• The Great Digital Advertising Ponzi Hoax…

    by  • December 2, 2012 • Web / Internet • 4 Comments

    Web advertising was defined in the early 1990’s and its measurement and pricing models were based directly on precedents set in the broadcast-television and newspaper publishing industries. The web was segmented into ‘pages’ and website owners became ‘publishers’.

    Its funny how these ideas tend to stick isn’t it?

    Pricing of ads by ad-size, prominence on the site and the idea of ‘cost-per-impression’ (usually calculated by CPM cost per thousand impressions) were taken directly from newspaper and television models, where advertisers were charged a rate per-thousand-viewers of the measured television audience or of newspaper circulation. In the future, historians may look back and tell the story something like this:

    “Web advertisers in the 1990’s bought ad-inventory which was displayed on publisher’s websites. Publishers effectively sold their reader’s attention to Ad-Networks and Ad-Exchanges and ordinary web-users were simply passive bystanders in the process.  However, people became more and more disinterested, until by 2012 less than 1% of web users ever actually clicked on ads. However the biggest ad-serving companies on the web at the time, like Google and Facebook, averaged even less! (for Google around 0.4%, and for Facebook a meager 0.051% of members clicked on ads, [real statistic] ) But the enthusiasm of legions of advertisers seemed to be unbounded and for what seemed like an eternity they kept pouring billions of dollars into a system that succeeded in annoying more potential customers than it converted into buyers.”

    If it was any other industry, what might the reaction be?

    “Hello Mr. Jones, thank you for trusting us with your account.
    We are really excited to be able to inform you that we have now spent your entire budget, and using our highly scientific behavioral targeting technology, (which we paid $600M for) we have featured your product to a carefully selected target audience of close to one million cashed up, high-nett-worth fashion savvy prosumers! ..And 

    We are delighted with our above average click through rate of 0.064% !! meaning we had a whopping 640 clicks on your AMAZING ad!!! and we can now confirm that of those 640 clicks we have definitely converted 6.2 NEW Customers!!!  
    But… (and I saved the best bit till last)  You absolutely totally
    achieved really HUMUNGOUS EXPOSURE!!!”

    Clearly, in any other industry, the client would either simply demand their money back or begin legal proceedings for gross negligence.  However, with only a few exceptions businesses large and small are queuing up to unload dump-trucks full of cash into…

    the macro money sucking vortex of web advertising…

    Advertisers have collectively responded to the world wide web with the level of apparent blind adoration of a bedazzled cargo cult worshiping a giant silver bird coming down from the heavens. Just as television had first seduced them in the 1950’s and 60’s, the web has apparently cast a similar spell.

    However, unlike television, where ad slots were subject to relative scarcity and high price, web-ad vendors struck it lucky as web-page and user numbers became almost uncountable, while distribution costs became negligible and reach became effectively limitless.

    Since the mid 1990s the advertising industry has been gradually increasing the percentage of web-advertising budgets year-on-year. Within this sector the web always held promise as a medium for ‘Direct’ communications with consumers, when to the contrary, the process of profiling consumers, delivering ads and measuring results, was anything but direct.

    For Advertising agencies and media buyers, audience-profiling and ad-scheduling which are both crucial to their online advertising revenues were becoming an increasingly complex guessing game with online advertising becoming so broadly focused as a result, that it is often seen by consumers as irrelevant and repetitive.

    Then along came Google which applied a grass-roots internet logic to the problem of audience-profiling and relevance by matching advertising with key-words to create their adwords and adsense solutions, and in doing so, started to strategically out maneuver the Ad Industry on 
the Web, a prospect further compounded by Google’s purchases of ad-serving giant Double-Click and YouTube, which was already eroding the broadcast television market, a corner-stone of the Advertising Industry ecosystem.  Sir Martin Sorrell, head of WPP, commented on Google’s $3.1 billion acquisition of DoubleClick. “It raises some issues for us. It raises issues as to whether we are happy to let Google have our clients’ data and our own data which Google could use for its own purposes”

    That was in 2007…  Now, five years later, despite Sir Martin’s concerns about Google getting his client’s data, and despite him referring to Google in 2007 as a “Frenemy” (short term friend, long term enemy) WPP will increase its ad-spend to Google in 2012 from $1.6bn to about $2bn.

    As commentator Chad Hurley wrote in WIRED in 2006:

    “Without being overly simplistic or melodramatic, the state of the Old Commercial  Broadcasting Model can be summarized like this: a spiraling vortex of ruin.” …
“…The digital revolution is equally terrifying to Madison Avenue, (US Advertising Agencies) They see the old model collapsing before them, and they have $67 billion to spend and no idea where to spend it.”

    But what about the ordinary web users, who represent the reason why all these billions of dollars are changing hands?

    The truth is that we have been reduced to metrics, integers in algorithms that tantalize technocrats and hypnotize corporations into believing that ‘relevance’ to real people can be calculated, and traded like commodities in the stock exchange. When in fact, these algorithms just tend to stereotype users and limit the variety of information that each person receives in Google searches or Ads served to publishers, causing endless repetition in the ads we see on the web sites we visit.

    Web users should not be considered a large mysterious group that cannot be understood without complex server-based behavioral targeting and secretly allocated an e-score’. We are in fact all individuals who each have interests and things that we want to do and buy. Its truly ridiculous that the advertising industry is more intent on finding new ways to spy on us to learn what we want, than actually work out better ways to simply ask us.

    Web advertising is based around the Marketing or Sales Funnel which has been a mainstay of sales strategy for more than 100 years. Coined by Elias St. Elmo Lewis in 1898 it defined the customer acquisition process as going through four stages: Awareness, Interest, Desire and Action. However, without wanting to have to state the bleeding obvious… a lot has changed since 1898.

    What is truly mind boggling is that, not only are we currently stuck with a 1990’s web advertising model, but they are still trying to force us down a 114 year old funnel!

    4 Responses to The Great Digital Advertising Ponzi Hoax…

    1. Curious_Guy
      January 25, 2013 at 1:36 am

      I don’t know if all of this is very correct. I mean, I’m no expert, but I’m pretty sure that a hell of a lot has changed since 1990, in terms of web advertising. Google has changed how it presents ads, increasing the chances of consumers responding favorably to the advertisements presented, even to an almost Orwellian extent (See http://www.ted.com/talks/eli_pariser_beware_online_filter_bubbles.html for more on that). And, hoping the reader has watched the video, I wish to digress. What about the gigantic advertising platform of Facebook? They will literally use your personal information, and everything you type, think, or do online to cater to marketing to you. If this, as you so claim, didn’t work, how is facebook still making so much money with this? And if it was such a drain on cash, I’m fairly certain that companies would back out. No, Facebook is doing extremely well, and using it’s wealth of voluntarily given user data, as well as their personalized advertisement rating, feedback, and control systems (which, I might add, are eerily similar to what you’re trying to do with fliipster by Virtusoft, yet it’s somehow been out of beta in multiple languages for quite some time now) to give people advertisements that can prove to be effective.You make many bold statements in this article, but really give no evidence to back any of them up. If a psychological model related to advertisements and consumers is 114, you state (not overtly, but not subtly either) that it must be, in some way, incorrect or part of the problem. What about Newtonian physics? It’s old, so it must be incorrect too. Yes, things can be old, but they can work too. If it ain’t broke, don’t fix it. Now, I may not be an expert in the field like yourself, but I do believe I’ve raised some valid points here. How, in reality, is this in any way a Ponzi scheme? Casting aside the fact that a Ponzi Scheme involves investment fraud, not poor results in advertising, and the fact that it’s perfectly legal for people to throw away money on poor services and poorer results, if your article is correct, how come nobody has seemed to notice, and how come more and more advertisers are spending more and more money for less than 1% returns?

    2. January 25, 2013 at 2:00 am

      Thanks for your comment, I will respond properly shortly.

    3. January 25, 2013 at 3:21 am

      A lot has changed since 1900, but that 100+ year old marketing funnel is still being taught in University marketing courses and still forms the basis of modern marketing practice. That was my point, and it is quite valid.

      I saw Eli Pariser’s TED Talk a couple of years ago… yes Google and Facebook’s results are being customized for individuals, and that was in a sense what I was referring to when I wrote:

      “The truth is that we have been reduced to metrics, integers in algorithms that tantalize technocrats and hypnotize corporations into believing that ‘relevance’ to real people can be calculated, and traded like commodities in the stock exchange.”

      The point of Eli Pariser’s talk was that those prescribed results although perhaps delivered with the best of intentions, have to be delivered in a responsible manner, with some content that perhaps is not what the user might be looking for, but may really appreciate nevertheless.

      I would go even further and say that a process that prescribes what user’s will receive, from a centralized server, is inherently wrong due to its basic design. But this occurs due to the legacy architecture of the client-server web. The internet has the potential to deliver much better user-orientated and driven collaborative filtering than this, (and that incidentally is what Virtusoft is actually mainly working on).

      Your contention that Facebook’s marketing and advertising processes must be working because they are making so much money is a little simplistic. Monopolies (or duopolies) like Facebook and Google make large amounts of cash because of their market position, and not necessarily their innovative marketing smarts. One only has to look at Facebook’s 0.051% click through rate on web ads, or Google’s 0.4% CTR to see an empirical measurement of their ability to entice users to click on their advertiser’s product ads.

      Any movement towards ad-rating by Facebook and Google is a welcome trend, but those efforts are over shadowed by the other privacy invasive techniques these companies use. Fliipster has been trying various processes designed to empower users, but really these are just the first experiments, and in a specific cultural niche market designed to test those basic systems, and that target market’s reaction. The main game is yet to come and will shift the goal posts considerably.

      If we all subscribed to the “if it ain’t broke, don’t fix it” ethos, we may never fully understand or appreciate liberating new alternatives. Just take for instance what Apple did to the cell phone. Was the old Nokia type clam-shell mobile phones not worthy of reinvention? They weren’t broken, but the whole genre or industry (and consumers) have benefitted from the revolution that occurred.

      Web advertising’s resemblance to a ponzi scheme lie in the extent to which the belief in the success of the system is fostered by the early success of the first participants in that system, and the steadily decreasing returns for new entrants. It is well known that an individual’s CTR on web ads steadily falls as users spend more time on the web and a phenomenon called ad-blindness sets in. There is an over supply of web ads, and what is increasingly scarce is our attention, hence the abysmal CTR that Facebook and Google experience.

      Perhaps have a read of Danah Boyd’s excellent article [LINK] ‘Who clicks on ads? And what might this mean?’ for some good illustrations of why web advertsing is in fact quite broken, despite the fact that it rakes in the cash, just like Nokia used to.

    4. January 26, 2013 at 4:05 pm

      Curious_Guy said:

      “Casting aside the fact that a Ponzi Scheme involves investment fraud, not poor results in advertising, and the fact that it’s perfectly legal for people to throw away money on poor services and poorer results, if your article is correct, how come nobody has seemed to notice, and how come more and more advertisers are spending more and more money for less than 1% returns?”

      Perhaps have a read of this article [LINK] posted on Jan 26th 2013, by respected academic John Battelle on widespread fraud in the web advertising industry…


      “Just as in the early, wild west days of search (1999-2004), the programmatic advertising business – a multi-billion dollar marketplace growing faster than search, video, or anything else for that matter – is riddled with fraud.”

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