Speculation On a Second Internet Economy Collapse 307
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."
Wish there was a "Free market" advertising system. (Score:2, Insightful)
Sadly I wished Google/Yahoo/MSN was entirely "free market" - but it isn't. Google being the worse in how they manipulate it with Yahoo chasing up to emulate every move. With MSN its fairly easy to see the data and see the expense but still stuck with minimum bids that ultimately take away from potential sales & traffic.
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.
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.
Ads (Score:5, Insightful)
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.
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?
Minimum prices (Score:2, Insightful)
Re:Ironic... (Score:2, Insightful)
unless this guy is some emanate professor of economics my first thoughts were "Why should i care what your blog says?"
Re:Average Consumers? How about average internet.. (Score:2, Insightful)
I use Firefox and I don't use the ad plugins. I think you make a major assumption there by assuming everyone switching to Firefox will use ad-blocking plugins. I don't want to be bothered with attempting to install some plugin that has to be upgraded over time and maintained etc. etc. I don't want web browsing to be work. I just ignore the ads.
Re:Naive Question (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?
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.)
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.
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
Re:Average Consumers? How about average internet.. (Score:2, Insightful)
That's pretty thin reasoning. By your logic you would have never installed Firefox in the 1st place. You realize that plug-ins "maintain" themselves, right?
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.
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.
Re:Income from ads (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 the same site later and buy something, they statistically bought something after clicking an ad.
Re:Other Industries Prosper on the Internet (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 want will make money. This generally means a product or service that actually impacts the user's life offline, in whatever way. This needs to be more valuable to the customer than the price they are asked to pay-- on the Web right now that payment is mostly time. Someday the payment will include money, and the Web will shrink but it certainly won't disappear.
The bubble was a lot of foolishness based around clever ideas that were either not profitably executable at the time (WebVan) or that it turns out PEOPLE DIDN'T ACTUALLY WANT.
The Web didn't negate the classic rules of business, as many people learned to their financial dismay.
Adblock (Score:2, Insightful)
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.
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.
Re:Naive Question (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....
Internet Economy Collapse? NO. (Score:3, Insightful)
The only thing that would collapse under lower pricing of ads is those that sell ads, ie Google, Yahoo, etc. Those who purchase ads, however, would flourish since these ads would become cheaper.
Re:Other Industries Prosper on the Internet (Score:1, Insightful)
How many wars are prevented by cake?
What about money, how many wars are prevented by money?
And how many of the uber-aggressive war-bent leaders of the world are, by their stated beliefs, against pornography and other "immoral" things?
Don't you think at least a few of them would calm down and think of alternative solutions after a good few hours of non-stop masturbating took the edge off?
I say we should grant the presidents, prime ministers, etc of the world access to an all-you-can-eat porn buffet before any aggressive measures are discussed, it might help!
Calming them all down might not be a cultural benefit, but how many of them do you think would be so radically opposed to these "immoral" things after a year or two of this?
Re:Average Consumers? How about average internet.. (Score:5, Insightful)
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...
Directed vs. SPAM (Score:2, Insightful)
The problem with a lot of people trying to sell online advertising, in my opinion, is that they think the best route to take is sheer volume. I completely disagree. Like several of the above posts, I've gotten tired of the only vaguely related advertising that appears on most websites, and thus have either mentally filtered it out or gone to ad blockers.
It's not advertising online that really bothers me, it's the undirected nature of most of it. I don't want to be flooded with flashy dancing heads and brightly colored blocks of pictures of things I have no interest in. If you want ads to be successful they need to speak to a specific audience. Google does try to do this but as the posters above mentioned, people tend to try to game the system a lot.
I personally think the business model needs to shift more toward an "approved advertiser" editorial type system. See for example, Penny Arcade. They've mentioned before they personally approve each ad displayed on their site. They won't advertise games they think are bad. And I believe they even asked their readership if it was ok to start displaying Flash ads instead of just still images before going ahead and doing it. In other words, they figured out what their audience wanted, and they deliver that. And in my personal experience it works. I've clicked through on far more Penny Arcade ads to check out a new game than I have on any other site.
Re:*Relative* bargain (Score:2, Insightful)
Re:Its all CLEAR... (Score:4, Insightful)
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.
Remember, Ads are for Brand Awareness (Score:3, Insightful)
The point of advertising is to increase brand familiarity so that consumers know who you are and what you sell. That way, when they need your product they remember you, look you up, and give you money. It is not supposed to be a spur of the moment incentive to generate instant demand and give you click-through-riches (except porn site advertising, but let's not go there).
TV and radio have worked that way for a long time. Some car ads exist only to give reassurance to people who have already purchased the vehicle.
Think of Apple, people buy their product on brand recognition and reputation, not clicking through some ad. The paradigm shift of the internet concerns ease of information delivery, not consumer demand.
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.
Re:Its all CLEAR... (Score:2, Insightful)
The purpose of all this advertising we see is to PREVENT any new or innovative products from obtaining any mindshare by taking up all the available "shelfspace", Part of the way this is done is to make advertising expensive, so that the new kid on the block can't afford it, and the other part is for established companise to buy all the advertising they can to prevent anyone else from being able to advertise.
Kurt
Re:Its all CLEAR... (Score:3, Insightful)
Advertising is a ridiculous basis for an economy.
Most products are less obviously useful than a perpetual motion machine, so consumers need to learn about them and figure out if and how the product's benefits outweigh its cost.
In that sense, advertising isn't quite the worthlessness you make it out to be. It's just communication, which is useful and which the internet a good start at an infrastructure for.
The problem is targeting advertising to the people for whom the cost of your product outweighs the benefits. The Internet takes communication from 1-way (broadcast/cable) to 2-way (TCP/IP), but still has some technical, artistic, and social challenges, specifically:
Re:Its all CLEAR... (Score:3, Insightful)
Communication is two way. The word you were looking for was Propaganda.
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.
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.