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Speculation On a Second Internet Economy Collapse
David Barrett writes "If you sell three billion ads a month and can't break even, what do you do? Drop prices by 40% and switch business models, apparently. Is this an isolated incident, or does it contribute to the growing pile of evidence that ad inventory is overpriced industry-wide, with Google being the worst offender due to its policy of requiring minimum bids on keywords that would otherwise go for cheap? Check out this analysis on my blog and make up your own mind."
I use an ad-blocker and script blocker these days so I rarely see ads (I've maybe seen two in the several months that I've used it). Even when I did see ads, I've probably only clicked on 2 or 3 in my whole lifetime before just learning to mentally filter them out. When I want a product, I go google for it. The rest of the time I may be inspired towards a general product area by an ad, but I'll look for the best product I can get in that area, not necessarily the one that I saw advertised.
I'm probably not a very average consumer, but I've always thought the whole concept of advertising market was over-rated. I get that it's necessary in some cases, but the only ads that I find relevant to me these days are for upcoming movies (which I've often already heard about anyway).
which is totally what she said
Free market wants to pay zero dollars for an ad? You mean people want to pay more than zero dollars for milk, cereals and bread? Come on! No body wants to pay more than zero dollars for anything. But the other side of the equation is, no body would sell things below the cost of production, at least not for sustained long durations. Google has a minimum bid because that is the cost of production for that ad.
The author displays profound ignorance about economics.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
Although the average consumer sees a lot of ads, the average consumer is also gradually switching to firefox (and the plugins, I expect).
And gradually ads become less relevant.
And gradually, as people realize they can eliminate ads, the trend will gradually increase.
until.. gradually, we'll have no funding for ads, and people will actually have to 'want' an internet presence, rather than being paid to have one.
I don't think that is such a bad idea... although, it'll bring back all the tripod/angelfire style accounts that were so popular 15 years ago, when ads didn't bring in revenue like they do today.
Which... will make it easier to avoid (or find) pointless websites.
How many of you have ever actually made a purchase based on seeing a web ad?
I'm pretty sure that I've never done that.
Fast forward to 2008Q2. Searchenginewatch.com reports a dismal 3% rise of 2008Q2 compared to 2008Q1. The weak ad revenue from housing, automobile, and finance sectors are blamed, as is Google's recent efforts to focus on ad quality rather than ad quantity.
Back to the subject of this post. Putting revenue aside, quinthar.com's "analysis" is upside down. Raising the threshold of minimum bids leads to reduced revenue just as raising the minimum wage leads to reduced employment. All it does is redirect business that would otherwise take place to the black market or competitors. Google knows this; they are not greedily seeking short-term gains as quinthar.com accuses. On the contrary, there are other reasons to force minimum prices, and in the case of Google, Google wants to improve ad quality in order to improve or maintain its brand image and realize long-term gains (or at least sustainability).
The Internet is not a bubble, it's a juggernaut. It has changed the world, but it has taken much longer than was imagined during the dot-com era (but in hindsight, it's still fast). Newspapers are on their last breath. But that doesn't make the Internet immune from the general economy. That's the main reason for Google's slower growth rate.
Warren Buffett made all his money buying undervalued companies or (parts of companies via stocks) and then holding onto them as they reached their appropriate values. Note, he doesn't really sell most of the time. He holds onto things that are valuable, and whenever extra money comes from them he invests them either in what he already has to make them even more valuable, or acquires something else that would appreciate in value.
Note, I didn't say they would appreciate in price, though typically they would do that as well. But Buffett wouldn't buy something just because its price is going to go up if it was not reflective of its true value. Not that that's not a way that people can make money. It's just not a solid investment strategy.
Assuming Google is not overvalued, and in fact will continue to appreciate at a rate better than the market, Buffett would advise buying and holding onto it regardless of whether it gives dividends or its price falls. Dividends, to him, are only for when the company can't make better use of the money to increase its own value than the investors could if it were handed back to them.
Note, investing like this means that most of your wealth is not directly accessible as cash, as it's all tied up in investments, often investments that hold onto their money and reinvest. Not a recipe for a profligate lifestyle, but the surest means of building wealth.
Now as the parent mentions, the trick is in discerning value. Which is why Buffett avoids investing in industries he doesn't know well himself, and in particular avoids high tech. New technology's value is so unclear. Proven technology can be rock solid, but new tech's value is more often than not blown way out of proportion.
I don't know what the exact shape of the web will be when we find the right answer.
Here's my guess: the web, TV, movies, games, and other forms of "entertainment" will be riddled with product placements, product storylines, and an overall commercialized experience. The line between "feature" and "commercial" will blur and blur until it ceases to exist. Sometimes this will be well done and the entertainment value will be preserved. Sometimes it will come off as transparent shit, exposing both the "feature" and the advertised product(s) to public ridicule or boycott.
... but that's just my guess
If libertarians are so opposed to effective government, why don't they all move to Somalia?
You know, back in the golden ages of radio and television, the feature and the ads were the same beast. You see, before there were commercial breaks, companies would actually buy airtime and provide the content. The content would have the company or product name everywhere and they spent just as much time pimping product as entertaining, but you only had to deal with the advertisements from that one company and the company actually had a big investment in the show so they had to ensure quality to keep their image good.
Honestly, I'd rather we go back to that system than continue with the MORE AND MORE COMMERCIALS PER THIRTY MINUTE BLOCK EVERY TIME YOU TURN AROUND pattern that we've currently got going.
Here's my guess: the web, TV, movies, games, and other forms of "entertainment" will be riddled with product placements, product storylines, and an overall commercialized experience. The line between "feature" and "commercial" will blur and blur until it ceases to exist. Sometimes this will be well done and the entertainment value will be preserved. Sometimes it will come off as transparent shit, exposing both the "feature" and the advertised product(s) to public ridicule or boycott.
The premise of this collapse is that advertising is overvalued, and not worth the money being paid for it. You think the answer is more advertising? Call me crazy, but I'm thinking something more along the original vision of the BBC and the CBC, where they are socialized and exist for the purpose of promoting creativity, culture and the arts. That's a lot more realistic. A lot of the objections to these structures is that they are elitist, and it's generally been a valid point. But if the administration were done using a democratic process, like the Free Government project, well, that could overcome those objections for the most part.
-1 Uncomfortable Truth
You can actually go back a lot further in your 'golden ages' than that to trace this.
Pretty much all of what we think of as "great" art/music was produced in a not dissimilar fashion, by being underwritten by King or Church in order to enhance their prestige. The modern version of King and Church is the incorporated company, and the modern version of prestige is, well, still prestige actually, but it's labelled "Goodwill" on balance sheets.
So the Sistine Chapel, for instance, was certainly commissioned as "pimping product" as you so delicately put it, that being the Catholic Church's product offering of salvation amongst the extremely competitive free market in religions, but most people see some intrinsic worth in it despite being a commercial message.
Obviously you haven't seen the Head-On commercials, or the E-surance commercial with that annoying asswipe with a guitar, or anything with Billy Mays. And don't forget the mother-of-all annoying ass commercials, the debt consolidation commercial with the flatlining EKG that makes my dog bark every time. Holy shit, I watch way too much TV...
Death is life's great reward. R. Hoek