Google: End of the Online Advertising Bubble

https://kalkis-research.com/google-end-of-the-online-advertising-bubble

by skuas • 10 years ago

295 188 10 years ago

qaq7• 10 years ago

I think sophistication of Ebay as online advertiser is greatly exaggerated. Ebay keeps displaying me ads for the items I've listed :).

fdomig• 10 years ago

I, for one, welcome our new, ad free internet.

scnr

BillFranklin2• 10 years ago

The writer attacks impressions over clicks as more expensive and less worthwhile, but misses entirely that advertising isn't about making you click (few really click), it's about awareness.

The writer also notes that Google is putting ads on lower quality websites, but forgets that their search ads comprise the lions share of their ad revenue. Google.com isn't becoming a lower quality website.

coderdude• 10 years ago

"It's about awareness" is what you're told when you ask what view-through purchases are. You can dump truck loads of money at awareness.

BillFranklin2• 10 years ago

Yeah I got you, but that's the whole point, awareness increases revenue.

This guy explains it better than me: https://m.youtube.com/watch?v=PotMuZ7uH4k

In no other medium other than online are you expected to immediately purchase or find out more after seeing an ad. For example, look at the ads on the edges of football matches, for big companies the decision to put an ad there is more about the cost of not being there than anything else. You're seeing a similar decision being made with Google search ads, as sites battle for top place on a Google search.

Online ads may not be perfect, but the decisions behind buying ads are more complex than the writer suggests. It's not all going to disappear when someone reveals all in a blog post, give advertisers more credit than that.

ssharp5• 10 years ago

There are ways to get close to a true value of viewthru to compare to clicks, especially as you start spending more. Throw a small % of your creatives in your campaigns to a non-profit. See how those banners perform compared against your brand (they use same targeting, remarketing, etc) and you can write off the spend on the NPO banner.

sreeni_ananth• 10 years ago

It's not just awareness but also constant reminders to buy things that have been left on your shopping cart. One can see such contents not only on sidebars of websites, but also on apps like TrueCaller which are mixing ads more effectively as part of their content.

jasode• 10 years ago

", it's about awareness."

I'm curious if this is actually statistically true specifically in regards to google ads which has active user exploration as opposed to tv/radio/magazines which has passive consumption.

To me, the "awareness ads" are campaigns typically created by CocaCola/Pepsi, beer, DeBeers diamonds-are-forever, Viagra-you-should-asky-your-doctor-about-it. The ads typically feature vague and generic "lifestyle" vignettes and will not have a "call toll-free 1-800 to order" at the end. Like you said, it's all about brand awareness. It's also the type of ads that get aired during the NFL SuperBowl.

But many google ads are highly contextual with the active web surfer already and partially in a "sales funnel". Examples would be a search for "plumber" or "computer RAM" which means the customer is primed to buy something now. I read previously that the vast majority of google ad revenue comes from small & medium businesses and not the Fortune 500 giants like CocaCola and Budweiser. Those small & medium business care very much about "click through" rather than just "awareness impressions." (Side note: Looking through the most expensive adwords list[1] seems to bring up business sectors that rely more on click-through-&-buy-now rather than awareness-&-delay-buy-later.)

Hopefully, someone more knowledgeable about these 2 types of ads can confirm which one contributes the most revenue to Google.

[1]http://www.wordstream.com/articles/most-expensive-keywords

FussyZeus2• 10 years ago

I can't confirm anything about revenues, but anecdotally we've noticed as a team over the last couple of years that our Google ads have moved slowly from the more action-oriented ones to awareness campaigns. I have no idea the marketing value behind those sort but I have to think they're doing something, Chevrolet especially seems to crop up a lot, and we aren't a car site of any sort.

dozzie• 10 years ago

Marketing is about awareness. A subfield of marketing called advertising is about making people buy the product no matter whether they need it.

PaulHoule• 10 years ago

Aida. Awareness. Interest. Desire. Action.

That's just one theory of marketing, but all of them assume there are multiple states that lead up to action, often a purchase.

raverbashing• 10 years ago

To me this all sounds like: play stupid games, win stupid prices

Add an unholy amount of tracking and obtrusiveness to ads, get ad-blockers

Have no check for advertisers and ad-publishers, get fraud and malware on the networks (and more ad-blocking)

Then get ad-brokerage and arbitrage as posted a couple of days ago, seems like a prime example on how BS jobs flourish (because if there's something even more stupid than HFT this is it)

TheOtherHobbes• 10 years ago

It's a law of the Internet - anything that can be gamed for profit, will be gamed for profit.

Trad media may be dinosaurs, but they're much harder to game. You can't pretend to improve the return on a double-page glossy ad in a famous glossy magazine by hiring a Cambodian click farm.

I'm wondering if we're going to see a move back to print.

corpus• 10 years ago

None of what he wrote applies to any of the large advertisers which comprise 95%+ of Google's ad revenue. I can see some of it applying to tiny inconsequential mom and pop advertisers.

Of course performance/direct-action advertisers would not bid per impression if they wanted clicks or conversions (they would bid for clicks or conversions), and if they were a brand advertiser they would pay for views and monitor brand awareness metrics (https://support.google.com/adwords/answer/3499086?hl=en). And they would also monitor their placement reports and filter out low quality sites if they wanted. And YouTube is growing rapidly and that is not ignorable.

Also, Google search ads still account for most of Google's ad revenues.

IMO this is a very sensationalist article which greatly exaggerates advertiser ignorance and platform mischief.

joelrunyon• 10 years ago

Couple problems -

1) you can see which sites (or even specify) which ones show your ads.

2) if you're doing it correctly, you're looking at ROAS (return on ad spend), so the type of site doesn't matter - just how well the ads return.

3) this mostly only relates to people who don't know what they're doing w/ ads.

geocar7• 10 years ago

1) Not necessarily. Most exchanges allow the publisher to supply their own domain, either explicitly, or because the real information comes from JavaScript that the Publisher can subvert and control. This happens.

2) Many (most?) markets don't have direct response, making measuring return very difficult.

3) That's basically everybody. If you know someone who actually knows what they're doing with ads, then I've got a bridge to sell you.

rbinv• 10 years ago

Care to elaborate on 3)? What do you consider "knowing what you're doing" if you think no one does?

qaq7• 10 years ago

I've worked with ad networks dealing with online gaming. While I am not ready to buy your bridge I saw people that were very good at what they did running campaigns that had sometimes way over 20% conversion rates. The compensation structure was revenue share 30-40% for life of the player. People who knew what they are doing were making 50-60K per week. From that experience I formed an opinion that people who know what they are doing with ads are working for themselves concentrating on very lucrative niches.

zaro3• 10 years ago

Ads have turned the internet into a sh*thole. It's time to go back to a more sensible way ...

prof_hobart2• 10 years ago

What would be paying for most of it?

An awful lot of the content out there exists because there's money in it (or at least the hope of money). And most of what pays for that is ads.

AznHisoka2• 10 years ago

Bloggers. The Internet is not short of quality content at all. If Mashable can't afford to write about Trump, a blogger will.

TimJYoung• 10 years ago

I think you could still do ads, but they would have to "come home" to the actual site, and the site itself would be responsible for negotiating ad sales. I think this would be the best bet for small advertisers, in the long run. Yes, there's no chance that small advertisers could afford to advertise on a large site, but most small advertisers want a more-targeted site, anyways. I tried to buy super-targeted ad-space late last year, and it is nearly impossible to buy ad space directly from smaller web sites. They either a) don't do ads, or b) only use a larger ad provider. I think a lot of smaller sites are giving up a lot of ad revenue by not managing the ads themselves (regional competition vs. global competition, as one example).

zaro3• 10 years ago

Just scrolled down HN a bit:

http://techcrunch.com/2016/05/03/adblock-plus-teams-up-with-...

Seems like one feasible solution :)

zaro3• 10 years ago

I assume that people down voting me really enjoy all the ads and popup overlay on blogs/sites that make browsing especially painful on mobile device.

red_admiral3• 10 years ago

"Facebook on the other hand, has a better control of who is actually seeing its ads, and will benefit from the turmoil by gaining market share."

Did they pay you to write this?

Google ads in search will always be valuable because you can advertise nail varnish to people who have just searched for "buy nail varnish".

This is also about the millionth post I've read which assumes that companies simply throw money at advertising and don't run any statistics of their own. Simply, if you spend a lot on an ad campaign for a product and your sales don't go up, you notice that and rethink your next campaign. CPM and all that are at best proxy metrics for the thing you really care about, "are our profits/sales up".

chii2• 10 years ago

so you're saying facebook couldn't scan the pictures people post up, see that a user's finger is not painted properly, and thus start displaying the appropriate ads?

have_faith• 10 years ago

Not only do I not think they could do that currently. I worry about the effect this future form of advertising will have on young people.

Your insecurities analysed and used against you in real time.

red_admiral3• 10 years ago

If I walk into a store, the assistant asks "Can I help you?" and I reply "I'm looking for a crimson-coloured nail varnish" and then she says "Sure! We have a new line in this week, can I show you?" then I'm more than happy to let her show me. That's what google search ads feel like.

If I'm sitting in a restaurant having a conversation with a friend and a person from the next table leans over and interrupts to say "I notice your nails aren't painted properly, can I interest you in our new line of nail varnish?" then my first thought will be something like wouldn't it be cool if something horrible and painful happened to this person. Even if I was considering trying a new line of nail varnish. That's what targeted facebook ads feel like.

wmboy• 10 years ago

That user isn't trying to find nail polish to buy at that particular moment, a Google search indicates in-the-moment buying intent.

onion2k2• 10 years ago

Google ads in search will always be valuable because you can advertise nail varnish to people who have just searched for "buy nail varnish".

Google and Facebook both have the problem that their business model is predicated on having thousands of small advertisers bidding on ads. That's what they leverage to generate profit. In any market that's dominated by a single entity that smaller companies won't compete with for ad space, both Google and Facebook lose the ability to make money.

When the majority of people who want to buy nail varnish bypass search entirely and go straight to Amazon, Google and Facebook have a huge problem. The same is true if developers go straight to Stack Overflow, people looking for rooms go straight to AirBNB, people moving around cities go straight to Uber, etc, then Google and Facebook will have no one to sell ad space to any more.

I'm not about to suggest Google and Facebook are doomed; they both have talent enough to think of ways to meet these challenges. I would however suggest that they are not too big to fail.

malka• 10 years ago

I would however suggest that they are not too big to fail.

Nothing is. Ultimately, everything fails.

Rzah• 10 years ago

Of all the things that might happen, users going directly to websites rather than through google/facebook is by far the least likely.

Whats more likely to happen is that someone will come along with better search with less advertising (just like Google did), or someone might build a better social network with less advertising (just like facebook did). There's as much precidence for these things reoccurring as there is for users increasingly searching rather than using the url bar.

a_small_island• 10 years ago

When the majority of people who want to buy nail varnish bypass search entirely and go straight to Amazon

Do you even do this? My guess is the majority will never do what you're setting out to believe. Strictly speaking of Amazon, they don't even have the best prices these days.

Udik12• 10 years ago

Google ads in search will always be valuable because you can advertise nail varnish to people who have just searched for "buy nail varnish"

Yes, how dumb is that? A few weeks ago I googled for a company I was going to interview with. Since then the ad spaces in my web pages have been filled with ads of this company, which sells IT services for logistics.

I'm a sort of atypical consumer - not very willing to spend money on gadgets, for example; but I'm surprised nonetheless that with all this talk of "big data", they can't do a better job at figuring out the things I'm really interested in and instead keep bombarding me with ads related to any random search I've made. That's silly and a big waste of money.

jjoonathan• 10 years ago

They can absolutely figure it out, just not for less than it costs to throw the ads at you, which is very little.

ssharp5• 10 years ago

A few comments on this:

1) The company might be better off capping their impressions to you.

2) The company might be better off focusing on setting their remarketing pixels further down the funnel (unless you entered their funnel as part of the process).

3) How do you reasonably expect the company to treat you differently than they do actual leads? I'll assume the majority of traffic that goes to their website is interested in their services and not researching for a job interview, so unless there is some way they could reasonably figure out you're not interested and exclude you, I don't think what's happening here is that wrong. Marketing to people who already visited your site is almost certainly going to be worth more money to advertisers who are prospecting based solely on your interests.

mtanski2• 10 years ago

That's silly and a big waste of money.

Most sites that do retargeting do it based on number and stats. They know that if a rando that visits their site (but doesn't buy anything, doesn't sign up for a new letter, doesn't click on contact me) will convert at X percentage if they show him an ad.

So they do the math to figure out what that looks like after impression 2, 3, 4, 5, etc... somewhere there's a point at which the cumulative conversion percentage doesn't go up or goes up so slowly to not justify the cost and they stop.

So what seams like a big waste of money to you, seams like a profitable business decision based in fact to them.

TheCapn• 10 years ago

My biggest gripe is when I explicitly search for a product instead of using their URL and the first ad is the same as the first result. If I go to Google and type in "TeamViewer" the first ad is for TeamViewer, the first result is for TeamViewer... I hope they're not paying for that.

xivzgrev• 10 years ago

I run remarketing campaigns. One thing they can do is exclude people who visit job related pages. Its small but saves a few bucks (and annoyed interviewees).

nostrademons3• 10 years ago

When a random person searches for a company, it's probably > 100:1 odds that they're interested in the company's product, not in a job at the company. That's why companies put their products on the landing page and not their job openings.

You have to understand that whenever you do anything as a consumer in modern corporatism, you are part of a numbers game. The company does not care about you, they care about the aggregate "you" that represents the average of millions of consumers. If 100x as many people search for a company hoping to buy its product, then it only becomes rational to spend engineering effort if the opportunity cost of losing the one customer who is job-searching is 100x greater the lift that can be achieved by fine-tuning the product-buying case. Retargeting would have to be pretty tapped-out for that to be the case.

I face a similar problem - as an entrepreneur, when I Google a company, it's usually because it's a potential competitor that I want to learn about. As a result, my YouTube & AdSense feeds are filled up with ads for competitors. Which is kinda handy, in a way, but probably not why those competitors are buying ads.

jpadkins• 10 years ago

it's not based on the search, it's based on the your visit to their web site.

mathattack• 10 years ago

CPM can be useful to approximate broader brand advertising. Companies like Coca-cola, Budweiser and GM want people to see their ads a certain number of times, in order to develop lifetime habits. It's not about specific clicks, or even immediate purchases. CPM is the best way to approximate this.

Of course the end goal is what you mention: sales leading to profits.

jsonne• 10 years ago

Facebook has this capability. Write a status or on a friends wall about topic X? In messenger? Just as good if not better than a Google search in intent land. That + demographics is even more powerful imho.

Alex39172• 10 years ago

If you spend a lot on an ad campaign for a product and your sales don't go up, you notice that and rethink your next campaign.

Most people who spend money on ads just want to be seen as the kind of people who spend money on ads, or else they just want to make their boss happy in the short term by telling them that they bought ads on Facebook or whatever. The chain of accountability is very diffuse, and most results don't really get tracked.

tomblomfield• 10 years ago

Citation needed.

I know a dozen companies who spend significant ($1m+) a year on Google or Facebook ads and performance is tracked obsessively.

fish44• 10 years ago

I think he is naively talking about the display part of googles business - author forgot about adwords, adsense: which makes most of google's cash...

andrewstuart2• 10 years ago

More importantly, in my opinion, is that Google can serve ads to people who are simply researching something, which is quite often significantly prior to the time at which they're ready to share with the world, if it's even something worth sharing.

Nearly everything is affected by a search for information. Not everything is appropriate or desirable to share with your friends/family. Facebook may make up for this slightly by having the ability to process private messages (whatsapp, facebook messenger, private groups) but I would conjecture that Google has them, perhaps fundamentally, beaten on the advertising front.

novaleaf3• 10 years ago

This article may be hype, but the Google Adwords monopoly is very real and I wish it died.

I run a SaaS startup (PhantomJsCloud) and tried adwords. No advertising competition, and targeted very specific actionable search queries. Google charges upward of $5.00/click. I can understand they want to cut spammers saturating every random search query, but how am I going to get a positive RoI on that kind of cost?

fireworks10• 10 years ago

AdWords determines your ad's AdRank by its Quality Score (expected clickthrough rate, ad relevance, and landing page experience) in addition to your cpc bid.

Perhaps you had a low quality score (below 8), so Google requested a higher CPC to compensate?

sixtypoundhound2• 10 years ago

Honestly, if the competition for those keywords is that weak, I'd go for an SEO blitz. I pulled a SEMRUSH profile on your site (other tools exist, I just like that one)

https://www.semrush.com/info/phantomjscloud.com

- Identify keywords you want to target, with decent search volume and not too many strong competitors. Use those words in your headlines and article text - Start a blog and bulk up your articles; knock out 4 - 5 1500+ word articles on the problems you are solving and which audiences would benefit from them - Share those articles on social media - Your site could benefit from additional back-links (you've only got 14); look at your major competitors and see if they are getting links from highly reputable sources. Reach out to those sources and offer them a reason to link to you. Avoid links from spammy sites and low-end blogs (do NOT do the $5 link building package on elance or wherever)...

[There's a ton more, but that will give you a running start on respectable SEO]

calbear81• 10 years ago

Have you done the calculation on conversion rate you would need at your current SAAS subscription cost to find out how much you could afford to pay per click?

karambahh• 10 years ago

I can tell from first hand experience interacting with most of the top 100 e-commerce european players show that statistical knowledge is sparse at best.

Many players only pilot their activity through basic indicators such as CPM, "our sales are up".

Many marketing teams still operate their business with "gut feelings" rather cold, hard facts & statistics that "us" tech types tend to use...

atourgates• 10 years ago

This is also about the millionth post I've read which assumes that companies simply throw money at advertising and don't run any statistics of their own.

Well, anecdotally, they do.

We just took over PPC advertising for a chain of regional businesses. When we got access to their existing PPC accounts, I found that they'd spent about $75,000 over the last year on PPC, and nearly all of it was wasted.

The only conversion path on their site was phone calls, and they didn't have any sort of conversion tracking in place.

Initially, I expect they got some real clicks and calls. But then over time, without any focus on conversions, they just kept optimizing for the cost per click. That meant leaving the search network for the display network, and focusing in on poorer and poorer sources of clicks. Until over the past several months, nearly 100% of their clicks have come from what look like very shady websites and mobile apps.

They cut their CPC by about 75%, but in the process, I expect nearly eliminated any ROI. $75,000 down the drain.

To be fair, I do think Google's AdWords Express tool is a good antidote to this behavior. Someone with very little PPC experience could setup an account, and run a successful campaign. And once you're spending enough, you typically get a call from a Google employee offering you tips on your campaign, and I've found Google's reps to be generally helpful.

But people who don't take understand the AdWords platform, or can't be bothered to learn, can throw away tons of money on spammy or outright scammy clicks in AdWords.

Xyik2• 10 years ago

Facebook Ads are much more targeted than Adwords. When it comes to targeting, Adwords is actually really bad bad. Outside of Search they can't compete, and even for Search ads you can't do proper gender and age targeting with your ads. Don't even get me started on Mobile.

slantaclaus3• 10 years ago

The writer probably (ok, definitely) has never managed an adwords campaign

eva1984• 10 years ago

"A special case must be made of Facebook, as we believe that their platform is harder to crack, and they have a better ability to track their users, and fight ad fraud."

LOL, this is one of the most blatantly money article I ever read. No facebook data AT ALL, yet author claims Facebook is superior and immune to those problems he mentioned, because apparently he believes.

EDIT: this company, "KALKIS UAB", if you throw to Google search only 4,580 results get returned.

EDIT2: find this article: "Facebook’s Unsuspected Growth Driver: Virtual Reality" https://kalkis-research.com/facebooks-unsuspected-growth-dri...

Maybe Facebook didn't pay them, but authors are Facebook shareholders would be my guess.

y04nn• 10 years ago

Maybe they want to convert some Google shares to Facebook shares, but who is going to believe an article like that. As there is a lot of fake liked pages on Facebook, I don't think Facebook is immune to Ad fraud.

amelius2• 10 years ago

I think it is pathetic that our economy rewards businesses which have somehow placed themselves such that they generate the most views. There are so many industries doing valuable work, but just don't have the eyeballs on them. Why should they receive less compensation, and be in a more uncertain position from a business point of view?

nxzero• 10 years ago

Would it be possible to give some examples and explain how they support your hypothesis?

CapsAdmin• 10 years ago

As a user I hate ads (or how they are displayed) but I'm interested hearing about a new restaurant opening nearby, new groceries being sold, new computer hardware etc. New restaurants tend to be advertised before movies at the cinema here, or I have to walk around to see if there is one. New groceries tend to be aired on TV or posters inside the grocery store. New computer hardware tends to be reported by tech news.

A central place for new products largely driven by a community + pay to keep ads up longer (or something) would probably be one of those websites I'd go to for my daily product news.

greenspot• 10 years ago

Now, I understand why Apple allowed and encouraged ad blockers on iOS, they are hurting Google, of course.

ingenieros• 10 years ago

It seems to me that they shot themselves in the foot when they accepted Google's 1 billion offer to keep their search bar on iOS. That right there bypasses any ad blocker and provides Google with much more consumer insight and metrics than any ad could ever do.

taurath• 10 years ago

Its not directly to hurt google, but it is a play to make themselves a consumer electronics company rather than an ad company, and as a consumer I'm much more likely to stick with a company that has those incentives rather than google who's bottom line would improve if all privacy would be destroyed.

endymi0n• 10 years ago

What a load of BS. From all the demand side platforms I've dealt with, Google is by far the most serious about fraud prevention. They realized early on that while fraud boosts their short term revenue, they'd have a massive PR problem afterwards if this stuff continues.

Nobody's vetting both publishers and advertisers as extensively as Google, their automatic ad verification and fraud prevention algorithms are top notch.

On top, even though "Online" is slowly declining for sure (though not as massively as stated), everyone seems to ignore that both Google and Facebook more than made up for the loss of online with mobile ads that are orders of magnitude harder to block on the closed smartphone ecosystems.

Whoever paid for this piece, it's someone who very obviously has no clue at all about Adtech.

ssharp5• 10 years ago

The DSPs I've used address a lot of the concerns here -- fraud, what sites show your ads, etc. on top of what they do for optimizing spend, targeting, remarketing, and making your life easier. However, the article is treating the DSPs are a leeching intermediary. As long as the intermediaries are adding value, their existence isn't a negative and many of the intermediaries the author mentions aren't necessary.

sgoraya• 10 years ago

Google is by far the most serious about fraud prevention.

I agree - they've had 'Verification' in DFA > DCM > DDM and the associated tools and reports keep getting better. And if you have ReportBuilder skills, you can really ID and find discrepant/fraudulent data.

womitt• 10 years ago

Check out enbrite.ly they have a good tool to fight ad-fraud. The team grew up at Live Jasmin, you can imagine the volume if fraudulent activity in that space...

suchitpuri• 10 years ago

The whole article seems exaggerated, Though the CPC prices have been rising at a very fast pace, there is a possibility they might get corrected in future.

On the other hand, the amount of money/funding in the market and a considerable amount being spent on advertising as its one of the easiest paid method to get traffic on your site.

Facebook on the other hand is bullish on mobile traffic, also since it being a relatively new the CPC's are cheaper there., but i dont think they have much more control as to who sees their adverts, fake clicks and profiles are everywhere.

The only area where both Facebook and Google are not market leaders is the programmatic side of advertising. Since it is so fragmented, there have been a lot of smaller players (trading desks and DSP's) taking advantage of that. Since these are relatively smaller companies they dont have such sophistication of fraud detection as google or fb leading to people gaming the system and loosing trust in them.

titzer• 10 years ago

I thought this article was poorly researched and the conclusions don't follow from any of the data presented. The narrative is basically just a disgruntled "old man yells at cloud" screed. Then I saw this:

This is a re-run of the online advertising crash of the early 2000s, when the proliferation of banners and pop-ups destroyed any value these ads had (and led people to install pop-up killers, just like with ad blockers today). It took one Google to come up with contextual advertising to bring the market back to life.

What is the author claiming here? Really? The dot-com bubble was due to advertising? Huh? Perhaps he means something completely different, because the real dot-com bubble had everything to do with actual online businesses, a ton of credit, startups, and vapor. It was not about advertising.

wutbrodo• 10 years ago

I thought this article was poorly researched and the conclusions don't follow from any of the data presented

Seriously. A whole paragraph and graph about how click prices were declining and no mention of the move to mobile? Just some assumptions pulled out of his ass about how ads suddenly rapidly declined in quality in those particular years? (never mind that both desktop and mobile ad prices were growing, with the overall decline attributable to the shift to mobile usage).

There's a lot of crap on the Internet but it's pathetic that HN has finally stooped low enough that such low quality drivel gets frontpaged by uncritical up voters.

bhouston• 10 years ago

It was not about advertising.

High CPMs were part of the bubble. Not the primary core of the bubble but it did support a lot of companies.

In the run up to the crash CPMs (for just impressions) were very very high, but after the crash they dropped 10x fold. This wiped out many companies that were dependent upon these fat CPMs for their continued existence.

Some citations:

https://www.quora.com/What-does-the-dot-com-bubble-burst-hav...

https://moz.com/blog/return-of-the-cpm-ad-model

mtanski2• 10 years ago

Arguably if the various vendors in the ad bidding lifecycle chain did more to combat fraud and only show 90% viewable ad (the tech exist) this would lead to lower volume of impressions and higher CPM since everybody is competing for the same audience.

A lot of these vendors' business are predicated on large scale and they tend to be reluctant to turn off bad actors.

altitudinous• 10 years ago

This is a nothing article. It looks like a professionally researched paper, but it is just a bunch of opinions without evidence. The graphs look like they could be providing evidence of something, but they don't back up the authors opinions in any way.

TeeWEE• 10 years ago

There are some graphs, but the data is very limited (only a handfull of datapoints, and often '0'... This doesnt seem like a good basis.

amelius2• 10 years ago

The only ways in which I can see the online advertising bubble popping is by opt-out adblockers on devices such as the iPhone, or by much more intelligent adblockers (which may use AI to detect ads).

driverdan• 10 years ago

Others have pointed out many of the flaws in this but here's one that was overlooked.

One can only imagine the dreadful returns for outsiders, companies like Verizon or Walmart.

I can't speak for Verizon but Walmart has a very smart and sophisticated ecommerce team. They aren't outsiders by any means.

FussyZeus2• 10 years ago

Forgive me if someone already pointed this out but:

What makes this trend worse is that users who install ad blockers first, tend to be the more sophisticated and the more affluent ones.

Do they ever cite any kind of source or demographic data to support this statement? It follows the logic I'd go with in my own head but I'm curious if this has been documented somewhere.

jakozaur• 10 years ago

What if there was a version an offensive version of AdBlocker? Instead of just hiding ads it would simulate clicks based on your individual preferences.

E.g. hit insurance company that is not paying for their claims.

arbuge• 10 years ago

We are seeing the opposite of what this article claims. Conversion rates from Google traffic are good and ROI there is steady. Facebook traffic quality on the other hand seems to have steadily deteriorated over the last few months, and our ROI there has plunged.

roymurdock• 10 years ago

Ads will shift from the annoying, low-quality banners and sidebar images to "native content" and "submarines" - ads disguised as objective information written by whatever website you are on. The industry will evolve, and ads will continue to annoy/prey upon people and make the ad ecosystem money.

I'm reading a David Foster Wallace article from 2004 in which the exact same thing is happening to the radio ad industry.

morisy• 10 years ago

I like how the primary data points used to justify the dire prediction is "news flow," a metric that's never really explained ... which is then used to give very specific probabilities.

partiallypro2• 10 years ago

I agree that Google's model is a bit of a bubble, but red flags appeared in the first paragraph:

Google's clients have no clue their ads are being displayed on worsening quality websites.

Well, actually most of Google's money comes from search advertising, not Adsense. And most smart PPC manager very rarely, if ever, advertise on Google's extended network. Google also makes most of its money from PPC, not CPM.

The adblocking is a problem though.

mattnedrich• 10 years ago

I never really understood the advertising business model. It seems like a reasonable approach for some companies and services, but somehow it has become the cornerstone of the tech industry. Free services with ads.

This always seemed completely unsustainable to me.

ChuckMcM• 10 years ago

Well I can't say I disagree :-)

The more damning thing are the statistics. One of the great things about advertising on the Internet is you get lots and lots of feedback on how much "work" your ad has done (nominally page views and clicks) and you can compare your sales before and after advertising to understand how valuable it is to you. But chart 6 (https://kalkis-research.com/imagecache/532f1ae2393a0502f601a...) is the bottom line. If advertising more doesn't get you more sales, then you won't use it. And that means Internet advertising has to change.

dsugarman• 10 years ago

I agree with all your analysis on the ad fraud, there is definitely a bubble and there is a shit ton of fraud going on and it's costing everyone money. Where I disagree is the effect that a cleanup would have on Google, people aren't going to just stop paying Google, the portion of money that was going to shitty intermediaries will go primarily back to Google. Bids may go up, fake views may go down, but sales should remain the same for the same budget.

adwf3• 10 years ago

I've always been a bit baffled by why it's called ad-fraud online, but nowhere else.

You don't call it fraud if your TV ad is aired and I miss it because I'm making a cup of tea. No matter how many viewers you were told the show has.

It's not fraud if I don't notice your roadside billboard because I'm focusing on driving. No matter how many cars you were told drive by.

Advertising has always been a crapshoot with a lot of supposed "TV viewers, magazine readers, eyeballs, etc.", but those figures have always had an assumption of "nobody knows which advert works". That's why an advert's success is generally measured solely by the increase in sales after it has been displayed (ignoring brand ads for the mo, although arguably they're the same).

It's the same when I've placed internet ads with Google myself. I place the ad, if I get more profit than the ad costs, it's a success. The % of ad clicks that are actually real does not matter. If the ad costs more than I make back, I stop the campaign. As Google run an auction system, if enough people stop bidding, then the ad price will go down and my campaign might become viable again. Either way, I'm not being defrauded anymore than I am by people making cups of tea during an ad break...

I think the only reason why people like to call it fraud is because the internet has given advertisers for the very first time, some hard(-ish) data on how many users are being influenced by their ads. In reality, it's just the old crapshoot, but with a little more accuracy than before.

fullshark• 10 years ago

What they describe is arguably fraud beyond what you describe. Ads placed on ineligible websites and fake views/clicks. This is comparable to a TV station selling ads for 8 PM and showing it instead at 11 PM, or selling ads based on fradulent Nielsen ratings.

adwf3• 10 years ago

Perhaps, although an alternative analogy for ineligible would be to compare an advertiser going after an adult market by airing the ad at 9 PM, but finding out there were still some kids watching at that time. It's all wasted views as far as an advertiser is concerned. The only difference is that offline they couldn't track it. (I'd also point out the computational absurdity of perfectly monitoring eligible websites for their content type - nigh on impossible).

As for fake views, they're already factored into the price as far as I'm concerned. If say 90% of views were fake and I'm paying £1 per click, all that would happen if you could magically crack down on fakes would be that my cost per click goes up to £10 as it's a far more valuable ad service.

As I mentioned above, the real equation is whether my ad generates more profit than it costs. The only difference between online and offline is that advertisers can finally track the percentage of viewers who are not actually looking at their ad at all. That % has always been there, offline or on. As long as your ad is profitable, keep running it.

Xyik2• 10 years ago

I'm not too familiar with how Television ads work, but online advertising has a clear-cut billing model based on very dubious measurements.

When an advertiser decides they want to bid CPM or CPC they want impressions and clicks from real people, not bots, crawlers, mis-clicks, hidden ads that still count as an impression but is difficult for anyone to actually see, etc etc. Then there is the whole problem with view-based attribution - or attribution in general. The fact that a 1d view attribution is commonly accepted is ridiculous when you think about it, particularly in re-targeting.

shimn• 10 years ago

I was under the impression that ad fraud was more seen as how those sites put 6 iframe windows of ads one on top of another so while they were all loaded and "seen" by visiter, only one of them was visible. The main thrust of ad fraud was "this ad cannot possibly be seen by a consumer". As with all things, some may pervert the definition for gain but on the whole: you'd call it fraud if you paid for a billboard and the company put up your ad but then plastered somebody else's ad on top of it.

adwf3• 10 years ago

Yeah, and the world would be better off without that, but it's incredibly hard to detect.

My point however, is that it is already factored into the price. When a TV station says this show has 10 million viewers, the advertisers understand that it's actually only 5 million who are going to be watching their ad, because of channel flipping, fast-forwarding, cups of tea, etc. It is already an understood factor in the pricing. Whereas online, they don't appear to want to make the same concession towards bots/iframes and so on.

You could argue, particularly for free-to-air TV channels, that anyone not watching the ads is breaking the "social contract" and defrauding the station. That's the exact same argument that Wired makes when they block adblocking readers.

There's always a percentage of your ad buy that will go completely unseen offline. It's no different online.

bikamonki• 10 years ago

While I agree with most comments and I think the "prediction" on this article is rather exaggerated, I do think the whole industry needs adjusting, is ripe for disruption if you wish. Companies will figure there is a better way to spend ad dollars. Coincidentally, take a look at this retargeting error on my local newspaper today, does SendGrind knows it just paid for printing the same ad 3 times? Did it on purpose? There is nothing else to put (space was not sold) so might as well put 3 of the same?

Take a look: http://postimg.org/image/58dmkvjkx/

(BTW, this is not the first time I see repeated retarget ads)

(Same site on incognito gives the same repeat ads error: http://postimg.org/image/b89qoca8x/)

nunez• 10 years ago

I can't say much about whether the claims in this article are valid or not, but the day that Google publicly cuts a huge percentage of their workforce will be a very sad day.

There are a LOT of teams at Google that do cool things that contribute absolutely nothing to their bottom line.

rufb• 10 years ago

I'll start by pointing out that this article makes no sense whatsoever for large businesses and agency-managed campaigns, where expertise and scale mean CPC and CPM are analytical tools and not goals. When you have enough expertise to integrate data and attribute results, it makes no sense to optimize for anything other than ROI/CPA.

Now. Both Google and Facebook get a lot of revenue from small and medium businesses. SMBs often have short budgets, little expertise and limited work-hours to dedicate to online advertising, so it's not at all uncommon for them to concentrate all or most of their effort into a single platform.

For that reason, both Google and Facebook have a constant incentive to constantly innovate in formats, targeting options and channels catered to long-tail small pockets.

The problem with this article is that it mixes large and small. The over-crowded web display network caters mostly to big fish (common-enough exception: small fish by proxy, through retailer campaigns). Am I saying SMBs running web display campaigns is unheard of? Not at all, but clearly that's not Google's strongest proposition. For SMBs, that would be Search. App display and exclusive channels (such as Gmail's promotions inbox) being the next logical step.

Now I work at a fairly specialized agency so I can only guess what my online advertising portfolio would look like if I were an SMB or a boutique agency with off-the-shelf solutions for SMBs, but I honestly don't see Google being ruled out or even majorly threatened for most use cases by this inflation in the web display network.

Large companies and agencies will keep otimizing display campaigns for ROI/CPA. Small businesses (and their agencies) will flock around either Facebook or Google Search mostly, as they already do.

TrevorJ• 10 years ago

I wonder if Amazon ends up being the biggest existential threat to Ad-driven revenue for FB and Google. One could certainly picture a world where Amazon is so efficient at hovering up a large enough market share of the online retail world to dry up the mom and pop end of the market who buy cpc ads.

nakodari• 10 years ago

Ads won't die, the way they are served will change. You can look at Instagram who are serving ads natively in their feed and they perform well. Lots of other products are doing the same. Ad Blockers can only block traditional ads in web browsers, they won't affect the native ads in apps.

partiallypro2• 10 years ago

Not necessarily true, you could set up an adblocking app that changes the host file to block out those served up by ad networks. There are some that already do this, such as adguard, which has a program that blocks ads across your entire system, no matter if it's in a native app, or not.

Animats• 10 years ago

YC realized this a few years ago. Very few of the newer YC companies are ad-supported.

Twitter is in trouble. Their stock hit an all-time low yesterday.[1] Twitter has a fundamental problem - all their ads get in the way of what you wanted to read, and they're small-screen oriented.

[1] http://money.cnn.com/2016/05/03/investing/twitter-stock-all-...

njohnw• 10 years ago

For those of you that weren't able to make it through the entire report, there's this gem:

"90% of Google's revenues come from advertising. We expect Alphabet’s share price to go down by 75%. We get this number by revising its earnings down by 30%, stripping its 30x PE off its "growth premium" down to 15x, and factoring in the reputational damage."

The authors clearly assume that most of Google's ad revenue is from advertisers who don't track how much they spend on media relative to how much they earn -- when in fact their entire business model and the ad auction model they created is predicated on this. If the cost of driving a user to your site from a Google search results exceeds the expected value of that user, advertisers can adjust their bids accordingly.

knorker• 10 years ago

"Q: Google’s ads on its search engine are legit. We mostly agree. The search engine is an amazing asset for the company. The CPC on google.com has risen year after year"

So... isn't that like most of Google's profits? Seeing as how they're both publisher and ad network they get 100% of the advertisers spend.

Does losing a fraction of a significant minority of even revenue warrant calling GOOG at $250? Ridiculous.

manigandham5• 10 years ago

This is one of the worst articles I've ever read about adtech and is clearly written by someone who has never worked in it and knows nothing about it.

It's all summed up by this at the end of the article:

Q: It’s all baseless speculation. We base our research on subjects that are gaining traction in the overall news flow. We have found 94 articles about "ad fraud" over the last 5 years, only looking at influential, qualified sources (http://11wall.st/?to=2016-05-04&from=2011-05-04&query=%22ad+...). So, no, we’ve not dreamt this up, this is something real that the media is talking about. This is the whole point: as coverage of online advertising’s shortcomings grows, people will start to grow aware of it, and will start to question the system.

The "news" coverage is similar to this article in that it's about 20% accurate and 80% sensationalist stories. Also 94 articles is like a week of normal trade press output so it's not even a big number over 5 years.

Advertising and marketing technology is one of the most data-driven and results-oriented industries around. That's just fact. It's been like that for decades. The reason there are hundreds of billions being spent is because there's so much control, flexibility, efficiency, scale and accountability available today that can drive sales and massively improve a company's revenues.

Adtech today is bigger and better than ever because even when things change (like mediums, platforms, audiences, technology), the industry always adapts just fine.

Anyone thinking advertising doesn't work should look at how exactly the successes of the favored Silicon Valley companies have come to be, because outside of making a decent product, it's all marketing. In fact, two of the biggest companies in the world today have been built around advertising and it's clear it's going to stay because it's an integral part of the economy.

kafkaesq• 10 years ago

Anyone thinking advertising doesn't work should ...

But that's not at all what he's saying -- he's saying the market for it saturated, and its efficiency has crested.

It's clear it's going to stay because it's an integral part of the economy.

Nor is he saying that it's "going away." Or anything remotely close to that.

manigandham5• 10 years ago

That last paragraph are my comments on the general tone of the post and this HN thread. That's why it starts with "anyone".

Regarding the article though:

online advertising efficiency has been decreasing for years
Alphabet/Google, who has 90% of its revenue coming from online advertising, will see its business scale back to the levels of 2010-2011, while its share price will crash to the $200-$250 area
Awareness for fraud and the inefficiency of online ads grows past the point of no return over the next 2 years. The whole sector crashes as clients reduce spending and demand better reporting and transparency.

This is all very poor conjecture derived from reading a few dozen "news" articles. None of this is or will be true based on the facts and progress of the industry today.

slantaclaus3• 10 years ago

rofl guy predicts 70% drop to $200

slantaclaus3• 10 years ago

rofl guy predicts decline to $200/share

dmarti• 10 years ago

Advertisers don't bear the costs of fraud. Intermediaries don't bear the cost of fraud.

Fraud is priced in. It drives down the value of all ad inventory in the market.

The costs of fraud end up being borne by legit publishers (who have to compete with fraud for the same ad budgets) and with copyright holders (whose work gets copied onto bottom-feeding sites.)

http://blog.aloodo.org/posts/thank-you-for-supporting-fraud/

tyingq• 10 years ago

Disappointed. There is a bubble, but it's not the one portrayed in the article.

The bubble I see is that Google's been riding a YoY double-digit increase in clicks for many years...exceeding the growth of impressions. They've done this by yielding more and more real estate (for searches that they can monetize) to ads versus organic results.

I say there's a bubble, because for the most part, there's no real estate left to yield. Which means the YoY growth will now slow down to match impression growth.

mholmes680• 10 years ago

My take is that they restructured into Alphabet to protect for eventualities that google (the core legacy business) may not be the revenue driver forever...

So, haven't they solved this problem - or at least mitigated the risk to shareholders - already?

rodionos• 10 years ago

I just disabled our ad campaign on one of the online ad platforms mentioned in this article. We market to tech audience who are probably 90% covered with adblock. We're seeing some odd page paths from users who visit our sites through paid clicks. Very different from qualified lead paths.

Moe1911• 10 years ago

This article is total crap. Just speculation. They should at least get their facts straight: DoubleClick was not acquired in July 2009 it was April 2007. I love so called "articles" that rely on aggregated news.

Google: End of the Online Advertising Bubble

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