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The Almighty Buck Businesses Google The Internet

Speculation On a Second Internet Economy Collapse 307

Posted by kdawson
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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Speculation On a Second Internet Economy Collapse

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  • by hostyle (773991) * on Wednesday July 23, 2008 @07:12AM (#24302177)

    Bubble 2.0. The burst is coming. See it live on slashdot.tv.

    • by Yvanhoe (564877) on Wednesday July 23, 2008 @07:20AM (#24302257) Journal
      Surely the best place to witness it would be on Google Video
    • by H+FTW (1264808) on Wednesday July 23, 2008 @07:22AM (#24302277)

      *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"

    • by PC and Sony Fanboy (1248258) on Wednesday July 23, 2008 @07:30AM (#24302359) Journal
      So, does this prove that step 3 is actually 'receive advertising funding'? It must be something important if it might precipitate the fall of web 2.0.

      For example:
      1. Make Website
      2. Host Material (User Created or otherwise)
      3. ??????? - (ADS? Really? WHO KNEW?! *sarcasm*)
      4. Profit!!
      • by ShieldW0lf (601553) on Wednesday July 23, 2008 @08:37AM (#24303283) Journal

        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...

        • Re:Its all CLEAR... (Score:5, Interesting)

          by oldspewey (1303305) on Wednesday July 23, 2008 @08:48AM (#24303453)

          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

          • Re: (Score:3, Interesting)

            You know, back in the golden ages of radio and television, the feature and the ads were the same beast. You see, before there were commercial breaks, companies would actually buy airtime and provide the content. The content would have the company or product name everywhere and they spent just as much time pimping product as entertaining, but you only had to deal with the advertisements from that one company and the company actually had a big investment in the show so they had to ensure quality to keep their
            • Re:Its all CLEAR... (Score:5, Interesting)

              by Snocone (158524) on Wednesday July 23, 2008 @10:16AM (#24304919) Homepage

              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:Its all CLEAR... (Score:4, Interesting)

            by ShieldW0lf (601553) on Wednesday July 23, 2008 @09:32AM (#24304125) Journal
            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.

            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.
        • by slowbox (1331397) on Wednesday July 23, 2008 @09:23AM (#24303993)
          As long as you have a monetary based economy and cash to spare, then why is advertising ridiculous? Lets say a completely new, innovative, or maybe simply entertaining product is created. As the seller, do you have to wait for "word of mouth" (which btw is a form of advertising) or do you deliver the product via channels to reach an audience? Ads are just a form of communication like standing on a stage with a tophat selling snake oil. Face it, you are a consumer and people are willing to pay a little to earn the chance to get your business. It's a FUNDAMENTAL force in driving an economy. Not ridiculous. Certainly it's more fun than trading a goat for some chickens.
        • by nasor (690345) on Wednesday July 23, 2008 @09:41AM (#24304279)

          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: (Score:3, Insightful)

          by pseudorand (603231)

          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

          • Re: (Score:3, Insightful)

            by ShieldW0lf (601553)
            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.

            Communication is two way. The word you were looking for was Propaganda.
  • Drive-by ads (Score:4, Interesting)

    by somersault (912633) on Wednesday July 23, 2008 @07:13AM (#24302191) Homepage Journal

    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).

    • by PC and Sony Fanboy (1248258) on Wednesday July 23, 2008 @07:25AM (#24302307) Journal
      Although the average consumer sees a lot of ads, the average consumer is also gradually switching to firefox (and the plugins, I expect).

      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.
      • by fictionpuss (1136565) on Wednesday July 23, 2008 @07:36AM (#24302401)

        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?

        • by Cro Magnon (467622) on Wednesday July 23, 2008 @07:53AM (#24302593) Homepage Journal

          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.

          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.

          • by fictionpuss (1136565) on Wednesday July 23, 2008 @08:13AM (#24302933)

            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: (Score:3, Interesting)

              by 12357bd (686909)

              market forces seem to be pushing away from annoying your customer.

              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 in

          • by Bovarchist (782773) on Wednesday July 23, 2008 @08:25AM (#24303121)
            I think you hit on the real problem there. It's not that there *are* ads, it's that the ads are stupid and annoying. I'm seeing progress from IBM and some others in making the ads more fun and relevant, but there is still a long way to go. And internet advertisers will eventually have to realize that just because you *can* animate an ad, doesn't mean you *should* animate an ad. I've seen magazine ads for Carlton Draught that made me laugh my ass off as well as remember their name - no animation required.
          • Re: (Score:3, Interesting)

            by ninevoltz (910404)
            Obviously you haven't seen the Head-On commercials, or the E-surance commercial with that annoying asswipe with a guitar, or anything with Billy Mays. And don't forget the mother-of-all annoying ass commercials, the debt consolidation commercial with the flatlining EKG that makes my dog bark every time. Holy shit, I watch way too much TV...
        • by poetmatt (793785)

          Uh yes, most people do hate ads, and some like myself never click a single ad, even if it's required as a clickthrough. Adblock + noscript + nukeanything = no ads.

          Problem is everyone thinks ads (like marketing) are a magic cashcow. They aren't. If your product sucks, whatever it happens to be, tangible or intangible, advertising and marketing will only go so far. It's like the unsolicited spam-mail when you see who sells your email address (such as amazon, buy.com, anything really). Anytime you sign up for

        • by sm62704 (957197) on Wednesday July 23, 2008 @10:43AM (#24305383) Journal

          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.

      • Re: (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.

        • by PC and Sony Fanboy (1248258) on Wednesday July 23, 2008 @07:46AM (#24302497) Journal
          I'm not sure what your idea of 'work' is, but it certainly wasn't more than 30 seconds of 'work' to install adblocker plus... and it updates itself auto-magically... and now I don't have to worry about those annoying laughing flash ads promoting 'custom smilies', and whatnot.
        • Re: (Score:2, Insightful)

          by Jaysyn (203771)

          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?

        • It's a lot more 'work' if you have to ignore the adverts. Ad blocker can be updated yes, but it will still work without installing the updates - I'm sure there's an option somewhere for disabling plugin update checks.. but I'm quite happy to be getting updates.

          It's possible to ignore things like google ads, as they're done fairly 'tastefully', but flash ads are quite irritating.

          Anyway, it's your loss - doesn't sound like you've even tried it!

        • by Kelbear (870538)

          I have firefox, and I have adblock, with no block packages enabled.

          Reasonable advertisements are fine by me, if they get too instrusive, I add it to adblock. Adblock is still useful to have even when you're willing to view some ads.

      • by tb()ne (625102) on Wednesday July 23, 2008 @07:53AM (#24302595)

        And gradually ads become less relevant.

        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: (Score:3, Interesting)

        by Lumpy (12016)

        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.

    • 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).

      Reading the above sentence, The Buggles instantly popped into my thoughts:
      "Firefox killed the internet ad"

  • 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.

    • by H+FTW (1264808) on Wednesday July 23, 2008 @07:20AM (#24302253)

      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.

    • by draxredd (661953) on Wednesday July 23, 2008 @07:20AM (#24302265)
      free market means one can establish a new business in said market. NOT that established business shouldn't set their own price for the service they are selling.
      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 ?
  • Google is overvalued (Score:5, Informative)

    by dreamchaser (49529) on Wednesday July 23, 2008 @07:16AM (#24302221) Homepage Journal

    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.

    • But judging soley from the price of a single share is incomplete data. If I had a company at $10,000 dollars a share, but only 10 shares, it'd be a very low valued company (whether deservedly so or not). Many companies that are popularly tracked would have split on an ascent like Google's, but they chose not to. A better, but imperfect measure would be market cap.

      That said, Google's market cap is 150 billion. CBS is at 12 billion or so. One analogy I've been fond of thinking of is comparing television

      • Understood, I was simplifying things a bit.

      • CBS has a far more limited market than google though, so an order of magnitude wouldn't be too far off. I've heard the name CBS, but I couldn't tell you what shows they make. I've maybe even seen a couple of them, but as I live in the UK, I don't have a channel called 'CBS' at least. The google brand name probably has more than 10x the recognition of CBS?

    • Just like the ads themselves deflating in price, the stock will deflate. I wouldn't call it a tumble as much as a natural market correction. What's happening with a 500+ price is the unnatural part -- a runup of the price based on speculation that the company could somehow take over a huge percentage of however much internet profits are available to everyone.

    • 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.

      I don't think this is the case at all. Other companies, if you equate shares, would have the same price without stock splits.

      Of course, morons will probably read posts like this proclaiming gloom and doom, and lose confidence for no reason at all.

      The bigger question is, who benefits from this rabid rumor-mongering trying to lower confidence in google's stock?

      Who is sueing google right now over youtube in one part of a multi-front SLAPP attack to stop all "unauthorized user participation" in the internet?

  • by dkleinsc (563838) on Wednesday July 23, 2008 @07:18AM (#24302231) Homepage

    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.

    • by Yvanhoe (564877)
      It also puts a value on the fact that Google is going to slightly piss its users by putting ads on their screens. It is worth taking into account as well.
    • ...they're still horrendously overpriced considering what it costs to run the ads (almost nothing).

      The whole advertising industry is bound to collapse eventually, when some proper data on the effectiveness of advertising becomes available (I was searching for an old post I made on that topic but couldn't find it, it was in a discussion involving in-game advertising IIRC). I doubt this is it though, and even if it collapses on the web, the bullshit parade of advertising will continue on other media.

  • Ads (Score:5, Insightful)

    by Narpak (961733) on Wednesday July 23, 2008 @07:20AM (#24302255)
    As long as companies is willing to pay the price, google (and others) are willing to profit from it. Should advertisers become convinced that they pay more than what they see in return; then they might cease paying the price demanded. At which point ad-supported sites and services might see a drop in their budget. But until then, I do not think they will lower price just because they can.
  • Economics 101. (Score:5, Interesting)

    by 140Mandak262Jamuna (970587) on Wednesday July 23, 2008 @07:20AM (#24302261) Journal
    From the article:Don't believe me? Search for "Flash" and you'll see it has zero ads. In a totally free market, that means you have no competition, and thus should be able to bid as low as you want to get your ad to appear. But when you try to create an AdWord for the "Flash" keyword, you'll see it sets the minimum price at $0.10. So even if the market (me) only wants to pay $0.01, it's priced 10x higher than the market (I) will bear. Which is why there are no ads on the "Flash" keyword.

    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.

    • Actually, sometimes I want to pay for services. It creates a contractual agreement between the buyer and seller, and (in theory) guarantees that you'll receive service for payment.

      If you want for email servers, then you get what you pay for... but if you use google's free service, you can't whine and complain when it doesn't work right.
      • Parent is dead on. I don't want to pay TOO MUCH for things, but unless I pay for something I have no basis for argument if it eats my brain. *cough*Linux Audio Apps*cough*

    • by jotok (728554)

      The author displays profound ignorance about economics.

      Eh. This is a little disingenuous because it seems like your entire critique is based on an interpretation of the term "wants" when everyone reading the original article understands it to mean "is willing."

      I.e., nobody is willing to pay the entry prices for certain terms, so there will never be any ads for those terms.
      We are willing to pay >$0 for bread, milk, etc. We want to pay nothing but since you (the seller) demand something we see we have to

    • by iwein (561027)

      Google has a minimum bid because that is the cost of production for that ad.

      You think? Would that be mostly raw materials or labor according to your estimation?

      • by Zerth (26112)

        Incremental cost of lost goodwill from your ad pissing off searchers.

  • ...he'd have put a few ads on his blog page. Getting slashdotted would have earned him, uh, maybe as much as $5.00!
  • by 4D6963 (933028)

    Check out this analysis [CC] on my blog and make up your own mind.

    And that's not even a trick to make us view ads, as his blog doesn't have any. A sign that times are changing!

  • Naive Question (Score:3, Interesting)

    by xoundmind (932373) on Wednesday July 23, 2008 @07:36AM (#24302399)
    How many of you have ever actually made a purchase based on seeing a web ad?
    I'm pretty sure that I've never done that.
    • Re: (Score:2, Funny)

      by Anonymous Coward

      How many of you have ever actually made a purchase based on seeing a web ad?

      I'm pretty sure that I've never done that.

      Well, that's why you don't have a 14" penis like I do.

      ;-)

    • Re: (Score:3, Insightful)

      by fictionpuss (1136565)

      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?

    • I've bought music based on ads linking to band sites.

    • Re:Naive Question (Score:5, Insightful)

      by Tridus (79566) on Wednesday July 23, 2008 @07:58AM (#24302663) Homepage

      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: (Score:2, Funny)

      How many of you have ever actually made a purchase based on seeing a web ad?

      Well, I always make it a point to click on the ads for those sites that try to sucker people into paying to download free software. Does that count?

    • 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....

  • Minimum prices (Score:2, Insightful)

    by JaySSSS (859968)
    I realize this isn't the primary thrust of the article, but ALL auctions start with a minimum bid, and the person selling the "item" sets the minimum bid. You don't see every item on eBay starting at $0.01, do you? Many do, yes, but the seller sets the minimum bid, and a reserve price. I don't see why you think this is so evil.
  • It is not a burst (Score:4, Informative)

    by Yvanhoe (564877) on Wednesday July 23, 2008 @07:38AM (#24302417) Journal
    It is a single company that doesn't manage to make money in this market because it does it wrong. What Google has proved in the online-ads world is that what pays is to deliver the correct ad to the correct people. The first article clearly states that Lookery is not very picky about who to deliver their ads to and proceed to explain that its competitors manage to sell ads for 5 time Lookery's price because they craft their inventory more carefully.

    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.
  • by ehaggis (879721) on Wednesday July 23, 2008 @07:41AM (#24302447) Homepage Journal
    "The first internet bubble popped largely because all business models failed except for ad selling." (from the article).

    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)

      by Spittoon (64395)

      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

  • by Kupfernigk (1190345) on Wednesday July 23, 2008 @07:48AM (#24302523)
    The value of any new advertising medium declines over time as people find ways to avoid seeing it, or mentally filter it out. The problem is that there are 2 types of advertising:
    • Directories
    • Trying to make me buy stuff

    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: (Score:3, Funny)

      Does it mean I visit slashdot too often when I read that as "Amateur Pornographer", and then wonder how you subscribe?
  • Flash adwords (Score:3, Interesting)

    by Potor (658520) <farker1@gmail . c om> on Wednesday July 23, 2008 @07:48AM (#24302529) Journal
    I am not sure what to make of the blog, since one of its empirical claims is wrong. I searched flash, and www.google.be (my default Google search page here in Belgium) returns

    Gesponsorde Koppelingen
    Flash presentations
    Custom design, advanced programming
    multilingual; international clients
    www.but.be

    Opleiding Flash
    Volg gratis proefles bij Eduvision.
    Uitgebreide Flash opleiding
    www.opleiding-flash.nl

    Flash designer aangeboden
    Voor maar &#8364;24,50 per uur kunt u
    onze Flash specialisten gebruiken
    www.grafi-offshore.com/flash

    And on google.com, I get

    Sponsored Links
    Flash presentations
    Custom design, advanced programming
    multilingual; international clients
    www.but.be

    , which is certainly geographic specific. But they do sell that adword, so what do I make about the rest of the piece?

  • by lancejjj (924211) on Wednesday July 23, 2008 @07:52AM (#24302585) Homepage

    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)

    by jollyreaper (513215) on Wednesday July 23, 2008 @07:57AM (#24302649)

    "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.

  • by WPIDalamar (122110) on Wednesday July 23, 2008 @08:02AM (#24302719) Homepage

    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!

  • Adblock (Score:2, Insightful)

    by mgichoga (901761)
    Maybe its being caused by the fact that more users are using firefox + adblock feature. No one is clicking on ads anymore :(
  • 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.

  • by imstanny (722685) on Wednesday July 23, 2008 @08:23AM (#24303095)

    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.

  • by Illbay (700081) on Wednesday July 23, 2008 @08:25AM (#24303131) Journal

    You know, the "beach-bum from Hawaii that made a pile of cash on the Internet [ezinearticles.com]?"

    He tells us in his latest radio ad that we have "only two years before they change the Internet, and you won't be able to make money like I did any more."

    We'd probably better get to his website and sign up, before it's too late!

    I mean, would a beach-bum from Hawaii steer you wrong [stevegigl.com]?

  • by michaelmalak (91262) <michael@michaelmalak.com> on Wednesday July 23, 2008 @08:35AM (#24303247) Homepage
    First off, this blog post can hardly be called an analysis because it doesn't even take into account Google's quarterly financial reports. For 2008Q1, Wired was exuberant [wired.com] that Google's 2008Q1 revenue was 42 percent higher than 2007Q1, saying that online advertising was immune to the recession due to "desperate" companies needing "a multitude of ways to drill their messages into the public consciousness."

    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.

  • by ebcdic (39948) on Wednesday July 23, 2008 @08:42AM (#24303359)

    If the "Internet Economy" means advertisements, then the sooner it collapses the better.

  • by simong (32944) on Wednesday July 23, 2008 @08:51AM (#24303497) Homepage

    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.

  • by davide marney (231845) <davide,marney&netmedia,org> on Wednesday July 23, 2008 @09:26AM (#24304033) Journal

    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.

  • by Sherman Peabody (147565) on Wednesday July 23, 2008 @09:38AM (#24304219)

    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.

For every bloke who makes his mark, there's half a dozen waiting to rub it out. -- Andy Capp

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