

Ask HN: Why do advertisers have so much money? - atroyn

Google and Facebook are multi-billion dollar businesses based on advertising dollars. Snapchat&#x27;s valuation is under-written by its advertising potential. It&#x27;s obvious that advertising is big business, but why do advertisers have so much money?<p>Advertising doesn&#x27;t produce products on its own, yet it dwarfs the scale of many industries that do. Conversely, advertising forms a fraction of the budgets of any of these industries, taken individually. How does advertising create such a disproportionate amount of value?
======
jyu
If you had a blackbox, where for every $1 you put inserted, you got out $1.25,
how much money would you try to put in?

A tuned online advertising campaign does exactly that for advertisers. Google
and Facebook harvest even more granular data so you can adjust more finely
tuned knobs to improve advertising performance. This is the whole reason why a
lot of advertising dollars are moving away from broadcast and print media to
online media.

------
CyberFonic
Advertising is often about "building brand awareness". You can't be sure that
there is an acceptable ROI, just an expectation that there will be. Often
companies will burn through investors' money trying to reach "critical mass".
But no ad agency is going to dissuade the client management's false
expectations.

It's often said "half the money spent on advertising doesn't work ...", e.g.
[http://staff.washington.edu/gray/misc/which-
half.html](http://staff.washington.edu/gray/misc/which-half.html)

------
solost
I believe that the simple answer you are looking for is scalability. For many
businesses, especially online business, to be successful they need to be able
to reach beyond their local communities for customers.

All of the companies you mentioned that generate their revenue from
advertising and many others have reached a critical mass in their audience
size. This allows them to be a viable channel for a wide variety of vertical
markets and or an extremely targeted option in a limited set of vertical
markets. This is the reason advertising can dwarf manufacturing. Advertising
can touch multiple verticals and have multiple customers spending dollars to
compete for the same customer.

The real challenge for those companies that generate their revenue from
advertising is the ability to identify audience interest and intent.
Advertising companies that do well in generating revenue from advertisers are
generally able to identify their audience’s interest and intent when it comes
to products and services thus providing their advertisers with the best
possible marketing opportunities.

