Category Archives: Advertising

How one thing leads to another

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Well, this was inevitable, online Advertising revenues are down this last quarter.  Could this be the end of the Internet as we know it?  Is this the time where so many websites will disappear?  Of course not!

Curtesy of TechCrunch
Curtesy of TechCrunch (000,000 of $)

Let’s look back at online advertising a few years ago, say 10 years ago.  I remember reading an old paper (from 1997) on ad servers technology last week (link here), it mentionned that online advertising was predicted to grow up to 2 billion dollars in 1998. Wow, 2 billion dollars.  Google can do that under a month now.  So while online advertising has slowed down to a little under 7,9 billion dollars for the first quarter this year, it’s still massively bigger than the numbers we were witnessing during the end of the last millennium.

Everyone knows the slowdown in online advertising we are witnessingis obviously a side effect of the current business cycle.  It’s too bad the vast majority of publisher’s revenues still rely on advertising, it leaves them at the mercy of their marketing budgets. You cannot blame them for that, publishers are in a near perfect competition market: low entry costs, homogeneous products (after all, content remains content), many players and perfect information.  Making users pay for their content is like a bar that has a Guy’s night, where women pay to get in and men don’t…you are bound to fail.

I ignore what the exact number of Ad networks, Ad servers, Ad exchanges worldwide is (I estimate is close to 450), but I know there are enough to indicate it’s a growing industry that’s obviously profitable (see GOOG in NASDAQ) and a lot of players are trying to get a share.  In the coming years, I doubt we’re going to go back; the Internet is more popular, cooler, funner and faster than ever. Advertisers are bound to keep knocking on the doors of publishers who grab the attention of visitors.  The truth is, online advertising is real and here to stay.  The markets are going back up, Obama is kicking butt and summer is right around the corner.  Pretty soon we’ll all have forgotten about the recession (well…let’s hope so…).

Revenue models…quick

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Ouch…if you’re an adult over 25 years of age, you may be concerned or deeply concerned about the latest economic slowdown.  Business week, CNN, The Economist etc. all seem to agree we are not gonna go through a fun period.  What about the web industry?

Now, Internet specialist seem divided: some say we might benefit from the slowdown, others believe we will not be spared.  I fear the second option may be more plausible.

It’s funny to see so many new web applications coming out everyday.  In fact, it’s almost insane; keeping track of everything can be very hard, if not impossible.  Despite all these new gadgets, widgets and apps, not much innovation has come out of the e-business world.  Advertising is, by far, the most dominating model out there…that’s a bad thing for times like these.

Back in 2006, Google bought Youtube for the small sum of 1.65 billion dollars.  eBay bought Skype for 2.6 billion dollars and StumbleUpon for 75 million dollars and the list goes on.  The point is, while some big online companies are investing massive amounts of money, they all seem to be having problems monetizing them.  But let’s go back a bit: why are they capable of investing so much?  Because they are capable of obtaining credit card numbers.  Yes, some people are actually paying for their services.

I think paying for a service is just normal.  What’s not normal is getting services for free.  Ok, so free is cool (I admit that!!!), but let’s face it; I don’t think we’ll be capable of sustaining this much longer.  While he may not be an Internet expert, French President Sarkozy said it best during one of his speaches regarding the press financial crisis in France:’It is false to think advertising will one day sustain the press’.  Maybe Chris Anderson’s book Free will prove wrong…unfortunately!

Adspots: inelastic supply curve?

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Mike on ads is a website that I really like.  Anyone who is interested in knowing more about ad networks and online advertising should check it out.

Online advertising sure is a hot topic these days.  While the phenomenon is spreading across the Internet very rapidly, it presents a huge weakness. Publishers seeking to sell their inventory have to keep in mind consumers are actually the producers: visitors create the inventory and are exposed to the advertisements.

Well, it all depends on how you look at it: advertisers are the ones buying the inventory while publishers are the ones selling that same inventory. To the first degree, advertisers are the actual consumers of the advertising space on a website. Ultimately, the users are the ones seeing the ads, hence the ones who ‘consume’ them.

Let’s push the analysis further; as I mentioned, advertising business model is huge nowadays on the Internet. More and more publishers rely on this sort of business model to cover for the ‘free’ services they offer over the web. In the long run, is this efficient? Can all these websites and web projects survive with this kind of business model?

I don’t think so.

The advantage of online over traditional advertising relies on its targeting abilities. Any producer of goods and/or services advertises for marketing purposes. Advertising triggers sells (hopefully!) with a certain cost. Under perfect information, the advertiser knows exactly to whom it should show ads to maximise ROI. Under imperfect information, advertisers spend a lot more of marketing costs because they try to reach broader audiences, most of them who are not potentially customers. Not now, not ever. So advertisers are left paying buffer placements.

Internet is said to be a place where the content adapts to consumers, not the opposite. The more information we possess on users, the less advertisers will pay for buffer placements. All things held equally, in the long run advertiser’s budgets should diminish.

Fortunately, we can never know for sure what consumers want. Let’s not forget the fact people change over time. Personally, I don’t want the same stuff today that I wanted 15 years ago and so do you.