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There's no long term risk to google and other ad exchanges because the advertisers are in a prisoners dilemma. If the advertisers collude or trust that the com

There's no long term risk to google and other ad exchanges because the advertisers are in a prisoners dilemma. If the advertisers collude or trust that the competitors won't increases ad spend, the relative market share stays the same and all companies participating enjoy increased margins. The first company to break gains market share, so as a result they all "overspend" and google is the only one that benefits. The worst part is the cost of google's margin is baked into product pricing, so the end result is we pay more to have the companies compete to advertise to us.

tmpz22 6y ago
OR ads aren't that effective in the first place and the whole industry is a house of cards propped up by middleman making their fat margins convincing people ads are necessary...
- edmundsauto 6y ago
  Possibly true, although the ad industry has survived a number of significant transitions (print/radio/tv/digital/placement), plus 2 primary incarnations (direct & branding). Over the same time, the industry has gotten much more sophistication in measuring return on ad spend. All while growing by leaps and bounds. I certainly conceded it's possible that your statement is true. I'm skeptical of most marketers claims. However, I have to acknowledge the scope of the deception if indeed it is a house of cards. That's a lot of smart people wasting a lot of money in a lot of different ways over a century of the biggest growth phase experienced by civilization.
  - naravara 6y ago
    >Over the same time, the industry has gotten much more sophistication in measuring return on ad spend. All while growing by leaps and bounds. The trick is, the ad industry people are the ones who design all the KPIs that determine the efficacy of ad campaigns. So there's a bit of a self-serving incentive there that could be degrading the quality of the information. There is clearly some evidence that ad spending does help, particularly with building brand awareness and goosing demand. I think the jury is still out on how much and to what extent specific user tracking/targeting strategies work though.
- oarabbus_ 6y ago
  Ads aren't effective in the first place? How do you justify such a statement?
  - Spivak 6y ago
    I know, it's bonkers that people hold this position when so many startups live and die by their customer acquisition rents. Do you think startups like Casper and Blue Apron want to hundreds of dollars just to get a single person in the door to buy something and pray they stay for at least 6 months / don't return the thing just so they can hit their break-even point? Like if this was all a house of cards it would have collapsed by now since there are millions of eyes trying desperately to reduce the need for their ad spend. So yeah, that quirky overproduced Doritos TV ad probably isn't doing all that much but for businesses that don't already have a critical mass of mindshare it's your lifeline.
    - thehappypm 6y ago
      It's definitely important for Doritos. Walk into a convenience store and you'll see a bazillion brands of chips, most of which are healthier or tastier than Doritos. Yet time and time again people go for the old faithful brands. You stop doing brand advertising, that dries up.
    - ac29 6y ago
      Blue Apron seems like a terrible example - their stock has collapsed by over 90% from IPO. And they were actually doing worse before the covid-19 crisis.
      - Spivak 6y ago
        I mean I would expect a company doing food delivery to have an uptick when people are trying to avoid going to the grocery store.
- friedman23 6y ago
  > OR ads aren't that effective in the first place Is this what you want to believe or do you have data to back it up?
  - TeMPOraL 6y ago
    No, you need data to prove that they're effective. Preferably not data helpfully provided by the very company you're buying the ads from.
- TA129875 6y ago
  Advertisers aren't idiots, they measure the effectiveness of their ad dollars. If they couldn't show a positive ROI they wouldn't keep spending money on it.
  - tonyedgecombe 6y ago
    I'm fairly confident many advertisers don't have a clue about the effectiveness of their ad spend. This isn't helped by all the dark patterns in the Adwords control panel, every new option they introduce is defaulted in their favour.
    - thehappypm 6y ago
      Does this sound like a real scenario? CMO: We spent $100,000 on AdWords. CEO: What was the ROI? CMO: No clue.
      - sidlls 6y ago
        Of course not, but that doesn't mean the "analysis" used to derive the numbers the CMO presents justifies the claims.
      - karatestomp 6y ago
        Considering how terrible almost everyone seems to be at measuring things generally, or at setting up the conditions for meaningful measurement, or getting buy-in for more effective measurements because they come at some cost and “what Jim’s been doing seems fine” (it absolutely is not) I’m skeptical that advertising folks are somehow much better at this than everyone else, and if they’re not a lot better then they’re still fairly bad.
        root_axis 6y ago
        These things are pretty easy to measure, you literally just measure the amount of conversions when ad spend is on vs when it is off.
- ipsum2 6y ago
  Google is a hundred-billion dollar company precisely because it allows advertisers to see how effective their cost per sale (or action) is, compared to TV or newspapers, where advertisers are flying blind.
  - hardtke 6y ago
    Measuring the effectiveness of brand advertising on YouTube is more difficult that measuring TV/newspapers. TV and newspapers have higher repetition at an individual consumer level so the "which newspapers do you read?" or "which programs do you watch?" survey questions work. Additionally TV and newspapers have older audiences who are both more tolerant to ads and susceptible to brand advertising. YouTube is not particularly effective for CPA advertising so the technologies from other Google ad products are not that relevant.
    - thebean11 6y ago
      Why would you need a survey question to track YouTube habits? Google already has that data, why wouldn't they just correlate that to a future purchase you make?
      - ethbro 6y ago
        Because reconciliation across sessions and platforms is non-trivial. Especially with browsers become increasingly adversarial (aka pro-privacy). https://www.quora.com/How-can-I-reconcile-Facebook-advertising-sales-reported-by-Google-Analytics-with-Facebook-2-5X-difference https://www.quora.com/How-can-I-reconcile-Facebook-advertisi...
      - hardtke 6y ago
        Statistically reliable purchases studies are very challenging. People have multiple credit cards and sometimes pay cash. If you are buying a car you don't put it on the credit card. Additionally, you have multiple cookies/MAIDS that may or may not be associate with the same person/credit card. Even companies with Google or Facebook resources can't get this to work reliably. If it is a direct response advertiser, of course, you tell Google/Facebook that a purchase is made, but these advertisers are not the bulk of the market and many advertisers don't want to give Google that data.
- freepor 6y ago
  I had a whole company that I sold to an FAANG that only existed because of Google Ads. It solved a very niche technical problem that you could never go and market on a billboard — the target customer was too niche. But with Google Ads I could find them Googling “How to do X to file type Y” and sell them my software right at that moment.
- deleted 6y ago
  [deleted]
- pembrook 6y ago
  I've noticed HN often has two opinions about advertising depending on the day of the week: 1) It's an unchecked, all-powerful evil, making people buy or believe in things they don't want or need by hoarding their data or 2) It's a giant ineffective scam that stupid companies who aren't led by engineers waste VC money on The two are diametrically opposed, yet, I've seen the same person argue #1 on Monday when it fits the narrative, and then on Tuesday start arguing #2--blissfully unaware of how both cannot be true at the same time. Could it be, that both 1 and 2 are wrong, and that advertising spend is simply reduced during recessions in reaction to the reduction in spending by consumers? Why pay money to acquire customers when the customers aren't willing to spend money on new products?
  - DHPersonal 6y ago
    I think most people are uncomfortable to admit how effective advertising really is on every person, so as a result, they think up multiple reasons to protest its existence, even if they don’t always make sense as a whole. My opinion on this apparent contradiction is that some who say advertising research is dangerous also believe it is inherently ineffective — that the intrusive advertising methods used now are as helpful as general surface-level research on customers — but it’s the treasure trove of personal information that is dangerous to us all, as it is readily available for abuse.
  - ethbro 6y ago
    Maybe it's an unchecked, all-powerful evil that hoards people's data, ineffective at making people buy or believe in things they don't want or need?
  - jonny_eh 6y ago
    > I've seen the same person argue Really? You remember who says what on HN?
    - nostrademons 6y ago
      Comment histories are public. It's not hard to look at their /threads page and see what they were saying a day ago.
- codexon 6y ago
  Ads really work. I have a hard time believing there's any company that put effort into having decent ads and found that they did nothing. The only question is if they are fairly priced. It could be argued that they were overpriced due to over-funded companies overbidding on them trying to growth hack and bot traffic being mixed in.
- pascalxus 6y ago
  There was an article written up about ebay and how they paid 20 million$ per year for that first google slot for certain keywords. Then some consultant came to Ebay and proved, without a doubt that the ads don't work. So, they created a test: they removed the 20 million $ worth of ads for that top slot and watched the traffic afterwards, it was pretty much unchanged! It's because All those people that clicked on those ads, were going to come to ebay anyways, despite the ads, not because of the ads.
- xiphias2 6y ago
  Advertising is effective as long as you have lots of VC money to compete with other competitors by overspending. It's far less effective if the company has to be profitable. The future of ad revenue will depend on when the VC bubble will pop. As long as the interest rates stay 0%, it's not over yet.
  - scarface74 6y ago
    Look at what happened to Yahoo after the dotcom bust and startups weren’t using VC money for advertising.
- root_axis 6y ago
  Of course they're effective, how could you even imagine that they are not? All available evidence overwhelmingly demonstrates that they are highly effective, it is the fossil fuel that powers literally all popular media.
AmericanChopper 6y ago
This is only true for established brands, selling products that don’t change, in saturated markets. Even then it’s only partially true, because the markets themselves are always changing (chances are at least somebody in the world drank a coke for the very first time today). It also doesn’t account for the fact that even if all those factors are truely static (or close enough), that product differentiation strategies can still be used successfully (which is again something you see coke doing a lot). That paradigm really only applies to a very specific type of advertising, under very specific market conditions, and doesn’t apply to the majority of the worlds advertisers.
aherhe4haeahe 6y ago
You are referring to the game-theory model of advertisement spending; but when game-theoretic decisions are made stochastically over time, it becomes a congestion game[1] [1] https://en.wikipedia.org/wiki/Congestion_game https://en.wikipedia.org/wiki/Congestion_game
- vikramkr 6y ago
  In layman's terms (the wikipedia is a terrible layman's description) - a congestion game is one where a particular strategy gets less attractive the more people choose to. Advertising spending, for example in the context of tobacco advertisements, is actually a pretty classic example of what the person you are replying to said though. You'll have to clarify what you mean by making decisions atochastically and how exactly this ends up a congestion game. If everyone else is advertising their cigarette brand, your optimal strategy is to advertise as well, which is not a congestion game. You just end up with a dominant strategy of "advertise" for a differentiated product, which means it is better for you to advertise no matter what. It can also go the other way in advertising though. For example if you sell some undifferentiated product like a commodity, no individual wants to advertise since driving demand for the commodity helps everyone in the market while you have to bear the cost.
DeathArrow 6y ago
That doesn't work for me. I don't generally buy products I see in ads or commercials because I think that a good product doesn't need advertising. I try to discover products myself and do my own research on them. Whether is about food, clothing, cars, art, books, computers or services. If I can't research it myself, I'd ask someone with more expertise.
- jagannathtech 6y ago
  We are a miniscule minority.
tastygreenapple 6y ago
The demand fell, supply went up dramatically and there's a new equilibrium. Very few advertisers are actually in a true "prisoner's dilemma" in the sense that they're fighting tooth and nail in the same market as another company and parsing back advertising will cost them dramatic marketshare. First, a lot of demand is supply constrained - lysol is going to sell their wipes no matter what, so advertisers can easily defect. Secondly, advertisers may be locked in a competition broadly but not in a specific channel. Your youtube channel probably isn't your best ROI or its easy to cut back spend and just invest in your most performant channel - it's often not youtube for these companies.

tmpz22 6y ago

OR ads aren't that effective in the first place and the whole industry is a house of cards propped up by middleman making their fat margins convincing people ads are necessary...

edmundsauto 6y ago
Possibly true, although the ad industry has survived a number of significant transitions (print/radio/tv/digital/placement), plus 2 primary incarnations (direct & branding). Over the same time, the industry has gotten much more sophistication in measuring return on ad spend. All while growing by leaps and bounds. I certainly conceded it's possible that your statement is true. I'm skeptical of most marketers claims. However, I have to acknowledge the scope of the deception if indeed it is a house of cards. That's a lot of smart people wasting a lot of money in a lot of different ways over a century of the biggest growth phase experienced by civilization.
- naravara 6y ago
  >Over the same time, the industry has gotten much more sophistication in measuring return on ad spend. All while growing by leaps and bounds. The trick is, the ad industry people are the ones who design all the KPIs that determine the efficacy of ad campaigns. So there's a bit of a self-serving incentive there that could be degrading the quality of the information. There is clearly some evidence that ad spending does help, particularly with building brand awareness and goosing demand. I think the jury is still out on how much and to what extent specific user tracking/targeting strategies work though.
oarabbus_ 6y ago
Ads aren't effective in the first place? How do you justify such a statement?
- Spivak 6y ago
  I know, it's bonkers that people hold this position when so many startups live and die by their customer acquisition rents. Do you think startups like Casper and Blue Apron want to hundreds of dollars just to get a single person in the door to buy something and pray they stay for at least 6 months / don't return the thing just so they can hit their break-even point? Like if this was all a house of cards it would have collapsed by now since there are millions of eyes trying desperately to reduce the need for their ad spend. So yeah, that quirky overproduced Doritos TV ad probably isn't doing all that much but for businesses that don't already have a critical mass of mindshare it's your lifeline.
  - thehappypm 6y ago
    It's definitely important for Doritos. Walk into a convenience store and you'll see a bazillion brands of chips, most of which are healthier or tastier than Doritos. Yet time and time again people go for the old faithful brands. You stop doing brand advertising, that dries up.
  - ac29 6y ago
    Blue Apron seems like a terrible example - their stock has collapsed by over 90% from IPO. And they were actually doing worse before the covid-19 crisis.
    - Spivak 6y ago
      I mean I would expect a company doing food delivery to have an uptick when people are trying to avoid going to the grocery store.
friedman23 6y ago
> OR ads aren't that effective in the first place Is this what you want to believe or do you have data to back it up?
- TeMPOraL 6y ago
  No, you need data to prove that they're effective. Preferably not data helpfully provided by the very company you're buying the ads from.
TA129875 6y ago
Advertisers aren't idiots, they measure the effectiveness of their ad dollars. If they couldn't show a positive ROI they wouldn't keep spending money on it.
- tonyedgecombe 6y ago
  I'm fairly confident many advertisers don't have a clue about the effectiveness of their ad spend. This isn't helped by all the dark patterns in the Adwords control panel, every new option they introduce is defaulted in their favour.
  - thehappypm 6y ago
    Does this sound like a real scenario? CMO: We spent $100,000 on AdWords. CEO: What was the ROI? CMO: No clue.
    - sidlls 6y ago
      Of course not, but that doesn't mean the "analysis" used to derive the numbers the CMO presents justifies the claims.
    - karatestomp 6y ago
      Considering how terrible almost everyone seems to be at measuring things generally, or at setting up the conditions for meaningful measurement, or getting buy-in for more effective measurements because they come at some cost and “what Jim’s been doing seems fine” (it absolutely is not) I’m skeptical that advertising folks are somehow much better at this than everyone else, and if they’re not a lot better then they’re still fairly bad.
      - root_axis 6y ago
        These things are pretty easy to measure, you literally just measure the amount of conversions when ad spend is on vs when it is off.
ipsum2 6y ago
Google is a hundred-billion dollar company precisely because it allows advertisers to see how effective their cost per sale (or action) is, compared to TV or newspapers, where advertisers are flying blind.
- hardtke 6y ago
  Measuring the effectiveness of brand advertising on YouTube is more difficult that measuring TV/newspapers. TV and newspapers have higher repetition at an individual consumer level so the "which newspapers do you read?" or "which programs do you watch?" survey questions work. Additionally TV and newspapers have older audiences who are both more tolerant to ads and susceptible to brand advertising. YouTube is not particularly effective for CPA advertising so the technologies from other Google ad products are not that relevant.
  - thebean11 6y ago
    Why would you need a survey question to track YouTube habits? Google already has that data, why wouldn't they just correlate that to a future purchase you make?
    - ethbro 6y ago
      Because reconciliation across sessions and platforms is non-trivial. Especially with browsers become increasingly adversarial (aka pro-privacy). https://www.quora.com/How-can-I-reconcile-Facebook-advertising-sales-reported-by-Google-Analytics-with-Facebook-2-5X-difference https://www.quora.com/How-can-I-reconcile-Facebook-advertisi...
    - hardtke 6y ago
      Statistically reliable purchases studies are very challenging. People have multiple credit cards and sometimes pay cash. If you are buying a car you don't put it on the credit card. Additionally, you have multiple cookies/MAIDS that may or may not be associate with the same person/credit card. Even companies with Google or Facebook resources can't get this to work reliably. If it is a direct response advertiser, of course, you tell Google/Facebook that a purchase is made, but these advertisers are not the bulk of the market and many advertisers don't want to give Google that data.
freepor 6y ago
I had a whole company that I sold to an FAANG that only existed because of Google Ads. It solved a very niche technical problem that you could never go and market on a billboard — the target customer was too niche. But with Google Ads I could find them Googling “How to do X to file type Y” and sell them my software right at that moment.
deleted 6y ago
[deleted]
pembrook 6y ago
I've noticed HN often has two opinions about advertising depending on the day of the week: 1) It's an unchecked, all-powerful evil, making people buy or believe in things they don't want or need by hoarding their data or 2) It's a giant ineffective scam that stupid companies who aren't led by engineers waste VC money on The two are diametrically opposed, yet, I've seen the same person argue #1 on Monday when it fits the narrative, and then on Tuesday start arguing #2--blissfully unaware of how both cannot be true at the same time. Could it be, that both 1 and 2 are wrong, and that advertising spend is simply reduced during recessions in reaction to the reduction in spending by consumers? Why pay money to acquire customers when the customers aren't willing to spend money on new products?
- DHPersonal 6y ago
  I think most people are uncomfortable to admit how effective advertising really is on every person, so as a result, they think up multiple reasons to protest its existence, even if they don’t always make sense as a whole. My opinion on this apparent contradiction is that some who say advertising research is dangerous also believe it is inherently ineffective — that the intrusive advertising methods used now are as helpful as general surface-level research on customers — but it’s the treasure trove of personal information that is dangerous to us all, as it is readily available for abuse.
- ethbro 6y ago
  Maybe it's an unchecked, all-powerful evil that hoards people's data, ineffective at making people buy or believe in things they don't want or need?
- jonny_eh 6y ago
  > I've seen the same person argue Really? You remember who says what on HN?
  - nostrademons 6y ago
    Comment histories are public. It's not hard to look at their /threads page and see what they were saying a day ago.
codexon 6y ago
Ads really work. I have a hard time believing there's any company that put effort into having decent ads and found that they did nothing. The only question is if they are fairly priced. It could be argued that they were overpriced due to over-funded companies overbidding on them trying to growth hack and bot traffic being mixed in.
pascalxus 6y ago
There was an article written up about ebay and how they paid 20 million$ per year for that first google slot for certain keywords. Then some consultant came to Ebay and proved, without a doubt that the ads don't work. So, they created a test: they removed the 20 million $ worth of ads for that top slot and watched the traffic afterwards, it was pretty much unchanged! It's because All those people that clicked on those ads, were going to come to ebay anyways, despite the ads, not because of the ads.
xiphias2 6y ago
Advertising is effective as long as you have lots of VC money to compete with other competitors by overspending. It's far less effective if the company has to be profitable. The future of ad revenue will depend on when the VC bubble will pop. As long as the interest rates stay 0%, it's not over yet.
- scarface74 6y ago
  Look at what happened to Yahoo after the dotcom bust and startups weren’t using VC money for advertising.
root_axis 6y ago
Of course they're effective, how could you even imagine that they are not? All available evidence overwhelmingly demonstrates that they are highly effective, it is the fossil fuel that powers literally all popular media.

AmericanChopper 6y ago

This is only true for established brands, selling products that don’t change, in saturated markets. Even then it’s only partially true, because the markets themselves are always changing (chances are at least somebody in the world drank a coke for the very first time today). It also doesn’t account for the fact that even if all those factors are truely static (or close enough), that product differentiation strategies can still be used successfully (which is again something you see coke doing a lot). That paradigm really only applies to a very specific type of advertising, under very specific market conditions, and doesn’t apply to the majority of the worlds advertisers.

aherhe4haeahe 6y ago

You are referring to the game-theory model of advertisement spending; but when game-theoretic decisions are made stochastically over time, it becomes a congestion game[1] [1] https://en.wikipedia.org/wiki/Congestion_game https://en.wikipedia.org/wiki/Congestion_game

vikramkr 6y ago
In layman's terms (the wikipedia is a terrible layman's description) - a congestion game is one where a particular strategy gets less attractive the more people choose to. Advertising spending, for example in the context of tobacco advertisements, is actually a pretty classic example of what the person you are replying to said though. You'll have to clarify what you mean by making decisions atochastically and how exactly this ends up a congestion game. If everyone else is advertising their cigarette brand, your optimal strategy is to advertise as well, which is not a congestion game. You just end up with a dominant strategy of "advertise" for a differentiated product, which means it is better for you to advertise no matter what. It can also go the other way in advertising though. For example if you sell some undifferentiated product like a commodity, no individual wants to advertise since driving demand for the commodity helps everyone in the market while you have to bear the cost.

DeathArrow 6y ago

That doesn't work for me. I don't generally buy products I see in ads or commercials because I think that a good product doesn't need advertising. I try to discover products myself and do my own research on them. Whether is about food, clothing, cars, art, books, computers or services. If I can't research it myself, I'd ask someone with more expertise.

jagannathtech 6y ago
We are a miniscule minority.

tastygreenapple 6y ago

The demand fell, supply went up dramatically and there's a new equilibrium. Very few advertisers are actually in a true "prisoner's dilemma" in the sense that they're fighting tooth and nail in the same market as another company and parsing back advertising will cost them dramatic marketshare. First, a lot of demand is supply constrained - lysol is going to sell their wipes no matter what, so advertisers can easily defect. Secondly, advertisers may be locked in a competition broadly but not in a specific channel. Your youtube channel probably isn't your best ROI or its easy to cut back spend and just invest in your most performant channel - it's often not youtube for these companies.