Internet Advertising is Failing? Not likely.

Dr. Eric Clemons from the Wharton School of Business has been studying how people interact with online information and he’s written a very provocative post over at TechCrunch called ” Why Advertising is Failing on the Internet“.      It’s a very interesting perspective.   However at first read it sure appears to me that Dr. Lemons has really missed the boat in a major way on this issue since online advertising is not failing – it is thriving based on most objective measures of money flow, the massive success of Google, and more hard evidence from the marketplace.   Also perhaps because his study appears to have mis-measured key online behavioral trends, I’m guessing because survey responses to what people say they want may not be in line with their actual online behavior.

Clemons argues that both offline and online advertising are failing because people are rejecting  deceptive, unwanted intrusiveness of ads pushed at them during their experiences:

Clemons suggests:

There are three problems with advertising in any form, whether broadcast or online:

  • Consumers do not trust advertising. Dan Ariely has demonstrated that messages attributed to a commercial source have much lower credibility and much lower impact on the perception of product quality than the same message attributed to a rating service. Forrester Research has completed studies that show that advertising and company sponsored blogs are the least-trusted source of information on products and services, while recommendations from friends and online reviews from customers are the highest.
  • Consumers do not want to view advertising. Think of watching network TV news and remember that the commercials on all the major networks are as closely synchronized as possible.  Why?  If network executives believed we all wanted to see the ads they would be staggered, so that users could channel surf to view the ads; ads are synchronized so that users cannot channel surf to avoid the ads.
  • And mostly consumers do not need advertising. My own research suggests that consumers behave as if they get much of their information about product offerings from the internet, through independent professional rating sites like dpreview.com or community content rating services like Ratebeer.com or TripAdvisor

Clemons goes on to suggest that there are ways to make money online, but they will not take the form of advertising.  Clemons suggests that online moneymaking of the future will evolve in these directions:

  • Selling content and information, from digital music to news and information.  Some of these sites are funded by subscriptions, like Gartner Research; some are by direct micropayments for purchases, like iTunes; and some currently attempt to fund themselves through advertising, like Business Week or The New York Times, while still searching for a more effective business model.
  • Selling experience and participation in a virtual community, including Second Life and World of Warcraft, Facebook and MySpace, Flickr and YouTube, or LinkedIn.  Not all of these have found a way to charge for participation.
  • Selling accessories for virtual communities, like completed homes and stores, furnishings, clothing, and pets in Second Life or characters and accessories that would be difficult to earn in World of Warcraft, although this behavior is generally despised by serious World of Warcraft players.

Although I should review his research carefully before critiquing his conclusions this is the online world so we shoot first and study later.    My reaction in short.  This analysis is totally flawed, a product of the huge prejudice and misunderstanding about how and why online keyword advertising (and Google) have been so successful for so many, and that Eric has *really*  got to get online more often!

Counter Point 1)   Online keyword advertising remains a very successful ad paradigm.    Google continues to milk the keyword advertising cow in very effective ways, monetizing a huge proportion of their search queries.   Google holds a near monopoly on this business as they monetize both Google searches at their home page and the searches on other sites via the Adsense program where publishers can plant highly relevant and targeted Google ads on their own sites and share revenues with Google.   The modest level of advertising at this Website (what, you missed it – it’s over to the right in the boxes) comes from the Adsense program.

The success of keyword advertising should come as no surprise as, contrary to what Dr. Lemons suggests, it is not all that instrusive.   For example if you are researching car or camera information – and you’ll almost always go online to do that – you may *want* to see some advertising associated with your information gathering experiences.   Clicking on the ads costs you nothing and may land you on a good deal, and from an advertising perspective this is the time the user is most likely to make a purchase, so it’s generally a win win situation.   Sure there are exceptions that fall into the Caveat Emptor department and also Google must do a better job than now to police “bad actors” among their advertiser pool, but as we’ve noted many times before keyword advertising remains the holy grail of monetizing content and will continue to be that for many years.

Counter Point 2) Dr. Clemons alternatives to keyword advertising are probably too weak to sustain a large internet ecosystem.   “Long tail” product sales, micropayments, and most content sales will have an increasingly important role to play but I doubt they will match online advertising revenues for some time with the possible exception of the gaming and entertainment sectors which are poised to see explosive online growth as broadband access increases and mobile gaming applications and smartphones reach more and more people all over the world.    In contrast to the USA, in China gaming is a larger market than search, and there are a lot more people in China than here in the US.     But this trend is likely to fuel more, not less, online advertising as gaming and entertainment sites compete for attention so it does not support Dr. Lemons’ arguments about the death of internet advertising which, paraphrasing Mark Twain, have been greatly exaggerated.

15 thoughts on “Internet Advertising is Failing? Not likely.

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  12. Interesting reaction to Clemons’ article. Thanks for posting.

    “Counter Point 1) Online keyword advertising remains a very successful ad paradigm.”

    No one disputes that online ads have some success, but the major question, at least in my mind, is whether that ad revenue can equal and surpass revenue from ads in traditional media.

    “Counter Point 2) Dr. Clemons alternatives to keyword advertising are probably too weak to sustain a large internet ecosystem.”

    I agree. I think the newspaper industry is very much screwed. The age of controlled information has passed.

    I also wrote a reaction piece to Clemons, if you’re interested:
    http://www.whyweworry.com/blog/2009/06/29/why-advertising-will-fail-on-the-internet/

  13. Although I agree with Dr. Clemons overall conclusions that the effect of internet advertising is more limited than most people think, I do think that keyword advertising is holding its own. However, new competitors to Google (like Bing) could eventually weaken the market–similar to what independant phone directories did to utility directories even before the internet became an issue (too many in a market dilute the impact of any one of them and make it too costly to be in all of them).

    I also believe that Dr. Clemons didn’t address the fact that there are some industries that the internet is more useful for than others. The entertainment industry, consultants and professionals who can provide blog content etc. will do better than, say, your local HVAC company that used to advertise in the yellow pages and local paper but can’t because the readership of that paper has dissappeared and no one uses the phone book anymore.

    In addition, people looking for a specific product or service are more open to advertising about that particular product or service. So, in addition to keyword advertising, there is room for other options within topical web sites.