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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."

81 of 307 comments (clear)

  1. All that SOAP by hostyle · · Score: 5, Funny

    Bubble 2.0. The burst is coming. See it live on slashdot.tv.

    --
    Caesar si viveret, ad remum dareris.
    1. Re:All that SOAP by Yvanhoe · · Score: 4, Funny

      Surely the best place to witness it would be on Google Video

      --
      The Wise adapts himself to the world. The Fool adapts the world to himself. Therefore, all progress depends on the Fool.
    2. Re:All that SOAP by __aarcfd8085 · · Score: 5, Funny

      *picks up sandwich board and placard*

      "the version release is nigh! repent, ye users of keyword searchs for the saviour: syntactic web 3.0 will cleanse you of spam"

    3. Re:All that SOAP by rvw · · Score: 3, Funny

      *picks up sandwich board and placard*

      "the version release is nigh! repent, ye users of keyword searchs for the saviour: syntactic web 3.0 will cleanse you of spam"

      Tonight at 11: sandwich with spam!

    4. Re:All that SOAP by elrous0 · · Score: 4, Funny

      Not for much longer.

      --
      SJW: Someone who has run out of real oppression, and has to fake it.
  2. Drive-by ads by somersault · · Score: 4, Interesting

    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
  3. Google is overvalued by dreamchaser · · Score: 4, Informative

    I've been saying that since the IPO. Yes I bought shares, and yes I dumped them at a good price. The stock kept going up but I do not regret it at all. Ads are *way* overpriced, and when this next bubble bursts Google stock is going to tumble.

    I am not a stock analyst so I'm not going to predict where the price will settle, but $477 a share (as of this posting) is WAY WAY WAY overvalued.

    1. Re:Google is overvalued by SpiderClan · · Score: 2, Informative

      That's probably the most cynical way I've heard it described, but no, there is no other point. The general idea, though, is to buy it when it's undervalued so that you can sell at its proper price when the market corrects itself, rather than just buying at random and hope that somebody doing the same is willing to pay more than you did.

      The reason that so few people do well is because it takes knowledge and diligence to recognize the true value of stock and make sure that it's sufficiently undervalued when you buy it. Few people have that knowledge or are willing to put in the work, though many people think they have the knowledge and don't need to put in the work. Hence, they fail.

  4. Here's where he's wrong by dkleinsc · · Score: 4, Insightful

    He assumes that it costs $0 to put up an ad. That makes his entire argument (that ads aren't there because Google forces up the price beyond $0.01) bogus.

    But considering what advertising in other media costs, with less targeting or chance of success, and you'll have some idea as to how much of a bargain online ads really are.

    --
    I am officially gone from /. Long live http://www.soylentnews.com/
  5. Re:Wish there was a "Free market" advertising syst by __aarcfd8085 · · Score: 5, Insightful

    as opposed to allowing people to bid on every unclaimed typo and spam the system to hell....

    equally the minimum bid system is common to all forms of auction.

    yes Google are being a bit dodgy in how they manipulate the system but equally they (as the article says) don't want people to know exactly otherwise it makes it too easy for the system to be gamed at which point it looses all possible value. Google ads do well because they are generally clickable - in that you have a good chance of clicking on something relavent to what you searched for - that reputation is something that google understandably wants to protect.

  6. Ads by Narpak · · Score: 4, Insightful

    As long as companies is willing to pay the price, google (and others) are willing to profit from it. Should advertisers become convinced that they pay more than what they see in return; then they might cease paying the price demanded. At which point ad-supported sites and services might see a drop in their budget. But until then, I do not think they will lower price just because they can.

  7. Economics 101. by 140Mandak262Jamuna · · Score: 4, Interesting
    From the article:Don't believe me? Search for "Flash" and you'll see it has zero ads. In a totally free market, that means you have no competition, and thus should be able to bid as low as you want to get your ad to appear. But when you try to create an AdWord for the "Flash" keyword, you'll see it sets the minimum price at $0.10. So even if the market (me) only wants to pay $0.01, it's priced 10x higher than the market (I) will bear. Which is why there are no ads on the "Flash" keyword.

    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
  8. Re:Wish there was a "Free market" advertising syst by draxredd · · Score: 4, Funny

    free market means one can establish a new business in said market. NOT that established business shouldn't set their own price for the service they are selling.
    Go ahead and establish a more efficient service than google's... but wait, what would be your interest in driving prices down, once you'll be the dominant player ?

    --
    --- Back to the trees, back to the trees !
  9. Re:Inflation by fictionpuss · · Score: 4, Insightful

    Meh - if you shift 3 billion units/month, and still can't turn a profit, then you deserve to go out of business. Blaming Google for it is misleading at best; suggesting an imminent internet economy collapse because of ones own failure is projecting at its worst.

  10. Average Consumers? How about average internet... by PC+and+Sony+Fanboy · · Score: 4, Interesting

    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.

  11. Its all CLEAR... by PC+and+Sony+Fanboy · · Score: 3, Funny

    So, does this prove that step 3 is actually 'receive advertising funding'? It must be something important if it might precipitate the fall of web 2.0.

    For example:
    1. Make Website
    2. Host Material (User Created or otherwise)
    3. ??????? - (ADS? Really? WHO KNEW?! *sarcasm*)
    4. Profit!!

    1. Re:Its all CLEAR... by ShieldW0lf · · Score: 5, Insightful

      Personally, I hope it does collapse.

      Advertising is a ridiculous basis for an economy.

      Oh, look, I built something wonderful that makes peoples lives better. Everyone wants to participate. How will I ever get the support I need to keep this thing that everyone wants to succeed functional?

      I'll stuff it full of crap that they don't like, and the people who own the big factory peddling the crap can support me. That's a great model, right?

      Wrong.

      I don't know what the exact shape of the web will be when we find the right answer. But it sure as hell isn't this.

      The modern web is like going to watch a show while two dozen ugly people with screeching voices walk the aisles constantly screaming at you to pay attention to them instead. It's shameful to see something with such potential perverted in such a fashion, and if we need another collapse before we get our heads out of our collective asses and fix things, well, it can't come soon enough for my liking...

      --
      -1 Uncomfortable Truth
    2. Re:Its all CLEAR... by oldspewey · · Score: 4, Interesting

      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?
    3. Re:Its all CLEAR... by DamienNightbane · · Score: 3, Interesting

      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.

    4. Re:Its all CLEAR... by slowbox · · Score: 4, Insightful

      As long as you have a monetary based economy and cash to spare, then why is advertising ridiculous? Lets say a completely new, innovative, or maybe simply entertaining product is created. As the seller, do you have to wait for "word of mouth" (which btw is a form of advertising) or do you deliver the product via channels to reach an audience? Ads are just a form of communication like standing on a stage with a tophat selling snake oil. Face it, you are a consumer and people are willing to pay a little to earn the chance to get your business. It's a FUNDAMENTAL force in driving an economy. Not ridiculous. Certainly it's more fun than trading a goat for some chickens.

    5. Re:Its all CLEAR... by ShieldW0lf · · Score: 3, Interesting

      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
    6. Re:Its all CLEAR... by nasor · · Score: 3, Insightful

      I'll stuff it full of crap that they don't like, and the people who own the big factory peddling the crap can support me. That's a great model, right?

      It depends on how well the adds are targeted. There are certainly many irrelevant, annoying adds. But about 20 minutes ago I was reading an article about failed spacecraft designs that NASA tried to build but that didn't work out. The adds on the page included model rocketry kits, space news websites, astronomy books, and Kennedy Space Center vacation packages. I actually clicked on some of the add links for space news websites, and found some other interesting stuff that I probably would not have found otherwise. My point here is that it IS possible to have targeted adds that your audience actually thinks are interesting/useful - you just have to be willing to go through the trouble of making sure they're appropriate.

    7. Re:Its all CLEAR... by Sir_Kurt · · Score: 2, Insightful

      The purpose of all this advertising we see is to PREVENT any new or innovative products from obtaining any mindshare by taking up all the available "shelfspace", Part of the way this is done is to make advertising expensive, so that the new kid on the block can't afford it, and the other part is for established companise to buy all the advertising they can to prevent anyone else from being able to advertise.

      Kurt

    8. Re:Its all CLEAR... by Snocone · · Score: 5, Interesting

      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.

    9. Re:Its all CLEAR... by pseudorand · · Score: 2, Insightful

      Advertising is a ridiculous basis for an economy.

      Most products are less obviously useful than a perpetual motion machine, so consumers need to learn about them and figure out if and how the product's benefits outweigh its cost.

      In that sense, advertising isn't quite the worthlessness you make it out to be. It's just communication, which is useful and which the internet a good start at an infrastructure for.

      The problem is targeting advertising to the people for whom the cost of your product outweighs the benefits. The Internet takes communication from 1-way (broadcast/cable) to 2-way (TCP/IP), but still has some technical, artistic, and social challenges, specifically:

      • The last mile is still to slow to truly deliver the content we want. Though I think HD is a bit more than we need, I still prefer cable or even broadcast to tiny and low-res youtube-style videos.
      • Content creation and hosting is still prohibitively difficult. There's dozens of technologies for creating database-driven interactive websites (LAMP, .NET, J2EE, Rails, Flash, ...). I think one will eventually emerge as a clear leader and become the defacto standard, and all content creators will know how to use it. But none of them make it easy to do anything you want yet. There's still quite a bit of technical knowledge necessary to use any of them (whew, I still got a job!). We also need to improve the mouse/keyboard/monitor physical UI and commoditize web app hosting (i.e. I create an app on my desktop via a GUI and with 1 click make it live at a hosting provider that has backup and bandwidth. And yes, I know Frontpage has had something like this for a long time, but good luck trying to develop a database-driven interactive web site with Frontpage.)
      • Part of the above item is that we're not sure what "anything you want" is yet. The artistic types are still figuring out how best to communicate via an interactive medium. Someone needs to do for interactive applications what Filippo Brunelleschi did for painting.
      • And, of course, targeted advertising and privacy are diametrically opposed. Sharing personal information has the potential for both benefits and drawbacks to consumers, so we need everything from a legal framework to a better understanding of how and who gets information by consumers.
    10. Re:Its all CLEAR... by ShieldW0lf · · Score: 2, Insightful

      In that sense, advertising isn't quite the worthlessness you make it out to be. It's just communication, which is useful and which the internet a good start at an infrastructure for.

      Communication is two way. The word you were looking for was Propaganda.

      --
      -1 Uncomfortable Truth
    11. Re:Its all CLEAR... by monxrtr · · Score: 3, Insightful

      Most advertisements are basic trolling psychology. They have to be outrageous and annoying to be heard and seen nowadays. They have to scream in all caps "look at me!, pay attention to me!, feed me!, buy me!" People are tuning them out on a massive never before seen scale from AdBlock to dvr recorders, to subconsciously adjusted brain focus. Advertisements are out of place. They don't focus on sites that might be pertinent, but mass spam all channels.

      Moderation is web evolution in action. It started because of spam and trolls.

      That doesn't mean advertisements can't be quality and focused. Everybody is always advertising on some level all the time, whether they are looking for a job, looking for a mate, or trying to make a point in conversation. But all that advertising content is competing with advertising free "open source" individual generated content. And advertising content is getting it's clock cleaned by "open source" internet content as evidenced by the average hours people now spend on the internet that they used to spend watching commercial television.

      The supply of ads is way up, the demand (sold eyeballs) for ads is way down. That means the value of advertising is going to crash and burn. On the internet every company can start it's own "channel", it's own website, and attract users to their sites with paid quality content with advertisements. If it's good, people will go to coca-cola.com to watch a nature episode on polar bears "brought to you by the sponsor". That's going to be far more effective in the long term than dragnet commercial advertising trolling spam which is causing people to hate the companies and its products.

      The companies are being gouged by sleaze ball used car salesmen middleman advertising agencies and choked monopoly broadcasting networks. And they are going to realize it sooner or later, and cut out Madison Avenue and hire artists in their place. People using AdBlock are currently a leading economic indicator. Eventually a helluva lot more people are going to start using it too. But there is still plenty of room and space to sell ads on the internet.

      A high quality site like slashdot will be able to sell a small space of a tasteful ad for prices that mimic "Boardwalk", while a lesser quality site with lesser quality content will bring in "Baltic Avenue" ad rates. So better quality sites will end up being paid more for less intrusive annoying ads. The market will, and is, adjusting.

      --
      "From DNA to P2P, we are all Copycats now. Go Go Copycat Power! Copycat Powers activate! Form of, a Copycat." --monxrtr
    12. Re:Its all CLEAR... by Tubal-Cain · · Score: 2, Informative

      I can't think of a single time the cool hacker or badass spy hacked into the pentagon using a Dell,can you?

      The Atlantis expedition uses Dell XPSs.

    13. Re:Its all CLEAR... by Y-Crate · · Score: 2, Interesting

      I don't see why they don't just use real products across the board. I mean,I know Apple has to be paying a pretty penny to have nearly every character who uses a laptop use a Macbook,right?

      Apple pays nothing. They give the productions equipment to use, but that's about it. They made such inroads into films and television because other manufacturers wouldn't send over a laptop if a propmaster needed one.

      This issue is covered in former Apple CEO Gil Amelio's excellent book On The Firing Line: My 500 Days At Apple

  12. Re:Ironic... by 4D6963 · · Score: 4, Informative

    "Check out this analysis on my blog and make up your own mind."

    Translation: Visit my website to increase my ad impressions so I can make more money.

    Translation: I didn't even bother to visit the site to make sure it even had ads before claiming so. Not like I would let reality get in the way of sarcasm anyways.

    Pwned? I think so.

    --
    You just got troll'd!
  13. Naive Question by xoundmind · · Score: 3, Interesting

    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.

    1. Re:Naive Question by Anonymous Coward · · Score: 2, Funny

      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.

      Well, that's why you don't have a 14" penis like I do.

      ;-)

    2. Re:Naive Question by fictionpuss · · Score: 2, Insightful

      I don't buy much online, period. But I have clicked the occasional "sponsored link" when I've been searching for a specific product or service.

      If you mean seeing a banner ad for random product and thinking "gosh, I need that", then no.

      But then, I've purchased items from ThinkGeek, based upon an internal reputation meter they've generated through their consistent marketing/branding.

      So yes?

    3. Re:Naive Question by Tridus · · Score: 4, Insightful

      How many times have you seen an ad for coke on TV, then immediately run out to the store to buy it? Can't say I ever have, but they keep on doing it.

      Advertising exists for more then making instant purchase decisions.

      --
      -- "So they told me that using the download page to download something was not something they anticipated." - Bill Gates
    4. Re:Naive Question by GNU(slash)Nickname · · Score: 2, Funny

      How many of you have ever actually made a purchase based on seeing a web ad?

      Well, I always make it a point to click on the ads for those sites that try to sucker people into paying to download free software. Does that count?

    5. Re:Naive Question by home-electro.com · · Score: 3, Insightful

      But it is a wrong question to ask. It's like asking "how many of you ever purchased stuff based on receiving spam email?" -- It will be virtually nobody, but we all know SPAM WORKS for those spammers....

  14. Re:Average Consumers? How about average internet.. by fictionpuss · · Score: 4, Insightful

    You assume that everyone hates advertising as much as you do and thus, in the future, the trend will extend to the extreme. You can't magically extrapolate trends like that, unfortunately.

    If the people who really hate advertisements, and who would never (consciously) use them to make a purchasing decision, continue to block them -- then that would seem to increase the value of each successfully delivered advertisement?

  15. Minimum prices by JaySSSS · · Score: 2, Insightful

    I realize this isn't the primary thrust of the article, but ALL auctions start with a minimum bid, and the person selling the "item" sets the minimum bid. You don't see every item on eBay starting at $0.01, do you? Many do, yes, but the seller sets the minimum bid, and a reserve price. I don't see why you think this is so evil.

  16. Re:Ironic... by zehaeva · · Score: 2, Insightful

    I was wondering who he is that his blog on this subject is so important. With out knowing this guys expertise the summary reads like some know-it-all wanting to espouse his pet theory about how the whole of society will collapse and lead us back to the dark ages.
    unless this guy is some emanate professor of economics my first thoughts were "Why should i care what your blog says?"

  17. It is not a burst by Yvanhoe · · Score: 3, Informative

    It is a single company that doesn't manage to make money in this market because it does it wrong. What Google has proved in the online-ads world is that what pays is to deliver the correct ad to the correct people. The first article clearly states that Lookery is not very picky about who to deliver their ads to and proceed to explain that its competitors manage to sell ads for 5 time Lookery's price because they craft their inventory more carefully.

    That's not a new bubble, that is a vestige of the first one : failing to understand that one online ad on a webpage do not have a fixed value but that many parameters are to be taken into account.

    --
    The Wise adapts himself to the world. The Fool adapts the world to himself. Therefore, all progress depends on the Fool.
  18. Other Industries Prosper on the Internet by ehaggis · · Score: 4, Funny

    "The first internet bubble popped largely because all business models failed except for ad selling." (from the article).

    I disagree. Pornography and Gambling as well as on-line RX have proven to be profitable over time. Perhaps the monetary profit margin is inversely related to the moral and cultural benefit to society.

    --
    One ring to bind them - should probably have more fiber and less rings in their diet.
    1. Re:Other Industries Prosper on the Internet by Spittoon · · Score: 2, Insightful

      Well, no.

      Wall Street Journal seems to have done well. Also travel sites, turbotax online, ticketmaster, fandango, amazon, ebay (despite recent trouble), craigslist (although they do live off ads), netflix, Angie's list, and many more. I know a bunch of artists that make money selling their work on their Web sites, and some small contractors rely on their site to give people more information and generate that all-important call for an estimate.

      Bottom line is that businesses that make something that people want will make money. This generally means a product or service that actually impacts the user's life offline, in whatever way. This needs to be more valuable to the customer than the price they are asked to pay-- on the Web right now that payment is mostly time. Someday the payment will include money, and the Web will shrink but it certainly won't disappear.

      The bubble was a lot of foolishness based around clever ideas that were either not profitably executable at the time (WebVan) or that it turns out PEOPLE DIDN'T ACTUALLY WANT.

      The Web didn't negate the classic rules of business, as many people learned to their financial dismay.

  19. That's why you must at least visit the link.. by heteromonomer · · Score: 5, Informative

    at least once in a while. The author's page has *no* ads. That's right, no ads. If only you had bothered to visit the blog page, not even RTFA. And the fact that the parent post is now at +5 insightful tells a sad (oft-repeated) story about /.

  20. What plugins have you been using? by PC+and+Sony+Fanboy · · Score: 3, Informative

    I'm not sure what your idea of 'work' is, but it certainly wasn't more than 30 seconds of 'work' to install adblocker plus... and it updates itself auto-magically... and now I don't have to worry about those annoying laughing flash ads promoting 'custom smilies', and whatnot.

  21. Re:Ironic... by Dunbal · · Score: 2, Interesting

    I was wondering who he is that his blog on this subject is so important.

          More to the point, why is anyone's blog important? Like "advertising" on the internet, blogging certainly needs a healthy dose of due diligence.

    --
    Seven puppies were harmed during the making of this post.
  22. Psychology catches up everything by Kupfernigk · · Score: 4, Insightful
    The value of any new advertising medium declines over time as people find ways to avoid seeing it, or mentally filter it out. The problem is that there are 2 types of advertising:
    • Directories
    • Trying to make me buy stuff

    People over time get sick of the "Trying to make me buy stuff".

    Example: When I was a kid magazines like Amateur Photographer contained piles of ads which were basically directory listings. Item, price, condition. They were in fact useful data for buyers. What's the nearest supplier who has a second hand Leica M3 in excellent condition? Nowadays, the ads in photo magazines are demand-creators; reams of eye candy. More advertising, in color, is needed to pay for the content. What does it tell me? Five guys have half a page of trying to sell me the same digital camera I don't want. Do they have what I do want? Hard to say.

    Google's problem is it wants to be a directory, but its advertisers want to distort its market by directing irrelevant traffic in the hope of selling something. Like bad coinage, bad ads drive out good ads. (Just like eBay with the crooks driving out legitimate sellers.) Ultimately the public gets turned off. (Do I ever click on a right hand link on a google page? No. Do I ever click on the top 3 links? Hardly ever. That's experience, not prejudice.)

    So, my 2c worth is that this may be nothing to do with the recession and everything to do with the great public having had time to realise what a scam much internet advertising is. Someone will have to come up with a better paradigm. If people will still pay money for print magazines, how much will they pay for a verified Google for instance (I would personally pay a $10/month for a shit-free search engine where abusers were removed from search results, no messing.)

    --
    From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
    1. Re:Psychology catches up everything by i_liek_turtles · · Score: 3, Funny

      Does it mean I visit slashdot too often when I read that as "Amateur Pornographer", and then wonder how you subscribe?

  23. Flash adwords by Potor · · Score: 2, Interesting
    I am not sure what to make of the blog, since one of its empirical claims is wrong. I searched flash, and www.google.be (my default Google search page here in Belgium) returns

    Gesponsorde Koppelingen
    Flash presentations
    Custom design, advanced programming
    multilingual; international clients
    www.but.be

    Opleiding Flash
    Volg gratis proefles bij Eduvision.
    Uitgebreide Flash opleiding
    www.opleiding-flash.nl

    Flash designer aangeboden
    Voor maar €24,50 per uur kunt u
    onze Flash specialisten gebruiken
    www.grafi-offshore.com/flash

    And on google.com, I get

    Sponsored Links
    Flash presentations
    Custom design, advanced programming
    multilingual; international clients
    www.but.be

    , which is certainly geographic specific. But they do sell that adword, so what do I make about the rest of the piece?

  24. Re:but... by KrimZon · · Score: 2, Interesting

    When the people who would never buy something can't even accidentally click on an advert (because they block them), the total number of clicks is decreased. However, the total number of purchases doesn't really change, so a click then has a higher chance of resulting in a purchase.

  25. So what? Bad brokers should fail. by lancejjj · · Score: 2, Interesting

    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

    This is a sign that ad brokers and resellers MUST provide added value in order to make money.

    Anyone can become a broker. The trick is to add value, so that customers will pay your premium prices. Advertisers will not pay a huge premium for unproven "advanced ad campaign technologies" that many of these brokers purport to provide. And if your competition charges less for a better service, don't expect to stay in business very long. At that point, your only choice is to substantially lower prices or change your business model.

    Sound familiar?

  26. Re:Average Consumers? How about average internet.. by Cro+Magnon · · Score: 3, Insightful

    You assume that everyone hates advertising as much as you do and thus, in the future, the trend will extend to the extreme. You can't magically extrapolate trends like that, unfortunately.

    The problem is, the advertisers are making the ads more annoying. The people who don't hate ads now will start hating them when the advertisers make them jump around the screen playing bad music.

    --
    Slow down, cowboy! It has been 4 hours since you last posted. You must wait another few hours.
  27. Re:Average Consumers? How about average internet.. by tb()ne · · Score: 5, Insightful

    And gradually ads become less relevant.

    Less relevant is fine. But there will be a problem if the ads become effectively irrelevant because there is no longer an incentive for providers to continue supporting ad-funded services (e.g., gmail). I never click on embedded ads (the 3 or 4 times I did, it was on accident.) But I'm glad there are others out there who do hit them so all these free, web-based services continue to operate

  28. Re:Average Consumers? How about average internet.. by Jaysyn · · Score: 2, Insightful

    That's pretty thin reasoning. By your logic you would have never installed Firefox in the 1st place. You realize that plug-ins "maintain" themselves, right?

    --
    There is a war going on for your mind.
  29. a bit simplistic by jollyreaper · · Score: 4, Insightful

    "The first internet bubble popped largely because all business models failed except for ad selling." (from the article).

    He's forgetting that there was also the speculative insanity that goes along with any bubble in any industry. There were many companies that made enough revenue to be possible if only the executive spending could have been reined in. I'm forgetting the name of it but there was a new media company that was doing something like $180 million in business but was spending $200 million. They produced content, text! It's not like that requires a huge capital investment. People are the biggest expense, get a cheap building somewhere, have your people work there, maybe rent a small bit of office space in a posh tower for impressing investors. But no, they put the whole organization in the posh tower, aeron chairs in every office, and shot their whole wad on overhead.

    The internet has nothing to do with that kind of stupidity, it's endemic to human affairs. And the matter of crazy-stupid shit getting funded just because someone has a business plan? Again, common in any bubble, be it tech or tulips.

    --
    Kwisatz Haderach
    Sell the spice to CHOAM
    This Mahdi took Shaddam's Throne
  30. Re:Income from ads by SpiderClan · · Score: 3, Insightful

    It's likely that people don't realize they've bought something after clicking on an ad. The ads in google tend to look like search results if one isn't paying attention and doesn't know any better, and many people probably don't think of text ads as ads at all. They just saw something interesting and clicked on it, but they're much too smart for all the flashy animated marketing crap and would never buy from them ;). People also probably don't recognize that many ads set cookies, so even if they go back to the same site later and buy something, they statistically bought something after clicking an ad.

  31. It's the speculators! by WPIDalamar · · Score: 2, Funny

    Clearly this is the fault of the speculators and not the underlying business models!

    We should boycott this speculating blogger and refuse to visit his site!

  32. Adblock by mgichoga · · Score: 2, Insightful

    Maybe its being caused by the fact that more users are using firefox + adblock feature. No one is clicking on ads anymore :(

  33. Re:Economics 101. Build a better mouse trap by 140Mandak262Jamuna · · Score: 4, Insightful
    Well, you think you could do it cheaper? Then do it man! That is what the free markets are for. You are free to enter and undercut prices of established players. If you can't, someone else will. If someone else does not, it means things are more complex.

    Injecting a bit of html tags does not cost that much. But the value of Google is not merely tacking on bits of html. It is collecting all that data on the net and making it easily available. It costs money. That cost gets amortized over every bit of html it injects in.

    I am sorry for your predicament, you want the service at a lower price. But so does every body for everything. As I said earlier, it is a free market. Google does not have a vendor lock or a platform lock on its user base. Any one can compete with Google. There is no switching cost to the user to go from Google to its competitor. If it is pricing the ads too high, it will go out of business. It is not like Microsoft with a defacto monopoly on OS or Office software.

    --
    sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
  34. Re:Average Consumers? How about average internet.. by fictionpuss · · Score: 4, Insightful

    The problem is, the advertisers are making the ads more annoying. The people who don't hate ads now will start hating them when the advertisers make them jump around the screen playing bad music.

    Really? I thought part of Googles success was the fact that the adwords it displays in search results are mostly unobtrusive, but usually relevant if you take the time to look at them.

    Advertisements have become more annoying over my lifetime, but the problem with most forms of advertising is that you can't measure annoyance, you can only measure sales -- and these aren't always mutually exclusive factors to the individual.

    Compare Google and Yahoo! - the latter was dominant at that time (April 1999), but the lack of clutter/animated gifs helped (along with relevant data) popularise the newcomer.

    That's the beauty of adblockers and online advertising - you can now link annoyance to sales - and market forces seem to be pushing away from annoying your customer.

  35. Its counter productive.. by Joker1980 · · Score: 2, Interesting

    at least it is for me, at best an advert will produce a 'Meh'. Usually they actually put me off whatever the product being hawked is. And this applies to companys too, but as been mention by a few posters already im not exactly the type of consumer theyre aiming this shit at.

    --
    Well, Bart, your uncle Arthur used to have a saying: "Shoot 'em all and let God sort 'em out."
  36. Re:*Relative* bargain by wellingj · · Score: 2, Interesting

    By that reasoning shouldn't SPAM disappear too?

  37. Internet Economy Collapse? NO. by imstanny · · Score: 2, Insightful

    The only thing that would collapse under lower pricing of ads is those that sell ads, ie Google, Yahoo, etc. Those who purchase ads, however, would flourish since these ads would become cheaper.

  38. Re:Average Consumers? How about average internet.. by Bovarchist · · Score: 5, Insightful

    I think you hit on the real problem there. It's not that there *are* ads, it's that the ads are stupid and annoying. I'm seeing progress from IBM and some others in making the ads more fun and relevant, but there is still a long way to go. And internet advertisers will eventually have to realize that just because you *can* animate an ad, doesn't mean you *should* animate an ad. I've seen magazine ads for Carlton Draught that made me laugh my ass off as well as remember their name - no animation required.

    --
    Hell is other people's code.
  39. Well I guess Ty Coughlin was right! by Illbay · · Score: 2, Funny

    You know, the "beach-bum from Hawaii that made a pile of cash on the Internet?"

    He tells us in his latest radio ad that we have "only two years before they change the Internet, and you won't be able to make money like I did any more."

    We'd probably better get to his website and sign up, before it's too late!

    I mean, would a beach-bum from Hawaii steer you wrong?

    --
    Any technology distinguishable from magic is insufficiently advanced.
  40. Re:Average Consumers? How about average internet.. by poetmatt · · Score: 2

    Uh yes, most people do hate ads, and some like myself never click a single ad, even if it's required as a clickthrough. Adblock + noscript + nukeanything = no ads.

    Problem is everyone thinks ads (like marketing) are a magic cashcow. They aren't. If your product sucks, whatever it happens to be, tangible or intangible, advertising and marketing will only go so far. It's like the unsolicited spam-mail when you see who sells your email address (such as amazon, buy.com, anything really). Anytime you sign up for something with spamgourmet's toss away emails just watch how many places start sending mails identified as from them, etc etc.

    Problem with advertising and marketing is there are no ethics in that industry, not even remotely; people will make a bag of shit sound like its a 24carat gold bag of benjamins if you pay em to do so.

  41. Minimum CPC = Minimum Wage by michaelmalak · · Score: 3, Interesting
    First off, this blog post can hardly be called an analysis because it doesn't even take into account Google's quarterly financial reports. For 2008Q1, Wired was exuberant that Google's 2008Q1 revenue was 42 percent higher than 2007Q1, saying that online advertising was immune to the recession due to "desperate" companies needing "a multitude of ways to drill their messages into the public consciousness."

    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.

  42. Re:Average Consumers? How about average internet.. by Lumpy · · Score: 2, Interesting

    Actually the average user freaks out and says "WOW YOU CAN DO THAT!" when I install privoxy on their PC and magically all the ad's are gone and websites load 25-60% faster.

    It amazes them that it's possible and then they tell friends about it. I also get them to use Firefox with it, making them think it's a required component. Works great. A combo of FF and privoxy drops Pc infections drastically.

    --
    Do not look at laser with remaining good eye.
  43. Who cares? by ebcdic · · Score: 2

    If the "Internet Economy" means advertisements, then the sooner it collapses the better.

  44. Buffett's advice by tigre · · Score: 5, Interesting

    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.

  45. Re:Inflation by zacronos · · Score: 4, Informative

    Meh - if you shift 3 billion units/month, and still can't turn a profit, then you deserve to go out of business.

    It's all about the spin -- I actually RTFA(s), and nowhere I saw except in some blogger's analysis did it say that company can't turn a profit. From the article:

    [Lookery] CEO Scott Rafer says the ad network is running at break even in terms of gross profits. But his plan is to use it to "bootstrap a data services business."

    The analysis makes the assumption that Lookery can't turn a profit and thus is changing their business model. Maybe this is true, but from that quote it seems equally plausible that this is all part of the plan -- run ads as cheap as you can to get as much market share as possible (hopefully undercutting your competitors, who are trying to turn a profit), then use your position to make money in a different way. I've heard many gas stations do the same thing -- they pretty much break even on selling gasoline (in order to attract customers), and then make their profit on the snacks, beer, ice, etc that people buy while they're stopped.

    This is not a new idea. Without further evidence, this does not mean the company is struggling -- even the fact that they've lowered their prices isn't evidence of this (what company wouldn't lower their costs if they thought they could get away with it?). It just means they're trying a different tack in a highly competitive market. No big deal.

  46. Missing the point about Adwords by simong · · Score: 2, Interesting

    The ad market isn't based on demand, it's based on what people are willing to pay, and these, in this case, are fundamentally different things. Yes, in the context that the article writer talks about, 'Flash' is a trademark, but 'flash photography' isn't, but it's specious to say that people aren't bidding for ads because they can't afford them, and it's also sheer speculation to say that Google is pricing specific words out of the market. I wouldn't claim to be an expert, but I have been involved in Adwords campaigns, particularly in narrowly targeted areas, and it's obvious that there's a correlation between the validity of a search term, and that search term's value as Adword keywords. This plugs Adwords into the whole Pagerank system, which will ultimately value words in accordance with what people are searching for at the time. Real names also have a high value, and it may be that 'Flash' is regarded differently to 'flash'.
    I have a client who sells garden furniture that is branded with the name of a popular UK TV gardening presenter. He's not the sole distributor, so he is in competition with other vendors selling those products, plus anything else that has the presenters' name on it. When we did the Adwords campaign he had just published another book and was appearing in a mainstream evening TV show, which ultimately lead to the minimum bid for using his name being set at £1.30 per impression. However, like any auction, this must have only been set because someone was willing to pay it in order to get their ads to the top and right ad bars on the first page of the search results. In that respect Adwords is essentially a mechanised trading system and there may be curbs and restraints, and I dare say the occasional artificial ceiling or trapdoor, to control excessive or combative bidding, but in theory, if you wanted to bid for 'Microsoft' to link it to a campaign for Linux, you would be bidding against anyone else who wanted to get 'Microsoft' into pole position, including Microsoft themselves, who have far more money to throw at ad impressions then you do (if they gave money to Google, but that's by the by). There probably are restraints within the system around using trademarks, which *probably* exist to prevent or limit messy and expensive lawsuits rather than pricing their availability out of the market.
    So the question is, will the bubble burst? If advertisers don't get a good return for their costs, by converting click-throughs to sales, which is what Google Analytics is for, and if people stop clicking on ads, which is the key measure for Google, then advertisers will consider taking their ad budget somewhere else, and income will degrade, but it's not a linear progression, as while it fails in one market, it will rise in another, probably debt management solutions. Advertising doesn't stop in hard times, but it finds more creative ways of making a return for its money, which is an unscientific process at best, so as long as Google can provide visible returns for its customers, which is after all far better than paper or broadcast media can provide, it will survive.

  47. Directed vs. SPAM by Anonymous Coward · · Score: 2, Insightful

    The problem with a lot of people trying to sell online advertising, in my opinion, is that they think the best route to take is sheer volume. I completely disagree. Like several of the above posts, I've gotten tired of the only vaguely related advertising that appears on most websites, and thus have either mentally filtered it out or gone to ad blockers.

    It's not advertising online that really bothers me, it's the undirected nature of most of it. I don't want to be flooded with flashy dancing heads and brightly colored blocks of pictures of things I have no interest in. If you want ads to be successful they need to speak to a specific audience. Google does try to do this but as the posters above mentioned, people tend to try to game the system a lot.

    I personally think the business model needs to shift more toward an "approved advertiser" editorial type system. See for example, Penny Arcade. They've mentioned before they personally approve each ad displayed on their site. They won't advertise games they think are bad. And I believe they even asked their readership if it was ok to start displaying Flash ads instead of just still images before going ahead and doing it. In other words, they figured out what their audience wanted, and they deliver that. And in my personal experience it works. I've clicked through on far more Penny Arcade ads to check out a new game than I have on any other site.

  48. Re:*Relative* bargain by wilkens · · Score: 2, Insightful

    Let me make sure I have this straight. Your claim is that advertising is ineffective, but that no one realizes it because no one (including you) has proper data to back it up. Umm ... seriously? You don't think the people who pay billions every year for advertising have any idea what it's worth? And you do because ...?

  49. I support GOOD ads, from GOOD websites. by slowbox · · Score: 2

    Good websites deserve support. People need to get off their high horse and realize ads are a part of the web economy and a click is a small donation of time to support a quality website. I used to avoid clicking referall links within a website, and manually punch in the location in my address bar, as a way to protest the whole ad media concept. Not any longer, sometimes I go back to a site that provided me with info/product support and USE their link to earn them commission. (Obviously I'm not talking here about those god awful "FED CUTS RATES AGAIN" ads... But don't lump all ads together)

  50. Missing the point about ad inventory by davide+marney · · Score: 3, Insightful

    From FTA:

    [Web advertising is] only sustainable so long [as] Google enjoys near-monopoly status. Once that status is gone, then all keywords -- even the ones Google chooses to price out of the market -- become competitively priced...[which] means everybody that depends on AdWord revenue suddenly makes less.

    No, when things get more competitive, it just means that the list of keywords which Google can afford to price out of the market will get shorter, not disappear altogether. The result will be a net increase in the number of adwords available at both Google and its competition, making the market larger, not smaller.

    When Google gets some real competition, the smart advertiser will of course rent keywords wherever it is profitable to do so.

    Hardly the end of the world as we know it.

    --
    "We receive as friendly that which agrees with, we resist with dislike that which opposes us" - Faraday
  51. Remember, Ads are for Brand Awareness by Sherman+Peabody · · Score: 3, Insightful

    The point of advertising is to increase brand familiarity so that consumers know who you are and what you sell. That way, when they need your product they remember you, look you up, and give you money. It is not supposed to be a spur of the moment incentive to generate instant demand and give you click-through-riches (except porn site advertising, but let's not go there).

    TV and radio have worked that way for a long time. Some car ads exist only to give reassurance to people who have already purchased the vehicle.

    Think of Apple, people buy their product on brand recognition and reputation, not clicking through some ad. The paradigm shift of the internet concerns ease of information delivery, not consumer demand.

  52. Re:Average Consumers? How about average internet.. by sm62704 · · Score: 3, Insightful

    It's not that people hate advertising itself. They don't.

    People love the Geico ads with the duck. They loved the Budweiser ads with the frogs. They like ads for items they didn't know existed but could save them time/money/otherwise make their lives better.

    What they hate is pushy, in your face, obnoxious, trite, boring ads that detract from the content. Nobody hates Google's text ads, for instance. Everybody hates weather.com's advertisers.

    --
    mcgrew's razor: Never attribute to stupidity that which can be explained by greedy self-interest
  53. Re:Inflation by sm62704 · · Score: 2, Interesting

    Whoever modded that comment as "troll" should wake up and look around. I was assigned a book in an undergrad history class in the late 1970s, it's a good read and I still have the thing, reread it a couple of months ago.

    The link is to the text of the book. Economic similarities between now and the US shortly before the great depression are scary. From "XII.THE BIG BULL MARKET"

    The speculative fever had been intensified by the action of the Federal Reserve System in lowering the rediscount rate from 4 per cent to 3'/2 per cent in August, 1927, and purchasing Government securities in the open market. This action had been taken from the most laudable motives: several of the European nations were having difficulty in stabilizing their currencies, European exchanges were weak, and it seemed to the Reserve authorities that the easing of American money rates might prevent the further accumulation of gold in the United States and thus aid in the recovery of Europe and benefit foreign trade. Furthermore, American business was beginning to lose headway; the lowering of money rates might stimulate it. But the lowering of money rates also stimulated the stock market. The bull party in Wall Street had been still further encouraged by the remarkable solicitude of President Coolidge and Secretary Mellon, who whenever confidence showed signs of waning came out with opportunely reassuring statements which at once sent prices upward again. In January 1928, the President had actually taken the altogether unprecedented step of publicly stating that he did not consider brokers' loans too high, thus apparently giving White House sponsorship to the very inflation which was worrying the sober minds of the financial community.

    From "HOME, SWEET FLORIDA"

    By 1927, according to Homer B. Vanderblue, most of the elaborate real-estate offices on Flagler Street in Miami were either closed or practically empty; the Davis Islands project, "bankrupt and unfinished," had been taken over by a syndicate organized by Stone & Webster; and many Florida cities, including Miami, were having difficulty collecting their taxes. By 1928 Henry S. Villard, writing in The Nation, thus described the approach to Miami by road: "Dead subdivisions line the highway, their pompous names half-obliterated on crumbling stucco gates. Lonely white-way lights stand guard over miles of cement side- walks, where grass and palmetto take the place of homes that were to be .... Whole sections of outlying subdivisions are composed of unoccupied houses, past which one speeds on broad thoroughfares as if traversing a city in the grip of death." In 1928 there were thirty-one bank failures in Florida; in 1929 there were fifty-seven; in both of these years the liabilities of the failed banks reached greater totals than were recorded for any other state in the Union. The Mediterranean fruitfly added to the gravity of the local economic situation in 1929 by ravaging the citrus crop. Bank clearings for Miami, which had climbed sensation- ally to over a billion dollars in 1925, marched sadly downhill again:

    The Big Red Scare sounds a lot like today's "war on terror". Alcohol prohibition reads like today's "war on (some) drugs".

    This book was first published in 1931. Read it and be afraid! Who was it that said "those who refuse to learn from history are doomed to repeat it?"

    --
    mcgrew's razor: Never attribute to stupidity that which can be explained by greedy self-interest
  54. Re:Average Consumers? How about average internet.. by 12357bd · · Score: 2, Interesting

    market forces seem to be pushing away from annoying your customer.

    Not in my experience. Market forces seems to depend more and more on erratic criteria, that's just the beginning of the end of online advertising.

    Take the Google case: They pay to publishers what they want, but still have severe problems!.

    The whole ads economy is flawed, bots can act like persons, in fact there's no difference at all between casual visitors and random bots. If spam has virtually destroyed email, ad-clik-bots will terminate internet advertising.

    --
    What's in a sig?
  55. Re:Average Consumers? How about average internet.. by ninevoltz · · Score: 3, Interesting

    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
  56. Re:Average Consumers? How about average internet.. by Raenex · · Score: 2, Informative

    It's effective on you. Advertising is about brand recognition, which you nicely demonstrated by mentioning Geico and Budweiser. It doesn't matter if you got the mascot screwed up.