The online advertising business is in for a rough patch, especially for display advertising. The signs are everywhere. Yahoo, the biggest publisher of display ads on the Web, reported a 2 percent decline in display ad revenues in the fourth quarter, and the New York Times is seeing even steeper declines.
There is just way too much advertising inventory out there, and Websites are actually trying to show less ads per page to reduce ad clutter and keep advertising rates from cratering. The chart above from comScore’s 2008 Digital Year in Review shows that the number of display ads served in the U.S. is actually slightly down from a year ago. Even so, comScore estimates that 4.5 trillion ads were served to U.S. consumers last year. That comes to 2,000 ads per month per person.
And how many of those ads even register? The more ads that get thrown at us, the more we learn to ignore them.
As a consequence of the declining display ad revenues and the over-saturation of ads, there is simply no need for the 300-plus ad networks out there. And what we are seeing now is the stronger ad networks are picking up funding to shore up their positions and the weaker ones are getting bought. Just last night, for instance, Glam Media bought AdaptiveAds. This morning SocialMedia raised $6 million rather than the initial $20 million it was looking for and mobile ad network AdMob raised $12.5 million.
AdMob described its funding round as a “series C extension” of the $15.7 million it raised from Sequoia just last October. CEO Omar Hamoui confirmed to me that today’s funding was at the same valuation as the last one. Any funding in this environment is an accomplishment, but it does support my shoring up thesis. And AdMob is 100% focused on ads that appear on mobile phones, especially the new crop of Web-capable devices. This is still a high-growth area (and is not represented in the chart above), but it makes you wonder if those mobile ad rates are also feeling the pressure. Update: They are.
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Not surprising.
Display advertising is more difficult to track and even when you track it the results often suck anyway. No surprise they’re trending downward
Right on Erick
Looks like the tech consolidation has begun. With traditionals like Yahoo, AOL and NYT reporting negative ad revenue growth and total ads down last year, the web 2.0 companies like Glam, Facebook and MySpace are taking away potential ad deals from the portals.
Display brand ads on TV and Print are like 80% of advertising. Why are they declining on the internet?
All innovation in tech has come from smaller companies- when did Google last launch an ad technology that worked. 2001 dude. When they bought the AdSense/AdWords company. Even their display, prints, youtube, and radio ads efforts have failed. This is the law of the web, every 5-10 years, most of the leaders are knocked off the top list, usually because they fail to innovate with the changes on the web.
Most brands will advertise on the web soon, which new companies will they use when they are not doing search?
Spot on. Can’t wait to see the next generation of web services — they will totally blindside those who are so ingrained into thinking that today’s big tech leaders will remain at the top of their game.
indeed, a paradigm shift is in order.
Speaking of the new ad technology, I stumbled on a new site called Trafficspaces today.
Kinda like a cros between OpenX and Google Ad Managr.
Not sure what to make of them though.. but it seems cool so far…
sorry, but I think you might be missing something very important – display ads are hurting because targeting sucks (it’s hard) which tells us a few things:
- Some of the money you see in this graph isn’t actually going away, it’s getting re purposed with the vertical ad networks (such as BuySellAds.com) where advertisers definitely see results comparable to those of CPC/AdWords (yes, I said CPC/AdWords).
- Advertisers are getting smarter and not wasting money on __BLOATED__ CPM’s from the FederatedMedia’s of the world
- There is still opportunity for some IP in the targeting/contextual space since nobody’s done it *right* yet.
Yep. While the big 3 portals Yahoo, MSN & AOL are busy fighting over each other as they continue to go down, they simply don’t get that the next generation of web services are here now- exactly like you said. Is it true that Yahoo is now less than 6% of web usage? So much for portals! Ha! If I was a brand, why would I spend on site that is less and less relevant while new companies are innovating?
On your comment on number of ads, feels like the web is going the direction of tv- there are so many ads on every channel, and remnant ads at night. Prime/Superbowl ads are where the business is, the rest is volume with low revenue. Same thing is happening on the web- ad networks are turning into volume with low cpm & revenue, and leading to the decline in ‘display’ revenue stats, and the prime/brand ads companies are innovating and can target contextually are doing well- WebMD, MySpace Movies, Glam, and others
Sometimes I look at the funding that these companies get and I have to laugh. The barrier of entry to this category is zero. You don’t need $27 mil to get a mobile ad network up and running. You can get it done for far less.
I was an ad sales guy for TV and online for 12 years and now I do software development. With smart people surrounding you and imagination you can come up with some pretty useful stuff.
I agree with Eric. Just wait until the next generation of services. A new guard is already emerging.
The Drupal age is upon us!
-Randall
And you would know this how? TV ads sales is absolutely NOTHING like mobile ads. TV ads have no latency settings to take into account when broadcasting. Mobile ads are all about network latency.
TV ads have zero targeting. You barely know your own audience in comparison to web ads. With cookies and history tracking Admob and Google are able to target their users much more accurately than any television ad could. That and they are one to one ads as opposed to one to many ads.
Perhaps you misses the profitable article on Admob as well… http://ventureb...om/tag/coadmob/
Says they are already profitable. My guess would be that round C is to solidify the market under them as they are already crushing Google.
Hi Eric –
Contact me if you’re interested in applying your background (ad sales and software development) in a uniquely targeted manner.
Thanks,
David
Good.
Online ads, for the most part, suck.
Gone are the truly great creative days of traditional print and television advertising.
And Google will continue to be at the vanguard of destroy everything.
Naw, there’s still plenty of creativity in the world.
The good ad networks will rise up. The lousy ones will fade away. Happens in most businesses.
To me, the Internet display ad industry will trend toward niche publishers, and small to mid-size advertisers, rather than huge publishers rehashing the same branding campaigns from large advertisers.
Well said.
The new trend will be towards publishers taking control from ad networks as the barrier to serving your own ads reduces using tools like Google Ad Manager or OpenX
Derrick, I checked out Trafficspaces.com…wow!
The problem with display moving to more niche sites is that the individuals that spend the volume of money do not want to buy every niche site. They simply don’t have enough time to sort through and meet with everyone of these sites. So, media buyers believe they reach them by buying ad networks. Look at Platform A they have a sales team focused on selling the network. And they have cut their margins and have lost the dollars that came
with selling the most valuable inventory ,display. The way that advertisers buy display is through “true
integration” they want consumers to interact with their brands within content. That takes big dollars, creative brain trusts within the pub and it takes hard core selling. Again…that all costs money! Technology is great and can still be vastly improved in terms of targeting. However, the reality is that advertisers want to buy reach and frequency inexpensively. And they do pay more for programs that are creative, new, sexy, multi-platform, one time or big media bang type programs. Think American Idol and Coke and Ford sponsorships. Both brands are threaded into the show in many contextual ways offline, online and out of home etc. Publishers need to think of their inventory in that vane. They need to know what inventory they sell off in a network strategy and what inventory that make their big margins on and work with their advertisers to build the types of programs that they desire. During tough economic times this becomes more difficult because of the costs associated with it. Also, many of today’s online sales reps are not capable and/or compensated to sell display. Honestly, to develop custom solutions for advertisers is much more difficult then responding to a 100k RFP. As the industry consolidates they must start to look at the cost of their sales salaries and get dillgent in paying those 2 sellers differently. Hard to hear for many. But, a reality. The CMO does not want meetings with ad sellers who do not have the ability to hear their needs and to come back with plans that are built around their core strategies and tailored to their individual business needs.
Just my take.
Regardless of what avenue we are advertising, saturation is always a problem. I think that is what boosts creativity. So instead of a constantly negative outlook that no one is getting their message out, advertisers can step up their creativity to think of new ways.
The medium was never supposed to be ad supported. Old rules and ideas about advertising from other media were retrofitted to the web for display. It was only a matter of time before the very nature of the web killed it.
No one has better captured or understood the web ad economy than the father of web based performance advertising, Bill Gross.
“The more I [thought about it], the more I realized that the true value of the Internet was in its accountability. Performance guarantees had to be the model for paying for media.”
Amen!
We’ll solve these problems, but just like everywhere else, the people that created them will not be the ones to fix it.
Targeting is the key, but having the right offer at the right time is just as important. General garden variety ads on big portals do not cut it as people are immune to them. It’s really an online billboard. I drive on the highway and do not pay attention to them. Same with online.
Advertisers will have to extend themselves in identifying and serving the many niches/communities that are out there and tailor the offering as appropriate. It’s a pain, but it is the only way to really increase their ROI per acquisition.
It seems to me that there is a relationship between creativity and just plain annoyance. For example those ads which appear on the screen and you have to click close. They aren’t popup, but just as annoying. Also video ads which play on load, however i can understand why some websites would have them. there are some creative ads, however the click through it dying and its all about branding and interacting with the user.
What about the type of market (B2B vs B2C) and relevance? I think a B2B might have slightly higher click through rates than B2C, however what options do we really have these days which are ‘fair’ to internet users?
In 1920 majority of shareholders sold their stake in Ford because they insisted the auto industry had reached its peak. Maybe they were right in light of the events with the Big 3 recently.
Many are saying that Online Advertising has reached its peak already.
Major trends follow the S-curve where it takes 50% of the time to reach 10% of the market and the same amount of time to reach 90%.
With that logic, online advertising is now at 8-9% of all marketing budgets. It would be a strong indicator then in the next 10-12 years it will be 90%.
We are about to witness a major shift and transfer of wealth. Which side will you be on? Online Advertising with FreeKii.com