Cringely on the Advertising Market
Cringely comes pretty close again in Stop the Presses!. He talks about how the pay-per-click model (which is a lot older than Google but never mind) has changed the way advertising will evolve. As he says, $400 billion is spent on advertising in the U.S per year, and with 30% of media consumption going to the internet, you should have $120 billion of that on the internet, instead of the $10 billion that might be there. As he correctly points out, the average amount of ads on web sites is a lot less than in magazines, and he argues that this alone will result in less money to be spent.
This is not wrong, but not correct either. The Internet is not a medium that is geared towards branding in standard forms and that to a large part explains why less than $120 billion will go towards the Internet Advertising Market. The power of what Google and Yahoo! are doing comes from the traffic of good intent idea, and the general push for performance marketing. What makes all of this successful is that people are starting to understand what a click is worth for them. Without branding factored in, this is a lot less than with a branding campaign. If you would measure your ad in New York Times as you would measure your AdWords ad, then NYT would get a lot less for that Ad. That’s also why a lot of effort is put into studies showing the branding effect of online campaigns.
What will really become a problem for currently offline media is that it is moving online, meaning it is becoming internet connect, and that means measurable. As Cringely puts it:
_Ad agencies 12 to 13 years ago didn’t want to know whether or not their ads had actually been read, they told us. This was simply because if an advertiser discovered that few, if any, people were actually reading their modem ad on page 113, they might just pull the ad and save their money. The entire ability to sell an ad-edit ratio of 75 percent was based on this deliberate ignorance. Ad agencies and publications alike knew that many — even most — advertising dollars were simply wasted, but it wasn’t in their interest to admit that, so they didn’t._
That ignorance will move away. Companies will want to know what works, and advertising will become more like sales. Media Channels will be sold out a lot more than they are today and that is where the prices will develop over time. If BMW wants to sell cars via NYT, they will measure what they can spend, how much loss not having a Mercedes-Benz ad in NYT is worth for them, what the LTV of a customer is for them, and so on. This might make prices go down, and probably will, but it will become a better market for it, because it will be fair prices for all involved. If you can’t publish a magazine for the money you get, you will stop, or somebody will step up and pay more as they want that audience badly.
This will be increased with a move to lead based billing models, which ads another level of accountability and allowing for special companies to appear to manage the lead generation process. They will need to be better than that other company, but not only because of who they know, whom they bought a car, but because of what they really bring to the bottom line. This will allow for new payment models to appear and new markets to build that allow for those companies to make lots of money based on the spread of selling and buying advertising and leads.
Life is interesting.
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