Great to see an article like this. This subject is almost suspiciously under-researched by journalists. There 's definitely something rotten in the promises that internet advertising has become somehow more effective. If that were true, wouldn't businesses notice? Wouldn't they spend a bigger part of their revenue on ads ? Wouldn't that return even bigger ROIs? Yet businesses spend roughly the same for over a century in ads, and it's not like the 2000s-2010s were the period of massive growth in consumer spending.
We need more of this research, please, because advertising is a huge deal for the health of the internet, despite its vilification. And it doesn't begin and end with FB+Google
Also: It would be nice if people who comment here and work for Google or FB declared their conflict of interest
>Wouldn't they spend a bigger part of their revenue on ads ?
_For context, we've worked with thousands of advertisers worldwide_
They do, up to a certain extent. ROI isn't the only element to look at here, what also matters is at what max scale you can keep this ROI. Let's take e-commerce as an example scenario:
A digital channel can deliver a solid ROI (>200%) at $10K-$50K / month. Advertiser is excited, wants to scale to $500K / month. ROI drops to 110%. Woops, not as good. So what does advertiser do? Advertiser finds the max scale they can run at to maintain an acceptable level of ROI (for ex, 140%) and that is $100K / month of spend on that channel.
The interesting shift we're seeing is that historically, advertisers just went on and multiplied the number of channels, spending $10K / mo on channel 1, $50K / mo on channel 2, $500K / mo on channel 3. However, the cost of maintaining each channel and optimizing is greater than the added value. So current trend we're seeing is consolidation of this spend, and understanding that they won't be able to spend as much on ads since they still to need that 140% ROI, but only on a few channels.
As to measurement, incrementality measurement (usually two methods, ITT (intention to treat, divide your entire audience in 2 parts and show ads to only 1 of the group) or ghost ads (described below) delivers a very clean metric as to whether ad spend if bringing any sort of value and how much value it actually brings. Assuming a healthy p-value is present (aka, assuming advertiser is running enough marketing spend $ that results are significant), that's your answer to how much more you should invest on the current marketing campaigns (or it will show that you need to change your campaigns because current ones are not performing)
I'm not sure if businesses spend roughly the same on advertising. I've experienced wildly different %'s of total spend depending on various factors.
Regarding the efficacy of online advertising, some businesses do notice but at the same time there's a larger question which is the trade-off between what online ads can achieve for different products at different stages.
Imagine a scale from "sitting in front of someone and explaining the value prop" to "an adwords ad."
If you're trying to remind someone about a brand they already know about, or attract them to a value prop that is easily explained online ads are great. If you have an unknown or hard to explain value prop you'd be better off starting elsewhere.
I agree that we need more research. Also, some suggested reading for anyone who's interested:
> advertising is a huge deal for the health of the internet, despite its vilification
This is basically tautological though. Yes, the status quo is that advertising drives the revenue that dominates most of the content and app creation that exist today. Who can say what it would be like if advertising were removed? I don't think this is easy to answer, and I'm default skeptical of research since the conflict of interest seems likely in many funding scenarios.
> Marketers are often most successful at marketing their own marketing.
I've seen this play out at places I've worked. After raising a funding round, marketing sold the leadership on letting them burn the lion's share of it, even though launching new marketing campaigns was never on the list of reasons we initially went out to raise money.
I think that's a self-preservation tactic for many that often backfires.
Most non-marketing management people want immediate and huge results... which are both hard to quantify and impossible to get without overspending or having an insanely lucky idea that goes viral.
Naturally this leads to asking for a bigger budget and promising bigger results, then KPIs aren't met for X, Y, Z reasons, then they're forced to justify the spend, then they either get more budget or get fired and the cycle repeats. Marketing has too many intangibles, so marketers always feel a need to justify themselves out of fear of being an easy target.
This feels like a multi-billion dollar industry in which every entity involved has the ability to sink the entire thing, and simply stated, nobody does because they all make money from it.
> a Super Bowl ad cost three million dollars. Why? Because that’s how much it cost. What does it yield? Who knows.
This article is awesome. In my free time I'm building an advertising platform that topic matches ads off the content of the web pages. No tracking of users.
I'm hoping to allow people to host and run their own all inclusive self contained advertising platform for just a licensing fee. I also have a way to beat adblockers that I'm afraid of bringing to light since I only want it tied to my own companies completely non tracking and ethical ads.
Hope it's not a bubble! Though first I have to finish the work and get a few customers so it's not like I can't pivot if it is.
A very easy way to break this argument is to not look at huge known companies like eBay and Amazon, but brand new companies 1-2 years old that have grown almost entirely by online ads. Eventually word of mouth kicks in, but there are plenty of smart operators that built their entire brand and revenue off of ads.
Reliably someone comes along every few months to question digital ads. I always come back to analyses of incrementality as the real proof.
Take an audience of X people. Divide them in two. Show ads to your test group, don't show to control. Watch your business grow and gauge the lift between the two audiences.
The companies that know how to advertise at scale do this constantly and can gauge the real effect of their ad dollars. Facebook, Google and others make these tests possible in their platforms, while other software suites such as Impact Altitude and VisualIQ allow you to do this kind of analysis and testing as well.
In the end, most of it proves out to be incremental. There are notable exceptions of course, but when are there not?
This is a very interesting point, which in fact plays in defense of original article.
Bob Hoffmann, very influential figure in advertising (http://adcontrarian.blogspot.com/) likes to point out that there were not that many companies which built their strong brand with online advertising only.
OK, he is old and grumpy dude and he dislikes online ads, but this is a fair point. Once company becomes big enough, it strives to buy a Super Bowl ad spot. And we are well into 10 years of internet being mainstream media, but how many brands were built online only? Not that much, and I'm saying it as "online ads work", kind of guy.
Another thing marketers in US and to a certain extent Europe fail to see is how digital has evolved in Asia and think through what it means for their own work. The same marketing giants which spend 90% of the hundreds of millions of dollars per brand per year on TV in the US spend 90% in digital in China and are increasingly shifting in other Asia markets. This reflects shifting consumer time spent on vehicle.
Now big company marketers are used to thinking of US as a homogeneous market for efficiency reasons and so TV still works in US if your target audience claims a broad demographic. However, they're beginning to learn that you'll simply not reach enough consumers if your target demographic is say young adults in the West coast if you do a TV heavy plan. US in general lags China in media landscape shift but the media behavior of the more valuable demographics are actually much closer to China than averages tell you.
the article isnt making the point that there is no value in advertising, but that it's highly overstated. One really needs ads - the 're a very effective way to reach users. But after that initial push, does spending more really return more?
...there are plenty of smart operators that built their entire brand and revenue off of ads.
Can you name one?
I find it very hard to believe there are any companies that have scaled up only using online adverts. Why would the founders of a business do that when they can grow in their local market by talking to people as well as buying online ads for wider reach?
This is a rather unimpressive article. Yes, brand advertising is a disaster, just like it has always been. But to say that all digital advertising has unknown ROI is ridiculous. Digital direct response advertising allows very accurate ROI calculations. (Admittedly, a lot of advertisers are not applying the tools to their advantage. They call that the "Google stupid tax". Ditto these days on Facebook.) And direct response advertising is nothing new. Mail order guys were cleaning up by running early (expensive!) experiments that showed if they were going to go out of business. Oddly enough, when you have skin in the game, you follow the money much more closely. Who knew? The fact that golf course brand advertising deals don't pay off is not news. They never have much.
The bad news for digital direct response advertising is that the platforms are starting to remove the knobs that actually let people determine and optimize their ROI. Google is in the process of actively removing ad functionality and data that has, historically, been crucial to ad profitability. Google claims their machine learning can see much more of the data available, so "trust us." Perry Marshall, Google ads guru, has recently held several webinars about "Why Google is Objectively Evil."[0] Not pretty.
Hi this is the author of the article. You're just making the exact mistake this article is about: you assume people who click on your ad and then buy something, bought something BECAUSE of your ad.
From the article: "Suppose Luigi’s Pizzeria hires three teenagers to hand out coupons to passersby. After a few weeks of flyering, one of the three turns out to be a marketing genius. Customers keep showing up with coupons distributed by this particular kid. The other two can’t make any sense of it: how does he do it? When they ask him, he explains: "I stand in the waiting area of the pizzeria."
It’s plain to see that junior’s no marketing whiz. Pizzerias do not attract more customers by giving coupons to people already planning to order a quattro stagioni five minutes from now."
It's the same in online marketing, you often target people who are searching for say a pair of shoes. People who are searching for shoes have way higher baseline probabilities of ending up buying a pair of Nikes, whether you show them a Nike ad or not. So if you do not correct for this 'selection bias', you have no idea what your ad did.
The research I describe in the article clearly shows (and please look it up yourself, the links are all there) that selection bias is HUGE, and that it's hard to know ROI, because true advertising effects are tiny if you measure them in an experiment.
Google removes targeting knobs because despite what marketers think, humans consistently underperform algorithms when it comes to targeting. Typically, the people tweaking the knobs have reverse incentives because they don't want their jobs to be automated so they love these knobs. But they are just constraints on the bidding systems that end up delivering poorer performance of the campaigns.
YMMV but for the vast majority of campaigns, the algorithm does know better.
Disclaimer: I've built bidding systems for multiple ad companies, so I'm surely biased towards "the algorithm knows better".
> Digital direct response advertising allows very accurate ROI calculations
How many ads are direct response? How many are simply clicked because they are just above the same website's entry in search results (i.e. users were already heading to that site, the ad was just there as google tax)? How many legitimate clicks on an ad that did not led to sale are discarded by google as "invalid clicks" (my adsense report has 20% invalid clicks) ? It's kind of shocking that the internet's most lucrative market does not answer those
By my reading, direct marketing was LITERALLY the example used in the article that showed some of the dodgy reasoning/metrics behind common measurements of marketing success :/
What I notice is that internet advertisment is pretty selective, I dont know about effective... If your interests happen to diverge from mainstream just that bit enough, you can end up in a pretty much ad-free zone. I happen to watch a lot of conference recordings on YouTube, and most conferences dont monetize their channel (yet). But thats not the end of the story. Stay away from mainstream, and you get complete ad-free shows. Take Joe Rogan for instance. The people he hosts are largely pretty interesting, but the way he does controversial topics pretty much led YouTube to demonetize him. Which, for the consumer, is a blessing. Because you get 3h talkshows without a single bit of advertisment.
Or ARTE, which is a german/french coop television provider. They have very interesting content, but a policy of not enoying with ads. Which makes their YouTube channel even more worthwhile subscribing to.
I could go on, the pattern seems to be the same.
To be honest, the more cheesy a program is, the more likely it is that you will be flooded with ads.
I've always wondered about those adverts for the website I'm searching for. If I type its name into Google, I'm already 100% committed to going there. Sometimes I click the advert (it generally depends how much I like the company).
The other aspect of online ads that strikes me as ingenious but probably not sustainable is the way Google inflates the auction system with fake money. Anyone who's run a website will have received a letter offering hundreds of dollars of free advertising with Google. Of course, it's an auction so the presence of that money just drives up the cost for everyone. Google wins every time!
I had the same thought. Our PPC consultants strongly recommended that we do branded ads and I pushed back against it using this same logic. Ultimately we performed a test, but the results were very different from in the article—we did find that a significant percentage of those who clicked our branded ads would otherwise click the organic results... but far from 100%. And because cost per click on branded ads is so low compared to other ads, it appears that they are still profitable for us, even once we take into account the users who would have arrived through organic links if the ads didn't exist.
This was and is surprising to me. The only explanation I have is competitors bidding on our brand keywords and taking traffic that would have come to us absent any ads. Which makes the whole thing look like a nice racket for Google. Regardless, for now we pay since the alternative is apparently to lose those users.
It costs the ad creator money every click and rewards google for mixing ads into the search results in a confusing way. This is a sketchy practice when the ad is for the exact product or site you typed into the search bar - as another commentator mentioned, the dynamic forces you to buy the ad to keep competitors from stealing the spot. Toxic
It's seemed pretty obvious for a good decade that, if a bubble were going to pop, it would probably be related to advertising. Because if online advertising falls off a cliff, that hits two of the big tech employers directly. And you can be sure there would be major secondary effects on all the companies whose plan is to more or less never make money but be acquired.
The problem with all online advertising is that there are huge selection effects, which are hard to correct for using conventional statistical methods. So you need to do experiments. And when economists do experiment, they find that advertising effects are so small that they are hard to measure.
The ROAS numbers given by FB (your employer) are far from being a real estimate of the causal effect of adverts. For example, there's no way to have global holdback against other advertising channels not controlled by FB.
Double-digit anything are easy to get on any advertising perfomance metric if you don't scale your spend, so it's not really an argument.
(Disclaimer: I've built multiple bidders & ads incrementality models over the years so I'm probably biased against the "supply" side of ad inventory).
Just as Google won the search engine wars by helping people find what they are looking for, the e-commerce winners will be the companies that help people find what they want to buy (reliably and with confidence).
Retail companies are blind to just what a shit-show their websites are (a lot of them even have ads in their online store). Any company that solves this problem for their sector will win it, and this is good news for techies as every company can and should have a unique solution.
It doesn't have total domination of ecommerce but frankly it'd run into anti-trust issues if it did. No company is going to do ecommerce bigger than amazon without getting broken up so yeah... amazon.
> Retail companies are blind to just what a shit-show their websites are
shit-show or not, when I'm buying something online I strongly prefer buying directly from the company's website over using sites like Amazon.
My purchasing pattern goes like this: I want something, I search (using DDG) the web for what companies offer what I want, then I go through the companies websites to decide on where I'm going to make my purchase.
I'm certain that I don't represent the most common sort of customer, but I'm also certain that I'm not alone. Ads are irrelevant to me (I block all scripting, so I rarely see ads), so if a business wants to increase the chances that I'll check them out, what they really need to do is SEO.
I do not work for google facebook or any other internet company. I do however purchase online ads for my law firm. I also tried turning off the ads for a few weeks to disastrous results.
I can say the big problem in the examples in this article is the keyword selection. For example ebay advertising the word ebay to customers who are googling the word ebay is probably fruitless for the most part. Those people were already looking for ebay and would find it with or without the ad.
However if you are a lesser known online auction and you use the keyword "internet auction" or something similar, it would probably help.
This article, to me, seems to be more about the importance of experimenting and critically evaluating the data rather than an actual indictment on online marketing. With online marketing there is no clear answer: what keyword you bid on, how you target, how you write your ad copies, how your competitors are behaving all come into play. It's difficult for anyone to parse through those factor and really come out definitively as to whether online marketing is effective or ineffective in general. We can only do the smaller measurements and see if our particular ads are effective for our particular business, which in the end is all any of us who buy ads really care about.
How many people here have purchased something solely because they saw an advertisement for it, or how many people do you know who have done that?
I can't recall myself ever seeing an ad for something I did not already know of and then spending money on it.
Whenever I have found something that I didn't already know and then purchased it, it has been because of word-of-mouth (including online comments), reviews or recommendations/features on digital stores like Steam, GOG, App Store etc.
> "What frustrates me is there’s a bit of magical thinking here," Johnson says. "As if Cambridge Analytica has hacked our brains so that we’re going to be like lemmings and jump off cliffs. As if we are powerless.”
Probably not, but nevertheless their efforts to polarise thinking and support the formation of echo chambers have been quite successful. While selection effect has indeed been disregarded often, in the case of CA it actually amplified the outcome.
> A former Facebook engineer once said (and he’s been quoted a thousand times over): "The best minds of my generation are thinking about how to make people click on ads." I spoke to some of those best minds: economists employed and formerly employed by the most powerful companies in Silicon Valley...
Not to be a jerk, but almost none of the best minds in SV or of my generation are economists.
I'm still dubious about the implication that digital advertisement is fundamentally broken.
My issue is that the article doesn't demonstrate selection effects dominating over advertising effects for companies with no major brand identity. The examples cited to back the case - eBay (which is huge), "large" retailers in the case of Facebook ads, "major U.S. retailers and brokerages with millions of customers" per Lewis and Rao 2015 - are all established companies that have already received substantial presence. Where are the experiments that demonstrate selection effects dominating over advertising effects for companies with no pre-existing brand identity e.g. The Correspondent (sorry, I couldn't resist :P)?
Second issue: the article demonstrates convincingly that
brand-keyword ads are broken, which is great. But at the same time brand-keyword ads are not (to my knowledge as a former engineer at an SEO company, so it could be imperfect) the primary kind of keyword ads. A brand-keyword ad is when someone types in "eBay" and you get paid eBay links - but the majority of keyword ads (again, this is from memory) are targeted keyword ads e.g. someone types in "fur coat" and Macy pays Google to put a link to its "fur coats" pages. Equally interesting, multiple companies can pay for the same targeted keywords, meaning you can have multiple links pointing off to different sites on the same page.
The pizzeria analogy explains why brand-keyword ads make no sense monetarily (someone searching for your brand specifically will find you anyway), but it falls apart for the targeted keyword space, where people are searching by items but not by brand.
Given that much of SEO and digital marketing are target-based rather than brand-based, I'm not sold yet on the ineffectiveness of digital advertising overall.
Sounds similar to this other bubble where we blindly pay software engineers to create and modify software but we don't know how much revenue those software features, refactors or bug fixes generate, if anything at all. /s
The biggest ruse is Facebook convincing marketeers and agencies alike that three seconds counts as a video view. They justify this by saying people don't want to watch videos are attention deficit.
The truth is that very few people want to watch an ad. But if there's a strong enough value exchange with the consumer, they will. Just make effective content that's emotive, funny or offers utility.
Creatively, the impact of this is clients wanting ALL the messaging in the first three seconds of video content, which often causes the consumer to skip the rest of the content anyway.
[+] [-] buboard|6 years ago|reply
We need more of this research, please, because advertising is a huge deal for the health of the internet, despite its vilification. And it doesn't begin and end with FB+Google
Also: It would be nice if people who comment here and work for Google or FB declared their conflict of interest
[+] [-] alexeichemenda|6 years ago|reply
A digital channel can deliver a solid ROI (>200%) at $10K-$50K / month. Advertiser is excited, wants to scale to $500K / month. ROI drops to 110%. Woops, not as good. So what does advertiser do? Advertiser finds the max scale they can run at to maintain an acceptable level of ROI (for ex, 140%) and that is $100K / month of spend on that channel.
The interesting shift we're seeing is that historically, advertisers just went on and multiplied the number of channels, spending $10K / mo on channel 1, $50K / mo on channel 2, $500K / mo on channel 3. However, the cost of maintaining each channel and optimizing is greater than the added value. So current trend we're seeing is consolidation of this spend, and understanding that they won't be able to spend as much on ads since they still to need that 140% ROI, but only on a few channels.
As to measurement, incrementality measurement (usually two methods, ITT (intention to treat, divide your entire audience in 2 parts and show ads to only 1 of the group) or ghost ads (described below) delivers a very clean metric as to whether ad spend if bringing any sort of value and how much value it actually brings. Assuming a healthy p-value is present (aka, assuming advertiser is running enough marketing spend $ that results are significant), that's your answer to how much more you should invest on the current marketing campaigns (or it will show that you need to change your campaigns because current ones are not performing)
[+] [-] mrmrcoleman|6 years ago|reply
Regarding the efficacy of online advertising, some businesses do notice but at the same time there's a larger question which is the trade-off between what online ads can achieve for different products at different stages.
Imagine a scale from "sitting in front of someone and explaining the value prop" to "an adwords ad."
If you're trying to remind someone about a brand they already know about, or attract them to a value prop that is easily explained online ads are great. If you have an unknown or hard to explain value prop you'd be better off starting elsewhere.
I agree that we need more research. Also, some suggested reading for anyone who's interested:
Traction: https://www.goodreads.com/book/show/22091581-traction (Good comparison of different marketing channels)
Scientific Advertising: https://www.goodreads.com/book/show/2621927-scientific-adver... (1923 book on measuring marketing)
Positioning: https://www.goodreads.com/book/show/760025.Positioning (First book to properly capture the ideas behind "brand marketing")
[+] [-] dasil003|6 years ago|reply
This is basically tautological though. Yes, the status quo is that advertising drives the revenue that dominates most of the content and app creation that exist today. Who can say what it would be like if advertising were removed? I don't think this is easy to answer, and I'm default skeptical of research since the conflict of interest seems likely in many funding scenarios.
[+] [-] Iv|6 years ago|reply
[citation needed]
I am of the opinion that internet would be a much saner place if advertisement was purely and simply banned.
[+] [-] josh2600|6 years ago|reply
Please review page 22 to see that there has been a significant shift towards digital advertising since 2010.
[+] [-] SaberTail|6 years ago|reply
> Marketers are often most successful at marketing their own marketing.
I've seen this play out at places I've worked. After raising a funding round, marketing sold the leadership on letting them burn the lion's share of it, even though launching new marketing campaigns was never on the list of reasons we initially went out to raise money.
[+] [-] bryanmgreen|6 years ago|reply
Most non-marketing management people want immediate and huge results... which are both hard to quantify and impossible to get without overspending or having an insanely lucky idea that goes viral.
Naturally this leads to asking for a bigger budget and promising bigger results, then KPIs aren't met for X, Y, Z reasons, then they're forced to justify the spend, then they either get more budget or get fired and the cycle repeats. Marketing has too many intangibles, so marketers always feel a need to justify themselves out of fear of being an easy target.
[+] [-] FussyZeus|6 years ago|reply
[+] [-] ngngngng|6 years ago|reply
This article is awesome. In my free time I'm building an advertising platform that topic matches ads off the content of the web pages. No tracking of users.
I'm hoping to allow people to host and run their own all inclusive self contained advertising platform for just a licensing fee. I also have a way to beat adblockers that I'm afraid of bringing to light since I only want it tied to my own companies completely non tracking and ethical ads.
Hope it's not a bubble! Though first I have to finish the work and get a few customers so it's not like I can't pivot if it is.
[+] [-] josephjrobison|6 years ago|reply
Works best in online direct to consumer brands.
[+] [-] kposehn|6 years ago|reply
Take an audience of X people. Divide them in two. Show ads to your test group, don't show to control. Watch your business grow and gauge the lift between the two audiences.
The companies that know how to advertise at scale do this constantly and can gauge the real effect of their ad dollars. Facebook, Google and others make these tests possible in their platforms, while other software suites such as Impact Altitude and VisualIQ allow you to do this kind of analysis and testing as well.
In the end, most of it proves out to be incremental. There are notable exceptions of course, but when are there not?
[+] [-] nopriorarrests|6 years ago|reply
Bob Hoffmann, very influential figure in advertising (http://adcontrarian.blogspot.com/) likes to point out that there were not that many companies which built their strong brand with online advertising only.
OK, he is old and grumpy dude and he dislikes online ads, but this is a fair point. Once company becomes big enough, it strives to buy a Super Bowl ad spot. And we are well into 10 years of internet being mainstream media, but how many brands were built online only? Not that much, and I'm saying it as "online ads work", kind of guy.
[+] [-] sfifs|6 years ago|reply
Now big company marketers are used to thinking of US as a homogeneous market for efficiency reasons and so TV still works in US if your target audience claims a broad demographic. However, they're beginning to learn that you'll simply not reach enough consumers if your target demographic is say young adults in the West coast if you do a TV heavy plan. US in general lags China in media landscape shift but the media behavior of the more valuable demographics are actually much closer to China than averages tell you.
[+] [-] buboard|6 years ago|reply
[+] [-] onion2k|6 years ago|reply
Can you name one?
I find it very hard to believe there are any companies that have scaled up only using online adverts. Why would the founders of a business do that when they can grow in their local market by talking to people as well as buying online ads for wider reach?
[+] [-] H8crilA|6 years ago|reply
[+] [-] tacon|6 years ago|reply
The bad news for digital direct response advertising is that the platforms are starting to remove the knobs that actually let people determine and optimize their ROI. Google is in the process of actively removing ad functionality and data that has, historically, been crucial to ad profitability. Google claims their machine learning can see much more of the data available, so "trust us." Perry Marshall, Google ads guru, has recently held several webinars about "Why Google is Objectively Evil."[0] Not pretty.
[0] https://www.perrymarshall.com/60-second/gama-replay/
[+] [-] jessefrederik|6 years ago|reply
From the article: "Suppose Luigi’s Pizzeria hires three teenagers to hand out coupons to passersby. After a few weeks of flyering, one of the three turns out to be a marketing genius. Customers keep showing up with coupons distributed by this particular kid. The other two can’t make any sense of it: how does he do it? When they ask him, he explains: "I stand in the waiting area of the pizzeria."
It’s plain to see that junior’s no marketing whiz. Pizzerias do not attract more customers by giving coupons to people already planning to order a quattro stagioni five minutes from now."
It's the same in online marketing, you often target people who are searching for say a pair of shoes. People who are searching for shoes have way higher baseline probabilities of ending up buying a pair of Nikes, whether you show them a Nike ad or not. So if you do not correct for this 'selection bias', you have no idea what your ad did.
The research I describe in the article clearly shows (and please look it up yourself, the links are all there) that selection bias is HUGE, and that it's hard to know ROI, because true advertising effects are tiny if you measure them in an experiment.
[+] [-] mochomocha|6 years ago|reply
YMMV but for the vast majority of campaigns, the algorithm does know better.
Disclaimer: I've built bidding systems for multiple ad companies, so I'm surely biased towards "the algorithm knows better".
[+] [-] buboard|6 years ago|reply
How many ads are direct response? How many are simply clicked because they are just above the same website's entry in search results (i.e. users were already heading to that site, the ad was just there as google tax)? How many legitimate clicks on an ad that did not led to sale are discarded by google as "invalid clicks" (my adsense report has 20% invalid clicks) ? It's kind of shocking that the internet's most lucrative market does not answer those
[+] [-] ACow_Adonis|6 years ago|reply
[+] [-] mlang23|6 years ago|reply
[+] [-] leoedin|6 years ago|reply
The other aspect of online ads that strikes me as ingenious but probably not sustainable is the way Google inflates the auction system with fake money. Anyone who's run a website will have received a letter offering hundreds of dollars of free advertising with Google. Of course, it's an auction so the presence of that money just drives up the cost for everyone. Google wins every time!
[+] [-] cubedrone|6 years ago|reply
[+] [-] tempestn|6 years ago|reply
This was and is surprising to me. The only explanation I have is competitors bidding on our brand keywords and taking traffic that would have come to us absent any ads. Which makes the whole thing look like a nice racket for Google. Regardless, for now we pay since the alternative is apparently to lose those users.
[+] [-] jammygit|6 years ago|reply
[+] [-] Disruptive_Dave|6 years ago|reply
[+] [-] ghaff|6 years ago|reply
[+] [-] davidedicillo|6 years ago|reply
This article assumes that: - All online advertising is Google search - That brand search advertising is representative of the entire industry
There are plenty of companies making double-digit ROAS (return over ad spend), especially direct response advertisers.
[+] [-] jessefrederik|6 years ago|reply
The problem with all online advertising is that there are huge selection effects, which are hard to correct for using conventional statistical methods. So you need to do experiments. And when economists do experiment, they find that advertising effects are so small that they are hard to measure.
[+] [-] neonate|6 years ago|reply
[+] [-] buboard|6 years ago|reply
[+] [-] nabla9|6 years ago|reply
Google and Facebook are 60% of the market, so if it would be only them this is important.
[+] [-] mochomocha|6 years ago|reply
(Disclaimer: I've built multiple bidders & ads incrementality models over the years so I'm probably biased against the "supply" side of ad inventory).
[+] [-] dontich|6 years ago|reply
[+] [-] tomrod|6 years ago|reply
(1) Size of Company vs. ROA
(2) Advertising Expenditure by Company vs. ROA
(3) [Advert %] vs. ROA
I hypothesize you'll see a rapidly decreasing return on advertising due to size, and would love to be proven wrong.
[+] [-] loeg|6 years ago|reply
[+] [-] itronitron|6 years ago|reply
Retail companies are blind to just what a shit-show their websites are (a lot of them even have ads in their online store). Any company that solves this problem for their sector will win it, and this is good news for techies as every company can and should have a unique solution.
[+] [-] dageshi|6 years ago|reply
It doesn't have total domination of ecommerce but frankly it'd run into anti-trust issues if it did. No company is going to do ecommerce bigger than amazon without getting broken up so yeah... amazon.
[+] [-] JohnFen|6 years ago|reply
shit-show or not, when I'm buying something online I strongly prefer buying directly from the company's website over using sites like Amazon.
My purchasing pattern goes like this: I want something, I search (using DDG) the web for what companies offer what I want, then I go through the companies websites to decide on where I'm going to make my purchase.
I'm certain that I don't represent the most common sort of customer, but I'm also certain that I'm not alone. Ads are irrelevant to me (I block all scripting, so I rarely see ads), so if a business wants to increase the chances that I'll check them out, what they really need to do is SEO.
[+] [-] vivekd|6 years ago|reply
I can say the big problem in the examples in this article is the keyword selection. For example ebay advertising the word ebay to customers who are googling the word ebay is probably fruitless for the most part. Those people were already looking for ebay and would find it with or without the ad.
However if you are a lesser known online auction and you use the keyword "internet auction" or something similar, it would probably help.
This article, to me, seems to be more about the importance of experimenting and critically evaluating the data rather than an actual indictment on online marketing. With online marketing there is no clear answer: what keyword you bid on, how you target, how you write your ad copies, how your competitors are behaving all come into play. It's difficult for anyone to parse through those factor and really come out definitively as to whether online marketing is effective or ineffective in general. We can only do the smaller measurements and see if our particular ads are effective for our particular business, which in the end is all any of us who buy ads really care about.
[+] [-] ta-49173|6 years ago|reply
Using cloud services to cheaply farm the clicks reported by the ads seems obvious.
That we collectively turn a blind eye to it is the most disheartening part.
[+] [-] Razengan|6 years ago|reply
I can't recall myself ever seeing an ad for something I did not already know of and then spending money on it.
Whenever I have found something that I didn't already know and then purchased it, it has been because of word-of-mouth (including online comments), reviews or recommendations/features on digital stores like Steam, GOG, App Store etc.
[+] [-] hannula|6 years ago|reply
Probably not, but nevertheless their efforts to polarise thinking and support the formation of echo chambers have been quite successful. While selection effect has indeed been disregarded often, in the case of CA it actually amplified the outcome.
[+] [-] LocalTrust|6 years ago|reply
Not to be a jerk, but almost none of the best minds in SV or of my generation are economists.
[+] [-] AkshatM|6 years ago|reply
My issue is that the article doesn't demonstrate selection effects dominating over advertising effects for companies with no major brand identity. The examples cited to back the case - eBay (which is huge), "large" retailers in the case of Facebook ads, "major U.S. retailers and brokerages with millions of customers" per Lewis and Rao 2015 - are all established companies that have already received substantial presence. Where are the experiments that demonstrate selection effects dominating over advertising effects for companies with no pre-existing brand identity e.g. The Correspondent (sorry, I couldn't resist :P)?
Second issue: the article demonstrates convincingly that brand-keyword ads are broken, which is great. But at the same time brand-keyword ads are not (to my knowledge as a former engineer at an SEO company, so it could be imperfect) the primary kind of keyword ads. A brand-keyword ad is when someone types in "eBay" and you get paid eBay links - but the majority of keyword ads (again, this is from memory) are targeted keyword ads e.g. someone types in "fur coat" and Macy pays Google to put a link to its "fur coats" pages. Equally interesting, multiple companies can pay for the same targeted keywords, meaning you can have multiple links pointing off to different sites on the same page.
The pizzeria analogy explains why brand-keyword ads make no sense monetarily (someone searching for your brand specifically will find you anyway), but it falls apart for the targeted keyword space, where people are searching by items but not by brand.
Given that much of SEO and digital marketing are target-based rather than brand-based, I'm not sold yet on the ineffectiveness of digital advertising overall.
[+] [-] TekMol|6 years ago|reply
Yet still in 2019, when I google for "Amazon" I see an Amazon ad?
Color me skeptical.
I doubt the marketing guys at the worlds biggest companies are that out of touch with reality.
Would love to know why they do it though.
[+] [-] jameslk|6 years ago|reply
[+] [-] rhys91|6 years ago|reply
The truth is that very few people want to watch an ad. But if there's a strong enough value exchange with the consumer, they will. Just make effective content that's emotive, funny or offers utility.
Creatively, the impact of this is clients wanting ALL the messaging in the first three seconds of video content, which often causes the consumer to skip the rest of the content anyway.