Why Online Display Advertising is Like Crack

For some time I’ve been trying to find a good opportunity to write about online display advertising. It’s not that I haven’t had lots to say in the past, but I just haven’t had a particularly good context. That was until Adblock Plus came around and started getting some press. Adblock Plus, you see, is a Firefox extension that (not surprisingly) blocks advertising on the web. Instead of seeing an ad in the right column of a New York Times article, for instance, there is just an empty white space. (To be honest, I think it’s kind of cool looking.)

Noam Cohen described it like this in the Times:

The larger importance of Adblock is its potential for extreme menace to the online-advertising business model. After an installation that takes but a minute or two, Adblock usually makes all commercial communication disappear. No flashing whack-a-mole banners. No Google ads based on the search terms you have entered.

From that perspective, the program is an unwelcome arrival after years of worry that there might never be an online advertising business model to support the expense of creating entertainment programming or journalism, or sophisticated search engines, for that matter.

It’s that last sentence I find especially interesting. Click-through rates are abysmal and we’ve known for quite sometime that people are banner blind, yet the industry just keeps pushing along. To me it’s always been a lack of creativity: Publishers who came from a world of traditional media were completely uninterested in imagining a new model. Then, as new online-only publishers entered the arena, they didn’t have the marketing savvy to understand that there may be another way to survive.

I think I’ve said it before, but online CPM (cost-per-thousand) advertising is like crack. Publishers know it’s no good and won’t last, but they are addicted and can’t ween themselves off the stuff. The issues with it are numerous:

1. They still assume reach is the ultimate measure. Problem is, reach is a number born out of a medium (television) where there was a limited spectrum. As a result, people were forced to watch one of a small number of stations. The internet doesn’t live by the same rules, as the digital spectrum is infinite. As an advertiser you can extract much more value by offering a specific message to small group than a general message to a large one. Therefore, the real value on the internet becomes the ability to target, rather than the ability to reach massive numbers. (The issue with this, of course, is that the more targeted you are the less efficient you can be — unless you’re Google of course, in which case you can sell people’s intentions rather than their eyeballs.)
2. As I mentioned before, people are banner blind. Seriously, when’s the last time you noticed a banner ad?
3. As Umair mentions: “Ads are nothing but nuisance costs to most consumers.” That, of course, is a larger advertising issue, but it’s especially important in a medium where people are in far more control of what they read/watch/see.

All of this is to say I don’t feel the slightest bit sorry about Adblock Plus. If people don’t want to see ads they shouldn’t have to. Publishers shouldn’t complain about something like this, rather, they should take the hint and start finding new revenue streams. Take job boards, for instance, many bloggers are figuring out that this is a viable revenue stream that taps into the targeted nature of their small(ish) audience. I’ve been a strong proponent of this for a while, as I think it’s the most simple example of a new media revenue stream that actually provides value for advertisers, publishers and users. The problem is, there aren’t a ton of others out there (at least that I know of). As I wrote in July:

But what is a site with few visitors to do? Is it less valuable? The answer is no: It’s actually more valuable to advertisers, but less valuable to the publisher (from a purely monetary standpoint). Being able to efficiently target an audience is worth a lot of money, however, if a site or other niche property doesn’t have big numbers it may not be able to survive the CPM game. Instead of thinking about other ways to add value, however, most just end up folding. That’s sad. While I don’t have a definite answer for how to fix it (Google figured out one way, job boards are another interesting one), it’s clear that Scott Karp is right when he says page views and CPMs are suppressing online advertising.

So there you have it. Pageviews/CPMs are the easy way out and Adblock Plus, while it may not ever become huge, is certainly another signal that publishers need to get more creative and stop relying on a model created for print and television.

September 7, 2007