Online Advertising: Cruisin for a Bruisin Says Wharton Prof
March 22, 2009
A happy quack to the reader who went me a link to the guest write up called “Why Advertising Is Failing On The Internet” by Wharton professor Eric Clemons. You can read his dense, interesting exegesis here. His bio is here. If you are not familiar with the context of a business education at Wharton, you may find this 2005 article interesting as well.
Dr. Clemons argues:
My basic premise is that the internet is not replacing advertising but shattering it, and all the king’s horses, all the king’s men, and all the creative talent of Madison Avenue cannot put it together again.
His analysis touches on a number of issues. The one of interest to me was his discussion of monetization options. Three of his points jumped at me. I am not comfortable quoting a large chunk of his text. I will, therefore, reference three points and urge you to read his discussion of each. The three points were:
- Content providers can charge for information
- A Web site can sell “experience and participation” in a virtual community
- Developers can sell “accessories for virtual communities”.
Instead of delivering advertisements, other monetization options exist.
I understand his arguments. I do not have a degree from a business school. I admit that I am not very good in business; otherwise, why would I be writing a free Web log, using the persona of an addled goose, and living next to a mine run off pond in rural Kentucky?
My observations:
- Monetizing online information is quite difficult. It is easy to get some money. It is tough to get lots of money. There are exceptions, and these dynamics need close scrutiny. Since the late 1960s, many executives have tried to create an online revenue stream that covers costs, pleases stakeholders, and leaves customers happy. Few have pulled this off. In my experience, subscriptions can work. I am not as confident that selling participation and accessories for a virtual community will do the job.
- Advertising in print is old, well understood, and appropriate for mass markets. These markets exist but are no longer organized by the traditional media companies. As a result, traditional business analyses don’t work. The reality of the present online sector is that advertising works from Googzilla and to a lesser extent for other companies. In the present online world, the cost of infrastructure means that in addition to technical savvy and a good idea, quite a bit of cash is needed.
- Consumers of online information have made it clear to me that free beats for fee any day. As the economic noose tightens, the demand for subsidized information access will increase. When money is tight, clever people will find ways to obtain access to high value content. I think the threat of peer to peer data transfer is significant, but I am not sure that short of a UK or Australia style data filtering program, peer to peer transfers of high value content can be stopped. The evil doers are probably the children of lawyers, publishers, and academics.
In the back of my mind is a small voice reminding me that the present economic crisis, Enron, Tyco, and some other interesting events were a result of MBA think. I would, therefore, suggest you follow my standard practice of keeping a salt shaker handy when pondering MBA type pronouncements. I worked at Booz, Allen & Hamilton in its salad days, and I experienced first hand when reasoned arguments don’t work in the real world.
Advertising online sort of works. Will it fail? Sure, but I think it has some legs. What’s the option? A local newspaper. Late night cable TV pushing Sham Wow? Snail mail letters with business reply cards? Broadcast radio spots? Door knob hangers with free samples? Product placements in motion pictures that go direct to DVD and then to non US distribution channels?
And, there is the issue of Google. I don’t think the company will shrivel like the Seattle Post Intelligencer, the Financial Times, the New York Times, or the Hearst papers. Google is not selling its assets to pay its debt; the New York Times is and the Boston Red Sox share too boot. I am just an addled goose, delighted to know that I can build a business selling virtual accessories. I always wanted a pair of virtual Web feet.
Stephen Arnold, March 22, 2009
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3 Responses to “Online Advertising: Cruisin for a Bruisin Says Wharton Prof”
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While there may be some doom and gloom at the moment with online advertising budgets there is still going to be massive growth in the area in the coming years.
Online Digital Trackable Advertising is a major trend in the market place and at 8% saturation means it is approaching the strong growth in the S-Curve. It is predicted that it takes 50% of the time to reach 10% and the other 50% of the time to reach 90%. So far, roughly 10 years have passed with online advertising and that means that by 2020 we should be at or close to 90% of all advertising budgets using some or all online advertising for marketing.
There are many smaller players in the market that have not surfaced yet that are experiencing major growth such as FreeKii.com and as these grow and share the market for online advertising it skews the growth rate since they may not be included in top players for growth calculation.
The actual rate of growth in the next few years will be incredible and will make the last 10 years look pale in comparison. Remember the auto industry 100 years ago?
“Monetizing online information is quite difficult.”
I think this development is nothing less than wonderful for the consumer.
I think Clemons makes two crucial points in saying that we don’t want/trust ads, and we don’t need them. In reality, we’ve never wanted/trusted them, but we were a passive audience and had to sit through them. Now we’re active, and we generate our own content, including reviews which are generally far more helpful than ads.
If you’re interested, I wrote a longer piece about this here:
http://www.whyweworry.com/blog/2009/06/29/why-advertising-will-fail-on-the-internet/