
Google: End of the Online Advertising Bubble - skuas
https://kalkis-research.com/google-end-of-the-online-advertising-bubble
======
red_admiral
"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".

~~~
Udik
> 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.

~~~
ssharp
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.

~~~
Udik
I don't understand why the job of figuring out how to place the ads best
should be a concern of the company, instead of Google itself. Google knows
basically everything about me, including where I work and what type of job I
do, I'm surprised they can't do a better job at placing their customer's ads.

~~~
ssharp
You have to understand how ad exchanges work (and what they are) and what
intermediaries there are.

Ad Exchanges handle the actual delivery of ads. They have a massive inventory
of ad slots available on a massive amount of websites and it's their job to
fill those ad slots up while making as much money per ad slot as possible.
Google (Doubleclick) is not the only display ad exchange [1]. There are quite
a few other ones like OpenX, AppNexus, Microsoft, and so on. You can directly
buy on these platforms but it's generally better to use a Demand Side Platform
(DSP) because they provide a wrapper around these platforms and you can manage
bidding, targeting, etc. in one place. They also offer various programatic
techniques like real-time-bidding (RTB) that can end up costing you less than
you'd spend directly in an exchange. Lastly, some exchanges operate in such a
way that small advertisers can't utilize them. It's a human-intensive process
that involves spending a lot of money, signing and committing to insertion
orders, etc.

Because of this stuff, most people are now using DSP's. The DSP's buy large
batches of inventory from the ad exchanges and it's their job to maximize the
revenue they get for their purchased inventory. As an advertisers, I can set
up my campaigns in the DSP, which might involve setting targeting options,
setting up remarketing pixels on my website, etc. With RTB, I set a maximum
bid amount (in CPM) in my campaign and when it comes time to serve an ad, if
the ad slot matches my targeting or remarketing preferences, I compete in an
auction against others and the highest bidder gets the impression.

In almost all cases, the ad exchanges are going to make more money (by means
of providing value to end-advertiser) selling to people who are setting their
own targeting preferences rather than trying to guess. Within the targeting
options presented to advertisers, there is lots happening in the background by
machines that are doing things humans can't. Ad tech is pretty sophisticated,
even if it sometimes seems that it's not. Ad tech has created much more value
for advertisers than it's lost when it isn't perfect.

[1] Many people may think Doubleclick is _the_ exchange but that might be
because Doubleclick is the most common ad slot you see on a webpage. However,
that ad slot is a different product, Doubleclick for Publishers (DFP). You can
drop in inventory for any exchange (or even hardcode an ad in cases of a
direct buy) in DFP, so it's displaying ads from other exchanges, not just
Doubleclick.

------
titzer
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.

~~~
bhouston
> 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://www.quora.com/What-does-the-dot-com-bubble-burst-have-to-do-
with-the-ad-tech-industry-and-advertising-technology)

[https://moz.com/blog/return-of-the-cpm-ad-model](https://moz.com/blog/return-
of-the-cpm-ad-model)

~~~
mtanski
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.

------
manigandham
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+...](http://11wall.st/?to=2016-05-04&from=2011-05-04&query=%22ad+fraud%22&group=all&nz=0&k=%22ad+fraud%22%3B&p=y5)).
> 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
_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.

~~~
manigandham
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.

------
endymi0n
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.

~~~
ssharp
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.

------
adwf
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
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.

~~~
adwf
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.

------
corpus
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](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.

------
eva1984
"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...](https://kalkis-research.com/facebooks-unsuspected-growth-driver-
virtual-reality)

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

~~~
y04nn
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.

------
BillFranklin
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
"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.

~~~
BillFranklin
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](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.

------
altitudinous
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.

------
joelrunyon
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.

~~~
geocar
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.

~~~
qaq
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.

~~~
geocar
If you mean new sales, then that's interesting, and you should say that.
Anyone who can get 200 new users out of every 1000 ads can certainly do
something I can't do, and I'd like to hear about how.

Most people use the term "conversion" to mean matching some cookies together.

~~~
qaq
It's way less drastic in the context of ad network it means a % of users that
reached the landing page and then completed signup deposited no less ten X
money played Y rounds in the next 30 or whatever days. Still even 5% given the
industry was considered decent so >20% is very good.

~~~
geocar
I don't know if you're trying to be confusing, but you're being confusing. You
might try using plain language like, "For every dollar of advertising I spend,
I generate two dollars of sales per year." Or adjust as needed.

If you meant 200 sales out of 1000 ads, then that's very impressive, and as I
said: I'd like to know more.

However:

If you meant 20 sales out of 100 visitors, then I'm not impressed.

That means there were 80 people out of 100 people clicking on a button that
says "spend X dollars", who didn't mean to spend X dollars, and you're just
excited because it was less than 95 people.

Moreover, it doesn't tell us anything about what your cost is to acquire those
users is, or _even_ if the sum of the spend was less than the sales generated
from those users. I again, become worried you're either incompetent or trying
to intentionally mislead me.

~~~
qaq
I have no intention of confusing you. I mean 20 "sales" out of 100 visitors. I
was a tech lead for the partner network so have no skin in trying to impress
anyone by results of external partners. To me a 20 year old dude making 50-60K
per week is pretty impressive, I can't speak globally of what was the cost of
traffic acquisition for all of them but for the guys I knew that was their net
profit on +- 100K payouts.

~~~
geocar
Right, so as far as the advertiser is concern, this is still in the "may or
may not be working" space.

The fact that a company working in digital advertising can get hundreds of
thousands of dollars in "payout" without having to actually justify their
value to the brand's bottom line, alludes to exactly what this article is
about:

Google is offering a _diminishing_ opportunity for brand exposure, and as
those "payouts" get bigger, legitimate publishers are receiving less for their
content (because they're competing with scammers), and advertisers are getting
less sales (because they're buying more from scammers).

The article then predicts that those payouts you're enjoying are about to go
away because Advertisers are soon going to realise it's all crap.

Of course, people have been predicting this for a long time...

~~~
qaq
They are not working for a company they are working for themselves, they place
ads that drive traffic to gaming properties and receive a share of profits.
They put their own money at risk for traffic acquisition, if they are wrong
they will loose money. So basically they generated enough sales to receive a
100K profit share payment from partner network to them for a given week and
spent 40K on ad inventory netting 60K profit.

~~~
geocar
Okay, if that's true, that's very impressive: You're saying that these guys
invest 2 million each and bring home 3.1 million each?

I'd absolutely want to hear about this.

~~~
qaq
I know that the pay side is true because that's what I saw on our end, the
cost side is based on what a partners claimed was true I have no hard data on
it, except given age and lifestyle it looked believable. It's not like they
would share their strategies. The whole point I was trying to make is that
from this anecdotal experience I personally came to the conclusion that best
people in this field are probably working for themselves and focus on some
lucrative niches.

~~~
geocar
It's very difficult to understand what you're saying, because you're not
coming out and saying it.

I've seen tiny two-man trading desks pull in a million dollars a month from a
single customer, so I hope you're not suggesting that the volume of money
means that they're actually providing _a million dollars of value_ to the
advertiser.

What you're describing sounds like many affiliate and CPA programmes, except
for the part where they're paid _on new sales_ on users returning for thirty
days.

If that's true, then it sounds like the advertiser is actually receiving
value, and yes: someone who knows how to use advertising to actually generate
new sales _absolutely does_ know what they're doing.

I don't know why they'd keep it a secret that they're successful: Every brand
in the world would want to hire them. The biggest agencies in the world would
10x their income _immediately_ just to get them to come in the door.

I mean, who wants one million when you can have ten for less effort?

The thing is though, I've never seen that, and you're not coming out and
saying it. I don't know if that's even what you actually saw, and as you can
see, it doesn't "make sense".

It's my experience, these "paid signup" companies fall into two categories:
One where three-to-six months later they turn out to be chargebacked stolen
credit cards, or it's actually drug money that's being washed.

You can live like a dude on that kind of money, but it doesn't mean that the
_advertiser_ is actually receiving that value.

~~~
qaq
They are definitely providing value and are more effective then internal teams
promoting the properties (we tracked both) (the chargebacks are accounted for
in calculating what they get paid). It's a partner/affiliate type setup. I
think one reason they concentrate on this space is because say e-commerce
affiliate programs are generally CPA and here they earn profit share for
lifetime of the players they bring on. I do not claim the strategies they use
are applicable to any market with same effectiveness.

------
CapsAdmin
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.

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

------
roymurdock
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.

------
suchitpuri
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.

------
Moe1911
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.

------
driverdan
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.

------
arbuge
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.

------
mattnedrich
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.

------
dmarti
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/](http://blog.aloodo.org/posts/thank-you-for-supporting-fraud/)

------
jakozaur
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.

------
tyingq
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.

------
Animats
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-...](http://money.cnn.com/2016/05/03/investing/twitter-stock-all-time-
low/)

------
rufb
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.

------
FussyZeus
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.

------
bikamonki
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/](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/](http://postimg.org/image/b89qoca8x/))

------
njohnw
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.

------
morisy
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.

------
dsugarman
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.

------
knorker
"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.

------
raverbashing
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
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.

------
TrevorJ
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
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.

~~~
partiallypro
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.

------
rodionos
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.

------
nunez
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.

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

~~~
taurath
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.

------
mholmes680
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?

------
amelius
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).

------
ChuckMcM
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...](https://kalkis-
research.com/imagecache/532f1ae2393a0502f601a1c4be46036f.png)) 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.

------
womitt
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...

------
TeeWEE
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.

------
partiallypro
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.

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

~~~
prof_hobart
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.

~~~
zaro
Just scrolled down HN a bit:

[http://techcrunch.com/2016/05/03/adblock-plus-teams-up-
with-...](http://techcrunch.com/2016/05/03/adblock-plus-teams-up-with-flattr-
to-help-readers-pay-publishers/)

Seems like one feasible solution :)

~~~
prof_hobart
That's great in theory, but how many people would be prepared to pay even more
on top of their existing internet charges to fund this?

I'm sure some would, but I also suspect most wouldn't.

There's also the question of "instead, it will automatically track their
browsing activity...". That would be enough to put off a lot of people.

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

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

 _scnr_

------
slantaclaus
rofl guy predicts decline to $200/share

------
slantaclaus
rofl guy predicts 70% drop to $200

