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Is Online Advertising Worthless? (zerohedge.com)

Posted by EditorDavid on from the click-here-to-find-out dept.

turkeydance shares a story from ZeroHedge: Category 1 storm clouds are gathering over what has traditionally been one of the most lucrative, and perhaps only profitable, sectors to come out of Silicon Valley in decades: online advertising. Two months ago, it was P&G which fired the first shot across the "adtech" bow when not long after it announced it was slashing its digital ad spending because it thought it was not getting the kind of return on investment it desired, it made a striking discovery: "We didn't see a reduction in the growth rate." CFO Jon Moeller said "What that tells me is that that spending that we cut was largely ineffective"...

So fast forward to last week, when during Thursday's Global Retailing Conference organized by Goldman Sachs, Restoration Hardware delightfully colorful CEO, Gary Friedman, divulged the following striking anecdote about the company's online marketing strategy, and the state of online ad spending in general... What Friedman revealed - in brief - was the following: "we've found out that 98% of our business was coming from 22 words. So, wait, we're buying 3,200 words and 98% of the business is coming from 22 words. What are the 22 words? And they said, well, it's the word Restoration Hardware and the 21 ways to spell it wrong, okay?"

Stated simply, the vast, vast majority of online ad spending is wasted, chasing clicks that simply are not there....One wonders how long before all retailers - most of whom are notoriously strapped for revenues and profits courtesy of Amazon - and other "power users" of online advertising, do a similar back of the envelope analysis, and find that they, like RH, are getting a bang for only 2% of their buck?

14 of 289 comments (clear)

  1. Shitty Consultants by corychristison · · Score: 4, Insightful

    Clearly they are spending their advertising budgets with the wrong consultants.

    Anyone decently competent at online marketing knows how to narrow their most effective keywords, and push them harder, to achieve better click-through rates.

    1. Re:Shitty Consultants by sittingnut · · Score: 3, Insightful

      P&G, that lives on selling stuff, have "wrong/shitty" marketing consultants?
      i doubt that. they know what they are talking about when they say something is "largely ineffective".
      -
      btw i for one have not clicked on an online ad for over a year, and last time was deliberate click to check the ad mechanics(and why it was not blocked by ad block) rather than because of interest in product.

    2. Re:Shitty Consultants by Anonymous Coward · · Score: 3, Insightful

      P&G, that lives on selling stuff, have "wrong/shitty" marketing consultants?
      i doubt that. they know what they are talking about when they say something is "largely ineffective"..

      Proctor and Gamble have finally discovered what any sane person has known for a long time. The Online Advertising Emperor is not wearing any clothes.

      99% of ads are garbage that nobody would ever click on except by accident, which means that the way that everyone gets paid -- counting clicks -- is completely meaningless because click fraud is so rampant. Plus ads have become so intrusive and loaded with malware that more and more people are blocking them.

    3. Re:Shitty Consultants by Anonymous Coward · · Score: 5, Insightful

      Advertisers are paying for ads that are viewed and clicked on by bots, not humans; and ads are placed by thousands of automated “ad exchanges” that are out of control of the advertiser, and on sites and pages that don’t match the advertiser’s products.

      Over the past 5 years, spending on online adverting has more than doubled but retail spending by consumers has only increased by an average of 2.4% per year. Digital advertising – despite the lure of Facebook and the like – cannot induce consumers to spend more and increase the size of the overall pie for advertisers. It can only, at best, divide up the pie differently.

    4. Re:Shitty Consultants by Narcocide · · Score: 5, Insightful

      Spend some time with business leaders and you'll find that they're mostly clueless assholes, placed in their positions by wealthy families, running mostly brain-dead companies that make money due to some legacy accident.

      Depressingly accurate with zero hyperbole.

    5. Re: Shitty Consultants by slazzy · · Score: 2, Insightful

      Not if you value your money. You should analyze it yourself. The most important metrics being dollars out, vs dollars in. Even if you business is based on long term sales conversion, you can save cookie, or the user id if they create an account to monitor the value of a customer from your ad campaign. Advertising based on brand building is probably a waste.

      --
      Website Just Down For Me? Find out
    6. Re:Shitty Consultants by 0123456 · · Score: 5, Insightful

      They don't need to create a negative view of Silicon Valley when the companies are doing that so eagerly themselves.

      Now most of those companies are SJW-converged and politics is job #1, no sane person is going to look at them in a positive light again. It's probably no coincidence that the two least evil big tech companies are based in Seattle.

      And, heck, what kind of world are we living in when Microsoft is the second LEAST evil big tech company?

    7. Re: Shitty Consultants by ShanghaiBill · · Score: 5, Insightful

      "Dollars in, dollars out" doesn't tell you you which ads are more cost-effective

      You have a specific landing page for each ad. Then you track that contact through to the purchase, whether that is online, or through an offline sales lead. You know how much the ad cost, and you know the revenue generated. You subtract out your COGS, and if the result is positive, your ad is making money.

      This is advertising 101. If they don't even know how to do ads right, then P&G is run by morons.

    8. Re: Shitty Consultants by dwywit · · Score: 4, Insightful

      Hasn't that been the modus operandi of marketing since, well, forever?

      Spend $$$ on advertising, if sales increase then the advertising works.

      Except there's very little about that process that's provable. About the only thing I'd trust is exit interviews as customers leave the store (brick-and-mortar, or online).

      "How did you hear about us?" is one of the most reliable, and direct sources of information about how someone found out about your product - but the whole marketing industry has been built on unprovable BS based on third-hand information, or as said above, proxy information.

      --
      They sentenced me to twenty years of boredom
    9. Re: Shitty Consultants by arth1 · · Score: 4, Insightful

      It also does not capture brand building.
      Jewellers, for example, advertise throughout the year, with less expectation of sales next month than people remembering the brand name come holiday season or anniversaries. Similar for plumbers and funeral homes with local ads.
      The goal is being the first company you think of when you one day will use such services.

  2. Yes. by Anonymous Coward · · Score: 3, Insightful

    Yes. Please kill it.

  3. I always wonder why by jetkust · · Score: 5, Insightful

    When you search for a company or website on google there is an advertisement for it right above the search result taking you directly to the web site you were looking for. I always click on the search result because clicking on an ad is just weird to me, even though they both likely take me to the same spot. But what is the point of buying an ad like this if they are already trying to get to your site in the first place? Why convince someone to do something they are already doing? Are they afraid another company is going to buy the search ad and someone is going to randomly click on another website instead of the one they were specifically looking for?

    1. Re:I always wonder why by ConceptJunkie · · Score: 5, Insightful

      I don't click on the ad in the case you describe above, because I simply don't trust the ad to be what it appears.

      --
      You are in a maze of twisty little passages, all alike.
  4. Re: Just in time to switch to mining by Ken_g6 · · Score: 3, Insightful

    Honestly, how many people are going to do that much work?

    Plus it's more efficient to block the mining scripts with NoScript or the like, and run a native mining client yourself.

    --
    (T>t && O(n)--) == sqrt(666)