I remember reading this article back in 2019 when it was originally written. Unclear why it is being dusted off now when it is still just as wrong as it was then.
Yes, it is probably hard for a large, well-known brand like eBay or Procter & Gamble or Coca-Cola to measure their return from online advertising. If Coca-Cola stopped all advertising for 1 week, would anything really change? Probably not. And it’s not as if anyone is clicking Google search ads for Coca-Cola and ordering a 6-pack right there. This is the same problem that these companies have with TV advertising.
But anyone who has ever run a small, consumer-focused startup with low brand recognition can very easily measure their return on ad spend, and will spend a lot of time doing this. You can easily tell which specific ad referred someone to your website, and how much money they spent once they got there.
If they’re not convinced by this data, at some point most startups will find the opportunity to simply turn off all advertising for a week for one reason or another. And can usually see the drop in revenue immediately.
I was involved in a consumer hardware startup where our COO shared granular ROAS numbers in our all-hands every week for Google, Facebook, TV advertising across multiple networks, etc. They regularly A/B tested different advertisements and messages across different media and directly optimized for revenue. It was clear beyond a doubt that this advertising worked. The company would not have been viable without it.
The fact that this proof is easily and readily available from small, lesser-known companies is part of why large companies continue to spend money on advertising despite the benefits being much harder to measure.
To be fair, the point of the article is that ROAS is not a very good metric, and while most of the article is wrong in that it effectively calls all advertising worthless as a result, it's not wrong about that one methodological point. What matters is incremental ROAS - not the conversions following exposure, but rather the conversions that would not have happened but for the exposure. For small companies that have no existing awareness, they're close to the same thing. But like you said, it is very hard to measure for the large brand advertisers that are very well-penetrated.
If Coke switched off their advertising they would eventually lose market share, but it would take more than one Christmas of not seeing the polar bears. For companies in their position, advertising is about maintaining dominance. Spending on a Superbowl ad is a way for them to say "we're the best, we know it, and you know it, and when you want a drink, you're going to buy Coke, not RC Cola". It takes a long, long time for that indoctrination to wear off, so there's no way to experiment on it - there's no untouched part of the market that's never seen a Coke ad against which you can do an A/B test.
I run an eBay store that has pretty decent revenues but no brand recognition, and we make pretty heavy use of their Promoted Listings function.
We've generally found for competitive items that sacrificing 5% to ad spend allows us to increase the price of the item by 20% without experiencing any reduction in sales. There is no way to fake that.
For my other business, though, (Low-cost USB Oscilloscopes) I found Google, Facebook and Amazon ads to be completely useless. Even then, though, it didn't cost a lot of money or take a whole lot of time to get a definitive answer and cancel the campaign.
I think with a company like Coca-cola, it is a little bit of a different approach. Taking Coca-cola as the example. My money is their ads are not placed there to get you to buy a 6-pack online. It is so when you see it, you go, 'damn a coke actually sounds really good right now.' And then you proceed to walk tot he fridge for one or next time your out and about buy one. However I would say that a product such as coke is a specific case. Some ads are for targeting people to go to their online store, then I am sure ones like coke exist to put the idea in your mind next time you stop for gas.
Even for seemingly obvious things this article is wrong.
Maybe in 2009, when the market was playing ball, was it okay not to buy your own brand (eBay) as a keyword, as this is an audience that already want to go to your site. Now all your competitors are buying your brand and you'll end up in fourth or fifth position with your own audience if you don't buy it.
And while most will still scroll it through, you will end up losing a small but consistent share of clicks to competitors time to time. And if they manage to make their service slightly more sticky than yours, you'll end up losing small market shares over time.
The first thing one has to face when considering such experiments is that they fundamentally have an inherent cost. Because in order to get that measurement accurate, quite a lot of your ad impressions have to be withheld. This is a cost, a cost of the lost opportunity. (provided that the actual impact of the ad campaign is positive, that is).
So, as an advertiser, you end up coming up with some meta-strategy: when to perform those experiments and when to forgo them and rely on your educated guess.
Google, Facebook and alike developed support for performing such experiments throughout the last decade. But this meta-strategy kind of judgment is firmly in the department of advertisers.
Certainly not a new dot com bubble as the title suggests, and the article even mentions Randall Lewis, so I guess it's just the style of journalism these days...
> And it’s not as if anyone is clicking Google search ads for Coca-Cola and ordering a 6-pack right there. This is the same problem that these companies have with TV advertising.
Supermarkets already have a loyalty card program where you receive a small discount and in return you agree to receive targeted advertising based on your purchases.
Why don't these loyalty programs add a clause saying that they may also share your personal information with Google? That would mean Coca-Cola or Proctor and Gamble could see how much they spent on advertising to a particular person, and how much that person spent in buying the company's products.
I have a suspicion that the great majority of businesses have no idea whether their advertising is effective or not. Of course this is encouraged by all the dark patterns you see in the Adwords control panel.
Not providing proof and just anecdotal experiences won’t do your argument any good. Especially because that’s exactly how Ad companies/agencies got here in the first place, by saying it works without clear, verifiable ways to prove it: “yeah, it works, trust us, but we won’t let you see the data”
I have had the thought that there is something wrong, that I can access nearly any song of my choice on YouTube, with the small penalty of skipping an advert after 5 seconds.
Many of the adverts aren't even for products I'm interested in. They're either get-rich-quick schemes, or repeat-ad-nauseum ads for software like Grammerly, which I will never use.
If Google has some sort of complex picture about me, by invading my privacy, then they're certainly not using it to sell me anything I am interested in.
I guess if Google are funalling cash from advertisers to the record companies, then it will continue. But I have to wonder what would happen if advertisers actually look at how effective their advertisements are.
I feel I'm getting a good deal out of this arrangement.
> choice on YouTube, with the small penalty of skipping an advert after 5 seconds.
YouTube is now in the last stage, cashing out their popularity. Now it's 20 seconds unskippable ad, then ad skippable after 5 seconds, then video interrupted with an another ad. I basically download the video and watch it on my computer or shutdown the browser tab with youtube.
I think the typical commentator on HN is unaware of how they think very differently from the typical American.
Advertising definitely works. I've seen it work among many people in person. Even people who agree that ads are dumb, I've seen decide to get some candy after seeing an ad for it on TV.
Word of mouth is usually the most trustworthy. Yet people need to learn of alternatives from somewhere. Perhaps if those serving ads were more liable, much like friends risking their reputation to recommend something, the negatives of ads could be better mitigated.
This sounds great and I want to believe it, but it feels like another case of someone saying the sky is falling when it clearly hasn't. What will it take for this advertising bubble to pop? Is it even a bubble?
Funnily enough, the ad based tech companies have the most reasonable stock prices. Facebook and Google are massively profitable, still growing at double digit rates, and each have only mid twenties PE ratios (the same as Caterpillar Heavy Equipment, or electric utilities like ConEd and PG&E).
Meanwhile there are companies out there like Lordstown Motors, Lucid, and Nikola, which have never sold a product but have billion dollar market caps. Nikola is universally known as a fraud, somehow has negative revenue, and is still worth $5 billion. EVs are the real bubble.
There is the book on this called 'Subprime Attention Crisis' by Tim Hwang that tries to argue this point.
It is only partially successful in its goals of saying the sky is falling.
The overall message I came away with was that online advertising has some serious issues that need addressing - but they aren't anything that cannot be solved.
If there is a bubble then I suspect it isn't anywhere near as big as it is made out to be and that any "crash" will be more of a slow correction than the bottom suddenly dropping out.
In 2020, newspaper, radio, and magazine ad spending was $85 billion compared to all online ad spending (which is far more targeted and thus more valuable) at around $500 billion. Television advertising was around $193 billion. Unless we're in a generalized advertising bubble, I'd say online advertising is still in healthy territory
Annoyingly I feel like it's true. Personally I never had anything strongly against online advertising - there are tons of website and blogs where you can see that people have poured their hearts and souls into their work and the only thing they get in return are a few peanuts from ads. There's the case for trackers and cookies and whatnot but let's be realistic-the analysis and processing is done by a server in the dark corner of a datacenter, not an evil mastermind going through every website I've visited: no one is that interested in me or anyone else for that matter. Frankly I'd be flattered if someone showed that much interest into me but no... But at some point the over-saturation and overpopulation of certain species will cause cataclysms and I feel like we are close. While I stay away from all social media(I'm sure it's a similar story there), the thing that crossed my line was Google and more specifically Youtube. You open up a video, at which point you are already forced through two ads, one of which is unskippable, then you get to the "sponsored message" then another two ads if the video is slightly longer. If I wanted to watch TV, I'd watch TV. And this is what ultimately pushed me over the edge: Brave browser ftw and the hell with all that. And I see more and more people going that way for similar purposes. It's a question of time before enough people have had enough and ads become a financial burden to those who advertise online.
I pay for google music, or whatever the name is today, and I see no ads. Bandwidth, servers, the employees, etc. have a cost, so it is only natural that companies make money somehow, either through ads or by subscription.
If I had had a needle that would pop the dot com bubble, I'd hesitate before using it. Maybe there are cool things that were brewing and they just need a bit more time to incubate before we can benefit from them.
If I had a needle that would pop this bubble, I'd use it immediately. Advertising is all about making people do things that, when left to their own devices, they don't want to go. Whatever survives this bubble may need to be hunted down and exterminated.
Oh wow, this is an older article. Read it before, it was much discussed and here we are 2 years later.
Market effects from the pandemic have reinforced the reliance on online advertising (more hours spent online by individuals working remote, growth of streaming services).
I don't think you can build a new consumer facing business without advertising on facebook and google. A lot of the moden consumer internet was built by advertising on those platforms and diverting dollars away from brick and mortar. Some well known examples include Airbnb and all the kardashian family brands. Advertising metrics might be hard to measure for large well known companies, but for startups/ solo entrepreneurs the numbers tend to be much clearer.
I've always wanted to inquire the significance of advertising from the standpoint of the business, and yet its failure to please users. Advertising sucks from the standpoint of the user, and some say that if you want to scale any online business from 0 customers to N, advertising is pivotal and word of mouth won't do. Whether it comes in the flavor of give $10 to sign up a Paypal account, banner ads, search engine ads and these days also social ads (YT promotion, sleezy product reviews, IG celebrities) - it's important. So how come we have not solved the problem of user hostility in advertisement? Blendtec's "Will it blend?" series blends entertainment and advertisement. Engineers go to trade fairs and conferences voluntarily to seek out new suppliers/companies. People pay to go to Disneyland. Another genius in advertising is products/services that self advertise (Louis Vuitton). My gut feeling is that there is a deeper, more fundamental trade-off between advertisement effectiveness, and user hostility that always persists. Most of the time, we just adandon further inquiry and call it off as "It is the way it is because it damn well works".
We haven’t “solved” user hostility because the industry still relies on user data collection and tracking on a massive scale with default opt in rather than opt out. Consumers are spooked by that and the industry has (by and large) failed to convince them of the utility of targeted advertising.
It’s the original sin of online ads that nobody really wants to address. Because of that, we have a lot of rather shady players in the industry making the problem even worse.
One thing I don't get: if in the entire industry $273bn were spent on ads in a year, how come that one company which derives most of its revenue from ads, such as Alphabet has a market cap several times larger?
I used to work for a B2B advertising agency, we did a campaign for the largest teleco in the US targeted at C-level executives to by their enterprise products. Our engagement team said (privately) that they had spent 20k per click. And had no idea if any of those targeted VERY expensive clicks resulted in leads let alone sales.
There are two different assertions that should be distinguished:
1) most online advertising doesn't work
2) the revenue from online advertising will soon decline, perhaps precipitously
I believe (1), but not (2), hence it isn't a "bubble". If you tell a CEO "hey, you're not going to be able to solve your problem with advertising", then you are in effect telling them, "there's no easy solution to your problem, you must do the much harder work of making your goods or services better".
Not many CEO's will want to hear that. They will continue, I think, to spend money on advertising, including online advertising, not because it works well (it only occasionally does), but because it's easier. It's like selling someone a diet aid that says they can lose 50 pounds without having to work hard. Regardless of whether it works or not, people want to believe it does, so they will keep buying.
I used the exact title from the article and someone changed it. (I did forget to include the date. That was a mistake and thank you to whomever fixed it.)
[+] [-] avalys|4 years ago|reply
Yes, it is probably hard for a large, well-known brand like eBay or Procter & Gamble or Coca-Cola to measure their return from online advertising. If Coca-Cola stopped all advertising for 1 week, would anything really change? Probably not. And it’s not as if anyone is clicking Google search ads for Coca-Cola and ordering a 6-pack right there. This is the same problem that these companies have with TV advertising.
But anyone who has ever run a small, consumer-focused startup with low brand recognition can very easily measure their return on ad spend, and will spend a lot of time doing this. You can easily tell which specific ad referred someone to your website, and how much money they spent once they got there.
If they’re not convinced by this data, at some point most startups will find the opportunity to simply turn off all advertising for a week for one reason or another. And can usually see the drop in revenue immediately.
I was involved in a consumer hardware startup where our COO shared granular ROAS numbers in our all-hands every week for Google, Facebook, TV advertising across multiple networks, etc. They regularly A/B tested different advertisements and messages across different media and directly optimized for revenue. It was clear beyond a doubt that this advertising worked. The company would not have been viable without it.
The fact that this proof is easily and readily available from small, lesser-known companies is part of why large companies continue to spend money on advertising despite the benefits being much harder to measure.
[+] [-] GeneralMayhem|4 years ago|reply
If Coke switched off their advertising they would eventually lose market share, but it would take more than one Christmas of not seeing the polar bears. For companies in their position, advertising is about maintaining dominance. Spending on a Superbowl ad is a way for them to say "we're the best, we know it, and you know it, and when you want a drink, you're going to buy Coke, not RC Cola". It takes a long, long time for that indoctrination to wear off, so there's no way to experiment on it - there's no untouched part of the market that's never seen a Coke ad against which you can do an A/B test.
[+] [-] AussieWog93|4 years ago|reply
I run an eBay store that has pretty decent revenues but no brand recognition, and we make pretty heavy use of their Promoted Listings function.
We've generally found for competitive items that sacrificing 5% to ad spend allows us to increase the price of the item by 20% without experiencing any reduction in sales. There is no way to fake that.
For my other business, though, (Low-cost USB Oscilloscopes) I found Google, Facebook and Amazon ads to be completely useless. Even then, though, it didn't cost a lot of money or take a whole lot of time to get a definitive answer and cancel the campaign.
[+] [-] tcmart14|4 years ago|reply
[+] [-] satellite2|4 years ago|reply
Maybe in 2009, when the market was playing ball, was it okay not to buy your own brand (eBay) as a keyword, as this is an audience that already want to go to your site. Now all your competitors are buying your brand and you'll end up in fourth or fifth position with your own audience if you don't buy it.
And while most will still scroll it through, you will end up losing a small but consistent share of clicks to competitors time to time. And if they manage to make their service slightly more sticky than yours, you'll end up losing small market shares over time.
[+] [-] firecall|4 years ago|reply
My general advice, which I borrwed from somewhere...
Advertising is like an Aircraft. You power up, use a lot fuel(budget) and you get airborn!
Then you cut the engines (reduce budget) and you start gliding and you think, well OK, everthing seems fine! I dont need to keep burning fuel!
And then all of sudden you either smash into the ground or you have to use that rapid fuel burn all over again to get back on top!
YMMV!
On the flip side, I've cut Google Ad spend for a large tourism brand and traffic to the website continued to grow even 24 months later.
Traffic is one metric of course....
Marketing and Advertising are complicated and hard! It requires nerves of steal and it really helps when it's someone else's budget! :-)
[+] [-] throwawaylift|4 years ago|reply
So, as an advertiser, you end up coming up with some meta-strategy: when to perform those experiments and when to forgo them and rely on your educated guess.
Google, Facebook and alike developed support for performing such experiments throughout the last decade. But this meta-strategy kind of judgment is firmly in the department of advertisers.
Certainly not a new dot com bubble as the title suggests, and the article even mentions Randall Lewis, so I guess it's just the style of journalism these days...
[+] [-] amelius|4 years ago|reply
This is how Google and other advertising companies leak data.
If I target an ad about Y to a group X, then I know that someone who clicked it is in X. For any Y.
[+] [-] MarkMc|4 years ago|reply
Supermarkets already have a loyalty card program where you receive a small discount and in return you agree to receive targeted advertising based on your purchases.
Why don't these loyalty programs add a clause saying that they may also share your personal information with Google? That would mean Coca-Cola or Proctor and Gamble could see how much they spent on advertising to a particular person, and how much that person spent in buying the company's products.
[+] [-] tonyedgecombe|4 years ago|reply
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] ZhangSWEFAANG|4 years ago|reply
[+] [-] theyx|4 years ago|reply
[+] [-] heurisko|4 years ago|reply
Many of the adverts aren't even for products I'm interested in. They're either get-rich-quick schemes, or repeat-ad-nauseum ads for software like Grammerly, which I will never use.
If Google has some sort of complex picture about me, by invading my privacy, then they're certainly not using it to sell me anything I am interested in.
I guess if Google are funalling cash from advertisers to the record companies, then it will continue. But I have to wonder what would happen if advertisers actually look at how effective their advertisements are.
I feel I'm getting a good deal out of this arrangement.
[+] [-] kubanczyk|4 years ago|reply
YT ads are not shown on Firefox with a plugin such as uBlock Origin. Just in case you're one of today's lucky 10,000.
[+] [-] durnygbur|4 years ago|reply
YouTube is now in the last stage, cashing out their popularity. Now it's 20 seconds unskippable ad, then ad skippable after 5 seconds, then video interrupted with an another ad. I basically download the video and watch it on my computer or shutdown the browser tab with youtube.
[+] [-] DeathArrow|4 years ago|reply
[+] [-] whimsicalism|4 years ago|reply
Advertising definitely works. I've seen it work among many people in person. Even people who agree that ads are dumb, I've seen decide to get some candy after seeing an ad for it on TV.
[+] [-] ksidn|4 years ago|reply
[deleted]
[+] [-] jokoon|4 years ago|reply
I don't think it really helps the small entities reach an audience, and it only allows the largest companies to remind everyone they are the biggest.
I'm not sure there are thorough studies that show advertising increase sales.
[+] [-] paulryanrogers|4 years ago|reply
[+] [-] kbrackbill|4 years ago|reply
[+] [-] missedthecue|4 years ago|reply
Meanwhile there are companies out there like Lordstown Motors, Lucid, and Nikola, which have never sold a product but have billion dollar market caps. Nikola is universally known as a fraud, somehow has negative revenue, and is still worth $5 billion. EVs are the real bubble.
[+] [-] NeoVeles|4 years ago|reply
It is only partially successful in its goals of saying the sky is falling.
The overall message I came away with was that online advertising has some serious issues that need addressing - but they aren't anything that cannot be solved.
If there is a bubble then I suspect it isn't anywhere near as big as it is made out to be and that any "crash" will be more of a slow correction than the bottom suddenly dropping out.
[+] [-] matheusmoreira|4 years ago|reply
Browsers shipping with uBlock Origin included.
[+] [-] sb057|4 years ago|reply
https://www.marketingcharts.com/advertising-trends/spending-...
[+] [-] 3np|4 years ago|reply
I wouldnt be surprised if they underestimate online ad spending - there may be a lot of $ going through channels and companies that are not included.
It’s not like they have insight into revenue of all ad companies even within the US, right?
How about sponsored YouTube/Instagram/TikTok/blogspam for example?
[+] [-] groundpepper|4 years ago|reply
https://news.ycombinator.com/item?id=21465873
https://news.ycombinator.com/item?id=23101883
[+] [-] axegon_|4 years ago|reply
[+] [-] kwanbix|4 years ago|reply
EDIT: it is YouTube Premium.
[+] [-] __MatrixMan__|4 years ago|reply
If I had a needle that would pop this bubble, I'd use it immediately. Advertising is all about making people do things that, when left to their own devices, they don't want to go. Whatever survives this bubble may need to be hunted down and exterminated.
[+] [-] tsavo|4 years ago|reply
Market effects from the pandemic have reinforced the reliance on online advertising (more hours spent online by individuals working remote, growth of streaming services).
[+] [-] zbuf|4 years ago|reply
... Until a competitor starts advertising against the the term "eBay".
At which point, online advertising becomes protection money.
[+] [-] amusedcyclist|4 years ago|reply
[+] [-] systemvoltage|4 years ago|reply
[+] [-] pm90|4 years ago|reply
It’s the original sin of online ads that nobody really wants to address. Because of that, we have a lot of rather shady players in the industry making the problem even worse.
[+] [-] DeathArrow|4 years ago|reply
[+] [-] tofukid|4 years ago|reply
The effectiveness of online ads is easily measurable: Return on ad spend (ROAS) = (revenue from ad referrals) - (money spent on ads)
[+] [-] newshorts|4 years ago|reply
The point I took from the article is that you have to factor in what you would have gotten for free.
[+] [-] cratermoon|4 years ago|reply
And exactly how do you get accurate figures for that?
[+] [-] tflinton|4 years ago|reply
[+] [-] rossdavidh|4 years ago|reply
1) most online advertising doesn't work
2) the revenue from online advertising will soon decline, perhaps precipitously
I believe (1), but not (2), hence it isn't a "bubble". If you tell a CEO "hey, you're not going to be able to solve your problem with advertising", then you are in effect telling them, "there's no easy solution to your problem, you must do the much harder work of making your goods or services better".
Not many CEO's will want to hear that. They will continue, I think, to spend money on advertising, including online advertising, not because it works well (it only occasionally does), but because it's easier. It's like selling someone a diet aid that says they can lose 50 pounds without having to work hard. Regardless of whether it works or not, people want to believe it does, so they will keep buying.
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] slater|4 years ago|reply
[+] [-] 1vuio0pswjnm7|4 years ago|reply
[+] [-] cubano|4 years ago|reply
Same as the old boss.