12 ms·

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

by 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.
- ajuc 13y ago
  http://www.neogaf.com/forum/showthread.php?t=586441 http://www.neogaf.com/forum/showthread.php?t=586441 > The Witcher 3 to be most expensive Polish game; $15M dev. budget + $25M ad. budget So over 60% of the budget is marketing.
- speeder 13y ago
  I make mobile games, and don't have money to.advertise the level we calculated we need. Our competitors we discovered talking with drunk employees saying too much that the advertising budget is usually from 1.5 to 2.5 of the game development cost. New franchises from new companies then this go to 5x the dev cost.
twoodfin 13y ago
who do not evenly reinvest this capital into the economy Huh? Do most rich people have their money under their mattresses? Rich people try to maximize their returns as much as anyone else, which typically means a mix of stocks (that's capital for businesses to grow) and bonds (capital for cities, states and nations as well as businesses).
- twistedpair 13y ago
  Or they tie it up by purchasing the 6th largest island of Hawaii, massive yachts, and mansions that benefit few people other than themselves.
  - wj 13y ago
    Yachts and mansions don't build themselves. Jobs are created by their construction. Then that money is spent somewhere else, etc. Multiplier effect. Better that things are bought than the money sitting in a money market account. In regards to the island purchase in Hawaii, it sounds like he is putting funds into improving the infrastructure on the island. (I don't want to get into an argument on whether that is a good or bad thing. Just pointing out that money is being put into the economy by him doing so.)
    - nitrogen 13y ago
      Sure the money is spent paying people to build those yachts, etc., but then the benefits of that labor, once spent, continue to accrue only to the owner. In other words, the yacht builders are paid once; the owner benefits continually from ownership of the finished product.
      - wj 13y ago
        The same could be said of anything including the keyboard I'm typing this comment on.
        nitrogen 13y ago
javajosh 13y ago
>the rise of advertising has emerged from the collapse of disposable income. No way. The rise of advertising to pay for internet stuff stems from a) the inherent network effects present in the most successful internet software, and b) the historically difficult problem of ubiquitous, safe, secure online payments. Network effects: if you offer a paid and a free version of a product, more people will take free. Online payments: if payments were really easy then people would pay for more things. Currently, solving this problem requires captive audiences (App Store, iTunes, in-app purchases, Facebook). But YouTube, for example, only hurts itself the more closed it becomes.
snowwrestler 13y ago
> My personal impression is that the rise of advertising has emerged from the collapse of disposable income. The rise of the advertising industry actually happened in the 1950s and 60s, when the American middle class was at its peak. Advertising today is just moving to the Internet, and by dollar amount that means it is falling. Advertising on the Internet is way cheaper than on TV or even in print.
- olalonde 13y ago
  > Advertising today is just moving to the Internet, and by dollar amount that means it is falling. Do you have a reference for that? I would be extremely surprised if aggregate advertising budgets were falling down. It might be cheaper on the Internet but my gut guess is that more companies are advertising or are advertising in more places.
  - deleted 13y ago
    [deleted]
twistedpair 13y ago
There is a clear race to the bottom in so many technology industries, but advertising has been a major cost for most industries for some time, especially premium brands. I recall how surprised I was to learn that 1/3 of the cost of making a box of Tide detergent was the advertising getting you to buy it. Then again, you could just not click the ads. I think I've clicked one in the last 12 years.
- disgruntledphd2 13y ago
  We're all aware that this doesn't matter, right? Unless you believe that years of TV and radio had no impact, then clearly an impression has value. The difficulty is that valuing that impression accurately and linking it to outcomes is hard, while linking clicks to outcomes is much easier. So people (especially in tech) tend to believe that impressions are meaningless, which is clearly not the case.
  - droopyEyelids 13y ago
    Especially when you understand that the impression cookies you, and those cookies are then read when you buy that product on amazon, etc.
    - disgruntledphd2 13y ago
      Yeah, but cookies are a really bad way of tracking people over multiple sites. They're cheap and ubiquitous, but not actually very good. Logins on the other hand...
gdne 13y ago
Wow. This is a really great insight. I've worked in advertising and never thought of it this way.
nashequilibrium 13y ago
I wanted to reply with an off handed comment but i checked myself because this is a good and thoughtful comment which doesn't take the discussion off topic. Unfortunately your comment is not applicable to this scenario, as someone who has worked in marketing at Procter&Gamble i can tell that it is about the shift in attention from tv and radio to the internet. Search was the first big disruption and it's measurability was par to none. This caused a shakeup in brand management and companies now had to focus on the zero moment of truth, a step up from the first moment of truth and the internet owns the zero moment of truth for products. Startups/Entrpreneurs and VC's enticed by the windfall profits of google and yahoo started pushing for ideas that could attract more eyeballs and as a result the younger generation have grown into the facebook era and have not been trained in other forms of business. So what we have is a vicious cycle where entrepreneurs create attention grabbing startups, where the measure of success is x amount of users and then sell this advertising demand to google,yahoo, etc since they have the ad inventory to make use of that demand. This is why yahoo bought tumblr. This is also why most(not all) VC's don't really care about actual businesses that generate revenue by selling goods or services, it's too hard and it is too hard to get aquired. Basically you reduce their probability of a win, since two of their three exits are taking off the table, being exit to bigger ad comapny or aqui-hire leaving creating a profitable business on the table. The bottom line is this, you are the spaghetti that the VC throws to the ceiling to see what sticks, thier appearance at tech conferences and startup competitions are to align you with their vision of what they want you to build. You have the illusion of choice, they say wearables or food tech and startups lineup to be the spaghetti. This is a winners take all game, where VC's are chasing black swans like facebook, instagram, tumblr and the more of you that lineup to be spaghetti, the better their chances unless the "price" of spaghetti goes up. Pls read this book or the comments at least to understand the effects of this, http://www.amazon.com/The-Winner-Take-All-Society-Much-More/dp/0140259953 http://www.amazon.com/The-Winner-Take-All-Society-Much-More/... . At this point we are all trampling over each other to be the one that takes all and this has tipped the balance in the VC's favor until we have a shakeout, the hype dies down and entrepreneurs move on to other industries like banking. I would argue that this is the time to get into finance mabe use all the data science tools and start a Hedge Fund because those guys that left the HF industry before 2008 for tech probably had it easier. Bottom line, ask yourselve how many photo startups have been started vs sold for a $billion dollars, instagram will be the only one "winner takes all". If not then pls watch this guy from startup school 2008, it is the highest probability for you to succeed in this overcrowded goldrush. https://www.youtube.com/watch?v=Y2UXPfz_Kgk https://www.youtube.com/watch?v=Y2UXPfz_Kgk
growthhack 13y ago
> "the rise of advertising has emerged from the collapse of disposable income" I respectfully disagree and argue for the opposite. It is the increase in disposable income that creates a bigger market opportunity, which in turn drives more competition from sellers that want a piece of the market. Because consumers already have too many choices and little attention span, they need advertising to get in the door in the first place. While word of mouth is the holy grail of advertising, many underestimate how long it takes to generate this type of growth engine in a sustainable way, even for the best products. As for the video game industry, a product's typically life cycle is 1 to 2 years, and the entire market changes every 5 to 10 years (e.g. think about how fast the transition went from arcades to home consoles to online/social to mobile phones). The majority of profits come from the first few months' of a game's release; so aggressive advertising is almost essential to success.

by zanny 13y ago

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.

ajuc 13y ago
http://www.neogaf.com/forum/showthread.php?t=586441 http://www.neogaf.com/forum/showthread.php?t=586441 > The Witcher 3 to be most expensive Polish game; $15M dev. budget + $25M ad. budget So over 60% of the budget is marketing.
speeder 13y ago
I make mobile games, and don't have money to.advertise the level we calculated we need. Our competitors we discovered talking with drunk employees saying too much that the advertising budget is usually from 1.5 to 2.5 of the game development cost. New franchises from new companies then this go to 5x the dev cost.

twoodfin 13y ago

who do not evenly reinvest this capital into the economy Huh? Do most rich people have their money under their mattresses? Rich people try to maximize their returns as much as anyone else, which typically means a mix of stocks (that's capital for businesses to grow) and bonds (capital for cities, states and nations as well as businesses).

twistedpair 13y ago
Or they tie it up by purchasing the 6th largest island of Hawaii, massive yachts, and mansions that benefit few people other than themselves.
- wj 13y ago
  Yachts and mansions don't build themselves. Jobs are created by their construction. Then that money is spent somewhere else, etc. Multiplier effect. Better that things are bought than the money sitting in a money market account. In regards to the island purchase in Hawaii, it sounds like he is putting funds into improving the infrastructure on the island. (I don't want to get into an argument on whether that is a good or bad thing. Just pointing out that money is being put into the economy by him doing so.)
  - nitrogen 13y ago
    Sure the money is spent paying people to build those yachts, etc., but then the benefits of that labor, once spent, continue to accrue only to the owner. In other words, the yacht builders are paid once; the owner benefits continually from ownership of the finished product.
    - wj 13y ago
      The same could be said of anything including the keyboard I'm typing this comment on.
      - nitrogen 13y ago

javajosh 13y ago

>the rise of advertising has emerged from the collapse of disposable income. No way. The rise of advertising to pay for internet stuff stems from a) the inherent network effects present in the most successful internet software, and b) the historically difficult problem of ubiquitous, safe, secure online payments. Network effects: if you offer a paid and a free version of a product, more people will take free. Online payments: if payments were really easy then people would pay for more things. Currently, solving this problem requires captive audiences (App Store, iTunes, in-app purchases, Facebook). But YouTube, for example, only hurts itself the more closed it becomes.

snowwrestler 13y ago

> My personal impression is that the rise of advertising has emerged from the collapse of disposable income. The rise of the advertising industry actually happened in the 1950s and 60s, when the American middle class was at its peak. Advertising today is just moving to the Internet, and by dollar amount that means it is falling. Advertising on the Internet is way cheaper than on TV or even in print.

olalonde 13y ago
> Advertising today is just moving to the Internet, and by dollar amount that means it is falling. Do you have a reference for that? I would be extremely surprised if aggregate advertising budgets were falling down. It might be cheaper on the Internet but my gut guess is that more companies are advertising or are advertising in more places.
- deleted 13y ago
  [deleted]

twistedpair 13y ago

There is a clear race to the bottom in so many technology industries, but advertising has been a major cost for most industries for some time, especially premium brands. I recall how surprised I was to learn that 1/3 of the cost of making a box of Tide detergent was the advertising getting you to buy it. Then again, you could just not click the ads. I think I've clicked one in the last 12 years.

disgruntledphd2 13y ago
We're all aware that this doesn't matter, right? Unless you believe that years of TV and radio had no impact, then clearly an impression has value. The difficulty is that valuing that impression accurately and linking it to outcomes is hard, while linking clicks to outcomes is much easier. So people (especially in tech) tend to believe that impressions are meaningless, which is clearly not the case.
- droopyEyelids 13y ago
  Especially when you understand that the impression cookies you, and those cookies are then read when you buy that product on amazon, etc.
  - disgruntledphd2 13y ago
    Yeah, but cookies are a really bad way of tracking people over multiple sites. They're cheap and ubiquitous, but not actually very good. Logins on the other hand...

gdne 13y ago

Wow. This is a really great insight. I've worked in advertising and never thought of it this way.

nashequilibrium 13y ago

I wanted to reply with an off handed comment but i checked myself because this is a good and thoughtful comment which doesn't take the discussion off topic. Unfortunately your comment is not applicable to this scenario, as someone who has worked in marketing at Procter&Gamble i can tell that it is about the shift in attention from tv and radio to the internet. Search was the first big disruption and it's measurability was par to none. This caused a shakeup in brand management and companies now had to focus on the zero moment of truth, a step up from the first moment of truth and the internet owns the zero moment of truth for products. Startups/Entrpreneurs and VC's enticed by the windfall profits of google and yahoo started pushing for ideas that could attract more eyeballs and as a result the younger generation have grown into the facebook era and have not been trained in other forms of business. So what we have is a vicious cycle where entrepreneurs create attention grabbing startups, where the measure of success is x amount of users and then sell this advertising demand to google,yahoo, etc since they have the ad inventory to make use of that demand. This is why yahoo bought tumblr. This is also why most(not all) VC's don't really care about actual businesses that generate revenue by selling goods or services, it's too hard and it is too hard to get aquired. Basically you reduce their probability of a win, since two of their three exits are taking off the table, being exit to bigger ad comapny or aqui-hire leaving creating a profitable business on the table. The bottom line is this, you are the spaghetti that the VC throws to the ceiling to see what sticks, thier appearance at tech conferences and startup competitions are to align you with their vision of what they want you to build. You have the illusion of choice, they say wearables or food tech and startups lineup to be the spaghetti. This is a winners take all game, where VC's are chasing black swans like facebook, instagram, tumblr and the more of you that lineup to be spaghetti, the better their chances unless the "price" of spaghetti goes up. Pls read this book or the comments at least to understand the effects of this, http://www.amazon.com/The-Winner-Take-All-Society-Much-More/dp/0140259953 http://www.amazon.com/The-Winner-Take-All-Society-Much-More/... . At this point we are all trampling over each other to be the one that takes all and this has tipped the balance in the VC's favor until we have a shakeout, the hype dies down and entrepreneurs move on to other industries like banking. I would argue that this is the time to get into finance mabe use all the data science tools and start a Hedge Fund because those guys that left the HF industry before 2008 for tech probably had it easier. Bottom line, ask yourselve how many photo startups have been started vs sold for a $billion dollars, instagram will be the only one "winner takes all". If not then pls watch this guy from startup school 2008, it is the highest probability for you to succeed in this overcrowded goldrush. https://www.youtube.com/watch?v=Y2UXPfz_Kgk https://www.youtube.com/watch?v=Y2UXPfz_Kgk

growthhack 13y ago

> "the rise of advertising has emerged from the collapse of disposable income" I respectfully disagree and argue for the opposite. It is the increase in disposable income that creates a bigger market opportunity, which in turn drives more competition from sellers that want a piece of the market. Because consumers already have too many choices and little attention span, they need advertising to get in the door in the first place. While word of mouth is the holy grail of advertising, many underestimate how long it takes to generate this type of growth engine in a sustainable way, even for the best products. As for the video game industry, a product's typically life cycle is 1 to 2 years, and the entire market changes every 5 to 10 years (e.g. think about how fast the transition went from arcades to home consoles to online/social to mobile phones). The majority of profits come from the first few months' of a game's release; so aggressive advertising is almost essential to success.