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> dramatically increased competition for ad space, ... lowered prices ... grew the market ... incumbents weren't making as much money ... increased competition.

> dramatically increased competition for ad space, ... lowered prices ... grew the market ... incumbents weren't making as much money ... increased competition. My assumptions have long been that while total ad spending has been fairly stable, the business shifted to digital. In other words, FAANG did not grow the size of the ad market, merely captured it. Sadly, I can't quickly find any cites. If I understand your points correctly, there are now more ads for same overall spend. Roughly speaking.

AnthonyMouse 6y ago
So really two things happened as a result of the internet. One, there are now many more places to buy advertising. People are seeing more advertising than they ever did before, and there is more competition to provide space. Two, demographic targeting. Suppose you sell widgets at a margin of $10/customer. You buy an ad in the newspaper, 10% of the readers are prospective customers, 5% of the prospective customers buy the product because of the ad, so showing the ad to 50,000 readers is worth $2500. The newspaper knows this, and the market lacks competition, so that's about how much they charge. The internet comes in. Now you can target based on demographics, so the percentage of people who see your ad who are prospective customers is now 40% instead of 10%, and showing it to 50,000 people is now worth $10,000. But there are also many more sites competing to sell advertising, so the ad network doesn't get $10,000, it gets e.g. $1000. Then the advertiser says holy cow, we can make $10,000 by buying $1000 in advertising? Buy more until diminishing returns causes the marginal value to get back to breakeven. Go buy $5000 in advertising. They end up spending twice as much as before even though the price is lower. (Remember though that advertising is mostly zero sum. The advertiser isn't actually making a ton more money all of a sudden because their competitors do the same thing and it cancels out. They're only buying that amount of advertising because that's the amount of sales they lose if they don't.) So the advertiser pays twice as much as they used to in order to get more value (or avoid losing more value) than they used to. But most of the money is going to Facebook and Google and diffused out to a million random kitten blogs, when it used to go to local media outlets.
- specialist 6y ago
  Belated reply, sorry. I'm just a simple bear. Thank you. Three (of your many points) stand out to me and are not receiving enough attention (criticism). 1. People are seeing more ads. I'd love to see this quantified. Attention theft is another form of pollution, right? Just like we're starting to quantify the impact of noise and light pollution on both our physical health and mental well being. (I live a mostly ad-free existence. It's always quite jarring when I step outside of my personal filter bubble. Like doing eldercare for my mom, airports, shopping, dining. TVs blaring every where. It's surreal.) 2. advertisers are spending more I don't doubt that advertisers are spending more online. I would like to know (confirm) if overall ad spending has much changed. Or perhaps the population of advertisers has changed. So some types of businesses are now advertising less, and others have embraced digital ads, and therefore make up the difference. Personal anecdote: A sibling opened a neighborhood retail knickknacks (aka "shit you don't need") store. The performance of Facebook and instagram ads is surprisingly good. So I'm now certain that targeted ads are fantastic for at least some advertisers. Or perhaps what's considered advertising has changed. With the decline of brand based campaigns and rise of ad blocking, there is more product placement and payola (influencers). I have no idea how non advertising marketing dollars are accounted for; probably something like surveying CMOs. I've skim read reports that marketing budgets as percentage of revenue has been stable thru the shift to digital. 3. ad performance is going down This is very interesting. I've long assumed that a huge fraction of digital advertising is fraudulent. Examples abound of Facebook lying, belatedly revising metrics downward, remarkable coincidences that errors always favor the aggregator, etc. But maybe the bigger scandal is declining performance. I would totally believe this; diminishing returns and all that. We (society) are completely saturated, so excess advertising may even be detrimental. Worse example I can think of is political advertising. -- Thanks again. I wish critics would better address all the points you touch on.

AnthonyMouse 6y ago

So really two things happened as a result of the internet. One, there are now many more places to buy advertising. People are seeing more advertising than they ever did before, and there is more competition to provide space. Two, demographic targeting. Suppose you sell widgets at a margin of $10/customer. You buy an ad in the newspaper, 10% of the readers are prospective customers, 5% of the prospective customers buy the product because of the ad, so showing the ad to 50,000 readers is worth $2500. The newspaper knows this, and the market lacks competition, so that's about how much they charge. The internet comes in. Now you can target based on demographics, so the percentage of people who see your ad who are prospective customers is now 40% instead of 10%, and showing it to 50,000 people is now worth $10,000. But there are also many more sites competing to sell advertising, so the ad network doesn't get $10,000, it gets e.g. $1000. Then the advertiser says holy cow, we can make $10,000 by buying $1000 in advertising? Buy more until diminishing returns causes the marginal value to get back to breakeven. Go buy $5000 in advertising. They end up spending twice as much as before even though the price is lower. (Remember though that advertising is mostly zero sum. The advertiser isn't actually making a ton more money all of a sudden because their competitors do the same thing and it cancels out. They're only buying that amount of advertising because that's the amount of sales they lose if they don't.) So the advertiser pays twice as much as they used to in order to get more value (or avoid losing more value) than they used to. But most of the money is going to Facebook and Google and diffused out to a million random kitten blogs, when it used to go to local media outlets.

specialist 6y ago
Belated reply, sorry. I'm just a simple bear. Thank you. Three (of your many points) stand out to me and are not receiving enough attention (criticism). 1. People are seeing more ads. I'd love to see this quantified. Attention theft is another form of pollution, right? Just like we're starting to quantify the impact of noise and light pollution on both our physical health and mental well being. (I live a mostly ad-free existence. It's always quite jarring when I step outside of my personal filter bubble. Like doing eldercare for my mom, airports, shopping, dining. TVs blaring every where. It's surreal.) 2. advertisers are spending more I don't doubt that advertisers are spending more online. I would like to know (confirm) if overall ad spending has much changed. Or perhaps the population of advertisers has changed. So some types of businesses are now advertising less, and others have embraced digital ads, and therefore make up the difference. Personal anecdote: A sibling opened a neighborhood retail knickknacks (aka "shit you don't need") store. The performance of Facebook and instagram ads is surprisingly good. So I'm now certain that targeted ads are fantastic for at least some advertisers. Or perhaps what's considered advertising has changed. With the decline of brand based campaigns and rise of ad blocking, there is more product placement and payola (influencers). I have no idea how non advertising marketing dollars are accounted for; probably something like surveying CMOs. I've skim read reports that marketing budgets as percentage of revenue has been stable thru the shift to digital. 3. ad performance is going down This is very interesting. I've long assumed that a huge fraction of digital advertising is fraudulent. Examples abound of Facebook lying, belatedly revising metrics downward, remarkable coincidences that errors always favor the aggregator, etc. But maybe the bigger scandal is declining performance. I would totally believe this; diminishing returns and all that. We (society) are completely saturated, so excess advertising may even be detrimental. Worse example I can think of is political advertising. -- Thanks again. I wish critics would better address all the points you touch on.