Can Advertising Survive the Web?

Reckoning

A decade ago it was real easy for media companies, agencies and advertisers to simply transferred their revenue models online and “adify” the web with banners. Now comes word that the businesses that make their money from display ads are facing hard times. The fault of the economy? Nah, display ads do not work well in this medium, haven’t from day one and continue to get worse. The day or reckoning is upon us. I for one couldn’t be happier. Long live relevance!

We know by now that the user controlled platform of the web is great at two things — finding information and facilitating communications. From BBS to message boards, to email to VOIP to SMS to RSS and from Google to Wikipedia to Facebook to Twitter and with mobile and semantic web on the horizon, applications fueled by latent needs, creativity, VCs and lots of brainpower will continue to grow as they always have.

But libraries and personal communication have never been advertiser supported. They are services, either subscription or pay per use.

On the sell side advertising is a premium content business based on brand value, content exclusivity and audience. Now the value of branded content and content exclusivity is a mostly a thing of past. On the buy side advertising was born from the need and difficulty of reaching certain people with information that could persuade them or match their intent. Those needs and difficulties of reaching people have also eroded with digital media. Still, none of this prevented lots of ad dollars rolling into digital.

What have we learned?

What we already knew — the value in the web is in its ability to deliver relevance e.g. finding information and facilitating communication. Thus, real ROI and real relevance are only attainable right now in search advertising. It is also no coincidence that the ad model there has been “pay per click” (or pay per use). Display models have been a relevance wasteland. John Wannamaker may not have known what half of his advertising is wasted but for most businesses I would confidently say display.

The Content Dilemma

It didn’t have to be this way. But who knew a decade ago that wrong advertising models and the technology that has been built to support them would kill the value of content — or that the value is greater in filtering and finding relevant content than in the content itself.

The nature of the web is that millions of new pages (inventory) are added to it every day. With massive amounts of content and massive amounts of choice one doesn’t need to be a student of OPEC to understand this supply and demand. Content is a commodity. There is some brand value that can be accrued with quality content but this is dependent on the premium value to the user, the user experience and what Google thinks of you. In many respects this is an indefensible competitive position in digital as blogs and sites like Digg & Craigslist have shown.

Content should be (and will ultimately be) valuated by its ability to generate intent, transactions and lead people to more valuable content down the funnel. Put another way, it will be valuated by (here we go again) its ability to help people find relevant information and facilitate communication. It will not be valued by its ability to host billboards that match certain demos or personas. So while this doesn’t work so well with current models it bodes well for the future. If we can only get there…

Lazy Marketing

As mentioned, much of digital advertising is stuck in old buying models thanks to the agency legacy. Where have they brought us? Display creative sucks, Rich Media still costs way too much to serve, and Network CTRs hover around .05. BT is not well liked and throw in the fact that Social Media and video have yet to figure it out and you see where they got us — up the creek without a paddle.

Making matters worse a minority of marketers are using the most advanced technology — let’s face it, multivariate testing and content targeting technology has been around for five years already. Few are using the mountains of data they are collecting. Cross channel optimization (especially from search as this amazing data shows) is still an after though. Yes, we’re slowly getting better but our improvement as digital marketers is being far outpaced by the advances people have made with their use of technology.

So while we talk about leaning forward or entering conversations and maybe try a few new UGC tricks here and there, the web has exploded around us. People are spending more and more time online. Generations are growing up never not knowing the web. Everything in people’s lives gains importance around the web. Ironically, those consumers that are disrespected so often by advertisers are lapping us in their use of the platform.

Law of Diminishing Returns

Part of the current (lazy) advertiser mentality is to think the natural cause and effect of people’s taking time away from other media and moving it online means that advertising dollars will just follow them along for the ride but I’m not so sure this is a certainty. Those dollars may be lost forever.

As it is, successful search marketers are capped out with how much they can spend in one day, a byproduct of the amount of interest or intent in specific products and services. By and large the past four years show us that this “intent index” is relatively static, or at the least somewhat measured on the upside. A quick look at Google trends bears this out for many key verticals.

Note how searches for cars has stayed static the past 4 years despite very high and very low market demands

Though the highs are a touch higher and the lows a touch lower this intent index is still the same for a even more volatile market like mortgage:

Because search volume is consistent (both in queries and net conversions) search marketers are familiar with the law of diminishing returns with their advertising initiatives.

In display we have almost unlimited volume, and we know advertisers need volume, yet we see the law of diminishing returns from another perspective.

As advertising tries to become more targeted to things like behavioral factors, we’re not seeing an optimal mix of volume & cost – especially when you include technology, services and creative to the mix. It appears that targeting ads to content might be the most effective level of ad optimization. Also, many huge advertisers are happy to throw their money at mass reach across millions of page views with little or no targeting, especially as the CPM continues to drop.

Five years on, BT with all its thin slice segments has shown itself not to be the display panacea many though it would. The jury is still out on vertical networks and exchanges but the display problem is not with our ability as advertisers to reach people. The problem is what we are reaching them with.

So, can the web survive as an ad supported platform? Another way of asking the question might be can the web survive without ads?

Imagine there’s no ads. It isn’t hard to do

Google, Amazon, Wikipedia, eBay, Craigslist, Facebook, MySpace. The core of the web needs very little in terms of ad revenue to survive and even thrive. Interestingly these sites barely advertise themselves at all and when they do in the case of Amazon and eBay in search, it is laughably untargeted. Web services (consumer & B2B) do not need much in the way of ads either. I haven’t seen any ads for Amazon’s S3 yet but I know a heck of a lot of people that use it. This suggests the web can grow very well organically, without ads. But we knew that.

Do we need ads as web users?

What was the last display ad you recall — shoot the monkey? When was the last time you clicked a display ad? When was the last time you purchased something as a result of a display ad? Awareness? More like blindness. Search ads of course are a different story. I bet you have clicked on an ad. Even if was just to help you navigate your way around the web.

It’s the Technology Stupid

However, I am certain (and what search has scratched the surface of) is that ads can become helpful and useful experiences in and of themselves. They can find information and facilitate communication. They can add value to content by adding value to people. But don’t look at agencies and advertisers to turn things around. It is up the publishers to realize the ad gravy train is over. Wenda Harris Millard & the IAB can complain that technology is commoditizing their products all they wants but ultimately it is technology can save them.

This will not happen easily with the current models however this display downturn is probably just the thing needed to cause businesses, advertisers, VCs and entrepreneurs to start a disruption and begin the extinction of the dinosaurs known as banners & CPM. Last week all the business problems for digital advertisers just meant it was a good week for consumers. A change is gonna come. Long live relevance!

NOTE: Not sure if I inspired Seth to follow this meme on his blog but I see he posted the same thoughts today on his blog, albeit with much more brevity & wit.

AdAge also chimes in with some thoughts on the subject.