Talk about a loaded subject line.
It assumes there is an ad revenue bubble.
Actually, until a couple of days ago, it never occurred to me that there could be an ad revenue bubble.
Recently, two Fat Stacks readers refer me to the Wired article titled “Ad Tech Could Be the Net Internet Bubble” asking me what I think.
In short, the article suggests companies that advertise online are paying way too much money for ads that are mostly ineffective and essentially throwing their money away. Consequently, online ad rates are sure to plummet.
Specifically, the article suggests that ad targeting does not work as well it should and there is far more click fraud going on than what the big players (Google and Facebook) let on.
What do I think?
I have a number of thoughts. Here they are.
First, I’m biased because I earn the lion’s share of my revenue from ads.
Second, I don’t buy many online ads so I can’t really comment from an advertiser’s perspective. The little I do buy, I have to admit I’m not able to verify whether my targeting specifications are honored. I have no idea. Therefore, it’s clear that the online ad industry is far from transparent.
Third, despite the lack of transparency and likely targeting inaccuracy, I find it hard to believe that many companies aren’t generating a positive ROI.
I understand it’s not always easy or possible to know whether online advertising is successful. After all, how does Proctor & Gamble know if a particular ad resulted in someone choosing Crest toothpaste in the grocery store? Maybe they can spot patterns, but that’s difficult to track. However, you have the same problem with TV ads, magazine ads, etc.
On the other hand, online ads in a way are superior to all other forms of advertising for online transactions because they CAN be tracked directly to online sales.
Google and Facebook offer all the tech you need to track ad clicks to sales. While I have no idea how to set that all up, it’s possible. In fact, it’s a thing of beauty. You can determine in almost real-time how much profit or losses individual ads are generating.
What more could you ask for from advertising?
While that doesn’t solve the Proctor & Gamble Crest toothpaste scenario, which is common, it does strike me that if many companies are profiting with ads promoting online transactions, the ads are working. And if ads are proven effective for online transactions, it’s not beyond the realm of possibility that they’re effective for offline transactions.
If there was nothing but lousy targeting and click fraud, companies that sell online would not generate profits from ads and would stop paying for them.
I recently spoke with some people who do run ads for their various software and digital products. Both said the online ads were profitable month-in and month-out. They both run Google and Facebook ads.
Mind you, they’ve honed the process and diligently manage the campaigns, but they are profitable.
Even local businesses can somewhat track ad effectiveness with telephone call tracking and other mechanisms.
It’s not perfect, but it’s a heckuva a lot better than the Yellow Pages back in the day.
Back then Yellow Pages had a monopoly and charged outrageous rates for a half to two-page spread. I know, because I was once a practicing lawyer who looked into it.
Fourth, I find the suggestion that direct ad buys being more cost-effective an absolutely terrible argument. Yes, ad networks or middlemen get a nice chunk of the money but do you know how much hassle is involved in negotiating direct ad buy deals? It’s a royal PITA on a big scale with many sites. Ad networks and middlemen solve an efficiency problem. I don’t buy the “direct buy” argument one bit.
What do I think of the Wired article overall?
It offers some insights and isn’t totally out-to-lunch but IMO falls a bit far on the “doomsday” spectrum.
Will ad rates and revenue plummet? Is there an ad bubble?
It’s the classic “SEO is dead” or “Email is dead” pronouncement. It gets attention for sure. There are some truths but generally a tad overblown.
The article could have been titled “Are website ads dead?”
I struggle equating escalating ad rates to a real estate bubble because so many advertisers get immediate feedback. They know within a day or week whether ads are working. Not all companies, but many of them. If ad rates were too high, bidding would correct quickly preventing a bubble.
Is targeting imperfect? Probably.
Are advertisers flying blind? Yes, to some extent.
Is there click fraud? Probably.
Are middlemen ad networks cashing in? You bet, but they do solve inefficiencies.
Despite all the problems, many companies selling stuff online are generating profits from online ads.
As long as ads generate profits, companies will pay for advertising.
Please note, these are merely my opinions. I don’t have a crystal ball. I’m not a sage.
As always, if you think I’m out to lunch, let me know.
Jon runs the place around here. He pontificates about launching and growing online publishing businesses, aka blogs that make a few bucks. His pride and joy is the email newsletter he publishes.
Hyperbole? Maybe, but go check it out to see what some readers say.
In all seriousness, Jon is the founder and owner of a digital media company that publishes a variety of web properties visited and beloved by millions of readers monthly. Fatstacks is where he shares a glimpse into his digital publishing business.