Here’s the really good news for the web economy over the next decade. Consumers are spending more and more time online, yet only about 10% of all advertising dollars are spent there.
Let’s assume that, over time, ad spending on a medium becomes roughly proportional to the time consumers spend using that medium. I doubt there are any technologists reading this blog who doubt that in five years most people in industrialized countries will spend 50% or more of their “media time” on the web. This means there are hundreds of billions of ad revenues waiting to move to the web.
Advertising is usually divided into two categories: direct-response and brand advertising. Direct-response advertising tries to get users to take immediate action. Brand advertising tries to build up positive associations over time in people’s minds. In the past decade, we saw a massive shift of direct response advertising to the web. The main beneficiary of this shift has been Google. We saw far less of a shift of brand advertising to the web.
It is therefore very likely that most of this new ad spending will be brand advertising. This is why Google, Yahoo and Microsoft are all so intensely focused on display advertising. It is why they paid huge premiums to acquire Doubleclick, Right Media, and Avenue A.
Right now there are lots of inhibitors to brand advertising dollars flowing onto the web. Among them 1) most of the brand dollars are controlled by ad agencies, who seem far more comfortable with traditional media channels, 2) it is hard to know where your online advertising is appearing and whether it is effective, 3) banner ads seem extremely ineffective and are often poorly targeted, 4) big brand advertisers seem scared of user-generated content, today’s major source of ad inventory growth.
But economic logic suggests these problems will be figured out, because advertisers have no choice but to go where the consumers are.
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To be sure the web economy is much more concentrated than even the “agencies” and while overall amount of dollars will increase so will the concentration of people or companies who can scale the solutions.
So bottom line – it will suck eve more for most. The is no trickle down economy on the web, only trickle up.
To inhibitor #3 above, a huge reason for the weak efficacy of banner ads is that they live next to content the reader is interested in. That's tough competition for attention. In TV and radio, the ads don't compete with any other content. See Hulu.
Or perhaps a significant amount of those dollars will go to content marketing rather than display advertising (this is a 3rd category – not direct mail either… perhaps closer to an 'infomercial' model, but usually not such direct sales pitch.) It's the actual creation of content that is interesting and/or entertaining to the reader, and beneficial, though perhaps indirectly, to the advertiser. We're already starting to see such content marketing grow rapidly.
Certainly there is no shortage of journalists available to assist with such efforts.
Frankly, Chris, your blog is a great example of “content marketing” for Founder Collective. You don't usually write about it directly, but certainly much of your writing here promotes the philosophy of the company, is interesting to people with whom your company may do business, and certainly has helped to raise awareness of FC.
I think more and more companies will start investing more significant dollars towards creating similar kinds of content, relevant to their own industries and markets.
All the display ad networks are focused on optimizing standard banner ads, but as an advertiser, I'm looking for something entirely new that makes better use of some unique aspects of the web. Display ad technology hasn't evolved much beyond standard IAB ad units targeted to some basic demographic bucket… which has been around since the 90's and is modeled too much on the offline world. Online brand advertising should be more social, viral, personalized, or something than it's offline equivalent. Google, or rather Overture, took offline direct marketing principles and applied them to the web in an entirely new way that was far more efficient through simple text creative, search keyword targeting, a bidded marketplace, and other innovations. The brand side of the industry needs an equally innovative approach. Seems like social networks are best positioned to make the leap.
You mean it will suck for startup and the only beneficiaries will be BigCo's like Google? Not sure why that would be the case…
Yeah, although TV ads are going to all be skipped via DVR. From what I understand, Hulu is still a drop in the bucket revenue-wise for the big networks.
Could very well be. Seems like something a lot more creative than banner ads needs to happen.
Totally agree – just no one has yet seemed to figure out how this will happen. I think the areas you hit on are great areas for startups and startup investors.
Great insight. Certainly, internet is about to be the prime reference for people seeking information. But I need the real statistic of the growth web economy. Anyone can help?
I bet a lot of agencies go away and the branding spend gets managed inhouse through various tools. except instead of the campaigns being branding driven, they will be based around a direct response style metric — it might not be a sale, but it will be an optin, a click, an action taken within a game, etc.
Startups are the talent farms for the major leagues, sort of like baseball. For the past ten years the web destroyed millions of jobs. The “net wealth” is very concentrated.
Magazines and ad agencies will be destroyed. The statistically insignificant world of startups and Googles will benefit for sure. Bottom line, despite the optimism for the web based advertising there is not clear path or relief for the jobs or economy.
great post.
I've been thinking about online brand advertising for quite awhile.
The current new ad units aren't very user friendly
http://bijansabet.com/post/221109475/the-future...
there has to be something better.
but the crazy thing is how much agencies and brands spend on tv when most folks don't watch these ads. DVRs are having an enormous impact:
http://bijansabet.com/post/231733939/do-dvr-use...
It's only a matter of time before TV CPMs drop significantly from todays rate card and online offers a better alternative for brands and users as well.
If i'm a content owner distributing over cable I'd figure out
a) how to lower content costs
b) distribute everywhere
c) build a direct relationship with your users (this doesn't mean billing needs to be direct)
Jobs will certainly be destroyed. I think you need to distinguish between jobs that have a dead weight cost and jobs that create real societal value. For example, a junior ad media buyer who is replaced by a machine – hard to see how that is anything but an overall efficiency improvement for society. Whereas an investigative journalist whose job simply can't be supported anymore seems like a loss to society.
i imagine content marketing is much harder. With TV or print ads, you create content marketing and then buy placement. The write/read ratio is predictable. With content advertising, defined as content brands create that they hope is entertaining, brands can't ensure a certain write/read ratio. This inability to predict & scale is a big impediment.
[...] This post was mentioned on Twitter by chris dixon, Barb @ M. Barb @ M said: RT @cdixon: New post: Why the web economy will continue growing rapidly http://bit.ly/4TuEkm (re our discussion of brand ads @sacca @om … [...]
I am not sure what is your definition of “loss to society”. A junior or even senior ad media buyer is a human being, he got family, even dreams. And it doesn't look like the net will offer him or even the investigative reporter any alternative while the wealth will inevitably end up with the people who already accumulated enough for a million life times.
I mean not everyone has NASA or MIT resume to work in your shop or Google. There are still “average people” out there, utterly crushed but the web induced upheavals.
I am sympathetic to people who lose their jobs. I am more sympathetic to, say, people working in auto plants in Michigan where finding a new job is much harder than college grads in NYC working in advertising who will more than likely land on their feet (perhaps in new media).
I am realist but I try to enter into discussion this simple point. The web (like industrial revolution before) destroyed many jobs and even lives. It's worse with the web age, because it scales globally. It's time for this industry to downplay the scalability and pay serious attention to horrible loss of employment and hope.
And yes I am not comfortable with the fact that the usual suspects will rip all the benefits.
PS It is never that just the assembly workers who are out of work. Its an indiscriminate plague. 50% of Detroit's workers are unemployed http://bit.ly/6jsrV8
Advertisers are still operating in hunt and shout mode. They hunt consumers down using targeting information they haven't gained permission to use, and then shout at them to try to cut through the noise. Hopefully the next phase of brand advertising is more about connecting with consumers with their permission (opt-in) and having enough knowledge about the consumer's interests to be able to deliver a message that they're interested in, in an environment where it will be heard. Once they have a connection with the consumer (i.e. some form of relationship) they can work on getting the messaging right – new formats, content marketing, and maybe personalised content.
To quote Rob Norman's take on the current situation – “consumers are wasting time on the uninteresting and advertisers are wasting money on the uninterested”.
Great post Chris. Something people tend to be scared to talk about is the major agency problem [literally] that exists here.
Fundamentally, “brand advertising” is choreographed: Created by ad agency creatives, tested with consumer focus groups, approved by a brand manager, and placed by a media buyer.
For traditional agencies, the higher the degree of “choreography”, the higher their profit margin. :30 TV spot = lots of rounds of boards, focus group testing, “strategy”, etc. High margin for agencies.
But the internet is a fundamentally un-coreographed medium: In the long run the traditional choreographed approach to brand building will not transfer to the internet. Participating in the conversation on Twitter, conducting contests that harness user generated content, connecting with FB fans, etc all = very low [or non-existent] margin for ad agencies.
For these $ to shift online en mass, [1] scrappy startups need to come up with proven-effective — and measurable — brand equity-building models that look nothing like today's “brand advertising”, and [2] a few major blue chip marketers e.g. P&G, car companies, etc — need to take away the leadership seat at the “spending decision table” that traditional agencies with big agency problems currently have.
My bet: Both [1] and [2] will likely happen within 2-3 years.
Unfortunately, it won't work quite this way as technology adoption is massively deflationary to current markets. If absolutely all the remaining 90% of offline ads came online, it would triple current online spend — at most. If another 40% comes online as you suggest, we'll all be very lucky if the current online spend doubles.
http://rafer.tumblr.com/post/90175534/only-5-of...
Not sure I agree that brand will make such a large comeback in the form of Display advertising, but I do believe it'll move from 'traditional' media to the web.
Whatever and whoever is able to crack the social advertising nut will lead brand advertising on to its best medium yet. Many of us can track the origin of our purchase intent to something we heard from a friend — this will be much more powerful than Display to create brand awareness.
very astute. i think most tech people don't get the agency issue.
True, tech does tend to be deflationary. But even tripling the ad spend means a lot of opportunity.
Great points. To your last point, I think this is one reason why NBC-Comcast is a very bad thing.
Yeah, i'm not convinced display is the only answer, but it will likely be part of it.
Totally agree.
[...] Dixon is right: here comes display advertising, and beyond our expectations if we can reinvent [...]
I wasn't clear enough. Tripling isn't a possibility. Doubling is a stretch. Given the market share that G, FB, and other established players will take, that means that new US online advertising networks are no longer worthy of institutional capital. The only scaled US advertising opportunities going forward are publishers (like Hunch, of course).
Hey chris: great post. Feel this drawing me out of my cave to respond…
So far as I can tell, advertisers love the web for brand advertising, the same way cola companies love a generic sweetner to NutraSweet, or Americans love Canadian drugs. For major advertisers, or their agencies, the web is seen as an alternative to tv (and other “traditional” media) today, but one that primarily presents pricing pressure for reaching targeted audiences. They're all happy it's there, but not always looking for a piece of that online audience goodness.
As for your suggestion, “economic logic suggests these problems will be figured out,” I'd argue: they have been. Traditional brand spend (tv ads) is more efficient today offline on a property and reach comparison. If you'd like I can produce data (albeit imperfect) to show this.
For online to become a more realistic (and economically viable solution) for national brand advertisers, we're going to have to address measurability and attribution effects of online ads. Or find an alternative to selling ads per discrete property.
The clearest solution proposed to date is viewthrough metrics and a standard for tracking need to exist. ComScore and Microsoft have been working hard for the last two years to convey that clickthrough is NOT the end-all-be-all measurement standard for web ad effectiveness. That's obviously vested interests laid bare — ComScore measures impressions and Microsoft is fending off Google — but I tend to think they're close to accurate. Here's some of the rhetoric http://ow.ly/Qh4a
But you're touching something much bigger. Enabling a brand advertiser across the web — that's clearly unsolved, and exciting because it's the promise of advertising with context, with relevant (personal, meaningful) targeting to people based on their own searches, interests or selections. It's built across properties and over time. It's where no one owns the audience, and where possession matters more than ownership. It's has the potential to be closer to a real relationship, and a lot less like “advertising.”
So if economic logic is what will govern decisions by advertisers and agencies, this suggests that advertisers will seek the least expensive options for achieving their objectives at all times. And for brand advertising, the largest unsolved problem is how to advertise off-property, across property, or sans-property. The closest thing to this is AdSense today, and it is still far from a perfected system or model for brands. The issue goes beyond “safety” — it gets to the heart of what brands are looking for… impact, engagement, relevance.
I'd agree in being very skeptical about investing in new online ad networks and that the big guys stand to reap the lion's share of this growth. I do think there are early stage investment opportunities around reducing some of things that impede the flow of offline ad dollars online. For example, I am an investor in AdSafe, which tries in real time to prevent brand ads from appearing next to objectionable content.
Drawing people who know more about this stuff (as you clearly do), is the goal of my blog, so great
Measurability and attribution seem to be the holy grail. I have no idea how to solve these things.
You say “Traditional brand spend (tv ads) is more efficient today offline on a property and reach comparison.”
So you are saying TV ads are fairly priced? Most commenters here and people I've talked to think they are way overpriced compared to online equivalents, partly due to agency issues, habit, etc.
I amnot sure it has to be an either/or on hte web. Direct Response and Branding can coexist online. See case study on LifeLock. They do a ton of branding, and get a high conversion rate off web (http://www.internetmarketingagency.com/results/...) without selecting one or the other.
Many others also are using the web in this way to both drive direct purchase but reinforce like we do in other mediums.
Dave
Love this quote “advertisers have no choice but to go where the consumers are” and how it captures your post.
Your fourth point on inhibitors to brand advertising dollars on the web: big brand advertisers seem scared of user-generated content, today’s major source of ad inventory growth.
Reminds me of stories before the NASCAR boom about AT&T and others. They said no to sponsorship, afraid of their logos being transformed into heaps of flaming car wreckage.
While I'll never be a fan of the sport, big brands love NASCAR today. It's one of the boldest expressions of identity that money can buy, and for much of the decade has been one of the fastest growing “sports” in America. Times change, fears subside, and like you say, advertisers will go where the consumers are.
thanks, great example.
[...] Why the web will continue to grow rapidly [...]
[...] Why the web will continue to grow rapidly [...]
[...] Why the web will continue to grow rapidly [...]
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[...] Why the web will continue to grow rapidly [...]
Love the post. I'm a little concerned that brand marketing and marketing online will lead to an even more ad-centric way of life. At the moment companies are making billions of dollars online, even when they're using other advertising mediums.
I think we have to remember that 70%+ of peoples' lives will not be spent on the internet. These people still have jobs, watch television, drive to work, go shopping etc etc.
Therefore, I think the 10% advertising online is a good number that shouldn't increase to anything more than 15-20% at a stretch unless we want our internet experience to look like Times Square, Manhattan.
Love the post. I'm a little concerned that brand marketing and marketing online will lead to an even more ad-centric way of life. At the moment companies are making billions of dollars online, even when they're using other advertising mediums.
I think we have to remember that 70%+ of peoples' lives will not be spent on the internet. These people still have jobs, watch television, drive to work, go shopping etc etc.
Therefore, I think the 10% advertising online is a good number that shouldn't increase to anything more than 15-20% at a stretch unless we want our internet experience to look like Times Square, Manhattan.
[...] Why the web will continue to grow rapidly [...]
[...] Why the web will continue to grow rapidly [...]
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