Editor’s note: The following is a guest post by Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania. In it, he argues that the Internet shatters all forms of advertising. “The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed,” he writes. The views he expresses are his own, and we present them here to foster debate. (Obviously, we hope there is a place for advertising on the Internet since it pays our bills). Update This post has obviously touched a nerve. Clemons responds to his critics below at the bottom of the post.
- 1. There Must Be Something Other Than Advertising:
The expected drop in internet advertising revenues this year was neither unpredictable nor unpredicted, nor was it caused solely by the general recession and the decline in retail sales. Internet advertising will rapidly lose its value and its impact, for reasons that can easily be understood. Traditional advertising simply cannot be carried over to the internet, replacing full-page ads on the back of The New York Times or 30-second spots on the Super Bowl broadcast with pop-ups, banners, click-throughs on side bars. This might be a subject where considerable disagreement is possible, if indeed, pushed ads were still working in traditional media. Mostly they have failed. One newspaper after another is going out of business across the United States, and the ad revenues of traditional print media, even of highly respected magazines, is declining. The ultimate failure of broadcast media advertising is likewise becoming clear.
Pushing a message at a potential customer when it has not been requested and when the consumer is in the midst of something else on the net, will fail as a major revenue source for most internet sites. This is particularly true when the consumer knows that the sponsor of the ad has paid to have this information, which was verified by no one, thrust at him. The net will find monetization models and these will be different from the advertising models used by mass media, just as the models used by mass media were different from the monetization models of theater and sporting events before them. Indeed, there has to be some way to create websites that do other than provide free access to content, some of it proprietary, some of it licensed, and some of it stolen, and funded by advertising.
The idea that content has a price and net applications should find ways to earn a profit without providing free access to other people’s content gets explosive reactions; when virtual reality pioneer and tech guru Jaron Lanier suggested in a New York Times Op Ed that authors deserved to be paid for their content he actually received death threats. But other models are possible and several suggestions for alternative forms of monetization are offered below.
- 2. Advertising will fail:
The internet is the most liberating of all mass media developed to date. It is participatory, like swapping stories around a campfire or attending a renaissance fair. It is not meant solely to push content, in one direction, to a captive audience, the way movies or traditional network television did. It provides the greatest array of entertainment and information, on any subject, with any degree of formality, on demand. And it is the best and the most trusted source of commercial product information on cost, selection, availability, and suitability, using community content, professional reviews and peer reviews.
My basic premise is that the internet is not replacing advertising but shattering it, and all the king’s horses, all the king’s men, and all the creative talent of Madison Avenue cannot put it together again. To analyze this statement we need a working definition of advertising, and I proposed the following, which is as general as I could make it:
Advertising is using sponsored commercial messages to build a brand and paying to locate these messages where they will be observed by potential customers performing other activities; these messages describe a product or service, its price or fundamental attributes, where it can be found, its explicit advantages, or the implicit benefits from its use.
It is frequently argued that the advertising industry will provide sufficient innovation to replace the loss of traditional ads on traditional mass media. Again, my basic premise rejects this, suggesting that simple commercial messages, pushed through whatever medium, in order to reach a potential customer who is in the middle of doing something else, will fail. It’s not that we no longer need information to initiate or to complete a transaction; rather, we will no longer need advertising to obtain that information. We will see the information we want, when we want it, from sources that we trust more than paid advertising. We will find out what we need to know, when we want to make a commercial transaction of any kind. The conventional wisdom is that this is exactly what paid search helps us to do, but all too often they are nothing more than a form of misdirection, as I explain further below. Instead, we will use information that we trust, obtained at the time that we want to see it.
Better targeting of ads using individual interests and individual behaviors will ensure that we do not bore or annoy as many people with each ad, but cannot address the trust issue. As for paid search, it is closer to other mechanisms that allow a website to sell access to potential customers. It works effectively as a revenue source for Google, of course. But it surely is not replicable for the average content website.
- 3. Advertising will fail for three reasons:
There are three problems with advertising in any form, whether broadcast or online:
- Consumers do not trust advertising. Dan Ariely has demonstrated that messages attributed to a commercial source have much lower credibility and much lower impact on the perception of product quality than the same message attributed to a rating service. Forrester Research has completed studies that show that advertising and company sponsored blogs are the least-trusted source of information on products and services, while recommendations from friends and online reviews from customers are the highest.
- Consumers do not want to view advertising. Think of watching network TV news and remember that the commercials on all the major networks are as closely synchronized as possible. Why? If network executives believed we all wanted to see the ads they would be staggered, so that users could channel surf to view the ads; ads are synchronized so that users cannot channel surf to avoid the ads.
- And mostly consumers do not need advertising. My own research suggests that consumers behave as if they get much of their information about product offerings from the internet, through independent professional rating sites like dpreview.com or community content rating services like Ratebeer.com or TripAdvisor
Yes, both network executives and their ad agencies have noted that we are not watching traditional ads, and they attribute this to the fact that we have moved beyond newspapers, televised network news, and broadcast movies, to video games, iPods, and the internet. Porting ads to a new medium will not solve the three problems noted above. The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed.
- 4. Alternative models for monetization are available:
Again, my research suggests that there are three general categories for creating value that can be monetized, including selling real things, selling virtual things, and selling access. Some websites exist solely to sell real things. Many of the best-known perform aggregation of demand, so that there will be enough customers to justify stocking and selling items for which there is only limited demand. Amazon is merely the best-known example. Sites like Amazon and Zappos are especially good for long tail items … where else do you go for a copy of the Green Sea of Heaven, Elizabeth T. Gray’s magnificent translation of the Ghazals of Hafiz, or for a pair of size 20 basketball shoes? Selling real things online has been studied since the advent of interest in eCommerce and will not be discussed further here. Other websites sell virtual things. These activities fall into three categories:
- Selling content and information, from digital music to news and information. Some of these sites are funded by subscriptions, like Gartner Research; some are by direct micropayments for purchases, like iTunes; and some currently attempt to fund themselves through advertising, like Business Week or The New York Times, while still searching for a more effective business model.
- Selling experience and participation in a virtual community, including Second Life and World of Warcraft, Facebook and MySpace, Flickr and YouTube, or LinkedIn. Not all of these have found a way to charge for participation.
- Selling accessories for virtual communities, like completed homes and stores, furnishings, clothing, and pets in Second Life or characters and accessories that would be difficult to earn in World of Warcraft, although this behavior is generally despised by serious World of Warcraft players.
Finally, some websites create and sell access to customers. Again, this can be divided into multiple categories.
- Misdirection, or sending customers to web locations other than the ones for which they are searching. This is Google’s business model. Monetization of misdirection frequently takes the form of charging companies for keywords and threatening to divert their customers to a competitor if they fail to pay adequately for keywords that the customer is likely to use in searches for the companies’ products; that is, misdirection works best when it is threatened rather than actually imposed, and when companies actually do pay the fees demanded for their keywords. Misdirection most frequently takes the form of diverting customers to companies that they do not wish to find, simply because the customer’s preferred company underbid. Misdirection also includes misinformation, such as telling a customer that a hotel is sold out when, indeed it is still available, if the hotel has chosen not to pay a promotional fee, and then allowing the guest to choose an alternative property. Misdirection is, regrettably, still a popular business model on the net, although for reasons I explored in an earlier TechCrunch post on Google it seems ultimately to be unsustainable. More significantly from the perspective of this post, it is not scalable; it is not possible for every website to earn its revenue from sponsored search and ultimately at least some of them will need to find an alternative revenue model.
- Evaluation, assessment, and validation. The opposite of sending a customer someplace other than where he wants is providing the customer enough information for him to make an informed choice on his own. Recommendations on TripAdvisor.com allow potential guests to evaluate and validate recommendations provided by Hotels.com; not surprisingly, Hotels.com originally owned TripAdvisor, and benefited greatly from it. Since Hotels.com did not attempt to influence or censor TripAdvisor content the website was (and is) trusted and helped put recommendations from Hotels.com at a level of trust comparable to those from an experienced travel agent. There are at present only a few other examples of website symbiosis like this, where community content on one site adds considerable value for another; consider also the relationship between the Beeryard’s list of new beers and Ratebeer.com, where clicking on the name of a newly arrived beer at the Beeryard will allow you to examine reviews on Ratebeer.com.
- Social search. Social search is a way of tailoring search based on the user’s network of friends. Rather than searching for any hotel in Chicago, or for any hotel that paid for the keywords “hotel” and “Chicago” I would like to be able to ask for the hotel where my friends stay when they are in Chicago. This invades no one’s privacy, avoids the annoyance of pushing ads at me when I am not searching for something to buy, and provides more relevant results than paid search usually can deliver. There are many problems with this, including the fact that my friends may not be on Facebook or other networks yet and those that are may not post their hotel or automobile or restaurant preferences. Most seriously, while it is clear how Microsoft might benefit from this, using its Facebook connection to undercut Google sponsored search, it is not clear how Microsoft or any other firm could monetize this directly.
- Contextual mobile ads. At present contextual mobile ads delivered by SMS appear to offer much promise. Imagine a hypothetical all-knowing information-based firm that (i) knows your location because you have registered to have the information from your in-phone GPS shared with your friends and (ii) knows that you like Thai restaurants because it monitors the content of your email and your online restaurant searches and (iii) knows that you are hungry because you just said so in a text message or Twitter post you sent from your phone. What a great time for them to text you an advertisement for a nearby Thai restaurant, sent directly to your phone. But why would you trust this? I remember when Hotels.com used to refer me to the same hotel, albeit at different prices, when I asked for a two-star or three-star hotel close to my office; I was never sure which was more amusing, the 80% price increase for the same hotel when I was willing to splurge on a three-star for my visitor, or the fact that there were comparable hotels 20 blocks closer to my office. I suspect that my hypothetical all-knowing firm will similarly be providing sponsored content; perhaps I will take a couple of additional seconds in order to find the restaurant I really want. This probably does not work as a form of advertising.
Of course no one knows yet, but if I had to guess, based on my meatspace experience, I would offer the following guesses for successfully monetizing the net in the future:
- Selling Virtual Things: People will pay for superior, timely, original content and for superior online experiences. Presently I willingly pay for the Financial Times, The Economist, and Foreign Affairs, I value the content, and, indeed, I feel I need it; I will continue to pay for them online. Perhaps I would not be willing to pay for archive material, which I expect that I would be able to find elsewhere, but I will cheerfully pay for the newest content online. Similarly, I willingly pay the cover change for my favorite jazz clubs in New York, and expect that I would cheerfully pay to participate in Second Life or World of Warcraft if, indeed, I had any interest in those virtual experiences. I guess, ultimately, if we compete for status through our purchases of accessories, clothes and homes in meatspace we will probably continue to purchase virtual accessories in Second Life, though I can’t say I fully understand this yet.
- Selling Access. Misdirection will fail totally and completely. I use a Mac, but I have abandoned Safari for Firefox. I have an iPhone and an iPod but I have never used the little white earbuds, preferring instead to purchase a pair of Shure E500 phones that I think sound vastly superior. Similarly, I would be equally happy to purchase a search service that worked for me, rather than accept a free one that works both against me and against the firms I patronize. In contrast, while people will continue to value community content and social search, these will be difficult to monetize. Finally, contextual mobile ads will, likewise be difficult to monetize. With information easily available, I will make my own restaurant choices, irrespective of those pushed at me via SMS, especially when I know that those pushed at me have been pushed for a fee, rather than based on an impartial assessment of my preferences. Yes, I can imagine SMS ads initially succeeding if they provide discounts, but ultimately this leads to little more than a bidding war for traffic and benefits no one other than the firm that provides the text messaging services. I can think of a few commercial SMS services that will benefit everyone, such as letting the most loyal guests of a restaurant know when it is still possible to get a reservation if they act immediately, eliminating the inefficiency of empty tables, but the restaurant will do this itself, using its email or cell phone contact lists. I don’t see this as advertising, or as being monetized by any intermediary. Of course, in an age before texting and email restaurants would have welcomed the all-knowing intermediary as the only mechanism available for communicating quickly with its most loyal customers. Now, restaurants have lists of their most loyal customers and can send out real time messages of interest. If the Blue Note were to text me on some night that I am in New York that it is still possible to get a table for two for Clark Terry, or Tria were to text me on a day when I was in Philadelphia that, surprisingly, there was no wait for an outdoor table right now, I’m sure I would respond to both. Of course there is no intermediary for this interaction, and this is more like direct communication than paid advertising.
The internet is about freedom, and I suspect that a truly free population will not be held captive and forced to watch ads. We always knew that freedom comes at a price; perhaps the price of internet freedom and the failure of ads will be paying a fair price for the content and the experience and the recommendations that we value.
(Photo by nickyfern).
Update: Response to comments
OK, guys. It’s time to calm down. I did not insult you, your families, your religions, or your rottweilers.
I may have presented a message you did not want to hear. Let me summarize it again, for those of you who appear to have commented on it without reading it:
If you disagree with me, it would be helpful to think about the basic premises of the article and to refute them:
- People don’t trust ads. There is a vast literature to support this. Is it all wrong?
- People don’t want ads. Again, there is a vast literature to support this. Think about your own behavior, you own channel surfing and fast forwarding and the timing of when you leave the TV to get a snack. Is it during the content or the commercials?
- People don’t need ads. There is a vast amount of trusted content on the net. Again, there is literature on this. But think about how you form your opinion of a product, from online ads or online reviews?
- There is no shortage of places to put ads. Competition among them will be brutal. Prices will be driven lower and lower, for everyone but Google.
Or you can continue to laugh, or to attack. That does not constitute a response, and it does not help you plan for the future. But a few parting thoughts may help you construct stronger attacks.
- People whose experience is different from yours may still have experience. People whose industry contacts are different from yours may still have industry contacts.
- I’ve been attacked and ridiculed before. I warned the floor traders in New York about the coming of online trading back in 1989 and was fired for it. I warned traditional people-based travel agents about dropping commissions and their eventual bypass through online booking systems and was ridiculed. I warned early investors in online grocery that it would not truly succeed as a mass-market offering for at least a decade and was ridiculed again. I warned investors in specific early online business-to-business exchanges, like Covisint, that sellers would not participate. All of these ridiculed me more politely. But most of them still cannot afford to buy me dinner now.
- And even if you continue ridicule my piece, there are too many other professionals noticing the same thing. Consider the recent article in the Economist on essentially the same thing: advertising cannot fully support the net. You cannot ridicule everything you do not like off the net.
So … those of you with commercial interests in online advertising … you can laugh at me. You can attack me. Or you can think about how you can protect yourselves and your companies against the changes that are going to come.
I look forward to continued informed debate.
Mr. Clemons raises interesting points, and I certainly agree with some of them, but I also agree with Hmmm that most people haven’t “wanted” advertising for a long time. There are several problems with the argument presented.
One, the Web is spectacular at putting consumers together with businesses, and I would argue that ways to do that are “advertising.” Mr. Clemons is smart to offer his own definition of advertising, but its narrowness makes debate difficult.
Two, the Web hasn’t been allowed to develop its own form of advertising, because the print media raced to get their paradigms in place before anybody else had a chance. Display advertising on the Web is awful. Jakob Nielsen has proven that nobody sees these kinds of ads. A Web document isn’t a “page,” in the print sense. There is no “fold.” Banners and skycrapers are all print terms. So I think we’ve yet to see the ideal for web advertising.
Three, all-or-nothing statements don’t do a lot of good in these discussions. They make for nice copy, but really. I mean, c’mon, professor. I don’t think the Web is very good at brand advertising, but some businesses are finding at least some success.
I just think we need to give things time, and remember that, as Seth Godin writes, the word “connect” is the key to making money on the Web. Connect businesses with consumers? You bet.
I do agree. It is about connection. Connection is what I want, when I want it, and anything else is wasting my time. I suspect that the web will get better and better at providing what we all want, and it will look less and less like advertising and more and more like relationships.
The connections aren’t being made because people inherently do not want to work for free.
Any time there is a payment gateway, you make a one time payment, and there is no abstraction. You are taken directly to the content.
Luring people in to something they had no intention of doing is the problem, and fire walled access with a fast easy one click gateway is the solution.
Be up front with people and tell them that this action costs money. That is as simple as it gets.
I agree with Mr. Heaton that the definition of “advertising” here is too narrow–connecting businesses with consumers IS advertising, and the Internet will do this better and in more socially advantageous ways than any previous medium. Here is where Mr. Clemons’ analysis goes wrong, IMHO:
“I suspect that my hypothetical all-knowing firm will similarly be providing sponsored content; perhaps I will take a couple of additional seconds in order to find the restaurant I really want. This probably does not work as a form of advertising.”
Google’s stated long term goal is to show you the restaurant you “really” want at the exact time you really want to hear about it. They want to build something that would make your “additional seconds” of searching on your own superfluous or, perhaps more accurately, to the extent you wanted to do some extra searching, they would want you to use Google for that extra search, and they would want the results–whether organic or through “advertisers”–to bring you closer to what you really want, and help you decide/discover what you really want.
Long term, Google wants to move from “misdirection” to directing users exactly where they want to go, and increasingly, where they didn’t even know they wanted to go. They want to become the incredibly useful intermediary between all supply and all demand. That’s where advertising is going. I think there might be a lot of money in that, and no paywalls
Take a look at their Google at 10 series. They are not being shy about their long term plans:
“Google’s advertising business was founded on the core principle that advertising should deliver the right information to the right person at the right time.”
http://googlebl...ad-perfect.html
“So what’s our straightforward definition of the ideal search engine? Your best friend with instant access to all the world’s facts and a photographic memory of everything you’ve seen and know. That search engine could tailor answers to you based on your preferences, your existing knowledge and the best available information; it could ask for clarification and present the answers in whatever setting or media worked best.”
http://googlebl...-of-search.html
People have largely been untrained to pay for content.
Imagine you always got free internet at the airport.
You would be aghast about reaching http://www.swis...om/hospitality/
And being forced to pay for access if you turned on your laptop and suddenly realized the free ride was over.
Advertising has furnished this free ride for too long. It is time to sign up websites that used to use adsense and take over their domain controller via packet routing.
Once the consumer pays, then they can enjoy an advertisement free experience consistent with what ad block plus is doing.
The payment will allow access to thousands of sites in the service.
This will replace Google adsense. This is half of what So33t now is. Please join us if you can set up a regional center in your country. The initial cost is between 50-100k. You don’t pay us. You buy the dedicated equipment and bandwidth with that, and synch up to our region nodes.
Please email me as this is a real offer. I can show you video of our rack and our people and we can talk on skype about this project. Delays in a world wide deployment could be damaging so please consider this public offer.
If you have any questions, please contact me. We are open to visits to see our equipment, people and deployment schema.
This is the future of the internet. Not Google.
If you want to build a node for this “paid highly available content” internet and get in on the ground floor, you can build the computer cluster you need for your region’s node for under 10,000$ USD
http://picasawe...areRequirements
please click on each of those 2 images I have compiled to view them.
You may never get a chance like this again. Again my friend jeff will spawn the NYC region this summer and with a region in India, Asia and Europe we will have a real lock on this paid network world wide.
Some said facebook was a walled garden, but this is a true walled garden because you have to pay to get inside.
Anyone can sign up and have their content served by the CDN and earn money, Just like adsense but with no advertising.
I have been planning this for a while and putting the software together to make it happen. Tomorrow I pick up the equipment and we start building our region’s node.
Please contact me as this is a real opportunity. I’ve had a couple responses so far.
There is a form of web advertising that I think is going to kick butt, and I’ve seen it on MySpace and other big websites: http://perpetua...ertising-sales/
This is not only a terribly written article, it’s filled with BS rhetoric.
Provide something with actual substance. “Advertising” is not going to die.
Terribly written? BS rhetoric? Look at your own post. Advertising is indeed going to die. I suggest that you look at the references and then get back to my. I can debate this as long as you want. Or not, if you are satisfied with your post.
“Advertising is indeed going to die”
You do understand that that is a VERY huge claim to make. And the onus is on YOU to prove that that claim has any legs–just like when you accuse someone of being guilty, the onus is on the accuser to prove the guilt.
Of course it does not help that you’ve managed to entangle all kinds of industries, sometimes arguing that advertising will die, and at other times, arguing that “internet advertising” will die. Do you make no distinction between the two? Then why is your post titled “…failing on the INTERNET”?
So far from your writing, all I can read is you are a hardcore pessimist about the advertising world. That position in itself is fine. You are entitled to your opinion. But you are a professor–and you would know better than anyone that when a student shares his opinion, first thing you ask ‘em is, “WHERE’S THE PROOF?”
So, professor, where’s the proof that an industry that did 391billion in business in 2006 is simply going to die?
I actually wrote a much softer initial headline, but this one was added by the editors to get someone to read the piece. I suspect it worked. Here’s the original title “Monetizing Applications on the Internet: Surely There Must be Something Other Than Advertising.” The basic assumptions of the paper are laid out and evidence is provided to support them. People don’t trust them, are skipping them, and don’t need them. There is a great deal of money spent on internet ads now, not because they work, but because they have already failed on other media. My belief is that the internet is free and liberating, and what has failed in print and in broadcast will ultimately fail online as well. Not entirely, of course, just as ads have not failed entirely elsewhere. But count the newspapers that have gone bankrupt and the number of pages of print ads in Fortune or Time today compared to 10 years ago. I surely don’t think that reasoning from one industry to the other suggests that I have entangled them. But let’s wait five years and see what happens.
Actually I can make the case that anything BUT internet advertising is going to die. I know many sites that used to be on paid revenue models but had to switch to advertising instead. I beleive gamespot.com is one (not sure though). But it really does depend on the case.
But internet advertising is too new and underdeveloped, which is why it seems like it can die. There definitely has to be a change with internet advertising to make it more effective I believe advertising will be the dominant model on the internet. Just take a look at how many google services are free. Just take a look at how google came to prominence. They would never have been as popular had they started out by charging people.
Banner ads that are persistent, that is they stay in the same place on the site even if you leave the site and come back, and ads that are as clever and interesting as print ones can revitalize internet advertising. The problem is that too many people can advertise and a flood of crappy ads are destroying the reputation of internet adveritsing.
I appreciate you want to make your stance softer.
But why are you now blaming the TC editors, professor? As if they put words in your mouth that the ad industry is going to die.
Of course in the very post I was responding to, you said “Advertising is indeed going to die.”
And if you don’t think the industry will die, what will happen? It is going to change? Ok, we already know that..what’s your critical claim?
Who the hell are you? Using the word “indeed” as some kind of comeback proof is ridiculous. Declaring the death of a 100-year old business model with NO DATA is laughable. Arguing with the commenters in our own post is pathetic. I can’t believe I’m even bothering to post this follow up. Worst TC post ever. And there have been some bad ones.
You are a complete idiot. Advertising will be here long after you are gone.
sounds like a great argument FOR organic search engine optimization… thanks..
I agree completely … up to a point. I am in favor of optimizing search, not optimizing my website for SERP.
It is ironic that the author of this is a professor at Wharton where a 2 day conference was held in early december among the world’s leaders in marketing from both the practitioner and academic world. Perhaps the author of this “thought” piece should check with his colleagues in the marketing dept at Wharton prior to expressing ill-conceived ideas that would be thrown into question by virtually all factual evidence.
To everybody reading this far into the comments: ask yourself: how many advertisements on top of this page can you recall?
It is the people who change, while the ads stays the same. Our minds now works as a spatial TIVO, ignoring useless info (ads) while picking up the data we came for (editorial).
Then again, how did you get here in the first place
Cheers,
Harry
http://twitter....m/exposedplanet
Twitter post from a friend.
While I don’t agree completely with everything, the guy is probably right in some fundamental respects.
I’m pretty sure that a lot of the online-ad downturn results out of the current economic situation.
Advertising will survive, because advertising will get smarter. Here you find only one way this is going to happen: http://www.serr...ggs-future.html
@all – Question to all of you above:
Who clicks on online advertising links?
Probably nobody of all of you.
Guess what: you are not alone.
Thus if you ignore advertsing, more people ignore it too.
Online advertising isn’t that effective anymore.
We all have become educated in the matter of using the Internet.
Thanks. A lot of the comments are making me feel like a futurist … God forbid … or like an alien who thinks the internet is about intellectual freedom rather than forced feeding of unwanted ads.
CLICK ADS EVERY DAY and because of this article purposely clicked everyone and had 10 people who I asked to click them all too.
Advertising may annoy people but there are a LOT of people out there depending on ad revenue to pay for important things such as prescriptions/health care.
I have a disease and the prescriptions alone cost $500/month. My decline in ad revenue is partially due to the economy, but also due to the ineffectiveness of formats like Google Adsense.
When you don’t click on someone’s ad you literally are hurting them. They have no incentive to create more great articles like this one. Yeah I know you don’t want to click on an ad.
But realize when you do you are helping stimulate the economy… and you might be killing someone if you don’t… literally.
Can’t we all help each other out at least until we can get through this mess?
very long winded and rather boring. no more guest post from wharton.
For sure Advertising will not die
At personal level I tend to agree with Eric, because I don’t like advertising, I don’t click on banners and I find very annoying the pop ups and similar tricks. However, I think that the reality is the following: advertising will not disappear completely but it will become more and more difficult for it to be effective and agencies will have to come up with with new ways of promoting goods; e.g. I remember a funny scene from Back to the Future where the hologram of a shark appears in the middle of the street and ’swallows’ a passer by…
I think the important point is that a very small number of businesses (google being one example) will be able to survive if their main or only business model is based on advertising. Advertising can account perhaps for 20-30% of revenues at most. The rest needs to come from other ways of monetization like subscriptions, commissions or the selling of real and virtual goods. Advertising is not dead but it’s not feeling that well either.
Also, you can FORGET selling content and software online. People will simply steal your content and software.
the Internet is gonna die
many ads on techcrunch too
Dude, this article is a piece of garbage. But, a lot of people will read it so I’m going to go ahead and copy it, put it on my own web site and sell access to it for 99 cents.
Advertising is the most efficient way to expose people to a message. It’s that simple. Ads may not be effective as the buyer would like, but they’ll never be as long as you control your own mind.
As far as finding other ways to generate revenue… having something to sell, something that people want is the best. But you’ll probably buy advertising at some level to build your brand and “get the word out”.
I think there is a bit of misconception here.
It seems we are currently in an interesting turn point where the content of the web is dramatically changing (more dynamic, concise, less controlled and created by large organizations) but the existing advertisement tools are not ready to handle such a change.
Several companies had in fact identified this. Specifically, I had the chance to work with ContextIn (http://www.contextin.com) who has a unique approach for handling display ads both for targeting and more interestingly, managing of my traffic.
I believe such companies would take over more and more portions of web advertising that way.
So I thought this was a pretty good article and definitely worth the read. It seems to me like advertising money has definitely been reduced, however still a pretty solid way to make money. I also think there is a huge area of innovation here to come up with new ways to hit your audience. Content is still the value on the web, so if we can figure out how to monazite the content by advertising or some other form of marketing, you will be very successful.
Tough crowd! As a former TV journalist and now the owner of 2 new media companies, I think two things: First, we are in transition with regard to the rejection of online ads. Prof. Clemons is correct, I think, that consumers of online content are annoyed by push ads in their current form. The level to which people are willing to be annoyed depends on how much they want to watch/listen/read the content. Most people are searching for information (pull) and do NOT want ads shoved in their faces while they are searching for content. Secondly, traditional media (an industry in which I spent a 20-yr career) taught the audience certain habits – endure commercials embedded in the programs that viewers/listeners actively opted in to consume. It was worth it then (in the Reagan years of TV & Radio) until technology gave us options like TiVo & DVR. Now everyone is an on-demand audience – new habits. Now we have pop-up blockers, spam filers, email verification software and all kinds of handles to keep annoying ads away from our path. So I think we are seeing an evolution and revolution in advertising, probably no different than when radio ads became TV ads. And one final, comment, I do believe Prof. Clemons deserves more respect than some of the comments here have displayed. Take a quick look at his CV and maybe you’ll get it and keep an open mind.
Well said! The crowd is acting very defensive and in denial.
Where I respect your experience Lu ann I have no respect for him 0
Prof
In your world I would have to pay a fee to read your article. If your research is poorly supported by facts and I end up having to pay for just your ill informed opinion then I have been screwed.
At least with advertising I can see what I am getting into before I part with money!
its telling that eric is an ops professor and not an advertising or marketing prof.
the problem with relying on selling things online is the internet culture around the ideal that things should be free.
I think ads work online, put as you pointed out one needs to take into account the medium and people likes and dislikes.
example pop-ups don’t work well because people are annoyed by them and just close them if the a pop-up ad gets past their software made to block them.
another thing to look at is that many advertising programs online only pay sites when the ads work…ie when someone clicks the link (and in some cases when they click and buy something) other forms of media advertisers pay depending on how many people see the ad, even if they don’t know if the ad lead to a sell or not. In this set up it makes since why tv/radio/print mediums make more money on ads then sites.
The article makes some points that were first made by Seth Godin a number of years ago, namely that interruption marketing is ineffective and that has been proven by the dismal performance of most banner advertising. What’s recently been proven also is that it works even less in social media. That will not mean the total disappearance of advertising but the attempt to make it more relevant in content and time of delivery.
The examples he presents from travel are valid as recommendations by friends have always been the most influential there, especially for hotels and destinations, far more than advertising.
better than free:
http://www.kk.o...er_than_fre.php
His entire premise is that advertising doesn’t work. What do you mean by work?
Not all advertising is tied to a result. In fact the vast majority of broadcast and print is not direct response. To say it is failing is presumptuous and myopic. There is also a tremendous entertainment derived from advertising. Like it or not our culture is one of ‘have’ and ‘gotta have’
What doesn’t work is naive entrepreneurs who sell their wares on greatly inflated ad rates. The average online ad produces a positive ROI its just seldom anywhere near rate card. So the failure of the site or company is really based on the lack of incredibly high cpms.
As the web continues to morph into a amalgam of a website (lean forward) and a TV (lean back) we’ll see less “banners” and more “commercials”.
I think people to a large extent want advertising. The main reason I buy the newspaper is for the classifieds and the coupons. There was a good point made on the value of fresh content. Newspapers were, up until recently, the freshest of targeted content and better than tv because you could skip to the parts that you wanted. The internet changed that obviously making it much easier and quicker to get info on demand, however you wanted it. The trick will be finding ways to create digital delivery of the promotions (think coupons, classified ads) in a way that they too are part of the instant, on demand model.
Tell Nike that advertising doesn’t work – in print, online, in person – embrace, be creative, and surround yourself and company with passionate people.
Every industry has clear winners – check Business Week “value of a brand” – in all cases, companies that succeed introduce new products, are innovative, and advertise.
Post is a clear reason why “ops” folks can’t and shouldn’t run (rather ruin) companies.
The hard truth is simply that online advertising doesn’t work as well as many people had hoped.
Want to increase the results of your internet advertising? Run some ads on TV!
Of course you need to be online because when you have advertised offline and the customer is ready to know more or buy – then you need to be ready to take them down the isle online. But in most cases you can’t start the journey online.
Spiceworks solved this with ads. You have community and app built around what users want and need. They know what u need why u need it and give an ad that offers that. Great case study for all to learn from.
We’ve all been fooled. How many of us took after what he sold in the article. Anyone else Google “Shure E500″ earphones? Or how about the websites. This is tricky word of mouth advertising. Is he getting a cut from those companies? I wonder.
THe same reasons Eric postulates advertising will fail, are the exact reasons why it will succeed.
1. (Some) Consumers trust advertising. With a known brand, the trust is very high. Word of mouth (and social networking) only goes so far.
2. (Some) Consumers want to view advertising. Look at the web hits on Superbowl ad views. How many people view movie trailers before seeing a movie? Many “reviews” are really just ads.
3. (Many) Consumers need advertising. How else does a purchase get motivated? How would you know that TV you want (or didn’t know you wanted) is now 50% off?
Social networks and review sites have their place, and so does advertising. Ads will never die, but the “ads” concept will continue to evolve and morph, along with the maturity of social networks, the number of Internet savvy consumers who can tell the difference between a “review” and an “ad”.
Let us not forget, the US (and global) population is not a bunch of 20-somethings from Silicon Valley with seemingly endless bandwidth and every latest iDevice surrounding them.
Ads will never die.
Paid content that doesn’t look (to the regular reader/viewer/listener) like paid content FTW.
His entire premise is that advertising doesn’t work. What do you mean by work?
Not all advertising is tied to a result. In fact the vast majority of broadcast and print is not direct response. To say it is failing is presumptuous and myopic. There is also a tremendous entertainment derived from advertising. Like it or not our culture is one of ‘have’ and ‘gotta have’
What doesn’t work is naive entrepreneurs who sell their wares on greatly inflated ad rates. The average online ad produces a positive ROI its just seldom anywhere near rate card. So the failure of the site or company is really based on the lack of incredibly high cpms.
As the web continues to morph into a amalgam of a website (lean forward) and a TV (lean back) we’ll see less “banners” and more “commercials”.
Just a test, and I know most readers of this blog are above the average intellectual level of regular people that might fall or feel like clicking banners
How many times have you clicked on an ad displayed here at Techcrunch?
In all the years I’ve been reading this blog, I may have clicked only 2 or 3 times on an ad, just out of curiosity. My eyes and mind are always focused on the post, I completly disregard the ads, I honestly don’t care about a single advertiser shown here right now. However, I keep wondering which are the real ads, the banners or some of the linked content which is the one that can actually drive an insane amount of traffic to the advertiser who could be paying for the post.
And I don’t think it’s bad if Apple comes and pays techcrunch to do a post about their latest release. As long as Techcrunch is free to write objectively I don’t mind reading about Apple’s new release, in the end I’m reading about what I care, from who I care, Apple just pays to have Techcrunch’s attention vs XYZ company.
I believe we see examples of this everyday on the newscasts on TV. You might see some stupid note on the nightly news about the “Jonas Brothers popping out on a movie theater”… that’s not news! that’s paid news right there, and they work a hell of a lot better than the 30 sec spot on the commercial break.
Nowadays I just question everything I read and think, am I reading one hell of a well crafted ad?
Turgid rubbish – at least the part that I know very well. From which I infer the rest is likely to be rubbish. Watch Hal Varian’s recent video describing AdRank and Quality Score. If the QS, composed of an evaluation of multiple factors, including the Landing Page, Advert Copy, Click Through Rate (proxy for customer satsfaction with the advert) and long term response (users returning to the site from organic search, for example) – if the QS is low, the advert isn’t shown – even if you bid the maximum of $100. The auction can’t be bough for an advertiser that fails to “satisfice”.
Now, this article insists on “misdirection” (avoiding the Quality Score factors altogether) and a simple monetary auction – which Google doesn’t have (Generalized Second Price Auction). How plausible is the rest? I place little confidence on it.
I’ve never seen someone be more right and wrong at the same time. First, advertising isn’t anywhere near dead. The drop in spends over the past year were predictable and largely based on big advertisers cutting spends and the real estate, mortgage and domestic auto companies nearly drying up completely. That will come back.
On the other hand, there are a couple of slow moving train wrecks happening in internet: gimmicky rich media ads and to a certain degree pay per click ads are just not performing as they have in the past.
“Monetization of misdirection frequently takes the form of charging companies for keywords and threatening to divert their customers to a competitor if they fail to pay adequately for keywords that the customer is likely to use in searches for the companies’ products”
I’d like to see some case studies cited of this actually happening. I’ve worked with adwords for about 5 years, and I have never heard of this before. Are you seriously saying that google sends people to a competitors site from your ads if you don’t pay up? It just doesn’t happen.
I wonder if part of the problem here is a distinction between the types of services on the Internet. It seems to me there are at least three: sites that sell actual things, sites that are ‘channels’ in the TV sense, and sites that are basically infrastructure.
As the article notes, sites that sell things don’t really have a problem. Their presence is paid for directly by their business activities. In some sense, they are advertising and sales built into one; a store circular that also happens to BE the store.
The article and the comments have differing opinions about ‘channel’ sites that provide purely media content of specific types. The author asserts that, in the future, these sites will be completely for-pay, while others in the comments scoff at that idea and assume that ads are more valuable with ‘channels’ because the target audience is clear. I think we are talking past each other here. There are examples of both kinds of channel sites existing contemporaneously. TechCrunch would be an example of mostly ad-supported. Consumer Reports would pretty much be for-paid. Others, like Penny Arcade, combine selling real things with ad-supported content. All of these sites seem to be doing reasonably well, so perhaps the author is a little too focused on the strictly for-pay model.
I think his points about trusted reviews being more useful than ads actually points to a way that ad-supported sites can still be successful. If the ad-supported sites carefully pick what advertisers they work with, then they are basically establishing trust with their readers/viewers by saying “We know these products and think they are good.” This is really the opposite of the Google model, where the ads are targeted, but not necessarily verified by the site showing the ads.
To some extent, this system is also self-policing. The Penny Arcade site has built up a certain level of trust in the community and often comments on how they select their ads. They are also the target audience for some of those ads, so they tend to pick things that align well with their interests.
On the other hand, some sites run articles that appear to be advertising or direct copy from the companies they are covering, without identifying it as such. They may not be doing so, but if they aren’t upfront about their sources, they lose trust, lose readers, and ultimately lose revenue. Here, the author’s own point about consumers mistrusting paid content and trusting the recommendations of friends works against him. If a trusted source says the ad is good, that might be more effective than the ad alone, while providing a decent business model for the site.
Which leaves us with infrastructure sites. Sites like Twitter, Facebook, and G-mail really aren’t about delivering content like CNN. That seems to be a thorny problem with this discussion; how do we make money doing sites like that. The sites only have value if lots of people visit them, but you won’t get much usage if you charge for them. The most successful infrastructure services seem to be the ones that don’t charge. AOL Instant Messenger became a killer app when anyone could connect to it. Before then, ICQ looked like a winner.
On top of that, people are very concerned about these sites having so much data about them. There is always the risk that the sites will use data in ways that people won’t like (see recent Facebook and Google opt-out ad fiascos) or that this centralized data is an excellent target for hackers (see Facebook viruses or PayPal’s troubles).
I wonder if the mistake made with infrastructure services is that we try to treat them like channels when they really aren’t. The Internet was supposed to be decentralized with the value at the edges, but the cloud computing paradigm has started to pull things to the center. The result is large databases and central points of failure for services that used to be kept at the edges.
Perhaps the solution to monetizing Facebook, Twitter, etc. is not to try to turn them into channels, but to turn them into software that anyone can run. An extreme example would be to have a “Facebook” appliance, or maybe a Facebook service on a Windows Home Server that kept all of your social data. Using P2P or exchanging connection information, you could still contact your friends and get the social aggregation benefit, while the companies who make the software get paid for innovative, useful features rather than trying to sell their users to advertisers. We have a lot of computing power behind our Linksys routers, but we don’t really do much with it. If companies invest money in making the software easy to maintain for consumers, then they have real value to sell while allowing users to control their own data.
A slightly less radical idea might be to sell Facebook server software to ISP’s, much like ISP’s provide access to security software as part of their service. Consumers get the benefit of having someone else manage the software and worry about backing up the data while the ISP’s can add value to subscribing to their service by adding extra features like Twitter-style accounts and Facebook profiles. This assumes, of course, that ISP’s see their users as customers and not as assets to resell.
As much as we may not like it, the Internet is rapidly turning into interactive TV, and I think that is the core problem with trying to monetize Facebook, Twitter, and the like. If we let the Internet be the Internet, then anyone could benefit without a lot of the downsides we currently have.
The addled goose at the Beyond Search Web log commented on this essay. Keep in mind that the addled goose knows little about business the Wharton way, but the poor goose has built successful online businesses. The goose’s post will probably give you indigestion. http://www.arno...t.com/wordpress
Stephen Arnold, March 22, 2009
I think it is very dangerous and opportunistic to say “advertising is dead” in the middle of a recession. Something is happening to it as a tool for communication but I think we have a way to go before we’re mourning its death. What is changing is our relationship with the media and vehicles that traditionally carry advertising, they mean different things and take a different place within our consumption of information – as such the role of advertising as paid for space on these media must be readdressed. Furthermore, our relationship with brands is fundamentally changed: the boundaries between cultural and the corporate are now indistinguishable, with both exploring the other. The likes of Damien Hirst have illustrated that brands are cultural and social phenomena in themselves – not cold corporate mechanisms. The relationship is far more complex and far more human than this post gives it credit for.
Advertising that invokes a cultural reaction, that transcends cold commercial interest and becomes part of a deeper cultural, social sphere increases its relevance and usefullness to consumers. Cadbury’s “Gorilla” by Fallon was paid to be seen by 30% of the UK population but was seen by 60% as a direct result of people sharing and engaging with the ad as a cultural spectacle. It was unashamedly advertising, and didn’t hide its corporate agenda, yet it possessed value which transcended interruptive selling.
Interruptive advertising will not work online (or offline) any more because consumers are empowered more than ever before to control their consumption of information, and our friends are publishers – this is what has changed. If Advertising wants to survive then it must change with it – and brands which have done that thus far have seen and will continue to see success. Traditional media driven advertising will have to reappraise and find a way to live in this different landscape – and it will look a lot more like public relations – dead though, it ain’t.
Everybody wants to announce the apocalypse – especially in a recession when everyone feels pretty cruddy anyway. Digital is, by definition, not broadcast and as such must be monetized differently – and its impact will transform traditional media. The medium is the message – but, if the medium changes then so will the message. Traditional advertisers must remember that and rethink their approach to communication accordingly.
“Pushing a message at a potential customer when it has not been requested … .”
This is exactly the business model of free network television. It has worked for 50-60 years. Sorry, I just don’t see how the professor has added much to the conversation with the above article.
Maybe we should start a war against Big Education and jerkoffs like Clemons.
This clown probably sponges well over six figures from the university, government and who knows where else. It’s time to stand up to the fat cat professors and their insane salaries.
Investigate, exploit, probe, destroy.
I totally agree… I’m going to call up the university and start waging war against the Fat Cat Professors
Best place to start is find out who is personal relatives are… find the weak spots
This is wrong.
Here’s why advertising is failing on the internet:
The biggest blogs on the internet are blogs like this one. The last time I checked, 8 out of the top 10 blogs on the internet were tech related. MOST PEOPLE COULD GIVE A CRAP ABOUT WHAT TECHCRUNCH HAS TO WRITE. They just don’t care. They like “American Idol” or “Heroes” or whatever show is on TV.
When most of the internet does not appeal to the majority of people, there is no reason for many advertisers to even bother. When producers of better content come to the internet as will inevitably be the case, you will see more advertisement there. Advertising works as long as it is relevant to the audience.
FYI, I speak to college kids regularly, and most of these professors get this stuff less than their students do.
Too long. Felt asleep half way through. Michael how much did this guy pay to publish this. I hope its worth it. Cuz you might be looking at losing some of those ads you are selling
the problem is partially in the actual media buying process – if you put a message in front of the right people, it’s not advertising; it’s content. rich-media ads prove this and have the interaction rates to show that content is still king – even in online advertising
The alternative models for monetization will not replace advertising, they will co-exist.
I do agree with the problematic format of the current advertising models, however, in order to solve this problem, we should look deeper into more fundamental issues like the content structure, web pages, the browsers and the current browsing paradigm.
If you could re-design the internet, would it look the same ? Probably not. The feeling I get from the web today is of endless patches starting from a beta version as early as 20 years ago (Anyone who had to develop and test a web application to support IE 5,6,7,8, FF, chrome etc. knows what I’m talking about)
Anyway, instead of looking for new models, why not to take a winning model – the TV, and adjust it for the web? Checkout the brand new web-show concept (for example http://qwiji.co...how.aspx?sid=52), using existing web content and video placed on a time line, you get the ability to implement contextual commercial breaks in between the Web-show items (i.e. item 10 in the example) . In this format the users don’t click a banner or text-ad to watch the commercial, they are taken through it as part of the show flow. Check it out, tell me what you think.
I think this site would look better without all the distracting ads on the side.
Can I please have a version without the aforementioned ads? It would make me think you are more successful than you are right now.
Thanks,
Don
I noted in my yahoo email account every time I opened to check my email, it recommends (or presented me) with relevant ads, that I always click on. It knows my communication topics, keywords and it present the ads relevant to those topics/keywords.
So, I think that internet advertising, the key thing is relevancy.
I wouldn’t pay for placed advertisement with the likes of MySpace, Facebook or even Twitter, because they don’t or haven’t adopt(ed) relevancy recommendation yet. It would be suicidal financially for anyone to pay for placed advertisement with those social networking sites. It is a particular difficult domain (algorithmic-wise) is deploying an algorithm that is accurate (ie, low classification error). This is why companies should just stick with paid advertisements with Yahoo, Google, Microsoft and all those biggies, since they have R&D people who specialize in online advertising researches and there is nothing under rock in this domain that they haven’t thought about or know about.
I agree with your point that simply moving traditional push advertising method from old media to a new media would not work and it’s not working.
However, there are many examples of pull advertising, particularly paid search, that’s native to internet that’s not going to fail. Because it’s working better than other methods. It may not be perfect but it’s best that’s out there right now.
On your alternative methods monetazion, I was unable to see clear suggestions. Do you expect Facebook, MySpace to charge for participation? Or YouTube? Or do you think SecondLife will not be dead in a few years?
How does TripAdvisor make money? Not by facilitating a reasonable trusted environment for reviews. They make money by selling, actually pushing, advertisements within that environment.
Selling access to content would work only for certain type niches, particuarly those that are intended for businesses ot high-net worth consumers. A company like Stratfor.com can charge for access because they deliver but many other content sites that are geared towards consumers, will have depend on advertising and this model will continue to work.
And I do believe the current slow down in the internet advertising is caused by general recession.
The controversy of this discussion illustrates that opinions are quintessentially different. I suggest talking rather about engagement and honesty instead of broadcasting ads!
Oh my god, I never expected so many aggressively defensive reaction on a site like Techcrunch, that’s supposed to have a tech-savvy audience.
It’s like the author just told a bunch of kids Santa Claus doesn’t exist…
Okay, so it’s not a very well written post, but I expected the basic premise to be an obvious truth to anyone who knows how to use 21st century media, and thus will rarely see and much less really notice any kind of advertising.
We’re in synch up to a point. Being Clemons, I kind of like the way Clemons writes. But I was surprised at the anger. I may be wrong. I may be right. But if I am right a lot of internet businesses will need to rethink their revenue stream. Seems like a heads up here would be useful. If I’m wrong, ignore me. If I’m right, and you ignore me, your business might fail. But that’s not my fault. I’m only reporting on other people’s scientific research. I don’t make anything happen. Thanks.
Anger occurs when reasoning fails and vested beliefs are challenged. Anger here is because you’ve poked at the “sacred cow” of advertising.