Sunday, March 9, 2008

Where Online Advertising Fails: The Future of Web Advertising

Posted by Cyndy Aleo-Carreira on February 25th, 2008

antique advertising imageA huge proportion of tech news has to do with online advertising: studies on its efficacy, technologies for serving ads, ad revenue ups and downs, and acquisitions having to do with any of those. The reality, however, is that we don't know much about how to really leverage online advertising, and we have a lot to learn.

What set me off to begin with was an opinion piece on by Esther Dyson, which hovered near getting it, but ultimately missed by a mile. Ms. Dyson made the point that the "traditional" online advertising is fading, but asserts that advertisers' audience members are best accessed in social communities, and that data will ultimately be compiled and disseminated to advertisers by ISPs. As much as I think any ISP would love to get their hands on that sort of ad revenue (as noted by the newish hijacking of my URL typos by Time Warner Roadrunner), it's impractical. How can you assume that the same person is always using the same IP? Are all ISPs going to move to a static IP addressing scheme? What about VPN clients and WiFi access points and mobile browsing? There are too many holes in this concept for it to work until they can track me by serial number on the plug in my head. Three UK ISPs are willing to give it a try, however.

The formation of quadrantONE completely misses this boat, and somehow thinks that trying to compete with Google in the blanket-your-ad model still makes sense. The main problem with newspapers as they exist now is that they are still in the business of trying to have something for everyone, and aren't able to sort content for readers. I'd be far more willing to subscribe to an online newspaper that customized content specifically according to my needs (and feel free to subsidize part of the cost with targeted ads) than I am for a paper copy that arrives in my box every morning with last night's news and ads I never even see. Of course, quadrantONE took some of their advice from Nielsen, who can't even manage to figure out if advertising actually accomplishes anything, so that may have been their first problem.

Ms. Dyson was right, however, when she said that the current model is losing ground. Google themselves saw a dip in their share of the U.S. ad market last quarter, and while they are still performing well, there is already a trend to head more toward niche marketing. Vertical ad/content networks like BlogHer and are already eating into Google's model in small bites. What makes more sense as an advertiser? Buying your AdWords and splashing them over how many thousands of sites where people are already immune to seeing the same ads (yelling smilies, anyone?), or focusing your efforts on a specific area of content that appeals to your target demographic?

Here's what we do know: the people who are clicking through on ads aren't the people advertisers really want to go after. A joint study by comScore, Starcom, and TACODA recently discovered that over 50% of click-thrus are from 6% of the online population, and that 6% skews toward a household income under $40,000. In other words, not the people who are going to be doing a lot of online shopping.

The traditional ad folks like Google and Yahoo are trying something new in going to video, with Google testing video ads and Yahoo snapping up Maven. Other ad companies like Gorilla Nation also think that video ads are the next wave in advertising. And of course, we have the social networking idea, which is being flayed virtually everywhere. People don't go to social networks to shop; they go to socialize.

The reality, however, is that if users aren't clicking through ads as they are now, why on earth would they click to sit through a video ad? This is old-school advertising, designed for a time when television also served all things to all people and you sat through commericial breaks instead of fast-forwarding with your DVR. Niche cable networks have found success providing a smaller, more concentrated market for advertisers, and online companies are following suit. GoFish has launched an ad/content network geared at children and teens, while MTV Networks (which also owns Nickelodeon) acquired a whole parenting content network in Babunga.

But even in a combination ad/content network model, an assumption is made about the audience. Fashion and gossip web sites must be read by women. Tech sites must be read by a predominantly male audience. The ads are still going to be fairly predictable, and ignore those outside the "typical" demographic. So who really has the right idea?

Amazon has the right idea, that's who. With their latest move, testing ads, I'm convinced that Jeff Bezos is a genius. Amazon has all the information at its fingertips that Beacon went so very wrong with, and they have been very upfront about collecting it. They have your purchase history dating back to your very first purchase on the site, and display it for you right in your account. They have a wide variety of products from nearly every possible retail market, from groceries to media to electronics, and with the addition of merchant storefronts through the Amazon system, they increase that data set. Who knows you better than Amazon, and who could target you better? They already show you what other people who've purchased what you purchase. The make product suggestions based on your purchase history. Serving the ads will only take it a step further, providing advertisers with as targeted an audience as they could get, and reducing the amount of ad noise you are subjected to. They may or may not succeed, but at least they are on the right track. Imagine Amazon tied into your content network. It may be a little Big Brother-esque, but it's an advertiser's dream.

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