"Why Advertising Is Failing On The Internet"

An angry debate is raging on TechCrunch between Professor Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania and Danny Sullivan, the well known search engine expert from SearchEngineLand. The Prof is also feeling the wrath of hundreds of readers who disagree with his point of view.

The good Professor’s article is titled “Why advertising is failing on the Internet” and as you will guess from this heading he argues that Internet advertising is in for tough times ahead and will shrink relative to other online revenue streams. I will let the Prof summarize in his own words his main points:

Online advertising cannot deliver all that is asked of it.  It is going to be smaller, not larger, than it is today.  It cannot support all the applications and all the content we want on the Internet.

And don’t worry. There are other things that can be done that will work well.

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.

Please read the article to get the full text of what he said. It provides an interesting point of view and some food for thought.

For what it’s worth here are my views on what he has written.

People Don’t Trust Ads

I would argue that people do trust ads in the online world because they have been paid for by the advertiser, which legitimizes them over free content. But people don’t trust ads unreservedly. Clicking on an ad is usually just the first step in a customer’s buying process. Before they spend money most web users will research the product or service on other sites to verify the price and seller’s claims.  Only if the price is reasonable, the claims correct and they trust the merchant will they consider buying.

People Don’t Want Ads

This is a sweeping generalisation

I hate ads on TV in the middle of a film or sports game, but the reason I hate them is because they interrupt my viewing and 90% of them are not relevant to me. Targeting and segmentation have always been a problem for mass media advertising channels.

However on special interest content websites, the ads are often highly relevant. I recently followed an ad to book a ticket for an excellent conference which I would never have known about.

I always say to my clients ads should be like road signs.

If a road sign is in the right place, it helps and enhances the experience of a road user. They notice it, read it and use its directions because it provides the right information at the right time.

Drivers who know where they’re going will pass the road sign without noticing it. No problem.

Drivers who are lost will be delighted to find the sign where it is. For them, the sign will save them a lot of time and hassle.

If a road sign is incorrect, poorly positioned or confusing, everybody will notice it and everybody will be annoyed by its presence.

So I would argue the right ads in the right place at the right time are useful and informative and people don't have any problem with them being on a site they are reading.

People Don’t Need Ads

Another sweeping generalisation!

Good ads inform a targeted group of people about relevant products and services. When done well this is a useful and valuable resource. If ads didn’t do this Internet users would have to resort to telepathy to find out what is new.

I agree that when ads are poorly targeted they are an irritation, but on most websites they are displayed in such a way that they do not interrupt the visitor’s activities. They merely sit alongside the content minding their own business.

Advertisers are becoming far cleverer at targeting the right ads at the right people and I believe, both from my experience as an advertiser and an Internet user, that people don’t mind, or even value well targeted ads.

There is No Shortage Of Places To Put Ads

I have to disagree with the good professor on this point.

The number of websites with really good quality, well written and timely content is very small. Just ask the owners of most ad networks, affiliate marketing companies and advertising agencies and they will tell you that their biggest challenge is finding quality places to display their clients ads.

Given the number of websites there are, there are very few really high quality places to place ads.

And Some Further Thoughts….

Advertising on the Internet is very measurable. With the advertising I do on the web I can measure my cost of sale to the nearest $0.01. As long as this advertising is profitable I will continue to do it. Why would I stop? And as long as I’m happy to pay to advertise there will be a queue of publishers willing to accept my money. So Professor, why will online advertising slow down if there is advertisers willing to pay and publishers willing to display? Who will cause the slowdown? The advertisers won’t if they can get a positive ROI and the publishers won’t because they want the revenue streams.

To extend this point my question is what are the alternative ways for a product or service provider to get their message out? Will they stop advertising? I don’t think so. Will they go back to the unmeasurable channels that they have been abandoning over the last five years (TV, radio, outdoor and print)? Why would they do that when the internet is growing so fast, they can target their audience and they can measure the results?

I do think more advertising will move to a paid-for-results or affiliate model. This will mean that only ads that are making money for both the merchant and the website owner will survive. This healthy Darwinian process will result in the best ads appearing on the most appropriate sites. This should be good for everyone.

So in my humble opinion advertising on the Internet will continue to grow, because product and service owners have to get their message out and the internet is the most cost effective and measurable way of doing it.