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."
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).
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.
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.
Naive Question (Score:3, Interesting)
I'm pretty sure that I've never done that.
Re:Ironic... (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.
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?
Ad is not the only successfull business model ! (Score:1, Interesting)
"The first internet bubble popped largely because all business models failed except for ad selling."... This article already starts with a wrong assumption !!!
eCommerce is another business model. And it works quite well (CAGR approx. 20-25%/year).
ISPs have also another business model on the internet (selling pipes) and they make money.
Hosting, ASPs and SaaS (Software As a Service) are another business model and see the success of Salesforce.com for example...
Not without mentioning iTunes which is a mortar-to-click business model (you buy an iPod first and then you buy the service) that is quite sucessfull..
Re:but... (Score:2, Interesting)
When the people who would never buy something can't even accidentally click on an advert (because they block them), the total number of clicks is decreased. However, the total number of purchases doesn't really change, so a click then has a higher chance of resulting in a purchase.
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?
Its counter productive.. (Score:2, Interesting)
at least it is for me, at best an advert will produce a 'Meh'. Usually they actually put me off whatever the product being hawked is. And this applies to companys too, but as been mention by a few posters already im not exactly the type of consumer theyre aiming this shit at.
Re:*Relative* bargain (Score:3, Interesting)
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.
Re:Naive Question (Score:2, Interesting)
In my mind, there's almost a mutual assured destruction attitude among providers of products and services. "We have to advertise or else!"
I think that's a pretty accurate description - without outlawing advertisements (and even then - where to draw the line?!), it will remain that way without a limiting factor.
Adwords is that limiting at least for me - whilst I've blocked other advertisement sources (usually for flashy annoying flash), I keep adwords because I occasionally find it useful.
I'm sure I've seen thousands of ads for Cheer in my life, but I always buy Tide. Probably because that's what we had in my house 45 years ago when I was a kid.
Ah - but on the day you go to the store needing to buy detergent and they're all out apart from the "Cheer" and "Super Wonder Happiness" brands.. which do you choose?
Re:Average Consumers? How about average internet.. (Score:3, Interesting)
Actually the average user freaks out and says "WOW YOU CAN DO THAT!" when I install privoxy on their PC and magically all the ad's are gone and websites load 25-60% faster.
It amazes them that it's possible and then they tell friends about it. I also get them to use Firefox with it, making them think it's a required component. Works great. A combo of FF and privoxy drops Pc infections drastically.
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.
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
Missing the point about Adwords (Score:3, Interesting)
The ad market isn't based on demand, it's based on what people are willing to pay, and these, in this case, are fundamentally different things. Yes, in the context that the article writer talks about, 'Flash' is a trademark, but 'flash photography' isn't, but it's specious to say that people aren't bidding for ads because they can't afford them, and it's also sheer speculation to say that Google is pricing specific words out of the market. I wouldn't claim to be an expert, but I have been involved in Adwords campaigns, particularly in narrowly targeted areas, and it's obvious that there's a correlation between the validity of a search term, and that search term's value as Adword keywords. This plugs Adwords into the whole Pagerank system, which will ultimately value words in accordance with what people are searching for at the time. Real names also have a high value, and it may be that 'Flash' is regarded differently to 'flash'.
I have a client who sells garden furniture that is branded with the name of a popular UK TV gardening presenter. He's not the sole distributor, so he is in competition with other vendors selling those products, plus anything else that has the presenters' name on it. When we did the Adwords campaign he had just published another book and was appearing in a mainstream evening TV show, which ultimately lead to the minimum bid for using his name being set at £1.30 per impression. However, like any auction, this must have only been set because someone was willing to pay it in order to get their ads to the top and right ad bars on the first page of the search results. In that respect Adwords is essentially a mechanised trading system and there may be curbs and restraints, and I dare say the occasional artificial ceiling or trapdoor, to control excessive or combative bidding, but in theory, if you wanted to bid for 'Microsoft' to link it to a campaign for Linux, you would be bidding against anyone else who wanted to get 'Microsoft' into pole position, including Microsoft themselves, who have far more money to throw at ad impressions then you do (if they gave money to Google, but that's by the by). There probably are restraints within the system around using trademarks, which *probably* exist to prevent or limit messy and expensive lawsuits rather than pricing their availability out of the market.
So the question is, will the bubble burst? If advertisers don't get a good return for their costs, by converting click-throughs to sales, which is what Google Analytics is for, and if people stop clicking on ads, which is the key measure for Google, then advertisers will consider taking their ad budget somewhere else, and income will degrade, but it's not a linear progression, as while it fails in one market, it will rise in another, probably debt management solutions. Advertising doesn't stop in hard times, but it finds more creative ways of making a return for its money, which is an unscientific process at best, so as long as Google can provide visible returns for its customers, which is after all far better than paper or broadcast media can provide, it will survive.
Re:Its all CLEAR... (Score:3, Interesting)
Honestly, I'd rather we go back to that system than continue with the MORE AND MORE COMMERCIALS PER THIRTY MINUTE BLOCK EVERY TIME YOU TURN AROUND pattern that we've currently got going.
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.
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.
Re:Inflation (Score:3, Interesting)
Whoever modded that comment as "troll" should wake up and look around. I was assigned a book [virginia.edu] in an undergrad history class in the late 1970s, it's a good read and I still have the thing, reread it a couple of months ago.
The link is to the text of the book. Economic similarities between now and the US shortly before the great depression are scary. From "XII.THE BIG BULL MARKET" [virginia.edu]
From "HOME, SWEET FLORIDA" [virginia.edu]
The Big Red Scare [virginia.edu] sounds a lot like today's "war on terror". Alcohol prohibition [virginia.edu] reads like today's "war on (some) drugs".
This book was first published in 1931. Read it and be afraid! Who was it that said "those who refuse to learn from history are doomed to repeat it?"
Re:Average Consumers? How about average internet.. (Score:3, Interesting)
Not in my experience. Market forces seems to depend more and more on erratic criteria, that's just the beginning of the end of online advertising.
Take the Google case: They pay to publishers what they want, but still have severe problems!.
The whole ads economy is flawed, bots can act like persons, in fact there's no difference at all between casual visitors and random bots. If spam has virtually destroyed email, ad-clik-bots will terminate internet advertising.
Re:Average Consumers? How about average internet.. (Score:3, Interesting)
Re:Its all CLEAR... (Score:3, Interesting)
I don't see why they don't just use real products across the board. I mean,I know Apple has to be paying a pretty penny to have nearly every character who uses a laptop use a Macbook,right?
Apple pays nothing. They give the productions equipment to use, but that's about it. They made such inroads into films and television because other manufacturers wouldn't send over a laptop if a propmaster needed one.
This issue is covered in former Apple CEO Gil Amelio's excellent book On The Firing Line: My 500 Days At Apple