20 ms·

The Advertising Bubble

551 points by vorador 11y ago

AlexMuir 11y ago
There are good points here and the flow diagrams certainly apply to startups in the Adtech space. And particularly those targeting other startups. But these startups are trying to take market from the incumbent Google, and increasingly Facbeook. These established businesses have paid back their investment and are now cash cows for their owners. The flows for Adsense for example will be in balance between cash in from advertisers, and cash out to publishers and Google shareholders. I've been in all three of those positions, often simultaneously, and been happy with the outcome. When the VC tide goes out Adtech startups will be running up the beach trying to cover their white bits. But with less loss-making competition it could be very good for Adsense and Facebook. As an aside, I see a future where digital advertising is equally split between Google for transactional (buy something today) adverts, and Facebook for brand awareness and engagement. I think Facebook today is in the same position that Google was when it was only selling ads against its search result pages. When Facebook launches adverts beyond its own property then the cash is really going to start flowing.
- bendmorris 11y ago
  > When Facebook launches adverts beyond its own property then the cash is really going to start flowing. They already do this: https://www.facebook.com/business/news/audience-network https://www.facebook.com/business/news/audience-network
- lsc 11y ago
  I think the theory the article puts forward is that the cost of advertising has been bid up by venture-backed advertising companies. If this is true, all advertising companies will suffer; a drop in the price of advertising probably won't sink the big players, sure, but it will probably cause them to cut some of their fat.
  - jacquesm 11y ago
    > I think the theory the article puts forward is that the cost of advertising has been bid up by venture-backed advertising companies. I don't think that's the path the money takes. The path the money takes is that maybe some venture backed companies buy advertising to advertise their products. If that capital dries up then that particular segment will diminish but it will certainly not cause the industry to implode (though it definitely has challenges to deal with all its own).
    - lsc 11y ago
      I don't see how what you wrote conflicts with what I wrote. "bid up" and "buy" are synonyms in this context. If you take buyers out of the market the price for whatever it is they buy is going to come down. If the buyers who are taken out were the least price-sensitive buyers, (the theory being that people who aren't venture-backed generally have to spend what they earn) prices are going to come down a lot.
Kortaggio 11y ago
This reminds me a lot of PG's essay on how Yahoo was a beneficiary of its own advertising bubble that it created in the 90s: > By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. http://www.paulgraham.com/yahoo.html http://www.paulgraham.com/yahoo.html
- puredemo 11y ago
  Sounds a lot like AdSense too, honestly.
  - jfoutz 11y ago
    in 1998, google (er, alphabet) got its initial round of $100,000. You're not wrong but things in 1998 were weird. it wasn't clear that the internet should or would be commercial at all. 1998 was a big bubble, because we didn't know, at all, how the internet should work. c10k wasn't met yet. Parents (not grandparents) thought the internet was scary. Maybe big G (er alphabet) is indeed cannabalizing it's own resources to juice adsense revenue. It's different than the late 90's though. For example pets.com, or moo.com. There are ideas that were tried that make money now. In the beginning it was just weird. all sorts of crazy stuff was tried.
- jacquesm 11y ago
  YC was one of the best things to come out of Yahoo... Imagine, if Yahoo had not bought out PG and company this whole thing would have never happened. Yay for the bubble, and apparently even Ponzi schemes can have beneficial side effects.
  - StavrosK 11y ago
    Which "whole thing" are you referring to? YC has been good, but I doubt it has created the industry. The money wanted to flow in, and it would have, YC or no.
loginusername 11y ago
"There's more money being made from advertising than consumers are putting in." Should we care how Google, Facebook and others make so much cash? Should it matter? Honest question. (The author suggests the firesales by these companies when things go south will involve internet users' personal information. I agree.)
- surferbayarea 11y ago
  And interesting thing is how people are all up in arms about the NSA tapping private information, but are completely oblivious to advertising companies doing the same. At least the NSA's objective is to fight terrorism, companies like Google/Facebook invade people's privacy for the sole purpose of making money from it.
  - IIAOPSW 11y ago
    I implicitly agreed to Googles terms when I used Google. I never asked to be born in the States.
    - TeMPOraL 11y ago
      You never asked to be born, period.
    - mirimir 11y ago
      You implicitly agree to citizenship by not renouncing. And in any case, the NSA may (supposedly) surveil non-citizens with fewer restrictions.
      - IIAOPSW 11y ago
        You have to pay to opt out of citizenship. Name any other club that you have to pay over 1000 USD to not be a part of.
        mirimir 11y ago
Jerry2 11y ago
Given the current economic conditions and recessions around the world, I guess it will take some time for it to register in ad sector. Ad sector is still full of investor money and it will take months (and in some cases, years) for them to feel the pressure from the economy. PS: Maciej is such a great writer. I enjoy his writing immensely. Everyone should emulate his clear & concise style.
- toomuchtodo 11y ago
  Why does the ad sector trail so far behind the rest of the economy? Poor signaling?
  - jacquesm 11y ago
    Because it works. For now. Think of ad spending as you would think of spending on arms for a war. If you don't out-spend your competitor they'll own the market. So until the problems are really large the ad sector will actually make more money rather than less on the same volume of products moved because the amount of money required to effect a certain level of user engagement is a larger one.
numair 11y ago
Someone should study what would happen to Facebook/Twitter's financials if startups stopped buying app install ads. Startups will buy more of these (out of desperation to get growth from their remaining funding) before they buy none (because they will finally run out of cash). See AOL's 2001/2002 financials for a past example. Oh, and by the way, we are at the beginning of a huge funding crunch (perhaps someone else can pitch in with some citations on funding activity etc), so this WILL happen.
WalterBright 11y ago
I'm not convinced that targeted advertising even works. I see the advertising targeted at myself, it's pretty obvious why I get those ads. For example, I bought a kitchen sink faucet on line. For months afterwards, I received constant ads for the exact same faucet - as if I had multiple kitchens. I've tried running context sensitive ads on my own site. I happen to believe that appropriate advertising is something users want - for example, I buy hot rod magazines specifically to get the ads for parts and other cool stuff for my car. The context sensitive ads Google servers are just not interesting, and they happen to be one of a small handful of ads repeated over and over. There's no way I can tell Google "display ads in these categories". I tried running context sensitive ads from Amazon. I wanted ads for programming books in various categories I'd select. What I'd get is ads for the latest Batman movie, over and over, I finally removed them. I don't know how Amazon decided that visitors to a programming site wanted to look at Batman ads. There is a way to put an Amazon ad on the site for a specific product. But those get stale after a while. Again, I want to be able to list categories of the kinds of ads that would be appropriate for a particular page, but I can't. Ideally, I'd like to specify a list of categories for a context sensitive ad, like "programming books", and have Amazon scrape the page for keywords and then display programming books that are related to those keywords.
- Swizec 11y ago
  > I don't know how Amazon decided that visitors to a programming site wanted to look at Batman ads. NaNaNaNaNaNaN Batman More seriously: "20 to 40 year old male"
  - elthran 11y ago
    And I'm sure some advertising employee has built some "logic" that "thinks" as follows Programming -> Nerd -> Comics -> Batman
    - Swizec 11y ago
      Honestly, I'm pretty sure the demographics have enough overlap for this to be an emergent behaviour out of statistical modeling with nobody building any specific logic. You can see plenty of this in, say, music recommendations where Youtube will follow a Foo Fighters song with Taylor Swift because they're both in the same "top 100 popular" category. It's easier than understanding content.
phamilton 11y ago
A counterpoint to this is that adtech startups that have gone public have been crushed. Look at Rocketfuel, Yume, and Tremor for examples.
michaelpinto 11y ago
It's not a bubble, the advertising industry has always followed this cycle: The post war television boom in America begat many new Madison Avenue ad agencies in the 50s who reached a high point in the 60s and the 70s, but then by the 80s and 90s were consolidated via mergers and acquisitions. Even the great Ogilvy & Mather was swallowed by up WPP in 1989. In fact one of the David Ogilvy's greatest regrets was taking the company public which allowed the take over years later.
- Apocryphon 11y ago
  Isn't it a bubble, when a lot of startups provide free services that are supported by online ads? Wouldn't a crash in the online ads market have a resonance cascade through all of those startups?
  - bduerst 11y ago
    That isn't quite a bubble, in fact, what you're describing happened to broadcast television advertising and online ads. If people shifted their attention from online to something else, advertising (and thus startups) would follow.
  - michaelpinto 11y ago
    There already was a crash of ad banner rates in 2008, in fact that killed many small publishers. You'd have a real bubble if there was a ton of moneys still being pumped into AdTech, but that hasn't been the case for a year now. And you're now seeing mergers and acquisitions take place. A good example of this on a bigger level would be Verizon buying up AOL for their ad business. Although something to realize is that there are winners in that business. Most people don't think of Facebook as an ad company, but they really do get mobile advertising and from the looks of things they'll keep growing. And that's not just Facebook but other properties like Instagram which will snag more and more ad dollars.
- bravo 11y ago
  A lot of industries follow a cycle. That doesn't mean they're not bubbles.
chjohasbrouck 11y ago
I'm not a marketer so correct me if I'm wrong, but I'm not sure I agree that it's even possible for advertising to bubble in the traditional sense. The biggest budgets are all pretty tightly regulated. They have surprisingly good information on exactly what impact their ad buys are having, and that information informs their allocation. The smaller budgets don't necessarily have that, but I assume they consistently churn as businesses open and close. Is this article suggesting the churn of new businesses is going to suddenly drop to zero? How could advertising bubble with that level of transparency?
- jldugger 11y ago
  Well, for one, the riskless rate of return could raise above zero, and you might have to factor in the amount of risk your ad buy represents. If you advertise in order to grow your user base, but that userbase is neutral or net negative, when funding costs go up, your gamble that you can shift customers from neutral to profitable is less viable. But imagine a secondary structure of ad buys: you buy mobile ads promoting your app, which monetizes itself through ads. If the ad market falls, you've effectively bought ads high and sold them low.
- melted 11y ago
  Looks like you didn't read the article. Its whole point is that much of that gravy train is financed by investors right now, and when investors bolt (as they do when things go sour), the whole rickety pyramid will collapse.
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javajosh 11y ago
Well, I think it's easy to overestimate the damage "hideous monstrosities ... left flopping on its muddy bottom" will do if and when money leaves adtech. Sure, they've been surveilling me. But what damage can they really do? They probably roughly know where I live, roughly where I work, and when I move between A and B. They know my age, race, gender. They may know a sizable chunk of my social network. Maybe the porn I like. It seems possible, but unlikely, that they'd know my bank, ISP, or actual home address. So they sell my info. What will the purchaser do with it? Send me more, better spam? So what - I'll block it and move on.
- Margh 11y ago
  The number of answers there are to that question is phenomenal. Here's one I just thought up: You stop going between A and B (home and work) for 6 months. You're now either unemployed or working from home; the latter can probably be inferred by any changes in shopping habits. Sell that information to recruiters and they'll know how hard to gouge you in your desperation for a new job.
  - lsc 11y ago
    Eh, I think recruiters already usually have a pretty good idea of how long you've been unemployed, and they already use that information against you; the big problem isn't so much that they low-ball you (it's easy enough to get another job once you have one) but that usually they won't give you a chance at all if you've been unemployed for too long.
- lsc 11y ago
  The fear is that they'll use it to blackmail you. "Give us $X or we will send your wife all the texts you sent to person Z." or perhaps more realistic, "Give us $X or we will publish that embarrassingly bad love letter you sent to person Z" or even "Give us $x and we will reveal your alternate handle" The first bit of comfort is that the details you would want if you were to blackmail someone are not the details that advertisers want when trying to get you to click on an ad, so the people who end up with this private data might find it less useful for blackmail than we think. They probably don't have my embarrassingly bad poetry. but... they probably do have all my alternate handles, and that's embarrassing enough. I think one of the major saving graces here is the unreliability of the data; especially once it has been sold a few times, it's gonna have a lot of mistakes. Because for advertising? a few mistakes don't really matter. This is gonna make the "deny everything" defense a lot stronger. Of course, the big thing about blackmail is that it mostly only makes sense when going after the big fish; there is a lot of hard to automate work in finding the victim's weak spot, and then actually extracting the money (or whatever) Most of us probably don't have to worry about being blackmailed unless we get rich or someone rich wants something from us... but it's still pretty bad for us if a giant cache of data that can be used for blackmail ends up in desperate hands.
Animats 11y ago
As I pointed out a few weeks ago, only three of the top 50 current "unicorns" are ad-supported: Snapchat, Instagram, and Vice Media. Since then, it's come out that Snapchat isn't doing too well and their valuation is down; we may be down to two ad-supported unicorns soon. The current startup boom is not ad-supported. That's a good thing.
- mschuster91 11y ago
  What about Twitter? Actually it's only a bit of ad revenue and a huge chunk of investor money keeping it afloat.
- frik 11y ago
  Do you have a link?
skybrian 11y ago
The problem with this article is that it says (in an entertaining way) that the numbers don't add up, without showing or linking to any math.
- punee 11y ago
  That's because the article is just a thinly veiled ad for the author's ad-free service.
  - icebraining 11y ago
    How does that work? "Advertising is dead - that I means I should subscribe to this specific consumer ad-free service"?
    - punee 11y ago
      "Advertising is very bad and unsustainable and it's going to bring about the end of the universe because of evil venture capitalists. Is this what you want? No! So if you want to save your soul, you can repent now and start using sustainable, ad-free services. Like mine. Only $11/yr."
      - throwaway800 11y ago
        If he was a multinational corporation this would be called awareness-raising sponsorship
      - icebraining 11y ago
        What he says is that publishers, who rely on ads, will suffer from the bust. His service is in no way related to publishers. He also doesn't directly link to his service on the page. I think your accusation is completely spurious, frankly.
  - deleted 11y ago
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throw20151116 11y ago
I see Google Contributor as an answer to this. It would be especially compelling if GC offered site owners a way to make GC users _never_ see ads and / or perhaps had a way to nudge users into being GC users. GC is so close to fully realized micropayments for content, and that seems to be what we need to escape the advertising swamp.
- melted 11y ago
  Nice try, anonymous Google employee.
jaspertheghost 11y ago
At first glance, it seems very logical. Why do you need a middle man, these companies will all die out. The problem with this argument is that he doesn't realize advertising is 600B globally. Each of the small boxes there is 1b-40b depending the bucket (from tag management to mobile (100b)). When you realize that there's only 15 companies serving a 1 billion dollar market, you realize that it's not that small. Granted. There will be companies that will die in the ecosystem, but the logic is poor. It's like saying why do you need a CRM system, it's just a tool standing between the sales person and the customer.
- anon1385 11y ago
  The current claimed size of the market is irrelevant to the argument. The argument is that there is more money being made from advertising than actual advertisers are paying and that this isn't sustainable.
  - jacquesm 11y ago
    That's more or less impossible by definition. What isn't sustainable is that advertisers tend to see over time lower returns for an equal investment in ads and that this trend has been fairly steady ever since online advertising became a commodity. Each new technology sees an initial (sometimes huge) uptick in clickthrough/engagement/conversion and then after a short while (and ever shorter it seems) the initial uptick transforms into a reversion to the previous mean and a subsequent steady trend downward. It has been exactly this phenomenon that has driven ad-technology and targeting forward and it's the equivalent of turning up the volume on an amplifier because the people intended to listen are going deaf from the sound levels.
  - mc7457 11y ago
    If that's the argument, the writer needs to put up some numbers. Here's an attempt at some numerical estimates: http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-century-of-flat-line-growth http://www.bloomberg.com/bw/articles/2014-03-03/advertisings... Spoiler: ad spending in the US has grown roughly proportional with the growth of the economy, no bubble in sight.
hawkice 11y ago
I am extremely skeptical of the accuracy of the adtech-over-time chart. I looked for companies I knew revenue numbers for, and I saw revenue flat and them suddenly appearing in the last box despite existing for years before his timeline even starts, for instance. [This is a bit hard to write compellingly, because you can figure out precisely who I am if I say the exact companies, and I'd prefer not to have LinkedIn be the sidechannel resource for people to violate my non-disclosures about revenue.]
punee 11y ago
Is this article a joke? Suppose for the sake of the argument that instead of drawing an arrow from the consumer to ad tech, I drew an arrow to... any other market. Couldn't I make exactly the same argument? People pay a "consumption tax" to fund every part of the products they buy. That money flows into the pockets of myriad companies with intricate supplier/client links. Investors pour money into that market and create new companies hoping to make money back on their investment. That happens when their investment manages to get market share by "cannibalizing" competitors. Some investors lose their shirt. Some companies go bust. My question is: so what? It seems like there's little more in the article, not to mention the complete absence of any numbers to back the claims that are made or give a sense of scale. So my conclusion is that what the author really wants to talk about is how these bad companies own private data, yadda yadda. Nothing new here. So I guess the author is just doing this to push his own ad-free product. Inception.
- estomagordo 11y ago
  The difference of course being that the transportation market isn't being economically upheld by venture capitalists in hopes of one day cashing in on increased transportation revenue.
  - anilgulecha 11y ago
    Uber?
  - punee 11y ago
    First, numbers would be required to see exactly how the market is "economically upheld" by VCs. Second, I'm not sure if you're being sarcastic, but your example seems poorly chosen. Uber and Lyft live off of venture capital. Even absent Uber/Lyft, the transportation market was/still is one of the most cartelised around. Third, you could certainly find satisfactory counter-examples where the money "ends up" (money keeps flowing, btw, that's why simplistic diagrams aren't very interesting) in the hands of a larger pool of companies. But if the point of the article is to tell us that social networks is a highly concentrated industry, that's hardly an upvote-worthy revelation. Judging by the language used in the article, it is apparent that the author has a beef with advertising. I'm glad he can have a lifestyle business sustained by earned advertising he gets with mentions on Hacker News, but it seems a little disingenuous to pretend that can work for all businesses.
morgante 11y ago
It's not surprising that this article is at the top of HN because a surprisingly large contingent of HN is convinced, against all evidence, that advertising doesn't work. Unfortunately, the article doesn't actually offer any evidence of there being a bubble in advertising. If anything, online advertising is actually being underbought at the moment. For there to be a bubble, advertising spend would have to be growing at a rate which outpaces supply of advertising space. In fact, when it comes to online advertising the reverse is true. Consider first that advertising in general is actually a remarkably boring business. The entire industry consistently consumes 1-2% of GDP, and we have not gone out of that historical band. [1] There's just not much evidence of there being a bubble in the overall advertising industry. When it comes to internet advertising specifically, the argument for a bubble is even weaker. Ad spend on internet platforms (particularly mobile) continues to lag behind consumer attention. [2] Consumers are spending tons of time on mobile, but advertisers aren't spending nearly enough on mobile to match that supply. If anything, I think advertisers should be spending $10-20B more on internet advertising than they do. Finally, consider that advertising prices are at rock bottom. That seems extraordinarily inconsistent with there being a bubble. The author ignores this fact by attempting to insinuate that the bubble is entirely investor-driven, but that doesn't match his hypothesis. Firstly, if investors are currently subsidizing the entire online advertising industry, then when investment pulls back we would fully expect advertising prices to rise—enabling the investors to be paid back (ie. not a bubble). Secondly, it doesn't match my experience: the late 2000s was a good time to be in adtech or social media, but these days most VCs aren't actually that interested in the sector. Yes, advertising is annoying. Maybe it "doesn't work" on you. But that's not an argument against it being an effective industry, especially if you're arguing against targeted online advertising specifically. The biggest online ad budgets are very tightly run and you can be quite sure that the advertisers have studied and confirmed that they have a significant ROI. Finally, one note about the insinuation that "it's going to get ugly" because adtech companies have our personal data. This ignores how incredibly noisy and inaccurate most adtech data is. It's "accurate" in aggregate, using statistical models, but it's just not very reliable when it comes to an individual. When the individual data is not accurate or trustable, the capacity for danger (or blackmail?) is extremely limited. [1] http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-century-of-flat-line-growth http://www.bloomberg.com/bw/articles/2014-03-03/advertisings... [2] http://www.kpcb.com/internet-trends http://www.kpcb.com/internet-trends
fauigerzigerk 11y ago
There is no advertising bubble. I used to think there was one but this article convinced me otherwise: http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-century-of-flat-line-growth http://www.bloomberg.com/bw/articles/2014-03-03/advertisings... What may exist (maybe that's over as well) is an advertising startup bubble.
- whatever_dude 11y ago
  Great link, thanks. More people need to take a look at this (actual) data. I do think the (online) ad business is going to change radically over the next decade, but it's far from a bubble ready to burst. It'll be much slower.
randomsearch 11y ago
This article seems rather vacuous, and I'm not sure why it has so many points or comments. Ignoring the way the article is presented, its point could be explained in a single sentence: startups are spending a lot on advertising, which is causing an investor-funded bubble in startups dependent on advertising. Whether this is really true depends on the relative quantities of the money being spent on advertising by startups. A quick google says over $100 Billion is a reasonable estimate for online advertising annual spend, as a ballpark figure. Startups are raising say $20 billion [1] a year. Even assuming a large percentage of funding is going to online advertising, we're only talking about say a percentage point increase in the size of the ad market. So I think this article is probably incorrect. [1] https://www.cbinsights.com/blog/internet-startups-vc-2014/ https://www.cbinsights.com/blog/internet-startups-vc-2014/
WalterBright 11y ago
What advertisers need to do is create advertisements that people want to see, rather than trying to force people or trick them into watching it. For example, consider the TV show "Detroit Muscle". Ostensibly, it's about customizing and hot rodding your car. But it's actually a product placement show. I enjoy watching it, because various products are worked into the car project, and they show you what the products are good for and how to use them. For example, I'm likely to buy a welder that was featured on the show.
- bad_user 11y ago
  Product placement is not something that I want to see, because the reviewer will definitely be biased in its conclusions. This would be a classic example of throwing the baby out with the bath water.
  - WalterBright 11y ago
    On "Detroit Muscle", they don't review products. They show how a product fits in with building a project car. For example, they'll show how to do a suicide door conversion, including what specialty parts to use and where to get them, and sometimes how to modify those parts for custom effects.
- woah 11y ago
  On the whole, you're then likely to have bought a worse welder than you would have otherwise. If the welder is just an impulse/emotional purchase that will be used only a few times in its lifetime, then I suppose that doesn't matter.
  - WalterBright 11y ago
    > you're then likely to have bought a worse welder than you would have otherwise. On what do you base that statement?
- mikro2nd 11y ago
  Did you actually need a welder before you watched that show? Were you actively looking at different welders and weighing up their features vs. costs? If so, had you considered the possibilities of hiring a welder for those seldom/rare occasions you need one? Or just paying someone to do the occasional bit of welding you might need done? (I am assuming, maybe incorrectly, that since you don't already own a welder, you are not someone who actually has high demand for welding at present. Perhaps you're planning some future activities that imply "lots of welding".) If you were not actively Welder Shopping, then their advertising worked, didn't it?
elorant 11y ago
In my seventeen years online I’ve never ever bought a product or service based on an ad. I’ve bought from newsletters but never from ads. The difference the way I see it is that newsletters are highly targeted because they originate from a web site that I frequently visit. Whilst ads rarely take into account the frequency of your searches. You happen to search for shoes once and then for weeks, or even months, after you’re bombarded with relevant ads.
- eterm 11y ago
  Well that's one anecdote, here's another: My first ever online purchase was direct from an advert. I needed 128mb more RAM, so I bought it from crucial. I knew of crucial because a gaming forum I visited had a single banner advert for crucial that never changed, so I always noticed it. Advertising works, and even if you think it doesn't you're wrong. Every day you'll make purchasing decisions and often you'll tend toward products you recognise the name of. That process doesn't come from magic, it comes from advertising, the majority of which you'll not even notice.
  - throwaway800 11y ago
    My everyday purchasing decisions are mostly driven by opening my cupboard and checking if there is enough muesli left for the next three days. I haven't seen advertising inside my cupboard yet but any day now...
    - TheLogothete 11y ago
      Your whole life and reality is created by advertising.
      - throwaway800 11y ago
        Well, at least that's what advertising agencies advertise to their clients :) The best-paying sells advertisers make is to their clients and their industry peers.
nl 11y ago
In his seminal essay Dabblers and Blowhards Maciej Cegłowski made the case that Paul Graham's essay Hackers and Painters was inaccurate in its depiction of many programmer's work habits being similar to that of painters. Cegłowski's argument was compelling because he had worked as both a professional programmer and a professional oil painter. That deep expertise in both fields made it possible for him to pick the holes in PG's arguments. It seems that Cegłowski hasn't done much work in the AdTech industry. Pity, because his summary of the Scott and Scurvy[2] story is a wonderful piece of writing. [1] http://www.idlewords.com/2005/04/dabblers_and_blowhards.htm http://www.idlewords.com/2005/04/dabblers_and_blowhards.htm [2] http://idlewords.com/2010/03/scott_and_scurvy.htm http://idlewords.com/2010/03/scott_and_scurvy.htm
- jacquesm 11y ago
  I think the article goes off the rails where he says that the money going into advertising companies as investment ends up in the pay-out stream. I have seen no evidence of that to date (but I'm happy to be informed if there is such evidence). Up to there it is mostly accurate. The path investor money takes if it ends up with the industry is that it is used to buy advertising for new products and services backed with investor money. And so I also disagree with the conclusion. There will not be an implosion, but what there will be is a change of direction to maintain revenue. This has historically been true of advertising in general, ads today on TV for instance are totally different compared to ads on tv in the 90's, the 80', the 70's and so on.
kriro 11y ago
Possibly naive question but...is there a repository of ad-banners that are currently being served somewhere (and maybe also an archive of historic banners)?
- chillydawg 11y ago
  Probably not in any searchable form. You could spider top 10000 sites and pull the banners they serve. Even the big firms who actually server the banners probably do not have a good archive, it's all disposable JPGs and PNGs to them.
  - TheLogothete 11y ago
    Of course there is. Adbeat, WhatRunsWhere, even a YC funded company, but I can't remember the name.
laurentmeyer 11y ago
I don't get what imbalance this article is talking about? Advertisers pay publishers to market their products, and sometimes it is financed with VC money - but this is true of any market, not particularly adtech. Someone sells inventory, someone buys inventory, and there are middlemen to make this happen. Maybe too many companies are competing to be the middleman, but that's a problem that exist in every market (food delivery?). In the end some companies will die, so what? I can't see where a gap is created other than this. Investors are betting on technology companies, that are supposed thrive when even more money is spent on programmatic than today (taking away budgets from TV, search...) Maybe the author is not making a good enough distinction between publishers and technologies? The diagram of "advertising" the author refers to is almost entirely composed of technologies - very few agencies or publishers.
laurentmeyer 11y ago
I don't get what imbalance this article is talking about? Advertisers pay publishers to market their products, and sometimes it is financed with VC money - but this is true of any market, not particularly adtech. Someone sells inventory, someone buys inventory, and there are middlemen to make this happen. Maybe too many companies are competing to be the middleman, but that's a problem that exist in every market (food delivery?). In the end some companies will die, so what? I can't see where a gap is created other than this. Investors are betting on technology companies, that are supposed thrive when even more money is spent on programmatic than today (taking away budgets from TV, search...) Maybe the author is not making a good enough distinction between publishers and technologies? The diagram of "advertising" the author refers to is almost entirely composed of technologies - very few agencies or publishers.
Paul_S 11y ago
Wish I knew someone working in advertising (words not often spoken) so I could ask them but from a consumer point of view I have a suspicion that advertising is adapting just fine and shifting even more from overt to covert advertising. My friend's gamedev company pays an ad agency to astroturf on amongst other places 4chan. I suspect now broadcasting is within the reach of anyone advertisers will take advantage of this mercilessly and you will not be able to tell it's an ad because it will be coming from the same channels that normal people use. It already made online reviews worthless by making fake ones. Now every other form of communication will be suspect. Overt advertising at least isn't immoral but this covert approach is a deception from the start. Must be horrible to know you're making the world a slightly worse place to live in.
- vdnkh 11y ago
  >My friend's gamedev company pays an ad agency to astroturf on amongst other places 4chan Does this actually work? Shills are pretty obvious on 4Chan due their usual lack of "culture fit" and tendency to call anyone praising a videogame a shill.
  - Paul_S 11y ago
    I don't know if it works. At least they believe it does, otherwise they wouldn't be doing it. It's just part of the bigger social media package so I don't know if it's even possible to evaluate it individually. How would they track it? I think it's all madness and it must be a soul crushing job to do the menial work on this completely aside any moral judgements.
- shostack 11y ago
  Hi there, I manage digital media for a living and have for some time. I don't do astroturfing or anything like that. Primarily paid search/social/display. Short answer is it works, and any advertiser with decent analytics should be able to see that plain as day. Longer answer is that as more data becomes available around cross-channel attribution, the question of incremental effectiveness, and which channel/placement/ad gets what % of credit becomes the murkier, more difficult question to answer. For a glimpse of what I mean, do some googling on cross-channel attribution. Google Analytics has some great free tools they make available, but it is by far a perfect solution. The further out from the purchase step a given touch point is (like a display ad that is driving awareness), the harder it is to attribute revenue to and determine the incremental lift of. Certain channels like display and social typically play a heavier role at the top of the funnel vs. search and email that are more prevalent at the middle and bottom of the funnel. Historically digital media focused on last-click attribution, but that view is fast changing since it discounts top of funnel efforts more than it should, and you need those to fill the lower parts of the funnel. Happy to answer other questions you might have. Not all of us in the space are scammy/shady people looking to fleece everyone we can online.
socialist_coder 11y ago
I think one reason why there is so much negativity towards advertising in these comments is because user acquisition via buying online ads is fairly expensive, and unless you have very good conversion/monetization, these purchased users will come at a loss. So, this makes it pretty tough for small startups or 1 person projects to acquire users via ads, since they need to do it on the cheap, which isn't really possible. It's one of the few startup related expenses that has gotten more expensive over time, rather than less. And why has it gotten more expensive? I believe it is because there is a bubble in this space, but not what the original article is claiming. The bubble is from the boat loads of investment capital in online startups. They take their 100m round and have no issue paying $5 per user, losing money with every one. Companies that need to be revenue positive (or just don't want to waste money) can't compete with the high ad prices that this creates, which I think leads to a lot of hostility towards the whole space. I believe another reason for the negativity is all the fraud related to online ads. It's hard to not be negative when there are so many accounts coming out about just how much of the paid advertising traffic isn't even real.
- panic 11y ago
  It has nothing to do with how much ads cost. Modern ads are not helpful to society. They exploit human psychology for profit. They slow down the web. They collect vast amounts of personal information. They divert resources which could be used to actually improve the world. I understand that ads are a necessary evil for some businesses, but scroll to the bottom of a news article sometime. Is this really what we want our world to look like?
  - Disruptive_Dave 11y ago
    I came from a B2B agency background before my consumer startup gained a little bit of traction. I was, philosophically, anti-ads / push marketing for the most part. Then the curtain was pulled back for me on how startup acquisition machines really work. Two points here: 1) the flooding of VC money and subsequent aggressive push for "high growth" essentially funnel cash into online ads. 2) A bit more to your point of ads not being helpful to society, what about the many thousands of users I've acquired through ads who have stayed with my subscription service and have reaped the benefits of what my startup does (not gonna use this space to self promote the actual company)? These are not high-churn users, they are not bots (well, most anyway), and I've personally spoken to many of them who have expressed the happiness we bring them each week. There's a lot of cool shit out there I may not find out about directly from friends or organically through social media (which is a horrible discovery engine anyway). This begs the question: If the ad is relevant to me, why is it "bad"? Now, I can absolutely get on board with an argument against poorly targeted ads or bulky designs that clog up space/speed or simply an overall surplus of them everywhere you go online. But that doesn't mean ads cannot be useful to society.
joshuaellinger 11y ago
Rick Webb's comments on banner ads are a pretty good indirect rebuttal. https://medium.com/@RickWebb/banner-fraud-doesn-t-matter-fc84413fe59c https://medium.com/@RickWebb/banner-fraud-doesn-t-matter-fc8...
gtpasqual 11y ago
When I was working in a startup, I remember to be constantly shown ads from the startup itself, even though it sold something I would NEVER buy. The way these recommendation systems worked is heavily flawed at a large scale.
cryptica 11y ago
I agree with this article but I think it should be noted that advertising is much more powerful/effective today than it ever was before. Modern advertising is capable of messing with people's lives in extreme ways. Advertising is not about selling individual products - It's about selling a lifestyle. Any media which encourages you to 'upgrade' your lifestyle should be considered advertising. I myself have fallen victim to advertising. I used to live in a big-ish town where the cost of living was low. Advertising (in my case; the promise of a higher salary and access to a wider range of consumer goods and services) convinced me to move to a bigger city where the cost of living is ridiculously high. So I am working harder and longer, I am able to save less money and I have a lower standard of living overall (in spite of a higher salary). This lifestyle was advertised to me and I bought it. Much of the value I lost (in terms of quality of life) went into the pockets of advertisers (in the form of cash).
- mironathetin 11y ago
  This is a great contribution. Wish I could give it more than one upvote!
- jalopy 11y ago
  Why haven't you moved back? Genuinely curious.
  - talmand 11y ago
    Moving can be expensive. The majority of my current debt is due to multiple moves from state-to-state. Most of the time the moves were because of jobs. If he's unable to save money then it may be hard for him to move away.
    - djhn 11y ago
      This is mind-blowing to me. I trust there was mostly good reason to it, but why did you need to move with so many physical things? I've moved all around Europe with 3 suitcases (and even that seemed a bit excessive). But then again I've always accounted for these plans and only bought furniture of either "use and discard" or "high resale value" variety (used design classics, etc.)
tragic 11y ago
The central problem I observe, orthogonal to the one outlined in this post, is this: there has been, for many years, a symbiotic relationship between publishers and advertisers. The publishers are the host organism; they draw life-giving cash money from the advertisers. The advertisers are the symbiote, and they consume nourishing eyeballs secreted by the publisher. Print, TV and radio publishers increasingly used the money to subsidise their consumer offerings, which increased the yield of eyeballs. Everybody wins! The trouble with the New Era of internet-enabled everything is simply that the bottom has fallen out of ad revenue. There is not enough money for this old relationship to continue. Advertisers on the web are parasitic, not symbiotic. They get plenty of eyeballs; the publishers get chump change. This is an unsolved problem - analogous, say, to the streaming/Spotify problem. How many billions of people would have to lay out $10/mo on Spotify to keep the major labels in the junket-hopping, coke-hoovering manner to which they had long become accustomed? It's not going to happen. The reckoning, to my mind, starts not with the 1,876 marketing startups, but with the dying revenue models of mainstream publishing, broadcasting etc. After that, well, you can be neither a symbiote nor a parasite without a healthy host, with a ready supply of tasty eyeballs.
seekingnames 11y ago
"The only way to make the arrows balance at this point will be to divert more of each consumer dollar into advertising (raise the ad tax), or persuade people to buy more stuff" You could also raise the price (CPM) of digital advertising. Remember all these adtech companies deal in digital display. They take (for the most part) from traditional tv, print, classified, search (basically Google's monopoly), billboards etc. These decisions driven by ROI (cost benefit analysis based on price) Sure, its competitive. And I agree that investors get excited about 'revenue traction' that isn't real traction. But in 2015 the winners have already separated from the losers in my opinion. There's maybe 5 to 10 companies on the Luma chart that are winners (outside of FB, Google etc). And to be a winner you need revenue growth, real profits and real cashflow (I'm talking net income, not adjusted EBITDA).
swingbridge 11y ago
The targeted ad technology sucks. It basically just shows me ads for things that I've already purchased... for months afterwards. Also, I'm convinced most other ads just don't work. Once those finding this current circus realize the above the bottom is about to fall out of the market real quick (and many "apps" / "sites" that rely purely on ad revenue wil go with it).
swingbridge 11y ago
The targeted ad technology sucks. It basically just shows me ads for things that I've already purchased... for months afterwards. Also, I'm convinced most other ads just don't work. Once those finding this current circus realize the above the bottom is about to fall out of the market real quick (and many "apps" / "sites" that rely purely on ad revenue wil go with it).
padobson 11y ago
I don't immediately agree with the premise of this article: that the consumer pays an advertising tax on the good or service being purchased. I tend to believe that advertising actually adds value to the good or service, especially when it's exactly the same as a competing good. When you buy General Mills' Honey Nut Cheerios instead of Offbrand Honey Oats, the advertising on the sale has actually payed for itself and then some, increasing the profit margin above the good itself. On a macroeconomic scale, the best example I can think of is the Soviet Union. Advertising was thought to be a drain on society under the Marxist thinking of the time, so the Soviet Union didn't allow it. But then they found without advertising, it led to under consumption. I think there were other problems too, but eventually the Soviets started advertising, despite their initial misgivings about it. A quick google didn't reveal any good citations, so I'm certainly open to other ideas on this, but my main point is that this article over-simplifies the value that advertising generates for an industry. Edit: Found an interesting article on the Communist world's relationship with advertising: http://www.acrwebsite.org/volumes/5816/volumes/v03/NA-03 http://www.acrwebsite.org/volumes/5816/volumes/v03/NA-03
- bgilroy26 11y ago
  Why bother selling Offbrand Honey Oats if you can't offer your customers a discounted version of the leading brand?
- gnoway 11y ago
  Adds value from the perspective of the seller, sure. If I buy the honey nut cheerios vs. the off brand honey oats, I've received poor value because I've paid more for the same thing. And it's only adding value for the seller if they can sell the product for more than they pay in advertising - if this wasn't the case, people would not advertise because they would lose money. I'd also like to suggest that the Soviet 'underconsumption' you speak of might be better characterized as 'proper consumption'. It's not a mandate that we buy a product just because someone's selling it.
  - padobson 11y ago
    I've received poor value because I've paid more for the same thing. I disagree with this completely. Did you buy it because price wasn't important to you and it was on a more convenient shelf? General Mills paid for that shelf space out of their marketing budget, so the added value was convenience. Did you buy it because your kid likes the cartoon bee and wouldn't eat any other cereal? Then the added value was entertainment. This is the same value you get when you buy a movie ticket. What about when someone buys shoes from Gucci as opposed to loafers from Kmart? The consumer is paying for the marketing, without question. But they're getting something for their money - self esteem, status, etc.
htormey 11y ago
This article seems very light on data to back up its main claim: "You'll notice that the incoming and outgoing arrows in this diagram aren't equal. There's more money being made from advertising than consumers are putting in" All the figures I have seen seem to show the exact opposite, i.e that online advertising is growing and profitable, for example see: http://venturebeat.com/2015/05/27/this-is-mary-meekers-eye-popping-2015-internet-trends-report/ http://venturebeat.com/2015/05/27/this-is-mary-meekers-eye-p...
smartera 11y ago
(I work in market research industry for promotions/ad optimization and effectiveness; off and on-line) I agree completely with Maciej points. There is one other factor that should be considered; the more ads served to us (normal consumers); the less our reception to them is thus the new ads need to be more powerful. Only giant companies can fund the creativity and subtlety needed for very effective ads on a large consumer scale; everything else is noise in the consumer mind except for tiny well-targeted niches. Those are the two groups (giant companies and very niche businesses) that will survive the consumer-ad bubble burst easiest.
Dirlewanger 11y ago
Any word on these mentioned startups trying to circumvent ad blockers? What are some of them/what are they using?
fweespeech 11y ago
1) People don't really want to understand how they are getting fucked. They are getting fucked gently enough they don't care. 2) There will be no reckoning. There will be "bubbles" like any other industry but, ultimately, they'll recover at the same pace of housing did after 2008. I'm sure people who post these articles will be convinced that was the "reckoning" but it is just the normal cycle of business in the capitalist system. 3) All this article does is really re-hash the history that has existed for decades and, ultimately, is "necessary" for mass market sales. The corner mom & pop doesn't need to advertise in this manner because its local and the locals advertise for them via word of mouth. Its also dead outside of the service industry because even with the cost of advertising its cheaper to advertise+mass produce. [i.e. restaurants, barbers]
intrasight 11y ago
"The prognosis for publishers is grim. Repent! Find a way out of the adtech racket before it collapses around you."
intrasight 11y ago
And it not just advertising. My understanding is that consumers pay less for Amazon products than those products cost Amazon to deliver. The difference is being made up by Amazon investors.
- dangrossman 11y ago
  That's not the case. Amazon's e-commerce division is profitable. Last quarter it showed a bit over half a billion in profit.
connoredel 11y ago
The idea that advertising is a consumption tax is wrong. You don't use "cost-based pricing" in advertising (i.e., you don't decide how much to charge to make sure you are covering your costs of acquisition). You decide how much to spend on a given ad channel based on the average revenue you expect to get from a customer. There may be other important metrics like payback period -- or sometimes even less tangible things like the number of customers may be important if scale is an end in itself -- but in any case, rational people in charge of acquisition are making sure they are getting some benefit out of the ads at the optimal price that was set independently. If you start marking your price up beyond what people are willing to pay just because you want to make some ad channel effective, you'll see conversion drop and the channel will become _even more inneffective_. I would argue that two companies with identical products -- one who acquires customers organically and one who acquires customers through advertising -- should set the same price. The first will have higher net margins but the other will enjoy more total profit if they are smart.
JacobJans 11y ago
The diagram being used to demonstrate the complexity of the ad space is ridiculous. For example, listed under "infrastructure:" - Google - Php - Stack overflow - jQuery Need I go on?
shawlang 11y ago
Great points
alanh 11y ago
It’s been festering for a while. Three years ago, I overheard (in SF): > [Overheard]: Online advertising is getting bizarre; it’s almost like derivatives trading… (original: https://twitter.com/AlanHogan/status/268458504673693696 https://twitter.com/AlanHogan/status/268458504673693696)

551 points by vorador 11y ago

There are good points here and the flow diagrams certainly apply to startups in the Adtech space. And particularly those targeting other startups. But these startups are trying to take market from the incumbent Google, and increasingly Facbeook. These established businesses have paid back their investment and are now cash cows for their owners. The flows for Adsense for example will be in balance between cash in from advertisers, and cash out to publishers and Google shareholders. I've been in all three of those positions, often simultaneously, and been happy with the outcome. When the VC tide goes out Adtech startups will be running up the beach trying to cover their white bits. But with less loss-making competition it could be very good for Adsense and Facebook. As an aside, I see a future where digital advertising is equally split between Google for transactional (buy something today) adverts, and Facebook for brand awareness and engagement. I think Facebook today is in the same position that Google was when it was only selling ads against its search result pages. When Facebook launches adverts beyond its own property then the cash is really going to start flowing.

bendmorris 11y ago
> When Facebook launches adverts beyond its own property then the cash is really going to start flowing. They already do this: https://www.facebook.com/business/news/audience-network https://www.facebook.com/business/news/audience-network
lsc 11y ago
I think the theory the article puts forward is that the cost of advertising has been bid up by venture-backed advertising companies. If this is true, all advertising companies will suffer; a drop in the price of advertising probably won't sink the big players, sure, but it will probably cause them to cut some of their fat.
- jacquesm 11y ago
  > I think the theory the article puts forward is that the cost of advertising has been bid up by venture-backed advertising companies. I don't think that's the path the money takes. The path the money takes is that maybe some venture backed companies buy advertising to advertise their products. If that capital dries up then that particular segment will diminish but it will certainly not cause the industry to implode (though it definitely has challenges to deal with all its own).
  - lsc 11y ago
    I don't see how what you wrote conflicts with what I wrote. "bid up" and "buy" are synonyms in this context. If you take buyers out of the market the price for whatever it is they buy is going to come down. If the buyers who are taken out were the least price-sensitive buyers, (the theory being that people who aren't venture-backed generally have to spend what they earn) prices are going to come down a lot.

Kortaggio 11y ago

This reminds me a lot of PG's essay on how Yahoo was a beneficiary of its own advertising bubble that it created in the 90s: > By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. http://www.paulgraham.com/yahoo.html http://www.paulgraham.com/yahoo.html

puredemo 11y ago
Sounds a lot like AdSense too, honestly.
- jfoutz 11y ago
  in 1998, google (er, alphabet) got its initial round of $100,000. You're not wrong but things in 1998 were weird. it wasn't clear that the internet should or would be commercial at all. 1998 was a big bubble, because we didn't know, at all, how the internet should work. c10k wasn't met yet. Parents (not grandparents) thought the internet was scary. Maybe big G (er alphabet) is indeed cannabalizing it's own resources to juice adsense revenue. It's different than the late 90's though. For example pets.com, or moo.com. There are ideas that were tried that make money now. In the beginning it was just weird. all sorts of crazy stuff was tried.
jacquesm 11y ago
YC was one of the best things to come out of Yahoo... Imagine, if Yahoo had not bought out PG and company this whole thing would have never happened. Yay for the bubble, and apparently even Ponzi schemes can have beneficial side effects.
- StavrosK 11y ago
  Which "whole thing" are you referring to? YC has been good, but I doubt it has created the industry. The money wanted to flow in, and it would have, YC or no.

loginusername 11y ago

"There's more money being made from advertising than consumers are putting in." Should we care how Google, Facebook and others make so much cash? Should it matter? Honest question. (The author suggests the firesales by these companies when things go south will involve internet users' personal information. I agree.)

surferbayarea 11y ago
And interesting thing is how people are all up in arms about the NSA tapping private information, but are completely oblivious to advertising companies doing the same. At least the NSA's objective is to fight terrorism, companies like Google/Facebook invade people's privacy for the sole purpose of making money from it.
- IIAOPSW 11y ago
  I implicitly agreed to Googles terms when I used Google. I never asked to be born in the States.
  - TeMPOraL 11y ago
    You never asked to be born, period.
  - mirimir 11y ago
    You implicitly agree to citizenship by not renouncing. And in any case, the NSA may (supposedly) surveil non-citizens with fewer restrictions.
    - IIAOPSW 11y ago
      You have to pay to opt out of citizenship. Name any other club that you have to pay over 1000 USD to not be a part of.
      - mirimir 11y ago

Jerry2 11y ago

Given the current economic conditions and recessions around the world, I guess it will take some time for it to register in ad sector. Ad sector is still full of investor money and it will take months (and in some cases, years) for them to feel the pressure from the economy. PS: Maciej is such a great writer. I enjoy his writing immensely. Everyone should emulate his clear & concise style.

toomuchtodo 11y ago
Why does the ad sector trail so far behind the rest of the economy? Poor signaling?
- jacquesm 11y ago
  Because it works. For now. Think of ad spending as you would think of spending on arms for a war. If you don't out-spend your competitor they'll own the market. So until the problems are really large the ad sector will actually make more money rather than less on the same volume of products moved because the amount of money required to effect a certain level of user engagement is a larger one.

numair 11y ago

Someone should study what would happen to Facebook/Twitter's financials if startups stopped buying app install ads. Startups will buy more of these (out of desperation to get growth from their remaining funding) before they buy none (because they will finally run out of cash). See AOL's 2001/2002 financials for a past example. Oh, and by the way, we are at the beginning of a huge funding crunch (perhaps someone else can pitch in with some citations on funding activity etc), so this WILL happen.

WalterBright 11y ago

I'm not convinced that targeted advertising even works. I see the advertising targeted at myself, it's pretty obvious why I get those ads. For example, I bought a kitchen sink faucet on line. For months afterwards, I received constant ads for the exact same faucet - as if I had multiple kitchens. I've tried running context sensitive ads on my own site. I happen to believe that appropriate advertising is something users want - for example, I buy hot rod magazines specifically to get the ads for parts and other cool stuff for my car. The context sensitive ads Google servers are just not interesting, and they happen to be one of a small handful of ads repeated over and over. There's no way I can tell Google "display ads in these categories". I tried running context sensitive ads from Amazon. I wanted ads for programming books in various categories I'd select. What I'd get is ads for the latest Batman movie, over and over, I finally removed them. I don't know how Amazon decided that visitors to a programming site wanted to look at Batman ads. There is a way to put an Amazon ad on the site for a specific product. But those get stale after a while. Again, I want to be able to list categories of the kinds of ads that would be appropriate for a particular page, but I can't. Ideally, I'd like to specify a list of categories for a context sensitive ad, like "programming books", and have Amazon scrape the page for keywords and then display programming books that are related to those keywords.

Swizec 11y ago
> I don't know how Amazon decided that visitors to a programming site wanted to look at Batman ads. NaNaNaNaNaNaN Batman More seriously: "20 to 40 year old male"
- elthran 11y ago
  And I'm sure some advertising employee has built some "logic" that "thinks" as follows Programming -> Nerd -> Comics -> Batman
  - Swizec 11y ago
    Honestly, I'm pretty sure the demographics have enough overlap for this to be an emergent behaviour out of statistical modeling with nobody building any specific logic. You can see plenty of this in, say, music recommendations where Youtube will follow a Foo Fighters song with Taylor Swift because they're both in the same "top 100 popular" category. It's easier than understanding content.

phamilton 11y ago

A counterpoint to this is that adtech startups that have gone public have been crushed. Look at Rocketfuel, Yume, and Tremor for examples.

michaelpinto 11y ago

It's not a bubble, the advertising industry has always followed this cycle: The post war television boom in America begat many new Madison Avenue ad agencies in the 50s who reached a high point in the 60s and the 70s, but then by the 80s and 90s were consolidated via mergers and acquisitions. Even the great Ogilvy & Mather was swallowed by up WPP in 1989. In fact one of the David Ogilvy's greatest regrets was taking the company public which allowed the take over years later.

Apocryphon 11y ago
Isn't it a bubble, when a lot of startups provide free services that are supported by online ads? Wouldn't a crash in the online ads market have a resonance cascade through all of those startups?
- bduerst 11y ago
  That isn't quite a bubble, in fact, what you're describing happened to broadcast television advertising and online ads. If people shifted their attention from online to something else, advertising (and thus startups) would follow.
- michaelpinto 11y ago
  There already was a crash of ad banner rates in 2008, in fact that killed many small publishers. You'd have a real bubble if there was a ton of moneys still being pumped into AdTech, but that hasn't been the case for a year now. And you're now seeing mergers and acquisitions take place. A good example of this on a bigger level would be Verizon buying up AOL for their ad business. Although something to realize is that there are winners in that business. Most people don't think of Facebook as an ad company, but they really do get mobile advertising and from the looks of things they'll keep growing. And that's not just Facebook but other properties like Instagram which will snag more and more ad dollars.
bravo 11y ago
A lot of industries follow a cycle. That doesn't mean they're not bubbles.

chjohasbrouck 11y ago

I'm not a marketer so correct me if I'm wrong, but I'm not sure I agree that it's even possible for advertising to bubble in the traditional sense. The biggest budgets are all pretty tightly regulated. They have surprisingly good information on exactly what impact their ad buys are having, and that information informs their allocation. The smaller budgets don't necessarily have that, but I assume they consistently churn as businesses open and close. Is this article suggesting the churn of new businesses is going to suddenly drop to zero? How could advertising bubble with that level of transparency?

jldugger 11y ago
Well, for one, the riskless rate of return could raise above zero, and you might have to factor in the amount of risk your ad buy represents. If you advertise in order to grow your user base, but that userbase is neutral or net negative, when funding costs go up, your gamble that you can shift customers from neutral to profitable is less viable. But imagine a secondary structure of ad buys: you buy mobile ads promoting your app, which monetizes itself through ads. If the ad market falls, you've effectively bought ads high and sold them low.
melted 11y ago
Looks like you didn't read the article. Its whole point is that much of that gravy train is financed by investors right now, and when investors bolt (as they do when things go sour), the whole rickety pyramid will collapse.
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javajosh 11y ago

Well, I think it's easy to overestimate the damage "hideous monstrosities ... left flopping on its muddy bottom" will do if and when money leaves adtech. Sure, they've been surveilling me. But what damage can they really do? They probably roughly know where I live, roughly where I work, and when I move between A and B. They know my age, race, gender. They may know a sizable chunk of my social network. Maybe the porn I like. It seems possible, but unlikely, that they'd know my bank, ISP, or actual home address. So they sell my info. What will the purchaser do with it? Send me more, better spam? So what - I'll block it and move on.

Margh 11y ago
The number of answers there are to that question is phenomenal. Here's one I just thought up: You stop going between A and B (home and work) for 6 months. You're now either unemployed or working from home; the latter can probably be inferred by any changes in shopping habits. Sell that information to recruiters and they'll know how hard to gouge you in your desperation for a new job.
- lsc 11y ago
  Eh, I think recruiters already usually have a pretty good idea of how long you've been unemployed, and they already use that information against you; the big problem isn't so much that they low-ball you (it's easy enough to get another job once you have one) but that usually they won't give you a chance at all if you've been unemployed for too long.
lsc 11y ago
The fear is that they'll use it to blackmail you. "Give us $X or we will send your wife all the texts you sent to person Z." or perhaps more realistic, "Give us $X or we will publish that embarrassingly bad love letter you sent to person Z" or even "Give us $x and we will reveal your alternate handle" The first bit of comfort is that the details you would want if you were to blackmail someone are not the details that advertisers want when trying to get you to click on an ad, so the people who end up with this private data might find it less useful for blackmail than we think. They probably don't have my embarrassingly bad poetry. but... they probably do have all my alternate handles, and that's embarrassing enough. I think one of the major saving graces here is the unreliability of the data; especially once it has been sold a few times, it's gonna have a lot of mistakes. Because for advertising? a few mistakes don't really matter. This is gonna make the "deny everything" defense a lot stronger. Of course, the big thing about blackmail is that it mostly only makes sense when going after the big fish; there is a lot of hard to automate work in finding the victim's weak spot, and then actually extracting the money (or whatever) Most of us probably don't have to worry about being blackmailed unless we get rich or someone rich wants something from us... but it's still pretty bad for us if a giant cache of data that can be used for blackmail ends up in desperate hands.

Animats 11y ago

As I pointed out a few weeks ago, only three of the top 50 current "unicorns" are ad-supported: Snapchat, Instagram, and Vice Media. Since then, it's come out that Snapchat isn't doing too well and their valuation is down; we may be down to two ad-supported unicorns soon. The current startup boom is not ad-supported. That's a good thing.

mschuster91 11y ago
What about Twitter? Actually it's only a bit of ad revenue and a huge chunk of investor money keeping it afloat.
frik 11y ago
Do you have a link?

skybrian 11y ago

The problem with this article is that it says (in an entertaining way) that the numbers don't add up, without showing or linking to any math.

punee 11y ago
That's because the article is just a thinly veiled ad for the author's ad-free service.
- icebraining 11y ago
  How does that work? "Advertising is dead - that I means I should subscribe to this specific consumer ad-free service"?
  - punee 11y ago
    "Advertising is very bad and unsustainable and it's going to bring about the end of the universe because of evil venture capitalists. Is this what you want? No! So if you want to save your soul, you can repent now and start using sustainable, ad-free services. Like mine. Only $11/yr."
    - throwaway800 11y ago
      If he was a multinational corporation this would be called awareness-raising sponsorship
    - icebraining 11y ago
      What he says is that publishers, who rely on ads, will suffer from the bust. His service is in no way related to publishers. He also doesn't directly link to his service on the page. I think your accusation is completely spurious, frankly.
- deleted 11y ago
  [deleted]

throw20151116 11y ago

I see Google Contributor as an answer to this. It would be especially compelling if GC offered site owners a way to make GC users _never_ see ads and / or perhaps had a way to nudge users into being GC users. GC is so close to fully realized micropayments for content, and that seems to be what we need to escape the advertising swamp.

melted 11y ago
Nice try, anonymous Google employee.

jaspertheghost 11y ago

At first glance, it seems very logical. Why do you need a middle man, these companies will all die out. The problem with this argument is that he doesn't realize advertising is 600B globally. Each of the small boxes there is 1b-40b depending the bucket (from tag management to mobile (100b)). When you realize that there's only 15 companies serving a 1 billion dollar market, you realize that it's not that small. Granted. There will be companies that will die in the ecosystem, but the logic is poor. It's like saying why do you need a CRM system, it's just a tool standing between the sales person and the customer.

anon1385 11y ago
The current claimed size of the market is irrelevant to the argument. The argument is that there is more money being made from advertising than actual advertisers are paying and that this isn't sustainable.
- jacquesm 11y ago
  That's more or less impossible by definition. What isn't sustainable is that advertisers tend to see over time lower returns for an equal investment in ads and that this trend has been fairly steady ever since online advertising became a commodity. Each new technology sees an initial (sometimes huge) uptick in clickthrough/engagement/conversion and then after a short while (and ever shorter it seems) the initial uptick transforms into a reversion to the previous mean and a subsequent steady trend downward. It has been exactly this phenomenon that has driven ad-technology and targeting forward and it's the equivalent of turning up the volume on an amplifier because the people intended to listen are going deaf from the sound levels.
- mc7457 11y ago
  If that's the argument, the writer needs to put up some numbers. Here's an attempt at some numerical estimates: http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-century-of-flat-line-growth http://www.bloomberg.com/bw/articles/2014-03-03/advertisings... Spoiler: ad spending in the US has grown roughly proportional with the growth of the economy, no bubble in sight.

hawkice 11y ago

I am extremely skeptical of the accuracy of the adtech-over-time chart. I looked for companies I knew revenue numbers for, and I saw revenue flat and them suddenly appearing in the last box despite existing for years before his timeline even starts, for instance. [This is a bit hard to write compellingly, because you can figure out precisely who I am if I say the exact companies, and I'd prefer not to have LinkedIn be the sidechannel resource for people to violate my non-disclosures about revenue.]

punee 11y ago

Is this article a joke? Suppose for the sake of the argument that instead of drawing an arrow from the consumer to ad tech, I drew an arrow to... any other market. Couldn't I make exactly the same argument? People pay a "consumption tax" to fund every part of the products they buy. That money flows into the pockets of myriad companies with intricate supplier/client links. Investors pour money into that market and create new companies hoping to make money back on their investment. That happens when their investment manages to get market share by "cannibalizing" competitors. Some investors lose their shirt. Some companies go bust. My question is: so what? It seems like there's little more in the article, not to mention the complete absence of any numbers to back the claims that are made or give a sense of scale. So my conclusion is that what the author really wants to talk about is how these bad companies own private data, yadda yadda. Nothing new here. So I guess the author is just doing this to push his own ad-free product. Inception.

estomagordo 11y ago
The difference of course being that the transportation market isn't being economically upheld by venture capitalists in hopes of one day cashing in on increased transportation revenue.
- anilgulecha 11y ago
  Uber?
- punee 11y ago
  First, numbers would be required to see exactly how the market is "economically upheld" by VCs. Second, I'm not sure if you're being sarcastic, but your example seems poorly chosen. Uber and Lyft live off of venture capital. Even absent Uber/Lyft, the transportation market was/still is one of the most cartelised around. Third, you could certainly find satisfactory counter-examples where the money "ends up" (money keeps flowing, btw, that's why simplistic diagrams aren't very interesting) in the hands of a larger pool of companies. But if the point of the article is to tell us that social networks is a highly concentrated industry, that's hardly an upvote-worthy revelation. Judging by the language used in the article, it is apparent that the author has a beef with advertising. I'm glad he can have a lifestyle business sustained by earned advertising he gets with mentions on Hacker News, but it seems a little disingenuous to pretend that can work for all businesses.

morgante 11y ago

It's not surprising that this article is at the top of HN because a surprisingly large contingent of HN is convinced, against all evidence, that advertising doesn't work. Unfortunately, the article doesn't actually offer any evidence of there being a bubble in advertising. If anything, online advertising is actually being underbought at the moment. For there to be a bubble, advertising spend would have to be growing at a rate which outpaces supply of advertising space. In fact, when it comes to online advertising the reverse is true. Consider first that advertising in general is actually a remarkably boring business. The entire industry consistently consumes 1-2% of GDP, and we have not gone out of that historical band. [1] There's just not much evidence of there being a bubble in the overall advertising industry. When it comes to internet advertising specifically, the argument for a bubble is even weaker. Ad spend on internet platforms (particularly mobile) continues to lag behind consumer attention. [2] Consumers are spending tons of time on mobile, but advertisers aren't spending nearly enough on mobile to match that supply. If anything, I think advertisers should be spending $10-20B more on internet advertising than they do. Finally, consider that advertising prices are at rock bottom. That seems extraordinarily inconsistent with there being a bubble. The author ignores this fact by attempting to insinuate that the bubble is entirely investor-driven, but that doesn't match his hypothesis. Firstly, if investors are currently subsidizing the entire online advertising industry, then when investment pulls back we would fully expect advertising prices to rise—enabling the investors to be paid back (ie. not a bubble). Secondly, it doesn't match my experience: the late 2000s was a good time to be in adtech or social media, but these days most VCs aren't actually that interested in the sector. Yes, advertising is annoying. Maybe it "doesn't work" on you. But that's not an argument against it being an effective industry, especially if you're arguing against targeted online advertising specifically. The biggest online ad budgets are very tightly run and you can be quite sure that the advertisers have studied and confirmed that they have a significant ROI. Finally, one note about the insinuation that "it's going to get ugly" because adtech companies have our personal data. This ignores how incredibly noisy and inaccurate most adtech data is. It's "accurate" in aggregate, using statistical models, but it's just not very reliable when it comes to an individual. When the individual data is not accurate or trustable, the capacity for danger (or blackmail?) is extremely limited. [1] http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-century-of-flat-line-growth http://www.bloomberg.com/bw/articles/2014-03-03/advertisings... [2] http://www.kpcb.com/internet-trends http://www.kpcb.com/internet-trends

fauigerzigerk 11y ago

There is no advertising bubble. I used to think there was one but this article convinced me otherwise: http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-century-of-flat-line-growth http://www.bloomberg.com/bw/articles/2014-03-03/advertisings... What may exist (maybe that's over as well) is an advertising startup bubble.

whatever_dude 11y ago
Great link, thanks. More people need to take a look at this (actual) data. I do think the (online) ad business is going to change radically over the next decade, but it's far from a bubble ready to burst. It'll be much slower.

randomsearch 11y ago

This article seems rather vacuous, and I'm not sure why it has so many points or comments. Ignoring the way the article is presented, its point could be explained in a single sentence: startups are spending a lot on advertising, which is causing an investor-funded bubble in startups dependent on advertising. Whether this is really true depends on the relative quantities of the money being spent on advertising by startups. A quick google says over $100 Billion is a reasonable estimate for online advertising annual spend, as a ballpark figure. Startups are raising say $20 billion [1] a year. Even assuming a large percentage of funding is going to online advertising, we're only talking about say a percentage point increase in the size of the ad market. So I think this article is probably incorrect. [1] https://www.cbinsights.com/blog/internet-startups-vc-2014/ https://www.cbinsights.com/blog/internet-startups-vc-2014/

WalterBright 11y ago

What advertisers need to do is create advertisements that people want to see, rather than trying to force people or trick them into watching it. For example, consider the TV show "Detroit Muscle". Ostensibly, it's about customizing and hot rodding your car. But it's actually a product placement show. I enjoy watching it, because various products are worked into the car project, and they show you what the products are good for and how to use them. For example, I'm likely to buy a welder that was featured on the show.

bad_user 11y ago
Product placement is not something that I want to see, because the reviewer will definitely be biased in its conclusions. This would be a classic example of throwing the baby out with the bath water.
- WalterBright 11y ago
  On "Detroit Muscle", they don't review products. They show how a product fits in with building a project car. For example, they'll show how to do a suicide door conversion, including what specialty parts to use and where to get them, and sometimes how to modify those parts for custom effects.
woah 11y ago
On the whole, you're then likely to have bought a worse welder than you would have otherwise. If the welder is just an impulse/emotional purchase that will be used only a few times in its lifetime, then I suppose that doesn't matter.
- WalterBright 11y ago
  > you're then likely to have bought a worse welder than you would have otherwise. On what do you base that statement?
mikro2nd 11y ago
Did you actually need a welder before you watched that show? Were you actively looking at different welders and weighing up their features vs. costs? If so, had you considered the possibilities of hiring a welder for those seldom/rare occasions you need one? Or just paying someone to do the occasional bit of welding you might need done? (I am assuming, maybe incorrectly, that since you don't already own a welder, you are not someone who actually has high demand for welding at present. Perhaps you're planning some future activities that imply "lots of welding".) If you were not actively Welder Shopping, then their advertising worked, didn't it?

elorant 11y ago

In my seventeen years online I’ve never ever bought a product or service based on an ad. I’ve bought from newsletters but never from ads. The difference the way I see it is that newsletters are highly targeted because they originate from a web site that I frequently visit. Whilst ads rarely take into account the frequency of your searches. You happen to search for shoes once and then for weeks, or even months, after you’re bombarded with relevant ads.

eterm 11y ago
Well that's one anecdote, here's another: My first ever online purchase was direct from an advert. I needed 128mb more RAM, so I bought it from crucial. I knew of crucial because a gaming forum I visited had a single banner advert for crucial that never changed, so I always noticed it. Advertising works, and even if you think it doesn't you're wrong. Every day you'll make purchasing decisions and often you'll tend toward products you recognise the name of. That process doesn't come from magic, it comes from advertising, the majority of which you'll not even notice.
- throwaway800 11y ago
  My everyday purchasing decisions are mostly driven by opening my cupboard and checking if there is enough muesli left for the next three days. I haven't seen advertising inside my cupboard yet but any day now...
  - TheLogothete 11y ago
    Your whole life and reality is created by advertising.
    - throwaway800 11y ago
      Well, at least that's what advertising agencies advertise to their clients :) The best-paying sells advertisers make is to their clients and their industry peers.

nl 11y ago

In his seminal essay Dabblers and Blowhards Maciej Cegłowski made the case that Paul Graham's essay Hackers and Painters was inaccurate in its depiction of many programmer's work habits being similar to that of painters. Cegłowski's argument was compelling because he had worked as both a professional programmer and a professional oil painter. That deep expertise in both fields made it possible for him to pick the holes in PG's arguments. It seems that Cegłowski hasn't done much work in the AdTech industry. Pity, because his summary of the Scott and Scurvy[2] story is a wonderful piece of writing. [1] http://www.idlewords.com/2005/04/dabblers_and_blowhards.htm http://www.idlewords.com/2005/04/dabblers_and_blowhards.htm [2] http://idlewords.com/2010/03/scott_and_scurvy.htm http://idlewords.com/2010/03/scott_and_scurvy.htm

jacquesm 11y ago
I think the article goes off the rails where he says that the money going into advertising companies as investment ends up in the pay-out stream. I have seen no evidence of that to date (but I'm happy to be informed if there is such evidence). Up to there it is mostly accurate. The path investor money takes if it ends up with the industry is that it is used to buy advertising for new products and services backed with investor money. And so I also disagree with the conclusion. There will not be an implosion, but what there will be is a change of direction to maintain revenue. This has historically been true of advertising in general, ads today on TV for instance are totally different compared to ads on tv in the 90's, the 80', the 70's and so on.

kriro 11y ago

Possibly naive question but...is there a repository of ad-banners that are currently being served somewhere (and maybe also an archive of historic banners)?

chillydawg 11y ago
Probably not in any searchable form. You could spider top 10000 sites and pull the banners they serve. Even the big firms who actually server the banners probably do not have a good archive, it's all disposable JPGs and PNGs to them.
- TheLogothete 11y ago
  Of course there is. Adbeat, WhatRunsWhere, even a YC funded company, but I can't remember the name.

laurentmeyer 11y ago

I don't get what imbalance this article is talking about? Advertisers pay publishers to market their products, and sometimes it is financed with VC money - but this is true of any market, not particularly adtech. Someone sells inventory, someone buys inventory, and there are middlemen to make this happen. Maybe too many companies are competing to be the middleman, but that's a problem that exist in every market (food delivery?). In the end some companies will die, so what? I can't see where a gap is created other than this. Investors are betting on technology companies, that are supposed thrive when even more money is spent on programmatic than today (taking away budgets from TV, search...) Maybe the author is not making a good enough distinction between publishers and technologies? The diagram of "advertising" the author refers to is almost entirely composed of technologies - very few agencies or publishers.

laurentmeyer 11y ago

Paul_S 11y ago

Wish I knew someone working in advertising (words not often spoken) so I could ask them but from a consumer point of view I have a suspicion that advertising is adapting just fine and shifting even more from overt to covert advertising. My friend's gamedev company pays an ad agency to astroturf on amongst other places 4chan. I suspect now broadcasting is within the reach of anyone advertisers will take advantage of this mercilessly and you will not be able to tell it's an ad because it will be coming from the same channels that normal people use. It already made online reviews worthless by making fake ones. Now every other form of communication will be suspect. Overt advertising at least isn't immoral but this covert approach is a deception from the start. Must be horrible to know you're making the world a slightly worse place to live in.

vdnkh 11y ago
>My friend's gamedev company pays an ad agency to astroturf on amongst other places 4chan Does this actually work? Shills are pretty obvious on 4Chan due their usual lack of "culture fit" and tendency to call anyone praising a videogame a shill.
- Paul_S 11y ago
  I don't know if it works. At least they believe it does, otherwise they wouldn't be doing it. It's just part of the bigger social media package so I don't know if it's even possible to evaluate it individually. How would they track it? I think it's all madness and it must be a soul crushing job to do the menial work on this completely aside any moral judgements.
shostack 11y ago
Hi there, I manage digital media for a living and have for some time. I don't do astroturfing or anything like that. Primarily paid search/social/display. Short answer is it works, and any advertiser with decent analytics should be able to see that plain as day. Longer answer is that as more data becomes available around cross-channel attribution, the question of incremental effectiveness, and which channel/placement/ad gets what % of credit becomes the murkier, more difficult question to answer. For a glimpse of what I mean, do some googling on cross-channel attribution. Google Analytics has some great free tools they make available, but it is by far a perfect solution. The further out from the purchase step a given touch point is (like a display ad that is driving awareness), the harder it is to attribute revenue to and determine the incremental lift of. Certain channels like display and social typically play a heavier role at the top of the funnel vs. search and email that are more prevalent at the middle and bottom of the funnel. Historically digital media focused on last-click attribution, but that view is fast changing since it discounts top of funnel efforts more than it should, and you need those to fill the lower parts of the funnel. Happy to answer other questions you might have. Not all of us in the space are scammy/shady people looking to fleece everyone we can online.

socialist_coder 11y ago

I think one reason why there is so much negativity towards advertising in these comments is because user acquisition via buying online ads is fairly expensive, and unless you have very good conversion/monetization, these purchased users will come at a loss. So, this makes it pretty tough for small startups or 1 person projects to acquire users via ads, since they need to do it on the cheap, which isn't really possible. It's one of the few startup related expenses that has gotten more expensive over time, rather than less. And why has it gotten more expensive? I believe it is because there is a bubble in this space, but not what the original article is claiming. The bubble is from the boat loads of investment capital in online startups. They take their 100m round and have no issue paying $5 per user, losing money with every one. Companies that need to be revenue positive (or just don't want to waste money) can't compete with the high ad prices that this creates, which I think leads to a lot of hostility towards the whole space. I believe another reason for the negativity is all the fraud related to online ads. It's hard to not be negative when there are so many accounts coming out about just how much of the paid advertising traffic isn't even real.

panic 11y ago
It has nothing to do with how much ads cost. Modern ads are not helpful to society. They exploit human psychology for profit. They slow down the web. They collect vast amounts of personal information. They divert resources which could be used to actually improve the world. I understand that ads are a necessary evil for some businesses, but scroll to the bottom of a news article sometime. Is this really what we want our world to look like?
- Disruptive_Dave 11y ago
  I came from a B2B agency background before my consumer startup gained a little bit of traction. I was, philosophically, anti-ads / push marketing for the most part. Then the curtain was pulled back for me on how startup acquisition machines really work. Two points here: 1) the flooding of VC money and subsequent aggressive push for "high growth" essentially funnel cash into online ads. 2) A bit more to your point of ads not being helpful to society, what about the many thousands of users I've acquired through ads who have stayed with my subscription service and have reaped the benefits of what my startup does (not gonna use this space to self promote the actual company)? These are not high-churn users, they are not bots (well, most anyway), and I've personally spoken to many of them who have expressed the happiness we bring them each week. There's a lot of cool shit out there I may not find out about directly from friends or organically through social media (which is a horrible discovery engine anyway). This begs the question: If the ad is relevant to me, why is it "bad"? Now, I can absolutely get on board with an argument against poorly targeted ads or bulky designs that clog up space/speed or simply an overall surplus of them everywhere you go online. But that doesn't mean ads cannot be useful to society.

joshuaellinger 11y ago

Rick Webb's comments on banner ads are a pretty good indirect rebuttal. https://medium.com/@RickWebb/banner-fraud-doesn-t-matter-fc84413fe59c https://medium.com/@RickWebb/banner-fraud-doesn-t-matter-fc8...

gtpasqual 11y ago

When I was working in a startup, I remember to be constantly shown ads from the startup itself, even though it sold something I would NEVER buy. The way these recommendation systems worked is heavily flawed at a large scale.

cryptica 11y ago

I agree with this article but I think it should be noted that advertising is much more powerful/effective today than it ever was before. Modern advertising is capable of messing with people's lives in extreme ways. Advertising is not about selling individual products - It's about selling a lifestyle. Any media which encourages you to 'upgrade' your lifestyle should be considered advertising. I myself have fallen victim to advertising. I used to live in a big-ish town where the cost of living was low. Advertising (in my case; the promise of a higher salary and access to a wider range of consumer goods and services) convinced me to move to a bigger city where the cost of living is ridiculously high. So I am working harder and longer, I am able to save less money and I have a lower standard of living overall (in spite of a higher salary). This lifestyle was advertised to me and I bought it. Much of the value I lost (in terms of quality of life) went into the pockets of advertisers (in the form of cash).

mironathetin 11y ago
This is a great contribution. Wish I could give it more than one upvote!
jalopy 11y ago
Why haven't you moved back? Genuinely curious.
- talmand 11y ago
  Moving can be expensive. The majority of my current debt is due to multiple moves from state-to-state. Most of the time the moves were because of jobs. If he's unable to save money then it may be hard for him to move away.
  - djhn 11y ago
    This is mind-blowing to me. I trust there was mostly good reason to it, but why did you need to move with so many physical things? I've moved all around Europe with 3 suitcases (and even that seemed a bit excessive). But then again I've always accounted for these plans and only bought furniture of either "use and discard" or "high resale value" variety (used design classics, etc.)

tragic 11y ago

The central problem I observe, orthogonal to the one outlined in this post, is this: there has been, for many years, a symbiotic relationship between publishers and advertisers. The publishers are the host organism; they draw life-giving cash money from the advertisers. The advertisers are the symbiote, and they consume nourishing eyeballs secreted by the publisher. Print, TV and radio publishers increasingly used the money to subsidise their consumer offerings, which increased the yield of eyeballs. Everybody wins! The trouble with the New Era of internet-enabled everything is simply that the bottom has fallen out of ad revenue. There is not enough money for this old relationship to continue. Advertisers on the web are parasitic, not symbiotic. They get plenty of eyeballs; the publishers get chump change. This is an unsolved problem - analogous, say, to the streaming/Spotify problem. How many billions of people would have to lay out $10/mo on Spotify to keep the major labels in the junket-hopping, coke-hoovering manner to which they had long become accustomed? It's not going to happen. The reckoning, to my mind, starts not with the 1,876 marketing startups, but with the dying revenue models of mainstream publishing, broadcasting etc. After that, well, you can be neither a symbiote nor a parasite without a healthy host, with a ready supply of tasty eyeballs.

seekingnames 11y ago

"The only way to make the arrows balance at this point will be to divert more of each consumer dollar into advertising (raise the ad tax), or persuade people to buy more stuff" You could also raise the price (CPM) of digital advertising. Remember all these adtech companies deal in digital display. They take (for the most part) from traditional tv, print, classified, search (basically Google's monopoly), billboards etc. These decisions driven by ROI (cost benefit analysis based on price) Sure, its competitive. And I agree that investors get excited about 'revenue traction' that isn't real traction. But in 2015 the winners have already separated from the losers in my opinion. There's maybe 5 to 10 companies on the Luma chart that are winners (outside of FB, Google etc). And to be a winner you need revenue growth, real profits and real cashflow (I'm talking net income, not adjusted EBITDA).

swingbridge 11y ago

The targeted ad technology sucks. It basically just shows me ads for things that I've already purchased... for months afterwards. Also, I'm convinced most other ads just don't work. Once those finding this current circus realize the above the bottom is about to fall out of the market real quick (and many "apps" / "sites" that rely purely on ad revenue wil go with it).

swingbridge 11y ago

padobson 11y ago

I don't immediately agree with the premise of this article: that the consumer pays an advertising tax on the good or service being purchased. I tend to believe that advertising actually adds value to the good or service, especially when it's exactly the same as a competing good. When you buy General Mills' Honey Nut Cheerios instead of Offbrand Honey Oats, the advertising on the sale has actually payed for itself and then some, increasing the profit margin above the good itself. On a macroeconomic scale, the best example I can think of is the Soviet Union. Advertising was thought to be a drain on society under the Marxist thinking of the time, so the Soviet Union didn't allow it. But then they found without advertising, it led to under consumption. I think there were other problems too, but eventually the Soviets started advertising, despite their initial misgivings about it. A quick google didn't reveal any good citations, so I'm certainly open to other ideas on this, but my main point is that this article over-simplifies the value that advertising generates for an industry. Edit: Found an interesting article on the Communist world's relationship with advertising: http://www.acrwebsite.org/volumes/5816/volumes/v03/NA-03 http://www.acrwebsite.org/volumes/5816/volumes/v03/NA-03

bgilroy26 11y ago
Why bother selling Offbrand Honey Oats if you can't offer your customers a discounted version of the leading brand?
gnoway 11y ago
Adds value from the perspective of the seller, sure. If I buy the honey nut cheerios vs. the off brand honey oats, I've received poor value because I've paid more for the same thing. And it's only adding value for the seller if they can sell the product for more than they pay in advertising - if this wasn't the case, people would not advertise because they would lose money. I'd also like to suggest that the Soviet 'underconsumption' you speak of might be better characterized as 'proper consumption'. It's not a mandate that we buy a product just because someone's selling it.
- padobson 11y ago
  I've received poor value because I've paid more for the same thing. I disagree with this completely. Did you buy it because price wasn't important to you and it was on a more convenient shelf? General Mills paid for that shelf space out of their marketing budget, so the added value was convenience. Did you buy it because your kid likes the cartoon bee and wouldn't eat any other cereal? Then the added value was entertainment. This is the same value you get when you buy a movie ticket. What about when someone buys shoes from Gucci as opposed to loafers from Kmart? The consumer is paying for the marketing, without question. But they're getting something for their money - self esteem, status, etc.

htormey 11y ago

This article seems very light on data to back up its main claim: "You'll notice that the incoming and outgoing arrows in this diagram aren't equal. There's more money being made from advertising than consumers are putting in" All the figures I have seen seem to show the exact opposite, i.e that online advertising is growing and profitable, for example see: http://venturebeat.com/2015/05/27/this-is-mary-meekers-eye-popping-2015-internet-trends-report/ http://venturebeat.com/2015/05/27/this-is-mary-meekers-eye-p...

smartera 11y ago

(I work in market research industry for promotions/ad optimization and effectiveness; off and on-line) I agree completely with Maciej points. There is one other factor that should be considered; the more ads served to us (normal consumers); the less our reception to them is thus the new ads need to be more powerful. Only giant companies can fund the creativity and subtlety needed for very effective ads on a large consumer scale; everything else is noise in the consumer mind except for tiny well-targeted niches. Those are the two groups (giant companies and very niche businesses) that will survive the consumer-ad bubble burst easiest.

Dirlewanger 11y ago

Any word on these mentioned startups trying to circumvent ad blockers? What are some of them/what are they using?

fweespeech 11y ago

1) People don't really want to understand how they are getting fucked. They are getting fucked gently enough they don't care. 2) There will be no reckoning. There will be "bubbles" like any other industry but, ultimately, they'll recover at the same pace of housing did after 2008. I'm sure people who post these articles will be convinced that was the "reckoning" but it is just the normal cycle of business in the capitalist system. 3) All this article does is really re-hash the history that has existed for decades and, ultimately, is "necessary" for mass market sales. The corner mom & pop doesn't need to advertise in this manner because its local and the locals advertise for them via word of mouth. Its also dead outside of the service industry because even with the cost of advertising its cheaper to advertise+mass produce. [i.e. restaurants, barbers]

intrasight 11y ago

"The prognosis for publishers is grim. Repent! Find a way out of the adtech racket before it collapses around you."

intrasight 11y ago

And it not just advertising. My understanding is that consumers pay less for Amazon products than those products cost Amazon to deliver. The difference is being made up by Amazon investors.

dangrossman 11y ago
That's not the case. Amazon's e-commerce division is profitable. Last quarter it showed a bit over half a billion in profit.

connoredel 11y ago

The idea that advertising is a consumption tax is wrong. You don't use "cost-based pricing" in advertising (i.e., you don't decide how much to charge to make sure you are covering your costs of acquisition). You decide how much to spend on a given ad channel based on the average revenue you expect to get from a customer. There may be other important metrics like payback period -- or sometimes even less tangible things like the number of customers may be important if scale is an end in itself -- but in any case, rational people in charge of acquisition are making sure they are getting some benefit out of the ads at the optimal price that was set independently. If you start marking your price up beyond what people are willing to pay just because you want to make some ad channel effective, you'll see conversion drop and the channel will become _even more inneffective_. I would argue that two companies with identical products -- one who acquires customers organically and one who acquires customers through advertising -- should set the same price. The first will have higher net margins but the other will enjoy more total profit if they are smart.

JacobJans 11y ago

The diagram being used to demonstrate the complexity of the ad space is ridiculous. For example, listed under "infrastructure:" - Google - Php - Stack overflow - jQuery Need I go on?

shawlang 11y ago

Great points

alanh 11y ago

It’s been festering for a while. Three years ago, I overheard (in SF): > [Overheard]: Online advertising is getting bizarre; it’s almost like derivatives trading… (original: https://twitter.com/AlanHogan/status/268458504673693696 https://twitter.com/AlanHogan/status/268458504673693696)