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Speculation On a Second Internet Economy Collapse
Posted by
kdawson
on Wed Jul 23, 2008 07:06 AM
from the put-down-that-pin dept.
from the put-down-that-pin dept.
David Barrett writes "If you sell three billion ads a month and can't break even, what do you do? Drop prices by 40% and switch business models, apparently. Is this an isolated incident, or does it contribute to the growing pile of evidence that ad inventory is overpriced industry-wide, with Google being the worst offender due to its policy of requiring minimum bids on keywords that would otherwise go for cheap? Check out this analysis on my blog and make up your own mind."
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All that SOAP (Score:5, Funny)
Bubble 2.0. The burst is coming. See it live on slashdot.tv.
Re:All that SOAP (Score:5, Funny)
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Re:All that SOAP (Score:5, Funny)
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Re:All that SOAP (Score:5, Funny)
*picks up sandwich board and placard*
"the version release is nigh! repent, ye users of keyword searchs for the saviour: syntactic web 3.0 will cleanse you of spam"
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Re:All that SOAP (Score:4, Funny)
*picks up sandwich board and placard*
"the version release is nigh! repent, ye users of keyword searchs for the saviour: syntactic web 3.0 will cleanse you of spam"
Tonight at 11: sandwich with spam!
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Its all CLEAR... (Score:4, Funny)
For example:
1. Make Website
2. Host Material (User Created or otherwise)
3. ??????? - (ADS? Really? WHO KNEW?! *sarcasm*)
4. Profit!!
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Re:Its all CLEAR... (Score:5, Insightful)
Personally, I hope it does collapse.
Advertising is a ridiculous basis for an economy.
Oh, look, I built something wonderful that makes peoples lives better. Everyone wants to participate. How will I ever get the support I need to keep this thing that everyone wants to succeed functional?
I'll stuff it full of crap that they don't like, and the people who own the big factory peddling the crap can support me. That's a great model, right?
Wrong.
I don't know what the exact shape of the web will be when we find the right answer. But it sure as hell isn't this.
The modern web is like going to watch a show while two dozen ugly people with screeching voices walk the aisles constantly screaming at you to pay attention to them instead. It's shameful to see something with such potential perverted in such a fashion, and if we need another collapse before we get our heads out of our collective asses and fix things, well, it can't come soon enough for my liking...
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Re:Its all CLEAR... (Score:5, Interesting)
I don't know what the exact shape of the web will be when we find the right answer.
Here's my guess: the web, TV, movies, games, and other forms of "entertainment" will be riddled with product placements, product storylines, and an overall commercialized experience. The line between "feature" and "commercial" will blur and blur until it ceases to exist. Sometimes this will be well done and the entertainment value will be preserved. Sometimes it will come off as transparent shit, exposing both the "feature" and the advertised product(s) to public ridicule or boycott.
... but that's just my guess
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Re:Its all CLEAR... (Score:4, Interesting)
The premise of this collapse is that advertising is overvalued, and not worth the money being paid for it. You think the answer is more advertising? Call me crazy, but I'm thinking something more along the original vision of the BBC and the CBC, where they are socialized and exist for the purpose of promoting creativity, culture and the arts. That's a lot more realistic. A lot of the objections to these structures is that they are elitist, and it's generally been a valid point. But if the administration were done using a democratic process, like the Free Government [slashdot.org] project, well, that could overcome those objections for the most part.
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Re:Its all CLEAR... (Score:5, Interesting)
You can actually go back a lot further in your 'golden ages' than that to trace this.
Pretty much all of what we think of as "great" art/music was produced in a not dissimilar fashion, by being underwritten by King or Church in order to enhance their prestige. The modern version of King and Church is the incorporated company, and the modern version of prestige is, well, still prestige actually, but it's labelled "Goodwill" on balance sheets.
So the Sistine Chapel, for instance, was certainly commissioned as "pimping product" as you so delicately put it, that being the Catholic Church's product offering of salvation amongst the extremely competitive free market in religions, but most people see some intrinsic worth in it despite being a commercial message.
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Re:Its all CLEAR... (Score:4, Insightful)
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Re:Its all CLEAR... (Score:4, Insightful)
I'll stuff it full of crap that they don't like, and the people who own the big factory peddling the crap can support me. That's a great model, right?
It depends on how well the adds are targeted. There are certainly many irrelevant, annoying adds. But about 20 minutes ago I was reading an article about failed spacecraft designs that NASA tried to build but that didn't work out. The adds on the page included model rocketry kits, space news websites, astronomy books, and Kennedy Space Center vacation packages. I actually clicked on some of the add links for space news websites, and found some other interesting stuff that I probably would not have found otherwise. My point here is that it IS possible to have targeted adds that your audience actually thinks are interesting/useful - you just have to be willing to go through the trouble of making sure they're appropriate.
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Re:Its all CLEAR... (Score:4, Insightful)
Most advertisements are basic trolling psychology. They have to be outrageous and annoying to be heard and seen nowadays. They have to scream in all caps "look at me!, pay attention to me!, feed me!, buy me!" People are tuning them out on a massive never before seen scale from AdBlock to dvr recorders, to subconsciously adjusted brain focus. Advertisements are out of place. They don't focus on sites that might be pertinent, but mass spam all channels.
Moderation is web evolution in action. It started because of spam and trolls.
That doesn't mean advertisements can't be quality and focused. Everybody is always advertising on some level all the time, whether they are looking for a job, looking for a mate, or trying to make a point in conversation. But all that advertising content is competing with advertising free "open source" individual generated content. And advertising content is getting it's clock cleaned by "open source" internet content as evidenced by the average hours people now spend on the internet that they used to spend watching commercial television.
The supply of ads is way up, the demand (sold eyeballs) for ads is way down. That means the value of advertising is going to crash and burn. On the internet every company can start it's own "channel", it's own website, and attract users to their sites with paid quality content with advertisements. If it's good, people will go to coca-cola.com to watch a nature episode on polar bears "brought to you by the sponsor". That's going to be far more effective in the long term than dragnet commercial advertising trolling spam which is causing people to hate the companies and its products.
The companies are being gouged by sleaze ball used car salesmen middleman advertising agencies and choked monopoly broadcasting networks. And they are going to realize it sooner or later, and cut out Madison Avenue and hire artists in their place. People using AdBlock are currently a leading economic indicator. Eventually a helluva lot more people are going to start using it too. But there is still plenty of room and space to sell ads on the internet.
A high quality site like slashdot will be able to sell a small space of a tasteful ad for prices that mimic "Boardwalk", while a lesser quality site with lesser quality content will bring in "Baltic Avenue" ad rates. So better quality sites will end up being paid more for less intrusive annoying ads. The market will, and is, adjusting.
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Drive-by ads (Score:4, Interesting)
I use an ad-blocker and script blocker these days so I rarely see ads (I've maybe seen two in the several months that I've used it). Even when I did see ads, I've probably only clicked on 2 or 3 in my whole lifetime before just learning to mentally filter them out. When I want a product, I go google for it. The rest of the time I may be inspired towards a general product area by an ad, but I'll look for the best product I can get in that area, not necessarily the one that I saw advertised.
I'm probably not a very average consumer, but I've always thought the whole concept of advertising market was over-rated. I get that it's necessary in some cases, but the only ads that I find relevant to me these days are for upcoming movies (which I've often already heard about anyway).
Average Consumers? How about average internet... (Score:5, Interesting)
And gradually ads become less relevant.
And gradually, as people realize they can eliminate ads, the trend will gradually increase.
until.. gradually, we'll have no funding for ads, and people will actually have to 'want' an internet presence, rather than being paid to have one.
I don't think that is such a bad idea... although, it'll bring back all the tripod/angelfire style accounts that were so popular 15 years ago, when ads didn't bring in revenue like they do today.
Which... will make it easier to avoid (or find) pointless websites.
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Re:Average Consumers? How about average internet.. (Score:5, Insightful)
You assume that everyone hates advertising as much as you do and thus, in the future, the trend will extend to the extreme. You can't magically extrapolate trends like that, unfortunately.
If the people who really hate advertisements, and who would never (consciously) use them to make a purchasing decision, continue to block them -- then that would seem to increase the value of each successfully delivered advertisement?
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Re:Average Consumers? How about average internet.. (Score:4, Insightful)
The problem is, the advertisers are making the ads more annoying. The people who don't hate ads now will start hating them when the advertisers make them jump around the screen playing bad music.
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Re:Average Consumers? How about average internet.. (Score:5, Insightful)
The problem is, the advertisers are making the ads more annoying. The people who don't hate ads now will start hating them when the advertisers make them jump around the screen playing bad music.
Really? I thought part of Googles success was the fact that the adwords it displays in search results are mostly unobtrusive, but usually relevant if you take the time to look at them.
Advertisements have become more annoying over my lifetime, but the problem with most forms of advertising is that you can't measure annoyance, you can only measure sales -- and these aren't always mutually exclusive factors to the individual.
Compare Google [archive.org] and Yahoo! [archive.org] - the latter was dominant at that time (April 1999), but the lack of clutter/animated gifs helped (along with relevant data) popularise the newcomer.
That's the beauty of adblockers and online advertising - you can now link annoyance to sales - and market forces seem to be pushing away from annoying your customer.
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Re:Average Consumers? How about average internet.. (Score:5, Insightful)
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Re:Average Consumers? How about average internet.. (Score:4, Insightful)
It's not that people hate advertising itself. They don't.
People love the Geico ads with the duck. They loved the Budweiser ads with the frogs. They like ads for items they didn't know existed but could save them time/money/otherwise make their lives better.
What they hate is pushy, in your face, obnoxious, trite, boring ads that detract from the content. Nobody hates Google's text ads, for instance. Everybody hates weather.com's advertisers.
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Re:Average Consumers? How about average internet.. (Score:5, Insightful)
Less relevant is fine. But there will be a problem if the ads become effectively irrelevant because there is no longer an incentive for providers to continue supporting ad-funded services (e.g., gmail). I never click on embedded ads (the 3 or 4 times I did, it was on accident.) But I'm glad there are others out there who do hit them so all these free, web-based services continue to operate
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What plugins have you been using? (Score:4, Informative)
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Google is overvalued (Score:5, Informative)
I've been saying that since the IPO. Yes I bought shares, and yes I dumped them at a good price. The stock kept going up but I do not regret it at all. Ads are *way* overpriced, and when this next bubble bursts Google stock is going to tumble.
I am not a stock analyst so I'm not going to predict where the price will settle, but $477 a share (as of this posting) is WAY WAY WAY overvalued.
Buffett's advice (Score:5, Interesting)
Warren Buffett made all his money buying undervalued companies or (parts of companies via stocks) and then holding onto them as they reached their appropriate values. Note, he doesn't really sell most of the time. He holds onto things that are valuable, and whenever extra money comes from them he invests them either in what he already has to make them even more valuable, or acquires something else that would appreciate in value.
Note, I didn't say they would appreciate in price, though typically they would do that as well. But Buffett wouldn't buy something just because its price is going to go up if it was not reflective of its true value. Not that that's not a way that people can make money. It's just not a solid investment strategy.
Assuming Google is not overvalued, and in fact will continue to appreciate at a rate better than the market, Buffett would advise buying and holding onto it regardless of whether it gives dividends or its price falls. Dividends, to him, are only for when the company can't make better use of the money to increase its own value than the investors could if it were handed back to them.
Note, investing like this means that most of your wealth is not directly accessible as cash, as it's all tied up in investments, often investments that hold onto their money and reinvest. Not a recipe for a profligate lifestyle, but the surest means of building wealth.
Now as the parent mentions, the trick is in discerning value. Which is why Buffett avoids investing in industries he doesn't know well himself, and in particular avoids high tech. New technology's value is so unclear. Proven technology can be rock solid, but new tech's value is more often than not blown way out of proportion.
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Here's where he's wrong (Score:5, Insightful)
He assumes that it costs $0 to put up an ad. That makes his entire argument (that ads aren't there because Google forces up the price beyond $0.01) bogus.
But considering what advertising in other media costs, with less targeting or chance of success, and you'll have some idea as to how much of a bargain online ads really are.
Ads (Score:5, Insightful)
Economics 101. (Score:5, Interesting)
Free market wants to pay zero dollars for an ad? You mean people want to pay more than zero dollars for milk, cereals and bread? Come on! No body wants to pay more than zero dollars for anything. But the other side of the equation is, no body would sell things below the cost of production, at least not for sustained long durations. Google has a minimum bid because that is the cost of production for that ad.
The author displays profound ignorance about economics.
Re:Economics 101. Build a better mouse trap (Score:5, Insightful)
Injecting a bit of html tags does not cost that much. But the value of Google is not merely tacking on bits of html. It is collecting all that data on the net and making it easily available. It costs money. That cost gets amortized over every bit of html it injects in.
I am sorry for your predicament, you want the service at a lower price. But so does every body for everything. As I said earlier, it is a free market. Google does not have a vendor lock or a platform lock on its user base. Any one can compete with Google. There is no switching cost to the user to go from Google to its competitor. If it is pricing the ads too high, it will go out of business. It is not like Microsoft with a defacto monopoly on OS or Office software.
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Naive Question (Score:3, Interesting)
I'm pretty sure that I've never done that.
Re: (Score:3, Insightful)
I don't buy much online, period. But I have clicked the occasional "sponsored link" when I've been searching for a specific product or service.
If you mean seeing a banner ad for random product and thinking "gosh, I need that", then no.
But then, I've purchased items from ThinkGeek, based upon an internal reputation meter they've generated through their consistent marketing/branding.
So yes?
Re:Naive Question (Score:5, Insightful)
How many times have you seen an ad for coke on TV, then immediately run out to the store to buy it? Can't say I ever have, but they keep on doing it.
Advertising exists for more then making instant purchase decisions.
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Re: (Score:3, Insightful)
But it is a wrong question to ask. It's like asking "how many of you ever purchased stuff based on receiving spam email?" -- It will be virtually nobody, but we all know SPAM WORKS for those spammers....
It is not a burst (Score:4, Informative)
That's not a new bubble, that is a vestige of the first one : failing to understand that one online ad on a webpage do not have a fixed value but that many parameters are to be taken into account.
Other Industries Prosper on the Internet (Score:5, Funny)
I disagree. Pornography and Gambling as well as on-line RX have proven to be profitable over time. Perhaps the monetary profit margin is inversely related to the moral and cultural benefit to society.
Re: (Score:3, Insightful)
Well, no.
Wall Street Journal seems to have done well. Also travel sites, turbotax online, ticketmaster, fandango, amazon, ebay (despite recent trouble), craigslist (although they do live off ads), netflix, Angie's list, and many more. I know a bunch of artists that make money selling their work on their Web sites, and some small contractors rely on their site to give people more information and generate that all-important call for an estimate.
Bottom line is that businesses that make something that people w
Psychology catches up everything (Score:5, Insightful)
People over time get sick of the "Trying to make me buy stuff".
Example: When I was a kid magazines like Amateur Photographer contained piles of ads which were basically directory listings. Item, price, condition. They were in fact useful data for buyers. What's the nearest supplier who has a second hand Leica M3 in excellent condition? Nowadays, the ads in photo magazines are demand-creators; reams of eye candy. More advertising, in color, is needed to pay for the content. What does it tell me? Five guys have half a page of trying to sell me the same digital camera I don't want. Do they have what I do want? Hard to say.
Google's problem is it wants to be a directory, but its advertisers want to distort its market by directing irrelevant traffic in the hope of selling something. Like bad coinage, bad ads drive out good ads. (Just like eBay with the crooks driving out legitimate sellers.) Ultimately the public gets turned off. (Do I ever click on a right hand link on a google page? No. Do I ever click on the top 3 links? Hardly ever. That's experience, not prejudice.)
So, my 2c worth is that this may be nothing to do with the recession and everything to do with the great public having had time to realise what a scam much internet advertising is. Someone will have to come up with a better paradigm. If people will still pay money for print magazines, how much will they pay for a verified Google for instance (I would personally pay a $10/month for a shit-free search engine where abusers were removed from search results, no messing.)
Flash adwords (Score:3, Interesting)
And on google.com, I get
, which is certainly geographic specific. But they do sell that adword, so what do I make about the rest of the piece?
So what? Bad brokers should fail. (Score:3, Interesting)
If you sell three billion ads a month and can't break even, what do you do? Drop prices by 40% and switch business models, apparently
This is a sign that ad brokers and resellers MUST provide added value in order to make money.
Anyone can become a broker. The trick is to add value, so that customers will pay your premium prices. Advertisers will not pay a huge premium for unproven "advanced ad campaign technologies" that many of these brokers purport to provide. And if your competition charges less for a better service, don't expect to stay in business very long. At that point, your only choice is to substantially lower prices or change your business model.
Sound familiar?
a bit simplistic (Score:5, Insightful)
"The first internet bubble popped largely because all business models failed except for ad selling." (from the article).
He's forgetting that there was also the speculative insanity that goes along with any bubble in any industry. There were many companies that made enough revenue to be possible if only the executive spending could have been reined in. I'm forgetting the name of it but there was a new media company that was doing something like $180 million in business but was spending $200 million. They produced content, text! It's not like that requires a huge capital investment. People are the biggest expense, get a cheap building somewhere, have your people work there, maybe rent a small bit of office space in a posh tower for impressing investors. But no, they put the whole organization in the posh tower, aeron chairs in every office, and shot their whole wad on overhead.
The internet has nothing to do with that kind of stupidity, it's endemic to human affairs. And the matter of crazy-stupid shit getting funded just because someone has a business plan? Again, common in any bubble, be it tech or tulips.
It's the speculators! (Score:3, Funny)
Clearly this is the fault of the speculators and not the underlying business models!
We should boycott this speculating blogger and refuse to visit his site!
Minimum CPC = Minimum Wage (Score:4, Interesting)
Fast forward to 2008Q2. Searchenginewatch.com reports [searchenginewatch.com] a dismal 3% rise of 2008Q2 compared to 2008Q1. The weak ad revenue from housing, automobile, and finance sectors are blamed, as is Google's recent efforts to focus on ad quality rather than ad quantity.
Back to the subject of this post. Putting revenue aside, quinthar.com's "analysis" is upside down. Raising the threshold of minimum bids leads to reduced revenue just as raising the minimum wage leads to reduced employment. All it does is redirect business that would otherwise take place to the black market or competitors. Google knows this; they are not greedily seeking short-term gains as quinthar.com accuses. On the contrary, there are other reasons to force minimum prices, and in the case of Google, Google wants to improve ad quality in order to improve or maintain its brand image and realize long-term gains (or at least sustainability).
The Internet is not a bubble, it's a juggernaut. It has changed the world, but it has taken much longer than was imagined during the dot-com era (but in hindsight, it's still fast). Newspapers are on their last breath. But that doesn't make the Internet immune from the general economy. That's the main reason for Google's slower growth rate.
Missing the point about ad inventory (Score:4, Insightful)
From FTA:
[Web advertising is] only sustainable so long [as] Google enjoys near-monopoly status. Once that status is gone, then all keywords -- even the ones Google chooses to price out of the market -- become competitively priced...[which] means everybody that depends on AdWord revenue suddenly makes less.
No, when things get more competitive, it just means that the list of keywords which Google can afford to price out of the market will get shorter, not disappear altogether. The result will be a net increase in the number of adwords available at both Google and its competition, making the market larger, not smaller.
When Google gets some real competition, the smart advertiser will of course rent keywords wherever it is profitable to do so.
Hardly the end of the world as we know it.
Re:Wish there was a "Free market" advertising syst (Score:5, Insightful)
as opposed to allowing people to bid on every unclaimed typo and spam the system to hell....
equally the minimum bid system is common to all forms of auction.
yes Google are being a bit dodgy in how they manipulate the system but equally they (as the article says) don't want people to know exactly otherwise it makes it too easy for the system to be gamed at which point it looses all possible value. Google ads do well because they are generally clickable - in that you have a good chance of clicking on something relavent to what you searched for - that reputation is something that google understandably wants to protect.
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Re:Wish there was a "Free market" advertising syst (Score:4, Funny)
Go ahead and establish a more efficient service than google's... but wait, what would be your interest in driving prices down, once you'll be the dominant player ?
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Re:Inflation (Score:5, Insightful)
Meh - if you shift 3 billion units/month, and still can't turn a profit, then you deserve to go out of business. Blaming Google for it is misleading at best; suggesting an imminent internet economy collapse because of ones own failure is projecting at its worst.
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Re:Inflation (Score:5, Informative)
Meh - if you shift 3 billion units/month, and still can't turn a profit, then you deserve to go out of business.
It's all about the spin -- I actually RTFA(s), and nowhere I saw except in some blogger's analysis did it say that company can't turn a profit. From the article:
The analysis makes the assumption that Lookery can't turn a profit and thus is changing their business model. Maybe this is true, but from that quote it seems equally plausible that this is all part of the plan -- run ads as cheap as you can to get as much market share as possible (hopefully undercutting your competitors, who are trying to turn a profit), then use your position to make money in a different way. I've heard many gas stations do the same thing -- they pretty much break even on selling gasoline (in order to attract customers), and then make their profit on the snacks, beer, ice, etc that people buy while they're stopped.
This is not a new idea. Without further evidence, this does not mean the company is struggling -- even the fact that they've lowered their prices isn't evidence of this (what company wouldn't lower their costs if they thought they could get away with it?). It just means they're trying a different tack in a highly competitive market. No big deal.
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Re:Ironic... (Score:5, Informative)
"Check out this analysis on my blog and make up your own mind."
Translation: Visit my website to increase my ad impressions so I can make more money.
Translation: I didn't even bother to visit the site to make sure it even had ads before claiming so. Not like I would let reality get in the way of sarcasm anyways.
Pwned? I think so.
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That's why you must at least visit the link.. (Score:5, Informative)
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Re: (Score:3, Interesting)
I was wondering who he is that his blog on this subject is so important.
More to the point, why is anyone's blog important? Like "advertising" on the internet, blogging certainly needs a healthy dose of due diligence.
Re: (Score:3, Insightful)
It's likely that people don't realize they've bought something after clicking on an ad. The ads in google tend to look like search results if one isn't paying attention and doesn't know any better, and many people probably don't think of text ads as ads at all. They just saw something interesting and clicked on it, but they're much too smart for all the flashy animated marketing crap and would never buy from them ;). People also probably don't recognize that many ads set cookies, so even if they go back to