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

[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

[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

[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

[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.

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: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.

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.