More Online Advertising Deep, Deep Thinking

March 29, 2009

TechCrunch has a “steel cage match” underway. A Wharton professor found himself in the spotlight with some amazingly naive assertions about making money online. Today I read “Steel Cage Debate on the Future of Online Advertising: Danny Sullivan Vs. Eric Clemons” here. In my opinion, the steel cage metaphor is in itself a good way to generate traffic in order to add some steroids to the TechCrunch advertising biceps brachii.

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Advertising thrives on traffic in the way muscle tissue responds to steroids.

I want to do my part in fanning the flames of this intellectual Bessemer furnace. If you are not familiar with the Bessemer method, you will want to refresh your memory about the function of draughts of air blown through coal here. The Bessemer process was abandoned in the 1950s, which provides some color for my comparison.

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The spectacular but remarkably wasteful Bessemer process produced some productivity gains, but by the 1950s better methods were found. Online advertising cage matches share some similarities in their inefficient production of heat and sparks.

Here’s this week’s cage match synopsis:

Search engine marketing wizard Sullivan: Advertising will be big on the Internet.

Ivory tower behemoth Clemons: I agree but trust is a big deal. Internet advertising will account for about 20 percent of online revenues in five years.

Let’s step back.

What’s going on is a shift in proportionate spending. The revenue revolution was the Idea Lab notion that people with Web sites would pay for traffic. The big idea here is that a person would spend money to get clicks. The model is not revolutionary. Paying for traffic was a consequence of a property of electronic information; namely, magnetic centers exist which attract the majority of users. Internet traffic is not distributed evenly or randomly. To get in the flow costs money.

As a flow becomes saturated, an opportunity becomes available to add another monetization operation to alleviate that saturation. Earlier monetization models don’t go away or die. Most continue to exist serving niches.

Consider Twitter. There is now traffic and anyone can post a Tweet. The monetization opportunity that opened was reaching those with traffic. Is this advertising? Sure, if Twitter will sell someone a link on a page of hot Twitterers, that’s a monetization model. Will people pay to use Twitter? People already “pay” for connectivity, the devices, and their time. The trick is to get some of the money to flow to Twitter. The company has a number of options available, and it will probably try several until a winning formula results or the company sells out to an outfit that has a better monetization idea.

Depending on where one views the monetization and how one defines advertising, one can make a case that Twitter is ad based or one can argue that it gets its money from some other source such as a fee to the carriers or a slice of the message fees.

The point is that in this cage match, the points of view have not been defined. Leaving the terms open is a useful tactic for the search engine optimization crowd and a very common device of college professors. Furthermore, debaters who do not disclose their intellectual slant is helpful as well. Combining both (a lack of definition of terms and hidden agendas) makes analysis challenging. The facts of online economics persist, however.

Consider these issues:

  1. Explicit payments appeal to a smaller percentage of users than services subsidized. The entitlement generation expects online to be free. To get traffic, subsidies, third party payers, or grants are more desirable than trying to get Tom or Tammy User to fork over their credit card for periodic billing.
  2. Once a revenue source has been sucked dry, another must be found. The costs of competing where large data flows exist have to be supported by multiple financial tactics; that is, pay for traffic, outright subsidies from government agencies wanting access to the data, subscriptions, license deals, kick backs, etc.
  3. Scale combined with cost control, if effectively implemented, will generate a monopoly. Once a monopoly is achieved, new monetization options become available to the dominant. These range from certification fees for developers to a stake in the newcomer’s business, among others.

Are these “all” advertising? Well, let’s define advertising. Then let’s disclose our biases and agendas. Unfortunately, I don’t think in this cage match that will happen. Webified arguments have to be short and sweet, chopped up and processed to be easily and quickly digested. William James’s essays would not be too popular if here were alive and publishing a pragmatism Web log.

I look forward to the next online revenue cage match. Too bad this week’s installment was quite time. Perhaps there should be a 12 week training venue with intermediate matches to weed out those who don’t have enough muscle and bone to make the battle one for a pay per view channel. The Lawrence Welk reruns on PBS are more exciting than this week’s scuffle. Let’s raise the stakes. Maybe the participants should pay an entrance fee? Would this be advertising?

Stephen Arnold, March 29, 2009

Comments

One Response to “More Online Advertising Deep, Deep Thinking”

  1. Online Advertising on April 4th, 2009 12:03 pm

    When compared to traditional advertising it becomes obvious the objective of marketing.

    Marketing is not what generates a sale or closes the sale. Marketing in any business is to attract a potential customer.

    It is the responsibility of the business, be it bricks and mortar or online to close and complete the sale.

    So the question is, will advertising decline? Well to answer that question then simply ask yourself, does your business still need a flow of potential customers?

    If there is a replacement for advertising, online or offline, then maybe.

    Sure businesses have tighter budgets now, but should they increase their potential customer flow or let it dwindle in times of recession?

    Simple answer, never let the customer flows dwindle. Cutting costs and expenses is important when revenue drops, but cutting expenses will not cause revenues to increase. Only increasing customer flow or web traffic will.

    Cost per click and Cost Per Action Online Advertising is a wiser investment now more than ever as businesses begin to measure the quality of marketing efforts and the ROI.