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Advertising. Three of the largest, most influential and defining technology companies of our lifetime (Google, Facebook, Twitter) make money pretty much solely

• zalew 13y ago
  > What is the future of advertising? the same as the future of capitalism. advertising will exist as long as people sell shit.
• drinkzima 13y ago
  It probably makes the most sense to just look at advertising as a share of GDP or some sort of sales metric (this page indicates it has been pretty stable for the last 50+ years: http://www.niemanlab.org/2009/08/can-newspaper-publishers-survive-this-revenue-freefall-perhaps-if-they-embrace-a-digital-future/ http://www.niemanlab.org/2009/08/can-newspaper-publishers-su...). There isn't any obvious reason it would drop over time, I think the bigger question is how will advertising evolve over time.
  • sheri 13y ago
    Something like a Yelp or Tripadvisor seemingly has made it seem possible for restaurants (or hotels) to not advertise anymore. If you provide good food and good service, your restaurant/coffee-shop should bubble up to the top and be seen consistently by a lot of people. This is a simplistic take on the restaurant business of which I know nothing about, but at least that seems like a plausible scenario.
    • nine_k 13y ago
      As someone who ran a restaurant I can say that being well-known, in a prime location, and easy to google does not completely remove the need in ads, much like it doesn't remove the need to have a signboard. For a known brand ads serve as a means to say "we are here, we are alive, we do well". That's why Coca-Cola or McDonald's keep running ads, despite the fact that everyone in the world is aware of them. This is not unlike wearing an expensive necktie on public, or having a gold watch 100 years ago; it's the same sort of signaling a peacock uses his tail for. If you stop putting your ads before public's eyes, sales start to slump. Maybe this is not so for a brand with a small cult following, but such brands are few. So advertising is not going to go away, as much as luxury items market is not going to go away. It may shrink a bit when times are hard, it may migrate to different media (from paper to TV to computer screen), but not disappear.
• nashequilibrium 13y ago
  "Three of the largest, most influential and defining technology companies of our lifetime (Google, Facebook, Twitter) make money pretty much solely through advertising." lol, a couple weeks ago i got into real deep thought about this and realized the same thing. The question i asked was what spurred this, companies relevant from the eighties and nineties like apple, amazon, microsoft all sell something. Then i realized that it may have been the huge success of google and adwords that spurred this. Since every entrepreneur would use this excuse about how google just focused on product and thought about revenue later, yet implicitly these entrepreneurs already know that they will focus on ad revenue. All the companies making headlines today are or will be ad focused, snapchat, tumblr, vine, frontback, instagram etc. This has also created a situation where users expect a product for free and if you charge someone will make a clone with a slight twist and offer it for free, so developers rather offer it for free and not attempt charging. I find this phenomena mainly with social products but this is what VC's and guys like Mike Arrington find exciting. They find enterprise boring because you have to be methodical, know the business and sell! The one thing modern tech can take from wall street is the excitement in sales. I believe snapchat is worth around 800mill if this is the case then we should take TV series model for creating companies because we are in the business of making entertainment shows to last a few seasons. I am very excited when i hear about companies like nest, jawbone, pebble, nike fit, etc!
  • jacquesm 13y ago
    > Three of the largest, most influential and defining technology companies of our lifetime (Google, Facebook, Twitter) That's so funny it hurts. If Google, Facebook and Twitter would all disappear tomorrow the world would continue to revolve and productivity in general would likely be up. Techology companies that defined our lifetime exist (Intel, Microsoft, Apple, Sony, Samsung, etc) but are of a completely different kind. Google has the potential to become such a company, facebook and twitter not so much.
    • shin_lao 13y ago
      If Google, Facebook and Twitter would all disappear tomorrow the world would continue to revolve and productivity in general would likely be up. Google is really a useful tool and productivity would probably drop if it disappeared. How many technical answers did I get from Google? A lot! I agree about Facebook and Twitter however, it wouldn't surprise me that both company get myspaced in the next 10 years.
• samolang 13y ago
  It's similar to television. All of these companies have relatively fixed costs. When adding a new customer is super cheap, and your product has the potential to be super popular, then the optimal business plan is to maximize the number of customers even if revenue per person is tiny.
• tn13 13y ago
  Advertising will continue to exist but it will change forms. Once upon a time TV and Print media was the main source then it was desktop web. Today it is mobile and in future it will be something else like Google Glasses.
• gamegoblin 13y ago
  A YC13S company (Datarank) is using twitter data (among others) to try to quantify the general public's attitude towards certain products. So that's a possible revenue stream. Rather than a company paying to advertise, they pay to find out what people think about their products. https://www.datarank.com/ https://www.datarank.com/
  • loganu 13y ago
    I think that just means DataRank is a market research tool. It won't mean companies that use it will spend less on advertising, but it will help them target specific demographics, perceptions, etc more efficiently. Not less spending, just different.
  • samsolomon 13y ago
    I've thought a good bit about alternative revenue models for Twitter—Pro accounts that show statistics and keep your entire history, have developers pay for access to their API—I'm assuming they have gone through these ideas and realized they could make the most money from ads.
• mwsherman 13y ago
  Two things come to mind. First, 99% of advertising, at least in terms of impressions we see on web pages, fail to convert. Which tells me that this waste has to be squeezed out over time. Which tells me that a lot of people overpay for ads and perhaps ad sellers are in for a surprise, not unlike that experienced by print media. The other thing that comes to mind is that Twitter has the attention of celebrities and influentials, and they value what Twitter offers in terms of reach. Seems to me these are the people that will sustain it. It’s a specialized form of advertising, I suppose, but perhaps less buckshot.
  • kyledilger 13y ago
    Not all advertising is direct response (ie: looking at dollars in vs dollars out in specific advertising channels). There will always be a Coca-Cola or a P&G that care more about eyeballs than direct sales.
    • chii 13y ago
      yep - i think this is where the real dollars in advertising is to be made; namely, branding campaigns.
      • sdoering 13y ago
        I second that. Working for a publisher, I know, that it is most valuable for us, if any big brand covers our front page with a big eye-ball-grabbing-wallpaper. That is, where the money is.
• austenallred 13y ago
  The harsh reality is that at the moment advertisers will pay more for your attention than you will pay to use things. I remember when popcapgames did a kickstarter to make all of their games ad-free. It was basically, "Look, we're making a great profit, but if you pay enough to cover our costs we'll take the ads off." It wasn't anywhere close to covering the costs, let alone to what the advertisers would pay. There probably are some exceptions to this; people who have a passion or a love for some product, but for most consumer-facing products it's easier to tolerate a few ads than to shell out for everything you use.
  • javajosh 13y ago
    >pay more for your attention than you will pay to use things. I don't think we're given the choice very often. If there was a Facebook Premium that was no ads, no status filtering, and opted you out of the backend data-selling, would you consider it? I would. >I remember when popcapgames did a kickstarter to make all of their games ad-free I don't! That's awesome! But I didn't hear about it at all. See, that's an example of being given a choice, but not even knowing about it. (Pop Cap was probably not very serious about it - if they were, they would have pushed an ad)
    • wj 13y ago
      So, you're saying that you don't want ads but want to see ads to notify you of campaigns to make games ad free?
      • javajosh 13y ago
        Yep - I want the impossible. I don't mind seeing the ads that I want to see. It's a fairly narrow range of things, but at least I wouldn't find them intrusive.
    • eru 13y ago
      The problem is, people who have enough money to opt out of ads are exactly the ones that are worth advertising to.
• yetanotherphd 13y ago
  Ads are a proxy for micropayments. For various reasons, Google cannot charge you directly for their services. Instead, they show you an ad, which is effectively you paying them in attention, and they then sell this user attention to the advertisers.
• bialecki 13y ago
  We need a good feedback mechanism. Of the major forms of advertising (TV, radio, web, mobile), which allow you to respond to the ads? None so far. But I don't think it'll be that way for long.
  • disgruntledphd2 13y ago
    Facebook? Much as we all love to hate them, they do in fact offer the ability to remove ads from both the right hand side and the feed. I have no idea if this matters, but it is an attempt to allow feedback (at a relatively imprecise level).
• zanny 13y ago
  My personal impression is that the rise of advertising has emerged from the collapse of disposable income. In a world where everyone has wealth to spend, it is better to just make more goods people want to buy as efficiently as possible. In a world where everyone is poor, and losing money to capital siphoning through the rich (who do not evenly reinvest this capital into the economy, and expect reliable returns meaning more long term concentration of money), advertising becomes more relevant because you compete over scarce dollars and more so need to motivate purchases through psychological breaking down of a targets resistance to splurge buy something of yours. When actually making more goods doesn't make you more money (at least commodity goods, there is a growing market for the absurd luxury goods targeting those that own dividend stocks and have multiple houses and personal chefs) your alternative is to use psychological manipulation to drive the limited dollars towards your goods, even if it means the per-unit cost is higher. You make the gambit - persuade someone to buy, or don't sell at all because your product isn't really that competitve anymore when you are spending upwards of 30% of your budget on ads. Look no further than the evolution of the video game industry - since it is so new, it also shows this effect strongly, where the biggest titles like the CoD games can see 80% of their budget spent on advertising (cursory google search to get these numbers on the latest title, Black Ops 2, turned up nothing citeable). If you spend $28 million making a game, and $120 - 200 million on ads, your economic model must be fucked. So because you compete for scarce dollars, customers aren't coming to you, you need to manipulate customers into spending money they don't have. Hence why advertising is so huge, even with 1% click-through rates. All that concentrated wealth getting reinvested has limited alternative options of where to go, so you just try to pry more money out of people through bombardment.
  • ekianjo 13y ago
    > Look no further than the evolution of the video game industry - since it is so new, it also shows this effect strongly, where the biggest titles like the CoD games can see 80% of their budget spent on advertising (cursory google search to get these numbers on the latest title, Black Ops 2, turned up nothing citeable). If you spend $28 million making a game, and $120 - 200 million on ads, your economic model must be fucked. I highly doubt your 80% figure is anywhere near the mark. Even movies don't spend that much in promotion in %. You shouldn't bring out numbers if you cannot back them up, because that just makes the rest of your post less credible as well.
• deleted 13y ago
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• ChuckMcM 13y ago
  During the iron age the most successful companies were those that exploited iron, during the silicon age its companies that most successfully exploit information. That seems somewhat logical to me. As a species we're driving the costs out of creating things so everything becomes a commodity, and the value isn't in the making, it is in finding the one which meets your requirement in a sea of things that are all very similar, hence the value is in the finding, aka advertising (and to a lesser extent information distribution).
• virtualwhys 13y ago
  No, don't forget Data. Twitter sells its tweet data exclusively via Gnip, DataSift, and perhaps one or two other authorized data providers (i.e. they alone have access to 100% of Twitter's data pipeline, both historical and real-time). Using Twitter's public search API you can get a max of 1% access to their data pipeline. It's a racket, one that is making the authorized providers (and Twitter) heaps of cash. So, yes, advertising, but also data; those are the revenue streams that social media are creating IPO-able companies out of.
  • cssblondie 13y ago
    my understanding is that twitter doesn't make boatloads of cash off of licensing access to the likes of gnip/datasift/etc. more of a push towards where it wants its ecosystem to move. but yes, it is another rev stream.
    • virtualwhys 13y ago
      Huh? Tweet data is not free for public use (well, less than 1% is), although the public provides the very data that they are monetizing. We have a client who's willing to pay $10K/month for real-time tweet data pertaining to 20 search terms in the pharmaceutical industry, which is a small-time job for Gnip and Datasift. Check their pricing and tell me if you think Twitter is giving this data away for free. More likely they're taking a decent piece of the pie in exchange for access to the data. Social media data is crucial for companies to stay on top of current (and past) trends -- Twitter knows this, and are profiting, presumably hugely as they have the market cornered with deep pocket clients willing to pay, repeatedly, month after month.
• pbreit 13y ago
  Don't fight it. Advertising is an absolutely legitimate business and in fact vital to a dynamic economy. You are always going to see advertising where marginal costs to operate approach zero. It is by far the best way to take advantage of such situations.
• hnriot 13y ago
  I would argue that these are not the most influential technology companies of our lifetime at all. Google, yes, but what about Microsoft who put a PC on every desktop, or Apple maybe for taking the smartphone that Blackberry had invented and brought it to masses, or IBM for Watson, or Oracle for the Relational Database, or even Wordpress. Google revolutionized the internet, they did to data what MSFT did to computing, but FB and Twitter are essentially the same, one's a photo sharing site, the other wordpress for the twitch generation. What about GPS, hasn't that touched more lives in more meaningful ways that Twitter?
• ub 13y ago
  I have thought about this long and hard. Advertising seems like a necessary evil. Free services help to democratize the internet to some extent. Imagine if you had to pay for Google searches! Today, a kid in India can use the same search engine as a kid in the US. However, to address your question, advertising will not be able to support all the businesses of the future. The reason for the reliance on advertising for revenues is because of the shift of ad dollars to the internet from old media such as radio, print etc. Advertising seems like this massive source of revenue waiting to be tapped. It is really a temporary illusion of growth. Overall ad spending is not increasing dramatically, it's only being reallocated. Once the shift to digital is complete, digital advertising will track GDP growth (similar to offline advertising today). But complete allocation will take several decades more. A second reason for this reliance is lack of competition. Only a few companies have the scale needed to be attractive to advertisers. Hence, all ad dollars go to these companies. The success of these companies creates a lot of me-toos. Once there are a few more companies with the scale of Google/FB fighting for the same dollars, advertising will cease to be as attractive.