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The Decline of Google's (and Everybody's) Ad Business
Hugh Pickens writes "Rebecca Greenfield writes that during their recent earnings call, Google reported a 16 percent decline in Cost-per-Click (CPC), meaning the value of each advertisement clicked has gone down. This follows a 12 percent drop last quarter and 8 percent the quarter before that showing an unfortunate reality of online advertising — unlike the print world, internet ads lose value over time. The daily and stubborn reality for everybody building businesses on the strength of Web advertising is that the value of digital ads decreases every quarter, a consequence of their simultaneous ineffectiveness and efficiency, writes Michael Wolff. 'The nature of people's behavior on the Web and of how they interact with advertising, as well as the character of those ads themselves and their inability to command attention, has meant a marked decline in advertising's impact.' This isn't just Google's problem. Overall, Internet advertising has decreased in value over the years as online advertising continues its race to the bottom. 'I don't know anyone in the ad-supported Web business who isn't engaged in a relentless, demoralizing, no-exit operation to realign costs with falling per-user revenues,' adds Wolff, 'or who isn't manically inflating traffic to compensate for ever-lower per-user value.' For Google's overall business, this loss doesn't mean as much, since it has since expanded its business beyond AdWords — including its recent acquisition of Motorola. For companies that didn't just buy big hardware companies however, it's a scarier proposition. Like Facebook, for example."
The ads were getting a bit overwhelming. Maybe this will mean less of them.
The 1% don't eat nowhere near as much Doritos as the 99%.
Yay! They've finally clogged the pump of consumerism!
the preceding comment is my own and in no way reflects the opinion of the Joint Chiefs of Staff
Adblock: Savior of the Internet.
I hate ads!!!!
At least now the talented engineers at Google et al. will use their bright minds to actually create the next great innovation, instead of creating the next obnoxious ad that circumvents AdBlock, the next stupid ad-ridden Skinner... er, social game, etc.
We could only be so lucky.
If it could take Twitter with it to the grave, so much the better!
Chas - The one, the only.
THANK GOD!!!
The internet had plenty of good content before it was ad supported, and it will have plenty of good content afterwards. Come to think of it, the content was actually better before it was add supported.
Give me Classic Slashdot or give me death!
The money in internet advertising grows slower than the number of internet ads, making them cheaper.
What in the world was the point of all that, and what did it have to do with online ads?!
If you are annoyed at online ads, you are obviously fortunate enough to have internet access. I don't like all the ads in my face either, but there is no free lunch my friend.
If I only had a penny for every time that someone whined about why they can't get everything for free...
Google's unobtrusive text ads are out. Solution: really big ads that get in your face before you can get to the content. These sorts of ads have become much more popular recently and I can only conclude it's because they work.
Also growing in popularity is "answer this marketing survey before you get more than one paragraph of the content". It's only one question now, but as it grows in popularity there will be more questions. Ultimately you'll have to fill out an entire multi-page survey before being allowed to access content. This will be linked to your real name and Facebook account, of course.
Shutting down free speech with violence isn't fighting fascism. It IS fascism!
...who clicks on ads? The only time I click them is by mistake and then in frustration I close the new window, usually before it loads. My value per click is $0.
Great warrior...hrmph! Wars not make one great.
Fuck them all. Slime of the earth, people that sell and run this stuff.
I realize we've all been lulled into believing that inflation is somehow inevitable but in a correctly functioning capitalist society, prices for just about everything should actually go down as production becomes ever more efficient.
The soylentnews experiment has been a dismal failure.
They say video games and tv desensitize you to violence and sex? I've been so inundated with advertising that I don't even care anymore. I literally do not pay attention to anything that scrolls, flashes, or pops up. My attention can no longer be grabbed. If I want your ads (read: Newegg and Buddies Pro Shop) I'll sign up for an email newsletter. Otherwise, you can forget any ad making an impression on me.
I have the hiccups.
The advertisers scream and rant and rave. Pretty soon we filter them out both with automatic filtering done at the software level and and mental filtering done at the wetware level.
If I want something I go looking for it. Advertising doesn't make me buy. Thus advertising is a waste of money. It just jacks up the costs. In tight markets that extra cost makes or breaks.
There's a rule in business. If you make money off of primarily 1 main product and everyone universally hates your product, you're eventually going to go bankrupt. Welcome to advertising!
Could you please correct the submitter's link.
It should be:
http://honorponcacity.com/
The link is correct in my original submission.
Best Regards,
Hugh Pickens
Ponca City, We Love You
The company that has been hemmoraging money since 2004 will save Google from declining ad revenues?
Well.. maybe. Or Maybe not. But Definitely not sort of.
If each ad display has less value, maintaining revenue means being more agressive with advertisements.
Myspace tried that. That didn't end well. It didn't work out well for Yahoo, either.
Facebook is trying it now. That may not end well. One clear implication - Facebook stock is hugely overpriced. Based on current revenue, Facebook is worth about $7 per share. The stock price assumes a huge growth in revenue. Probably not going to happen. Even a slow decline in Facebook's revenue means the glory days are over.
Ads on search results are worth far more than ads on other media. Ads on search results are presented when someone is actively looking for something in the relevant category. Ads on content are irrelevant interruptions.
This follows a 12 percent drop last quarter and 8 percent the quarter before that showing an unfortunate reality of online advertising â" unlike the print world, internet ads lose value over time.
Or, alternatively, print ads were never really all that successful, but unlike on the Web, there was never any way to measure their efficacy with much precision.
I work in Google ads and the cost-per-click fretting miss the mark for lots of reasons.
- First we are talking year-over-year drop so the numbers are nowhere close to what the summary implies. In fact, they went up last quarter if I recall correctly.
- Second we believe lowering cost-per-click is a *good* thing as long as other metrics (such as revenue and clickthrough rate) stay neutral. It means advertisers are getting their clicks for less cost, which makes them happier, and more likely to dump more money in. This is exactly what has happened recently. It is not because advertisers are lowering bids - it is because of (intentional) changes on our end mostly.
- There is only one legitimate actual concern here: advertisers pay less for mobile ads, and mobile is becoming more and more important. But that has nothing to do with less interest in ads in general.
Look at this graph: http://www.rimmkaufman.com/content/Goog-Growth-Q1-2012.png CPC go up and go down. But not like Wolff says, always going down. They went sharply down around 2008, then went up for a bit, now go down. I blame economic contraction in Europe which account for half of Google's traffic.
"'I don't know anyone in the ad-supported Web business who isn't engaged in a relentless, demoralizing, no-exit operation to realign costs with falling per-user revenues,' â" including its recent acquisition of Motorola,"
Because being a commodity Android phone manufacturer definitely protects you from a relentless, demoralizing no-exit operations to realign costs with falling per-user revenues.....
http://www.asymco.com/2011/05/16/iphone-share-of-phone-market-in-q1/
Time was, Internet ads were a novelty. I've since learned to "see past them," pretty much ignoring them.
It's to the point now that if your ad is so in your face that it gets my attention, I view it as intrusive and it has a NEGATIVE impact instead of the positive impact you wanted it to have.
I learned the same trick with newspaper, billboard, TV, and radio ads as a child. I expect most others did as well. This might explain why the effectiveness of those ads hasn't changed recently.
This comment sponsored by Commander Taco's Pink Ponies. Geeky Girls love Commander Taco's Pink Ponies.
I am having to learn this trick over again for electronic-billboard ads and product-placement ads, but once I do, things will be back to a "steady state" of non-changing (in-)effectiveness.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
There's a scene in Schindler's List where Amon Goeth sizes up Schindler's strange request remarking, "Whatever you do, there's always money in it, but this one I can't figure out." For some reason, I didn't spot this one in the usual movie quote compilations. Probably because the point is sharp but the language is dull.
I wouldn't jump to conclusions too quickly. Fortunately for his Jews, Schindler was able to mutter in his getaway car "there are more motives in heaven and earth, Amon, than are dreamt of in your philosophy".
Ultimately the problem here is that advertising tends not to be such a huge value add, unless you value the convenience of shopping at Margins-R-Us a whole lot.
Step 1: Identify the desired product.
Step 2: Find a vendor with "flow through" pricing.
Step 2a: s/Trademark\$*/generic_name
Just an hour ago I was looking for cut resistant gloves to handle glass carboys: s/Kevlar/aramid/ Bingo! On the plus side, a partially severed tendon would cut down no my posting obsession, with a coefficient of about 20wpm/mm. I'm also going to wrap the bottles in bundling tape to coral shards. I'm a gloves and suspenders type of guy.
The only successful targeted internet ad company that I know of is Amazon.
I've bought hundreds (thousands?) of dollars of stuff based on recommended items. I forget exactly how they phrase it but its something like "people who bought your Charlie Stross book "Rule 34" also bought the following books" and they list Accelerando and The Apocalypse Codex and so on. Ditto about a zillion other authors and non-book products.
I've never intentionally clicked on or purchased anything from any other targeted ad, and have been using ad blockers since weeks after that tech was invented.
The scary part is thinking about what really finely focused /. ads would push on us /.ers. Hmm. Instant Hot Grits, Debian install disks, buy this package at a discount: one cup now with pix of two girls, lots of rick astley / rickroll music...
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
This article is pretty misleading. Overall spend on paid search is up, not down. Spend on online display is up, not down.
One of the liked articles says "To make up for the CPC loss, it managed to increase overall clicks by 42 percent". That's pretty speculative as to the direction of causation. It makes more sense that clicks are growing heavily in non-premium keywords, ones that command lower price points. I haven't seen any evidence that premium keyword ad pricing is falling dramatically.
One thing that does ring true is that overall online advertising spend growth is trailing inventory growth, and therefore per-unit pricing on inventory is probably decreasing. Spend growing, inventory volumes growing faster, per unit prices falling.
/fnard
the preceding comment is my own and in no way reflects the opinion of the Joint Chiefs of Staff
Goddmanit, how come no one told me this? Time to ditch my vintage Netscape 2.0 Now! gifs.
What the hell is an advertisement?
*points to Adblock*
Search engine rank. Make it so I am able to find your products and services when I want/need them. Throwing flashy bouncy wobbly crap written to a 3rd grade reading level on every frickin' page doesn't make me want to click through to buy your product. Rather, it makes me want to install a filter so I never see that crap.
...that's only the perspective of the companies that carry the adds to generate their revenue. If the cost of the adds are going down, yet online sales continue to rise, that means the value of those adds to the people actually placing them increases; costing less to generate more.
Fascism: An authoritarian and nationalistic right-wing system of government and social organization. See also: NAZI's
People that *used* to spend their time on various internet websites (and maybe used to click on ads), now spend *all* their time on facebook.
Facebook has supplanted the rest of the commercial internet. People that hung out on Reddit or 4Chan or Digg or iWon.com now just spend all their time playing FarmWars on facebook.
Online advertising *depended* upon "dummies". People that actually would try to punch the money. People that believed you could get a Laptop for one dollar. People that were interested in a local housewife's anti-aging/diet formula that WORKS!!! and the big companies don't want anyone to know about.
Yes. Dummies. And now those dummies are on Facebook, sharing George Takei's silly pictures, posting lolcats, and piss-poor photoshops as "real images". That's why internet revenues are down -- those dummies are too busy with their lolcats to punch the monkey.
If telephones are outlawed, then only outlaws will have telephones.
I used to make a steady 300-350 bucks a month from Adsense ads on my sites. My recent months have been 150-200. I figured it was because of the fall of IE and the rise of Chrome and Firefox, both of which are seldom seen without Adblock Plus.
Most casual computing, especially by the consumers that ad buyers are trying to reach, is now being done on mobile devices. And it is just not possible to make an attractive, informative ad on a small mobile screen without crowding out some other essential function. Mobile devices simply don't have enough spare real estate on which to place ads. Compared to computer screens, the number of ads that can be displayed at one time on a mobile device is severely limited, and the ad itself has to be relatively small
Moving to mobile helps get rid of many ads. Now, if we could just get everyone to move to text-only devices, we should be able to get rid of ads completely!
When we needed a couch, you know what we did? We went to a website that is dedicated to advertising: Craigslist. We found a couch, we bought it, and it worked out great.
What you hate are the ads that have become commonplace on the web, because let's be honest: those are annoying, invasive, and they get worse with each passing year.
Palm trees and 8
Are you referring to the decision to use AdBlock being one which is encouraged because of a Tragedy of the Commons situation in which the "players" are consumers of internet content, or are you referring to the production of ad blocking tools being a result of the escalation of intrusive advertising which results from a Tragedy of the Commons in which ad-supported internet sites are the players?
Because, you know, both are true.
Solution: Reduce the advertising footprint on your site.
Problem:
Pervasiveness: the more ads you squeeze onto each page, the reduced opportunity each one has to catch the users eye. But it's also cumulative. More ads = less content space = increased selectivity by visitors. With so many ads everywhere, we just don't have TIME to click, compounded by the fact that with so many ads everywhere it takes a lot more time to get the stuff we actually came for.
Ad companies need to look not just at visitors and page impressions, but how much time visitors are spending on pages, more simply put: content value.
Here's a thought: put article bodies in a scrolling panel and provide a single, choice, ad space next to it. Don't rotate it, don't cycle it, and let me expand the article panel out over it if it doesn't appeal to me -- that piece of information is valuable to marketeers if coupled with which article I was viewing.
What you have now is an item to retain my attention alongside the ad. Put a second ad there, and you'll make twice as money for a couple of cycles. But more than one ad risks immunizing your readers by conditioning them to just close the ads before their eyes can get there.
-- A change is as good as a reboot.
We tested Google add words but putting in special trackers in our logging and found they claimed more than twice the clicks than actually happened. This is after they claim they adjust downward the number of clicks.
Just not cost effective for many businesses - I suppose the bean counters have started figuring it out.
"... unlike the print world, internet ads lose value over time...."
Um, I'm not sure what 'print world' you live in, but print advertising has ALWAYS been exceptionally sensitive to time - in my early days in the trucking business, we had a whole division that dealt with NOTHING but the transport of time-critical printed ads and flyers for magazines, newspapers, and other print media. Miss your delivery and that truckload of $40,000 of printed paper was VALUELESS.
-Styopa
Add support?
Ant(Dude) @ Quality Foraged Links (AQFL.net) & The Ant Farm (antfarm.ma.cx / antfarm.home.dhs.org).
A mistake from the beginning on the internet was to assume users had to click on ads for them to have value. Few other mediums place such a requirement on themselves, including print, billbaords, radio ads, etc. The whole point is to plant awareness of a brand in the mind of trhe consumer, so that they may decide to try the product. It is the same online, if we focus on the ads making a visual impression and creating a memory, they can be seen as effective in creating awareness, and in fact, millions can see an online ad, which makes it something that is as visible as a print ad. Many consumers will see an ad and make a note on it but as they are busy doing something else may not click on the link. its unreasonable to expect users to click on a link and also not necessary.
Online ads are just an online billboard, its stupid to try to obsess over link hits, something that isnt even a possibility anyway with other ad mediums .
It seems like the online ad business decided to count link hits, becuse "we could", but it was actually a bad idea, few other ads mediums measure their success on whether a user will make a split second decision but rather on whether they buy the product in coming weeks, even months.
As others have mentioned, there's a line where increasing the "aggressiveness" of advertising reduces its effectiveness. Ever watch a show and every commercial break it's the same damn annoying ad? How about the same ad in one commercial break?
Ads should be about predicting customer need. I've noticed that as soon as I check out something on Amazon, they start to spam me (at my associated email address) with ads on related topics. Close... but not quite. At least they're trying to show me stuff I might want, but they need to crank back on the volume a bit.
I agree. I sell ads on my sites directly to companies. I have never solicited ads, companies contact me wanting to advertise, so obviously the advertisements are relevant to visitors. I keep things simple. I make it clear that I don't track clicks, I don't track using cookies, and they get an ad spot which is theirs for as long as they want. There is no ad rotation. Ads are .gif or .jpg files on the server and unless someone blocks images (which would make the sites useless) they will see the ad. They can look up site statistics (I post them monthly) but other than that, nothing. I also ensure the advertiser fully understands I sell advertising space as "Brand" advertising. Most of my advertisers have run for over 4 or 5 years (such as Underwriters Laboratories). I have not had an opening for a new ad on a site since around June 2011. Several of the advertisers track their ads by giving me a distinct URL for their ad and some send me their stats now and again. I thank them but as I tell them, I know nothing about how they figure out their ROI or any other aspect of advertising on the web. Point is, apparently they're all happy or they would be staying on year after year. I will say I probably sell ad space relatively cheaply, but I'd rather have long term, consistent income than try to gouge an advertiser and lose them.
That sounds intuitive, but when I think about it a little deeper it doesn't make sense. For instance, I can't decide not to eat today on the basis that tomorrow my staples will be cheaper. I grant that for luxuries one would decide against purchasing now. But in the majority that happens now anyway, excepting those with poor impulse control or large wealth.
In as far as they are rational, people don't really decide to purchase now on the basis of a declining purchasing power. They'll wait for a sale, or until they've built up their savings. In the "worst case" deflationary scenario, that shiny new Mac I've been desiring will cost half us much in a month's time. But with new equipment, there are things I could do now, that I wouldn't otherwise be able to do. So why I am more likely to purchase in a deflationary scenario? Because everything else is similarly deflating (including my wages) but I'm able to save more by putting off other purchases. In the normal situation, I don't have the option to buy now because I have to account for rising energy, fuel and food costs.
In the end, price is an important consideration, but not the only one in deciding to make a purchase, and in a deflationary scenario, it doesn't take long for the utility of having the thing now to exceed the savings made.
Plan My Week for iPhone
DISCLOSURE: I Hate Ads!
Not In Principle, but In Practice. (the all pervasive in your face obnoxious page-filling ads which lead to websites spreading a 100 word article across SEVEN PAGES)
A few years ago there was a delightful little study by (some of) The Big Players in Internet Advertising which announced that FEW people were actually clicking on their ads, and in fact FEWER people every year.
Their analysis of the problem was that NOBODY NOTICED the advertising, and thus we have the excessive-to-the-point-of-insanity IN YOUR FACE advertising model that is all too pervasive today.
Google (on the other hand) has always pursued the model that if you properly target your ads, the user is more likely to click (and thusly you can show them LESS ads).{on the flipside, privacy issues, tracking issues, etc etc etc - life is a compromise}
I would suggest this observed lack of value and race-to-the-bottom in the Internet Advertising industry is a DIRECT result of assuming that your target audience is BLIND AND STUPID and mirrors the RIAA/MPAA model of assuming their users are IMMORAL LAWBREAKERS (and that by CHOICE, not necessity).
Visit CryptoGnome in his home.
Also this declining in advertising revenus has been going on for years.
http://stateofthemedia.org/2012/newspapers-building-digital-revenues-proves-painfully-slow/newspapers-by-the-numbers/
Rapidly declining advertising revenues continue to be the industry’s core problem. The losses in 2011 were slightly worse than those of 2010 – 7.3% compared to 6.3%. Ad revenues are now less than half what they were in 2006.
http://www.nytimes.com/2012/02/03/business/media/quarterly-profit-falls-12-2-at-times-co.html
The New York Times Company reported on Thursday that its fourth-quarter profit declined 12.2 percent as rising subscription and digital advertising revenue at its largest newspapers could not offset the continued drop-off in print advertising.
http://online.wsj.com/article/BT-CO-20120703-702076.html
Mediaset SpA (MS.MI), Italy's largest private broadcaster, expects advertising revenue in its home market to decline in the first half of 2012
http://www.guardian.co.uk/business/2011/may/08/itv-advertising-sales-drop
ITV expected to report first decline in ad revenues for 18 months
http://www.exa.com.au/articles/autumn_09/
Meanwhile, free to air broadcasters have experienced multi-million dollar dives in profits and are writing their assets down as worthless. Channel 7, 9 and 10 are crippled by debt and funding problems in the face of declining advertising revenues and changing trends. Likewise, print media is experiencing huge decreases in both readership and advertising revenue.
http://www.filmneweurope.com/news/romania/declining-ad-revenues-at-romanian-tv
The deficit of the Romanian's public TV, SRTV (www.tvr.ro), decreased by 0.71% in 2011, to €36.7 million Euro, while revenue from advertising was 7.4 million euro in 2011, down 24.06% from 2010.
http://www.abc.net.au/news/2012-02-15/sbs-admits-financial-trouble/3830502
SBS battling falling ad revenue
http://multimedia.journalism.berkeley.edu/tutorials/digital-transform/print-editions-decline/
A steady decline in print circulation and a precipitous drop in advertising revenue in 2008 and 2009, especially classified advertising, have taken their toll on newspapers and newspaper chains.
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