Is Online Advertising Worthless? (zerohedge.com)

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?

Comments

Shitty Consultants

[corychristison]

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.

Re: Shitty Consultants

[slazzy]

Correct, you should know to the penny, to the minute how effectice your online ads are.

Re:Shitty Consultants

[sittingnut]

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.

Re: Shitty Consultants

[lucm]

Correct, you should know to the penny, to the minute how effectice your online ads are.

You mean that you should get from Google metrics about how effective are the ads Google is selling you, or that you should get from Facebook metrics about how effective are the ads Facebook is selling you, without in either case having access to the information needed to verify the metrics they give you?

That's the world of online ads, in a nutshell.

Re:Shitty Consultants

[Darinbob]

Right. Even if I see an advertisement for a product I like, I will never click on the ad itself. That's just dumb and a way to get malware and tracking.

Re:Shitty Consultants

[Anonymous Coward]

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.

Re:Shitty Consultants

[Anonymous Coward]

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.

Re: Shitty Consultants

[SNRatio]

Correct, you should know to the penny, to the minute how effectice your online ads are.

Horseshit. Most sales cannot be directly connected to a click any more than viewing a commercial on TV can. Most of the time you don't know if the person who clicked is the person who bought your toothpaste or furniture. Clickthrough is not a measure of an ad's effectiveness, it's just a proxy.

Re:Shitty Consultants

[Narcocide]

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.

Re: Shitty Consultants

[elrous0]

A click-through doesn't do you any good unless you can give the person doing the clicking a reason to actually buy what you're selling.

Re: Shitty Consultants

[slazzy]

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.

Re:Shitty Consultants

[0123456]

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?

Re: Shitty Consultants

[BronsCon]

So, then, you can tell if I click your ad today but my wife buys your product tomorrow? Your ads somehow gain persistent access to my webcam and/or microphone in order to verify that the person who was sitting at the machine when the ad was clicked is still sitting there when the purchase is made, even if those devices do not exist or are disabled? That sure is some trick, and if you're not doing it (and you're not), you're making assumptions. In other words, as SNR said, it's a proxy measurement.

Re: Shitty Consultants

[ShanghaiBill]

"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.

Re: Shitty Consultants

[dwywit]

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.

Re: Shitty Consultants

[Anne Thwacks]

"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

A lot of web sites ask this, generally with a drop-down. I frequently find that either I don't know, or I heard about them in multiple ways, mostly, neither answer is available, so I select the most irrelevant.

Seriously, guys, If you are trying to collect this information, do it properly on a small percentage of transactions. If I get asked 3 times cos I buy from you three times, then I will probably go elsewhere for the fourth. I ran a polling business 25 years ago, and we knew this then. The only two reasons for polling 100% of customers are (a) stupidity, and (b) evil intent.

Re: Shitty Consultants

[AuMatar]

Do you now who P&G is? Do you think that they sell direct to consumer? Their ads are far more indirect, meant to increase sales at retail.

Re: Shitty Consultants

[DarkOx]

Even that does not work because a company like P&G has a pipe line. WallMart for example on of your re-sellers, has X units on hand all ready. You run an ad, Wallmart's sales change immediately yours do not.

A very metrics driven company like Wallmart probably responds pretty quickly by adjusting their re-order count so you get that data right away. Now how about Hussey's General Store in some rural mountain town in eastern Virginia? They sell more P&G product this month and little less of the competitor they also stock. How long before they adjust their behavior? Remember this guy does his reorders by walking the shelves and seeing how tall the stacks of stuff are... There is of course range of business in between with different inventory levels and distribution models. Regional grocers, more national grocers, Amazon, etc..

Its probably months before P&G can get a clear picture on the impact of any changes they make on sales.

Re:Shitty Consultants

[DarkOx]

retail spending by consumers has only increased by an average of 2.4% per year.

In other words pretty close to the inflation rate. We might conclude from that consumer behavior really has not changed much at all at the macro level. One interesting question would be has online advertising impact the classes and types of products the retail dollars are chasing.

Re: Shitty Consultants

[arth1]

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.

Re: Shitty Consultants

[HornWumpus]

Decades ago I worked for a corporation that ran funeral homes (not SCI though that was the role model for the owners).

They don't want 'everyone', they are after a particular customer. A really crazy stupid and grief stricken one that will spend 20x the average to bury someone. 90% of their profits come from 10% of the market.

You saw it in the incentives to the peddlers. Commish for bronze caskets and marble mausoleums is over 50% of gross price.

They won't turn away the 'inexpensive' service customers, but they don't really get them at all, as even their cremations are _outrageously_ overpriced.

Advice: Arrange for a friend/lawyer to make the arrangements. Loved ones are just too easy to manipulate and the 'already dead' sales staff are experts. Don't buy 'pre need', they are lying that it will be easier on the family. Again the 'already dead' sales staff are expert at upselling the family, even if the dead person wanted cheap and simple, they will go full bore to sell them anyhow. Called 'twisting' in the industry. They not afraid to make everybody hurt extra, if it will get them to move up from a fiberglass coffin to a bronze one. They know just how to say and do things to make irrational, grief stricken people spend spend spend.

Further advice: If you see the letters 'SCI' or the name 'Service Corp International' anywhere on a funhome (8.3 naming) run, don't walk, away. Shop for price, they don't expect it, you'll be shocked at the ratios. Depending on where you live, it might be hard to find a non-SCI place. Do it anyhow.

Re: Shitty Consultants

[kurkosdr]

If you take into account the number of people who accidentally click on ads, the click bots, and the fact when you search for "example company" on Google, Google will show an ad leading to the company's official site just above the organic search result leading to the official site (some people click on the ad out of laziness because it's on top, I have done it in the past), plus people who use ad blockers, there aren't many useful clicks left. I am surprised this business model still works and hasn't gone the way of the pets dot com site. When is this tulip mania going to end? Realistically speaking, a company has better chances of "engagement" if the use good SEO and game-ify social networking ("post this message to enter the competition").

Yes.

[Anonymous Coward]

Yes. Please kill it.

I always wonder why

[jetkust]

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?

Re:I always wonder why

[ConceptJunkie]

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.

Re:I always wonder why

[thomst]

jetkust wondered:

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?

The link in the ad does not take you "directly" to the website for which you were searching. Instead, it takes you there by a roundabout route. Here's the URL for the ad that the search string "procter and gamble" generates:

https://www.googleadservices.com/pagead/aclk?sa=L&ai=DChcSEwing5erkavWAhUCl34KHRC6B2kYABAAGgJwYw&ohost=www.google.com&cid=CAESEeD2JLJzL1dBgUZFbmBGP-fz&sig=AOD64_3I39rwK0_DYxkNqTS1PJcvi8-iYg&q=&ved=0ahUKEwi42ZGrkavWAhVoxlQKHWkNCfwQ0QwIJQ&adurl=

Note that the url in question begins with "https://www.googleadservices.com/pagead/aclk". That's a call to googleadservices.com, which is google's central advertising hub, alerting it that a pagead has been clicked.

The next bit is "&ai=DChcSEwing5erkavWAhUCl34KHRC6B2kYABAAGgJwYw&ohost=www.google.com", which tells googleadservices to employ the script at "ai=DChcSEwing5erkavWAhUCl34KHRC6B2kYABAAGgJwYw", and that the request is originating from google.com. The "ai=" part might mean "advertising insight", or "artificial intelligence", or even "acknowledge immediately". I dunno - you'd have to ask one of google's advertising engine programmers (and they a are notoriously closed-mouth crew).

The "&cid=CAESEeD2JLJzL1dBgUZFbmBGP-fz" string which follows is clearly an identifier for the "client ID", or the Universe really is entirely devoid of meaning or logic. (YMMV. Or, y'know, not.)

That, in turn, is followed by "&sig=AOD64_3I39rwK0_DYxkNqTS1PJcvi8-iYg", which is pretty obviously a digital signature, probably included to prevent clickjackers from gaming google's revenue stream - or because google just likes to admire its own signature. (My own bet would be on security, rather than self-regard, btw.)

Finally, we have "&q=&ved=0ahUKEwi42ZGrkavWAhVoxlQKHWkNCfwQ0QwIJQ", followed by "&adurl=", the first part of which looks like a query string to me, with the last bit pointing to a null value. My guess is that, absent an actual value for "&adurl=", it causes the AI to redirect your browser to the client's default URL, per their contract with googleadservices. (Again, contents are packed by weight, not volume, and some settling may occur during shipping.)

Contrast all that with the non-ad link that the search string "procter and gamble" generates, which is simply "http://us.pg.com/".

In other words, "It's all about the Benjamins."

You're welcome ...

Re:I always wonder why

[rmdingler]

In other words, "It's all about the Benjamins."

Nice post. Average click-through rate is about 2%, and the average price to the advertiser is $1-2.00 US.

Re:I always wonder why

[whoever57]

Contrast all that with the non-ad link that the search string "procter and gamble" generates, which is simply "http://us.pg.com/".

I searched for Procter and Gamble, then right-clicked on the first non-ad link that google shows. Here is the URL (remember, this isn't an ad):
https://www.google.com/url?sa=...

Re:I always wonder why

[fph il quozientatore]

You all should install the Google search link fix Firefox add-on.

Re:I always wonder why

[trawg]

Contrast all that with the non-ad link that the search string "procter and gamble" generates, which is simply "http://us.pg.com/".

True BUT! When you click on that link (in most browsers without active defenses) you'll see that the click is intercepted and it fires off a POST request to Google anyway, tracking the click, with a link that looks something like:

https://www.google.co.uk/gen_2... string]&s=2&v=2&pv=0.[random number]&me=54:[random number],V,0,0,0,0:6834,h,1,52,i:49,h,1,52,o:214,h,1,51... [many more bits of data] 1,e,C&zx=[some other number]

That will then redirect you to the destination site.

You won't notice it unless you're really tracking requests - if you mouseover the us.pg.com link it doesn't show the Google tracker. If you inspect the source it just looks like a regular HREF link.

Re:I always wonder why

[SandorZoo]

There's an onmousedown event in the page's javascript that changes the link when you click on it. I wish browsers would disallow such sneakiness.

wasn't there an executive....

[Rick Zeman]

...or someone who said half of his advertising budget was wasted...but identifying which half was the problem?

An old idea

[AHuxley]

The idea that if your brand is not been seen everyday it gets selected less and less when a consumer goes shopping. The other band that spent big on new ads got selected for been new. A consumer has the need to try a new look competitor again due to more new ads.
No matter how near a monopoly a brand gets due to quality or price it has to keep spending big on its name as if it was entering the market.
Classic TV, print, radio, billboards ads gave way to banner ads and deep tracking internet ads. Anything to keep humans seeing the trusted brand name and its products everyday.
The new problem for the ads is the old separation of TV, print, radio, billboard ads is now their direct online competitor. Social media wants to sell and build their own trusted consumer and entertainment brands.
Private label https://en.wikipedia.org/wiki/... and other ways computer company/social media owners/shopping sites now want to sell are replacing or buying up decades of generations trusted names.
Browsers are considering blocking outside ads. Social media and online shopping push their own new brands or partners that profit share.
The need for ads has not changed. The way select products get presented on a few captive platforms has changed.

Just in time to switch to mining

[Ken_g6]

Just in time, coin mining is coming to replace ads.

I suppose the next step will be to make all links internal to a site with ajax, so the coin mining script can run continuously as long as a user is on the site.

Re: Just in time to switch to mining

[Ken_g6]

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.

Re:Just in time to switch to mining

[fph il quozientatore]

Absolutely nothing. You get a result which is equivalent to (1) using NoScript, plus (2) running your own miner. But with a lot less performance because it's in Javascript.

More probably they're doing it wrong

[Presence Eternal]

My observation in retail has been that appeal to brand loyalty is the most effective form of advertising. You probably aren't surprised by that, but you likely don't realize how insane it gets. It's extremely common for my customers to think an HP printer will work better with an HP computer.

As for advertising: Fake reviews. They work. You don't even have to explicitly buy them; give someone a free product and they'll give it five stars about 90% of the time. Doesn't hurt that Amazon customers reliably upvote five star reviews and reliably downvote negative reviews.

Re:We should ask our resident expert

[cdreimer]

He's too busy upgrading his file server to FreeNAS 11 — and laughing at all these stupid comments. Seriously, you people need to get a life.

Re: It's sensible to advertise the Surface here.

[lucm]

a device with decade old specs, and is non-upgradeable.

Are you talking about Surface or Macbooks?

Re:Some is worthless.

[fermion]

It was a hundred years ago a department store owner said half his advertising budget is wasted, but he did know which half.

The difference is now that we can see which half is working, if we measure it by immediate purchases. If you pay for ad, and it does not result in a sale, then is it working? Some would say no.

In a way we are back to the mode of print advertising a hundred years ago. A store runs an ad for a sale, the store can then look to see if revenue increases for the day, and then judge if the ad works. Since that ad is likely run on many outlets, one can't say exactly which ad works. This is what is different now.

But that misses the advertising model of the past 50 years, which is branding and long term returns. You advertise beer on the Super Bowl not just to get sales today, but so the kids will hopefully buy your beer later. You give away a magnum of expensive alcohol to soccer players not to sell the alcohol right then, but to connect with the fans that when they celebrate they are going to buy it.

So maybe branding is still a thing. Maybe putting the Amazon name everywhere is valuable. The problem with advertising and the dot com crisis was that there was an incestuous relationship between advertising dollars and advertisers. it was actually the same money looping around from one had to another, with no value being created. That is no longer the problem. it is that the 'new economy' people still think they have found a new economics, and the cost of acquiring customers can be reduced to zero.

anti google news recently?

[fourbadgers]

Ad-tech generally means google. I'm a consistent increase in anti-google news articles recently (some justified, some just speculative to add fear, uncertainty, doubt). I wonder who is pushing it?

generic products require advertising

[swell]

Advertising anywhere is wasteful. The problem for all those advertisers is that they are selling commodities. Products and services that are indistinguishable from (or inferior to) their competitors.

The solution for those people is simply to produce a better product. As we hear daily on this site; Apple didn't invent the music player, the cell phone or the tablet device--but they made them better. They made them compellingly functional and attractive. While HP, Compaq, IBM and others were assembling generic parts into ugly desktop boxes, Apple was offering colorful, graceful computers that just happened to appear on every interesting TV show. Many consumers were influenced by the look and a growing reputation for ease of use, reliability and service after the sale.

Smart Americans are buying more Toyotas, Nissans, Hyundais and fewer Chevys and Chryslers. Nissans? Damn, most are UGLY! But they have a good reputation for reliability. I bought a Papa John's pizza today- their slogan: Better Ingredients, Better Pizza.

It works the other way too. Walmart has a reputation for lowest prices, which is enough to bring in hordes of buyers. Nordstrom's has a reputation for quality and service that places them high in retail sales. Radio Shack had a market niche that faded away and they couldn't adapt. Every seller needs a unique place in the market or they will have to advertise like crazy.

So long as there are commodities, there will be sales costs. The best investment for products is not advertising, but R&D topped off with functional and/or fashionable design principles. And IP protection. And reputation over the long term.

Twitter is fucking worthless

[darkain]

Twitter is fucking worthless. But we all already knew this. But just for shits and giggles, lemmie tell ya some numbers.

Twitter gave me one of those ad trials for their service, a free $100 credit to try them out as an advertising system.

My company received a 0% click-through rate.

I guess I got exactly what I paid for, absolutely nothing. But one thing was for sure, Twitter made sure I absolutely NEVER gave them any actual money for advertising, since it was literally useless and worthless for my business.

For me...

[Bartles]

...ads are either blocked by software or my mental ability to completely tune them out as visual noise. If I want something I search for it.

Shot themselves in the foot

[duke_cheetah2003]

Back in the day, when advertising on the web was just a simple banner ad that appeared on a page, things were good, we didn't feel a need to install advertising blockers, cuz they weren't disruptive to our experience of web browsing.

Fast forward and the rise of pop ups, pop under, video, sound, splitting articles into multiple pages so you get more advertising thrust in your face. So most of us said enough is enough and the rise of the ad blocker occurred. And now they wonder why advertising is so ineffective? You guys did it to yourselves, you made yourselves so frickin' obnoxious and a bane of the browsing experience, we've tuned you out, either with our brains solely, or with technology to assist in removing your garbage from our monitors.