu. I might try that out"

    *headdesk*

     

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  9.  
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    Cheese McBeese, Dec 24th, 2008 @ 7:44am

    @Gunnar - Yes, many plumbers do indeed advertise to build a brand... in order to sell a service. There is a company I've seen advertised called 'The Punctual Plumber.' I don't know if I'll ever need the services of a plumber, but if I do I'm more likely to contact the plumber I've heard of than one I haven't, and that is what brand recognition is all about.

     

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  10.  
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    Srini Kumar, Dec 24th, 2008 @ 9:17am

    netflix and buying tribes

    i cite netflix, which basically built its initial advertising strategy on insanely cheap ugly CPM popunder ads but actually had a product that *everybody* could really be into trying. the scattershot approach plus incredibly cheap rates can act as almost market research if you have a shot at true popularity.

    print advertising can also be a virtual zero-sum game if planned properly - the *only* company of its sort advertising in a given magazine appears to be the monopoly provider to the audience of that magazine. *it is about connecting with a buying tribe* and buying tribes act in tandem. media that properly gathers a buying tribe - i think techmeme is a good example - will be able to do quite well. unfortunately straight-up news like the NYT provides is not oriented at all towards a "buying tribe". for all the measurability of adwords, the world of search is not very "tribal" - it is very individualistic. so you make one sale to one person and that's that without great customer service and list management and such.

    i can't imagine that McD's TV ads targeting the Latino audience are impotent. They seem like great ads, towards a growing and interested target market. They run on the shows that Latinos watch. That is my idea of connecting with a buying tribe through broadcast advertising. If you steal it, you owe me a beer (and Seth Godin of course).

    i think a big-sledgehammer advertising approach can work if you walk and talk like a "monopoly" (e.g. coca-cola, fedex). you can do this as a startup too, but it requires real product differentiation and you had better work on creating brilliant operations first (again i cite netflix).

    - srini
    stickernation.com

     

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  11.  
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    Anonymous Coward, Dec 24th, 2008 @ 9:32am

    Re: Effectiveness can't be known for some ads ...

    There are lines of products that benefit by not being bought now?

     

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  12.  
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    ChurchHatesTucker (profile), Dec 24th, 2008 @ 9:53am

    Re:

    Cheese beat me to it. Plumbers advertise all over the place, because if you need one, you usually need one right away. Until they come up with a way of determining 'the subset of consumers who are *about* to need a plumber' then frequent scattershot advertising is the best approach. You want your brand to by synonymous with 'plumber' in as many heads as possible.

     

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  13.  
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    mogilny, Dec 24th, 2008 @ 11:29am

    supply and demand

    In traditional media, there are a set number of radio station, tv stations, and newspaper to publish an ad. On the internet, the amount of publishers and channels is really close to infinite. New blogs pop up everyday, sites with million perday pageviews aren't uncommon. The amount of publisher growth out paces online ad spendings. This is why it is getting harder to make money off of display ads.

     

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  14.  
    identicon
    bummerhan, Dec 26th, 2008 @ 6:11am

    like all broadcast media, advertising form a part of the value chain.

    however, for a good many of the web sites that are ad-driven are not matched by true generation of original,quality content. I need not name these "slap an ad" websites.

    while everything is fine and dandy, consumers buying blindly and advertisers paying for online impressions/clicks.. now that consumption is suddenly tight.. everybody realizes nobody was reading the rubbish content (nor the ads) in the first place

    at least in magazines or TV, you get at least a well-produced (or funny) 20-sec experience
    to me, a paragraph of sales fluff is a b#$%^y eyesore

    online advertising is 'subprime', it simply does not draw a fraction of the desired market response for its price

     

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  15.  
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    Ferruccio Fortini, Dec 26th, 2008 @ 8:19am

    Carosello

    Anybody who grew up in Italy in the '60s can't cease being amazed at how astonished everybody seems to be by the "discovery" that ads can be intrinsically valuable and desirable content... Carosello taught us in our childhood and we'll never forget.

    See http://it.wikipedia.org/wiki/Carosello if you read Italian, or http://www.time.com/time/magazine/article/0,9171,842076,00.html?promoid=googlep for a 1965 Time article summarizing TV ads in Europe at the time -- the lede, """When Italian mothers wish to punish their children these days, they often warn: "Tonight you won't watch Carosello."""", is perfectly true, as Italians of my generations (we were the children so threatened) can testify to this day.

    Europe's diffidence towards commercialism (from both leftish parties and traditional conservatives) allowed VERY limited numbers of TV ads back then, and the rarity made the spots precious and (for the advertiser) worth investing LOTS of production values in (think of Superbowl ads for a US parallel).

    The results were shining -- search the web for Carosello and you'll see abiding glowing testimonials, even though the ads only ran 1957-1977 and their glory days were actually over in the '70s.

    Those ads' effectiveness was also studied in depth by worried psychologists, e.g. cfr http://books.google.com/books?id=QhJxExp-lzYC&pg=PA291&lpg=PA291&dq=carosello+advertisem ents&source=web&ots=8DdQJdu09P&sig=fhCgX6Z6futOUJwtjmYDLQJMlpc&hl=en&sa=X&oi =book_result&resnum=8&ct=result (other important journal articles can be found if you have access to JSTOR).

    Adversion to ads comes from over-exposure to huge number of unmemorable ads with no production values...!

     

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  16.  
    identicon
    nasch, Dec 29th, 2008 @ 8:34am

    Re: Re: Effectiveness can't be known for some ads ...

    No, but they benefit from being bought later.

     

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  17.  
    identicon
    nasch, Dec 29th, 2008 @ 8:59am

    Re:

    They advertise their own plumbing company, not just plumbing services generally. They absolutely are building a brand, "Joe's Plumbing". When you need a plumber, Joe wants you to think of Joe's Plumbing, not some other plumber. Now Joe's ad campaign has been unusual in that he got the endorsement of a US Senator, but you get the idea. ;-)

     

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  18.  
    identicon
    Jonathan, Jun 10th, 2009 @ 4:19pm

     Gorilla marketing in today's economy is everything.

    Hi everyone, if your starting, or have a small business, and want more customers check out http://adwido.com a free site for uploading video ads for your business,they also have image uploads if you are not yet up to videos. The more sites you can link to the greater your market will be. They have a free link exchange as well.

     

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