Many people suggest we're in a bubble, and usually call it a social media bubble. I still find myself wondering if we aren't in an advertising bubble instead, with social media a rider and not a driver per se of the trend. Advertising is and always shall be a very important part of the economy, but there's also this sharp bound on exactly how much money it can move around since it needs to result in net profit for the advertiser. Google definitely has demonstrated they have a superior platform. I'm not sure anybody else has. Not just Facebook, anybody else.
If there's any element of this bubble that reminds me of the previous it is that there are still an awful lot of startups out there who are trying to simply acquire as many users as possible with vague plans to figure out how to make money later... and they all seem to come up with the same, "Uh... shove ads at them, I guess?" plan in the end.
One trouble with advertising is that narcissism drives certain people and organizations to pay way too much for it.
If you own a small business, for instance, it's incredibly gratifying to hear ads for your business on the radio. It makes you feel good about yourself. It makes it hard to make a rational calculation that spending $X on ads brings in $Y more profit, and that $Y > $X. Even if you're rational, there's some other guy who's not who is going to drive up rates.
Many big companies spend heavily, even buy TV networks, so they can bombard the public with "feel good" messages that don't have a clear role in a conversion funnel. For instance, GE bought NBC and you can't go five minutes without seeing some ad trying to convince people that GE is this great innovative company trying to save the Earth -- although generally the products involved aren't for retail sale and the only rational purpose for these ads, at best, is an effort to influence the political climate. What's the ROI on that?
Google ads have started to puncture this bubble because once you have advertising that's measurable, it's hard to justify the expense for something that's not.
There definitely is -- and it may still be too early to say "was" -- a period of social media advertising frenzy among Fortune 500 companies in the last few years. Until fairly recently (with GM's $30M pullout of Facebook advertising the most visible harbinger). Now the honeymoon is just about over, and with it will go the easy money that had basically been throwing itself at Facebook's heels. Facebook in specific, and social advertising in general, will have to find a way to deliver actual results in line with people's sky-high expectations. And they'll have to do it soon. This won't be easy, given that Facebook's ad sales teams have spent the last 3+ years promising the moon to F500 marketing and advertising execs.
But why were all these advertisers so willing to be wooed in the first place?
Because there's a very real (and growing) hole in the advertising landscape. With the erosion of TV advertising as a reliable way to generate mass impressions at scale, advertisers are anxious to find a replacement. TV is still the largest advertising vechicle, by media spend, for most F500 companies (if not all of them?). But premiums on TV are growing each year, even while total ratings are declining, audiences are dispersing (both across networks and onto other platforms), and ads are basically avoidable. While the bloom was on the Facebook rose, it seemed like a hell of a savior to people desperately seeking one.
The fallacy underpinning the leap from TV onto the Facebook bandwagon was the assumption that social media could be bought, and advertised on, in pretty much the same way as TV. In reality, the advertiser needs to be much more savvy and sophisticated about social advertising. He needs to worry about more than just reach, frequency, and CPMs. He'll need to consider the quality of his content, refresh rates for content, geo-targeting and context-targeting, the relevancy algorithms powering his anticipated reach and engagement figures, and the micro-segments to which he serves different ads at different times. Instead, right now he's spent the last few years simply throwing giant checks at Facebook and expecting TV reach, impressions, etc.
I'd consider both parties at fault here: the advertisers for being naive, and Facebook for playing to the deep-pocketed suckers. Picking the low-hanging fruit, in this case, may have set back Facebook's credibility within the advertising community for quite some time. And it also set expectations that Facebook wasn't, and still isn't, prepared to meet. (In fairness, I'm sure Facebook received a great deal of pressure to take the easy ad money in order to make its books look as attractive as possible in anticipation of the IPO).
Bear in mind a bubble doesn't imply that there's no opportunity, or even that there's no revolution. The ~2000 bubble wasn't a bubble because it was wrong, the Internet has revolutionized pretty much everything that we thought it was going to, and continues to do so. It just didn't do it at quite the promised pace, and wasn't able to sustain that much investment, that quickly, nor did it necessarily take the shape that everybody at the time was convinced it would.
So when I say we seem to be in an advertising bubble, it's not a statement that there isn't a revolution in advertising coming that somebody is going to profit from, it's a statement that it isn't coming at the pace people like Facebook are promising, nor can it sustain that level of investment profitably. I did make sure to call out Google for having legitimately advanced the field. If the bubble pops they'll get hit, but I have every confidence they'll survive and thrive, because they definitely have real value, just as Amazon has survived and thrived after the last bubble.
(I expect somewhere in the 5-15 years time frame there's going to be a robotics bubble too, and it won't be because robots that can coexist with us in our houses and streets won't be every bit as revolutionary as the hype claims, it just won't be revolutionary as quickly as the investment would require.)
"a bubble doesn't imply that there's no opportunity, or even that there's no revolution"
I don't disagree.
"So when I say we seem to be in an advertising bubble, it's not a statement that there isn't a revolution in advertising coming that somebody is going to profit from, it's a statement that it isn't coming at the pace people like Facebook are promising, nor can it sustain that level of investment profitably."
Again, I think we're in complete agreement here.
"If the bubble pops they'll get hit, but I have every confidence they'll survive and thrive, because they definitely have real value, just as Amazon has survived and thrived after the last bubble."
True, which may actually make Google a fantastically cheap buy if the ad bubble pops and they take a momentary hit. Their fundamentals are solid and aren't going away anytime soon -- unless, of course, Facebook gets its act together and cannibalizes Google's ad dollars. While I think that's distinctly possible -- and Google has been anxious about it for years -- it seems that the threat isn't as immiment as once expected. The threat still exists, however. And maybe, in a weird way, the recent fiasco with Facebook's IPO will actually buy Facebook some "air cover" for awhile -- allowing it to develop killer ad products under the radar, surprising everyone with their rollout. (I think this must be the thesis of anyone still holding onto Facebook stock right now).
Advertising student. Advertising's not in a bubble; some very rich and formerly successful advertisers are just doing an awful job at adjusting to the change in society that's now been twenty years in the making. Dumbasses.
Here's how advertising works from its creator's point of view. There are a few principles abstract enough that you can apply to any piece of advertising. Good advertising positions itself within a market, develops a brand image, establishes its product as a good product (not even necessarily better-than: as long as you look trustworthy and people know your name, you'll sell). The bulk of ad research, meanwhile, goes into studying individual forms. TV ads. Product placement in films. Radio spots. Magazine spots. There's a series of long-tested techniques which advertisers rely on. Even these techniques usually fail, because plenty of advertisers are fucking idiots who don't get that ads are a creative medium, and if you're formulaic rather than creative, you'll sell jack shit.
The challenge of the Internet is that every web site has its own unique form. Most of these forms weren't even designed for ads (Facebook at least knew how they wanted to sell ads; Twitter still has no clue). To sell on Twitter is different from selling on Facebook is different from selling on Reddit or Tumblr or Pinterest or Instagram. There's no formula. And some of these sites are so limited that advertisers simply have no clue how to push their shitty little message out to suckers, ahem, consumers.
The fix, of course, is that instead of selling a brand you start interesting conversations, create dialogues that engage people with the thing you're selling, even start communities of people who revolve around your product. But advertisers aren't bright enough or genuine enough or ambitious enough to do this the right way. Community-building especially: nobody wants to join a forum for a product that isn't a car. Yet some people persist in thinking that if they build it, fans will come.
One future of advertising looks like the Deck Network, where people so trust the advertisers that they'll click on the ads willingly. One's the model Facebook is still struggling with: connect super-small businesses with precisely the people who want to buy their product. These anti-Facebook ads stories recently only show that you have to be smarter advertising on Facebook than you'd have to be in a newspaper. The really good Facebook ads get friends talking about them, because they really are something that those people enjoy. But that runs counter to how advertisers think about their sheep, goddammit I mean targets, no wait that doesn't sound nice either.
The real bubble is: stop treating people like products, start treating them like people. That means fewer start-ups designed to sucker people into wanting some bullshit connection they never really needed (YC has some exactly like this), fewer advertisers looking down at the masses like they're ripe for the picking, fewer businesses geared toward herding people up and selling them wholesale. The more freedom you give people w/r/t how they consume media and how they express themselves, the harder it is to trap them in your crap. Ultimately it becomes more profitable to just treat them like human beings, and act like a human yourself. But plenty of products will die when this happens because plenty of products were never intended for human consumption in the first place.
Personally I think the problem isn't people doing an awful job, it's attention. On the TV they frequently interrupt your program but you'll endure it as the content is longer than the ad. Same with Radio. In Magazines and Papers they constantly jiggle around all the content so you have to at least scan the page to see if it's an advert or an article which means they have at least a chance to grab your attention.
Web ads cannot grab your attention because the content they surround is bite-sized so any attempt to interrupt is so much more jarring. They tried a few different ways and generally they failed. The worst new one is the put an ad in the middle of the text, but that too is incredibly jarring and confusing. Another example is the attempt to monetize funny videos by putting a 15 sec ad clip in front of it. But quite often this is as long as the content! Do people even try and endure the ad? I'd love to see the numbers. If I click play on a random video and an ad starts I usually skip to the next article rather than watch the ad.
Also when you get into something like Facebook the adverts sit in the same place every time. Which you learn to skip automatically very quickly as you're usually not interested in them. You never have to play hunt the article apart from the very occasional site that has the full page popups which generally means you will start avoiding that site.
But worse for advertisers, if they make them too intrusive people can just turn them off. Brilliant!
The only ad I've recently seen that made me think, hmm, this could work are the occasional full page background adverts they run on IMDB.
Also Facebook didn't used to have ads, they just added them to the side of the page at one point. And I doubt the future of ads does look like the Deck Network, it's just another advertising network. They seem to be teaching some strange ideas at your college, I'd be interested to see the data that backs it up.
> Deck Network, it's just another advertising network
Doesn't seem so to me. I always run Adblock, but after looking around a bit at some DECK-served sites (there's a list on http://decknetwork.net/), I might whitelist their ads. They seem unobtrusive and mindfully-designed.
You seem to be saying that advertising networks could never work, but don't back that up with data (which, ironically, is what you're asking unalone for).
> the occasional full page background adverts they run on IMDB
I hate those. They ruin a consistent website experience, and then piss me off when I accidentally click the giant margins. The AV Club does this also - or used to, I don't know, I blocked 'em.
I'm not saying they're a bad ad network or intrusive. I just mean their ads are functionally exactly the same as everyone elses. Their ethics doesn't make them more effective.
I actually meant alternative explanation to the parent's observation that all advertisers seemingly have suddenly all become idiots.
The genius of google's ads is that they can be so much different. When you search for something targeted ads are far more common to be relevant and useful. Facebook is still struggling with its ad technology and paradigm, and right now they have a very clunky, old fashioned system. Throw ads in the user's face, collect money. The principle being that a well made ad can get someone to buy something they didn't want to buy before. But that's the old and busted way of doing things. It's the way that shows adult diaper ads to 20 year olds, and baby diaper ads to 60 year olds.
It's based on the premise that you can auction off people's attention to the highest bidder. And to some degree yes, that still does work, a little. In the 21st century there are better ways. The best "advertising" is not recognizable as advertising at all. It's greasing the wheels of people buying something they already want. If you look at amazon, for example, they have the recommendations system, an extensive product review system, and a referral system. All of these are there to help guide people into buying something. Amazon is best served when a customer buys something they actually want, as is google. It strengthens their brand and deepens user engagement. This is precisely what facebook needs to be doing but haven't, partly because unlike with google, any degree of advertising is intrusive on the experience of using facebook. And if they get into the cycle of just dumping more and more generic, "attention auction" ads on their users then they will have failed. People will merely ignore the ads or they will spend their time elsewhere if the site becomes too obnoxious to use.
I agree with you about background ads. They are on the Hype Machine also and it works brilliantly. It is tougher to put into numbers because I am less likely to click on it, but I take notice of the brand and the creativity/style. It is tough for big brands to put themselves into places like Facebook ads because they are so restricted creatively.
I also think YouTube is onto something with the skippable ads. If the ad is interesting enough to catch your attention in the first 5 seconds, you watch it. Not very intrusive and an opportunity for me to watch a movie trailer and forces brands to do something super creative.
The comparison of Facebook ads (web ads in general) to newspapers competing for small local businesses is right on.
Nothing in your essay has anything to do with advertising not being a bubble. Sure, it depends on your definition of "bubble," but in the sense that I imagine most people understand it (over-hyped marketplaces leading to inflated, unsustainable valuations), you didn't refute nor address the concept at all.
In fact, a lot of your post could be used to support jerf's point. The methodologies that you're saying are worthless actually have huge advertising budgets behind them. Inflated value over true, intrinsic value = bubble.
Also, this statement:
>> "One future of advertising looks like the Deck Network, where people so trust the advertisers that they'll click on the ads willingly."
This goes without saying, but click's aren't the intrinsic value of ads. There has to be a transaction at some point for the value to be justified from the advertisers standpoint. It's actually pretty ironic that in your shining example about advertising's golden future, you stop short of the true value of advertising.
>>"The real bubble is: stop treating people like products, start treating them like people."
i was recently at a party, near Vienna, Austria. lots of thirty somethings, all educated, various jobs.
i asked a simple question: has anyone of you clicked on a digital ad? ever?
no one. now, of course, sample size, anecdote, yaddayadda. i never clicked on an ad (hell, i block them). no one i know clicks on them. the only time people really get "engaged" by an ad is when it is annoying - everyone has a hateful story about those.
is there really tangible, hard evidence that online ads lead to actual sales? and if so, who the heck are the people actually clicking on them?
I'm pretty sure that admitting this will make me uncool, but I like ads.
Not the annoying ones mind you, it your ad interrupts me, you deserve to be punished. My time is precious to me.
However, if your ad just sits there, off to the side or at the top of the page or whatever (or off-web, in a billboard, or poster or display at the store, whatever) I'm ok with it. See, what that does it notify me of the existence of things. Many of those things are actually useful to my life. By keeping me up to date of what exists, I can be far more efficient when it comes time to deal with problems, wants and needs. In the least useful case, I can at least know who does the things I am looking to get done. In the most useful case, I will be aware that there are tools to solve a problem I may have otherwise spent days on (or even given up on solving and worked around). This saves me time and effort. I am OK with that. Seriously, how else would I go about finding something I didn't know existed without tons of effort otherwise -- I probably wouldn't even know to look for it.
I really don't understand the anti-ad people. Oh no! Someone is trying to sell you something... the horror. Oh no, you haven't spent 30s teaching yourself to not be distracted by something shiny, way to waste your human capability to learn.
It regularly turns out on google that the ad links are exactly what I am looking to buy, so I click and give everyone the conversion, because honestly, it doesn't hurt me to do so, and keeps this amazingly useful tool that is "good search" available to me at no additional cost.
Whatever, I'm probably below average intelligence, and am one of the dumb folks that doesn't magically understand every single thing in existence via pure thought, and must be informed instead.
"is there really tangible, hard evidence that online ads lead to actual sales? and if so, who the heck are the people actually clicking on them?"
Yes, 20 and 30 somethings click on ads all the time, but they tend not to look like ads. Ads that come up in google searches are typically highly relevant, so plenty of people click on them. And various forms of advertisement such as amazon referral links and such-like which represent buying suggestions from trusted friends.
If advertisers are reduced to "making communities around products", does that mean we can look forward to manufacturers driving sales by increasing the value provided by their products?
Also, if you have to be smarter to effectively advertise on Facebook, isn't that a sign that they are charging too much?
I like the TR article and I like this comment. Both are the voice of reason. I also think it will fall of deaf ears. Too many programmers think they are smarter than everyone else, e.g. those in advertising. They believe they can control and manipulate people as consumers the same way they control and manipulate them as software end-users. They believe gaining a large number of users equates to success in business. It does not. And Facebook will be history's great example. The article explains what makes Google's business work (Overture; Yellow Pages style advertising) and points out Facebook has nothing comparable. But some programmers just want to pretend this does not matter.
I'm excited at the possibilities that will arise after the fall of Facebook and the decline of web advertising.
I still find myself wondering if we aren't in an advertising bubble instead, with social media a rider and not a driver per se of the trend.
I'd go a step beyond that and say if there is any bubble, it is based on a large number of people targeting market share of a market with a fairly constant size, advertising spend.
Everytime you add a company trying to get advertising dollars, those dollars have to come from some other company and making advertising more efficient doesn't nessisarily mean Cheif Marketing Officers will increase marketing spend.
Here's a catchy name for the ad bubble - we could call it "advertising-supported software." Or, for short, ASS.
Google isn't ASS, because Google ads aren't really ads. They're more like the shelf slots that Safeway sells to food vendors. Google is a store - the world's biggest store, browsed by full-text search.
(In fact, if I was Goog, I'd separate the UI into two intents, with a radiobutton or something: either you're shopping, or you're searching for information. The latter is a free, spamless service that supports the former.)
I think FB will have to learn to make its money the old-fashioned way - by providing valuable services. FB is a valuable service - it makes $5 per user a year, from ads. How many FB users would drop the service if they had to pay $5 a year? And how many other services can FB add? Dropbox anyone? Dropbox isn't ASS...
Advertising is a crappy way of funding services. It chiefly exists because of payment friction. Startups are supposed to be the future. Is crap the future? Is your project ASS? Great, but have a plan to exit before the ASS bubble pops. Some of us remember the first era of "eyeball valuation"...
If there's any element of this bubble that reminds me of the previous it is that there are still an awful lot of startups out there who are trying to simply acquire as many users as possible with vague plans to figure out how to make money later... and they all seem to come up with the same, "Uh... shove ads at them, I guess?" plan in the end.