
The Advertising Bubble - vorador
http://idlewords.com/2015/11/the_advertising_bubble.htm
======
cryptica
I agree with this article but I think it should be noted that advertising is
much more powerful/effective today than it ever was before. Modern advertising
is capable of messing with people's lives in extreme ways.

Advertising is not about selling individual products - It's about selling a
lifestyle. Any media which encourages you to 'upgrade' your lifestyle should
be considered advertising.

I myself have fallen victim to advertising. I used to live in a big-ish town
where the cost of living was low. Advertising (in my case; the promise of a
higher salary and access to a wider range of consumer goods and services)
convinced me to move to a bigger city where the cost of living is ridiculously
high.

So I am working harder and longer, I am able to save less money and I have a
lower standard of living overall (in spite of a higher salary).

This lifestyle was advertised to me and I bought it. Much of the value I lost
(in terms of quality of life) went into the pockets of advertisers (in the
form of cash).

~~~
thewarrior
But the hilarious part is that by your definition , HackerNews is an
advertisement.

Because that's what it's doing. Selling a particular lifestyle.

~~~
ddingus
There are two kinds of ADS in my book:

One kind is an appeal to the person in some general fashion. The usual forms
apply. There isn't much of a value add, beyond the appeal. "Ours is 2x
better", or "You will feel GREAT!", etc...

The other kind is a value add, in that something of value is given in return
for a bit of mindshare or implied consideration. This is HN, and a lot of
other content marketing type approaches. Some use forums for discussion,
others blogs, still others white papers, and or maybe things like apps, or
data one can make use of.

In my own personal thoughts, I refer to this as, "give 'em a cookie. Who
doesn't like a free cookie?" And when they take the cookie, they will often
give you that little bit of consideration, or a contact address, opinion,
something.

Musicians do this by dropping free to play and sometimes free to download
tracks. "Here's your cookie, I'm selling more in the store."

I'm generally OK with value added type advertising. I like my free cookie,
same as most people. The non-value added ADS are often trading on shock value,
or their ability to interrupt you, or some other inane thing. Noise.

~~~
kristianc
Unfortunate double meaning on the word 'cookie.'

~~~
ddingus
Indeed. For my own use and thoughts, it's a non-issue. I don't often use that
means to express the idea to others, because of it.

Figured the crowd here would sort it easy enough.

For me personally, I tend to map things to simple concepts in that way. Makes
a lot of stuff easier, and it often highlights the common where it might not
be obvious too. Just FYI.

------
WalterBright
I'm not convinced that targeted advertising even works. I see the advertising
targeted at myself, it's pretty obvious why I get those ads. For example, I
bought a kitchen sink faucet on line. For months afterwards, I received
constant ads for the exact same faucet - as if I had multiple kitchens.

I've tried running context sensitive ads on my own site. I happen to believe
that appropriate advertising is something users want - for example, I buy hot
rod magazines specifically to get the ads for parts and other cool stuff for
my car.

The context sensitive ads Google servers are just not interesting, and they
happen to be one of a small handful of ads repeated over and over. There's no
way I can tell Google "display ads in these categories".

I tried running context sensitive ads from Amazon. I wanted ads for
programming books in various categories I'd select. What I'd get is ads for
the latest Batman movie, over and over, I finally removed them. I don't know
how Amazon decided that visitors to a programming site wanted to look at
Batman ads.

There is a way to put an Amazon ad on the site for a specific product. But
those get stale after a while. Again, I want to be able to list categories of
the kinds of ads that would be appropriate for a particular page, but I can't.
Ideally, I'd like to specify a list of categories for a context sensitive ad,
like "programming books", and have Amazon scrape the page for keywords and
then display programming books that are related to those keywords.

~~~
morgante
> I'm not convinced that targeted advertising even works.

Yes, your intuition derived from a single anomalous data point (yourself) is
_definitely_ more accurate than the companies which have seen demonstrable
success from targeted advertising.

If you wanted to argue that brand advertising doesn't work, I might agree.
Brand advertisers tend not to have high standards of data analysis.

Your publisher experience seems to actually be a case of wanting the former
(targeted advertising) but getting the latter (brand advertisers), which can
be a real problem because brand advertisers often overspend and undertarget.

~~~
dgmdoug
I'll weigh in on morgante's side here.

What WB discusses is a common misconception. Just because it doesn't appear to
work for yourself, doesn't mean that targeting is not worthwhile. It's not
really designed for an improved user experience, but to provide an advantage
to those running the ad campaigns.

The crucial thing that people forget, is that that targeting only has to be a
little bit better than random to be worth doing (from the ad operations
perspective). Given a large number of ads shown every day, with nominal cost,
we've only got to push a fraction of those toward users with a slightly better
propensity to interact to increase the interaction rate, and get paid more
from the advertiser (presuming a model where the advertiser pays us based upon
interactions that we generate).

One of the reasons that it is profitable is that the amount we might get paid
for an interaction could 50p, £1 or even £10 depending upon the client and
media. The cost of showing that ad is a few pence per thousand! So, we can get
it wrong many many times, and still show a statistically significant
improvement in interaction rates and make a huge dent in profitability for
ourselves.

I discuss all of this in Chapter 5 of Algorithms of the Intelligent Web. 2nd
Ed. [https://www.manning.com/books/algorithms-of-the-
intelligent-...](https://www.manning.com/books/algorithms-of-the-intelligent-
web-second-edition)

~~~
hodwik
Targeted ad talking about targeted ads, so meta.

~~~
sanderjd
To complete the circle, dgmdoug should post an analysis of the funnel from HN
post to book purchase as proof that targeted ads do work.

~~~
dgmdoug
I missed a trick it seems. Should have posted a link where I could track
conversions. :-/

------
Kortaggio
This reminds me a lot of PG's essay on how Yahoo was a beneficiary of its own
advertising bubble that it created in the 90s:

> By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors
> were excited about the Internet. One reason they were excited was Yahoo's
> revenue growth. So they invested in new Internet startups. The startups then
> used the money to buy ads on Yahoo to get traffic. Which caused yet more
> revenue growth for Yahoo, and further convinced investors the Internet was
> worth investing in.

[http://www.paulgraham.com/yahoo.html](http://www.paulgraham.com/yahoo.html)

~~~
jacquesm
YC was one of the best things to come out of Yahoo... Imagine, if Yahoo had
not bought out PG and company this whole thing would have never happened. Yay
for the bubble, and apparently even Ponzi schemes can have beneficial side
effects.

~~~
StavrosK
Which "whole thing" are you referring to? YC has been good, but I doubt it has
created the industry. The money wanted to flow in, and it would have, YC or
no.

~~~
jacquesm
This whole thing: Ycombinator, the 100's of start-ups that it has funded, the
network of alumni it has created, the very website you are writing this on and
the community that goes with it..

And sure, that money would have flowed in but the track record of YC to date
is one that I think would not have been duplicated without the unique elements
that YC has managed to bring to the table. They literally hacked the start-up
world and that's nothing to swipe under the table.

A ton of wanna-be competitors has come and gone (some are still there) but
none of those have done nearly as well as YC. Whether or not it will continue
for ever is unknowable but for now the results are quite amazing and not to be
compared with what 'the industry' managed to achieve in the same timeframe. No
other group has managed to create this number of start-ups, no other group has
managed to change the dynamic between founders and funders this dramatically.

------
jaspertheghost
At first glance, it seems very logical. Why do you need a middle man, these
companies will all die out. The problem with this argument is that he doesn't
realize advertising is 600B globally. Each of the small boxes there is 1b-40b
depending the bucket (from tag management to mobile (100b)). When you realize
that there's only 15 companies serving a 1 billion dollar market, you realize
that it's not that small.

Granted. There will be companies that will die in the ecosystem, but the logic
is poor. It's like saying why do you need a CRM system, it's just a tool
standing between the sales person and the customer.

~~~
fraserharris
The HN community has an outspoken minority that believes: a) ads do not make
money, b) ads do not work, and c) ads (targeting) are morally wrong. My sense
is that the silent majority recognizes just how massive the advertising
business is (its demand generation, nothing more complicated) and how
important it can be to all types of businesses across every sector of the
economy.

Global advertising spend (est. 2015): $592B

Global digital ad spend (est. 2015): $170B

Global VC investment (est. 2014): >$48B

[1] [http://www.emarketer.com/Article/Advertisers-Will-Spend-
Near...](http://www.emarketer.com/Article/Advertisers-Will-Spend-
Nearly-600-Billion-Worldwide-2015/1011691)

[2] [http://www.pwc.com/us/en/press-releases/2015/annual-
venture-...](http://www.pwc.com/us/en/press-releases/2015/annual-venture-
capital-investment-tops-48-billion.html)

~~~
tremon
But isn't artifical demand generation exactly the problem? We already have
growing problems with overconsumption, yet we're still told to keep buying
more? The only thing your numbers show is that marketing is great at selling
its own services, which should not be surprising.

Then (for me at least) there's the problem that almost all TV advertising is
targeted at the more vulnerable groups in society: they invariably equate
spending with a superficial emotional quality. I can't even remember the last
time I've seen an ad that contained factual information.

And since consumer money can only be spent once, it's a zero sum game to me.
I'd rather have people spending money on things they really need, instead of
trying to fill an emotional hole created by advertising.

~~~
fraserharris
You are conflating the role of advertising in general vs specific kinds of
advertising and consumption that you view as a waste. Our entire industry
(tech) relies on advertising to boost awareness of our products. Is it
overconsumption that I saw an ad yesterday for Load Impact & subsequently
tested & paid for their (very cool!) service?

Overconsumption can be true on an individual level (person X did not need to
buy Y). On an aggregate, consumption is "the economy" and advertising is the
primary way of informing potential buyers about an offering.

~~~
jacquesm
> Is it overconsumption that I saw an ad yesterday for Load Impact &
> subsequently tested & paid for their (very cool!) service?

I don't know, but I do consider your comment to be an excellent example of an
advertisement masquerading as content. (see:
[https://news.ycombinator.com/item?id=10573590](https://news.ycombinator.com/item?id=10573590)
)

~~~
fraserharris
Masquerading? As long as its relevant and engaging, _it is content._

~~~
jacquesm
If you should in the future ever wonder why people dislike advertising or
marketing please go back and re-read this comment. I understand that right now
you are not in a frame of mind to take that input but imo everything that is
wrong with the advertising industry besides the tracking aspects is present in
these 11 words.

------
punee
Is this article a joke?

Suppose for the sake of the argument that instead of drawing an arrow from the
consumer to ad tech, I drew an arrow to... any other market.

Couldn't I make exactly the same argument?

People pay a "consumption tax" to fund every part of the products they buy.

That money flows into the pockets of myriad companies with intricate
supplier/client links.

Investors pour money into that market and create new companies hoping to make
money back on their investment.

That happens when their investment manages to get market share by
"cannibalizing" competitors.

Some investors lose their shirt. Some companies go bust.

My question is: so what?

It seems like there's little more in the article, not to mention the complete
absence of any numbers to back the claims that are made or give a sense of
scale.

So my conclusion is that what the author really wants to talk about is how
these bad companies own private data, yadda yadda. Nothing new here.

So I guess the author is just doing this to push his own ad-free product.

Inception.

~~~
estomagordo
The difference of course being that the transportation market isn't being
economically upheld by venture capitalists in hopes of one day cashing in on
increased transportation revenue.

~~~
punee
First, numbers would be required to see exactly how the market is
"economically upheld" by VCs.

Second, I'm not sure if you're being sarcastic, but your example seems poorly
chosen. Uber and Lyft live off of venture capital. Even absent Uber/Lyft, the
transportation market was/still is one of the most cartelised around.

Third, you could certainly find satisfactory counter-examples where the money
"ends up" (money keeps flowing, btw, that's why simplistic diagrams aren't
very interesting) in the hands of a larger pool of companies. But if the point
of the article is to tell us that social networks is a highly concentrated
industry, that's hardly an upvote-worthy revelation.

Judging by the language used in the article, it is apparent that the author
has a beef with advertising.

I'm glad he can have a lifestyle business sustained by earned advertising he
gets with mentions on Hacker News, but it seems a little disingenuous to
pretend that can work for all businesses.

------
AlexMuir
There are good points here and the flow diagrams certainly apply to _startups_
in the Adtech space. And particularly those targeting other startups.

But these startups are trying to take market from the incumbent Google, and
increasingly Facbeook. These established businesses have paid back their
investment and are now cash cows for their owners. The flows for Adsense for
example will be in balance between cash in from advertisers, and cash out to
publishers and Google shareholders. I've been in all three of those positions,
often simultaneously, and been happy with the outcome.

When the VC tide goes out Adtech startups will be running up the beach trying
to cover their white bits. But with less loss-making competition it could be
very good for Adsense and Facebook.

As an aside, I see a future where digital advertising is equally split between
Google for transactional (buy something today) adverts, and Facebook for brand
awareness and engagement. I think Facebook today is in the same position that
Google was when it was only selling ads against its search result pages. When
Facebook launches adverts beyond its own property then the cash is really
going to start flowing.

~~~
lsc
I think the theory the article puts forward is that the cost of advertising
has been bid up by venture-backed advertising companies.

If this is true, all advertising companies will suffer; a drop in the price of
advertising probably won't sink the big players, sure, but it will probably
cause them to cut some of their fat.

~~~
jacquesm
> I think the theory the article puts forward is that the cost of advertising
> has been bid up by venture-backed advertising companies.

I don't think that's the path the money takes. The path the money takes is
that _maybe_ some venture backed companies _buy_ advertising to advertise
their products. If that capital dries up then that particular segment will
diminish but it will certainly not cause the industry to implode (though it
definitely has challenges to deal with all its own).

~~~
lsc
I don't see how what you wrote conflicts with what I wrote. "bid up" and "buy"
are synonyms in this context.

If you take buyers out of the market the price for whatever it is they buy is
going to come down. If the buyers who are taken out were the least price-
sensitive buyers, (the theory being that people who aren't venture-backed
generally have to spend what they earn) prices are going to come down a lot.

------
tragic
The central problem I observe, orthogonal to the one outlined in this post, is
this: there has been, for many years, a symbiotic relationship between
publishers and advertisers. The publishers are the host organism; they draw
life-giving cash money from the advertisers. The advertisers are the symbiote,
and they consume nourishing eyeballs secreted by the publisher. Print, TV and
radio publishers increasingly used the money to subsidise their consumer
offerings, which increased the yield of eyeballs. Everybody wins!

The trouble with the New Era of internet-enabled everything is simply that the
bottom has fallen out of ad revenue. _There is not enough money_ for this old
relationship to continue. Advertisers on the web are parasitic, not symbiotic.
They get plenty of eyeballs; the publishers get chump change.

This is an unsolved problem - analogous, say, to the streaming/Spotify
problem. How many billions of people would have to lay out $10/mo on Spotify
to keep the major labels in the junket-hopping, coke-hoovering manner to which
they had long become accustomed? It's not going to happen. The reckoning, to
my mind, starts not with the 1,876 marketing startups, but with the dying
revenue models of mainstream publishing, broadcasting etc.

After that, well, you can be neither a symbiote nor a parasite without a
healthy host, with a ready supply of tasty eyeballs.

------
socialist_coder
I think one reason why there is so much negativity towards advertising in
these comments is because user acquisition via buying online ads is fairly
expensive, and unless you have very good conversion/monetization, these
purchased users will come at a loss.

So, this makes it pretty tough for small startups or 1 person projects to
acquire users via ads, since they need to do it on the cheap, which isn't
really possible. It's one of the few startup related expenses that has gotten
_more_ expensive over time, rather than less.

And why has it gotten more expensive? I believe it _is_ because there is a
bubble in this space, but not what the original article is claiming. The
bubble is from the boat loads of investment capital in online startups. They
take their 100m round and have no issue paying $5 per user, losing money with
every one.

Companies that _need_ to be revenue positive (or just don't want to waste
money) can't compete with the high ad prices that this creates, which I think
leads to a lot of hostility towards the whole space.

I believe another reason for the negativity is all the fraud related to online
ads. It's hard to _not_ be negative when there are so many accounts coming out
about just how much of the paid advertising traffic isn't even real.

~~~
panic
It has nothing to do with how much ads cost. Modern ads are not helpful to
society. They exploit human psychology for profit. They slow down the web.
They collect vast amounts of personal information. They divert resources which
could be used to actually improve the world.

I understand that ads are a necessary evil for some businesses, but scroll to
the bottom of a news article sometime. Is this really what we want our world
to look like?

~~~
Disruptive_Dave
I came from a B2B agency background before my consumer startup gained a little
bit of traction. I was, philosophically, anti-ads / push marketing for the
most part. Then the curtain was pulled back for me on how startup acquisition
machines really work. Two points here: 1) the flooding of VC money and
subsequent aggressive push for "high growth" essentially funnel cash into
online ads. 2) A bit more to your point of ads not being helpful to society,
what about the many thousands of users I've acquired through ads who have
stayed with my subscription service and have reaped the benefits of what my
startup does (not gonna use this space to self promote the actual company)?
These are not high-churn users, they are not bots (well, most anyway), and
I've personally spoken to many of them who have expressed the happiness we
bring them each week.

There's a lot of cool shit out there I may not find out about directly from
friends or organically through social media (which is a horrible discovery
engine anyway). This begs the question: If the ad is relevant to me, why is it
"bad"? Now, I can absolutely get on board with an argument against poorly
targeted ads or bulky designs that clog up space/speed or simply an overall
surplus of them everywhere you go online. But that doesn't mean ads cannot be
useful to society.

------
michaelpinto
It's not a bubble, the advertising industry has always followed this cycle:

The post war television boom in America begat many new Madison Avenue ad
agencies in the 50s who reached a high point in the 60s and the 70s, but then
by the 80s and 90s were consolidated via mergers and acquisitions.

Even the great Ogilvy & Mather was swallowed by up WPP in 1989. In fact one of
the David Ogilvy's greatest regrets was taking the company public which
allowed the take over years later.

~~~
Apocryphon
Isn't it a bubble, when a lot of startups provide free services that are
supported by online ads? Wouldn't a crash in the online ads market have a
resonance cascade through all of those startups?

~~~
michaelpinto
There already was a crash of ad banner rates in 2008, in fact that killed many
small publishers. You'd have a real bubble if there was a ton of moneys still
being pumped into AdTech, but that hasn't been the case for a year now. And
you're now seeing mergers and acquisitions take place. A good example of this
on a bigger level would be Verizon buying up AOL for their ad business.

Although something to realize is that there are winners in that business. Most
people don't think of Facebook as an ad company, but they really do get mobile
advertising and from the looks of things they'll keep growing. And that's not
just Facebook but other properties like Instagram which will snag more and
more ad dollars.

------
WalterBright
What advertisers need to do is create advertisements that people want to see,
rather than trying to force people or trick them into watching it.

For example, consider the TV show "Detroit Muscle". Ostensibly, it's about
customizing and hot rodding your car. But it's actually a product placement
show. I enjoy watching it, because various products are worked into the car
project, and they show you what the products are good for and how to use them.
For example, I'm likely to buy a welder that was featured on the show.

~~~
mikro2nd
Did you actually _need_ a welder before you watched that show? Were you
actively looking at different welders and weighing up their features vs.
costs?

If so, had you considered the possibilities of _hiring_ a welder for those
seldom/rare occasions you need one? Or just paying someone to do the
occasional bit of welding you might need done? (I am assuming, maybe
incorrectly, that since you don't already own a welder, you are not someone
who actually has high demand for welding at present. Perhaps you're planning
some future activities that imply " _lots of welding_ ".)

If you were _not_ actively Welder Shopping, then their advertising worked,
didn't it?

~~~
tragic
I think parent's point is that, precisely, it _does_ work, when things are
intelligently targeted, rather than unintentionally weird and annoying.

~~~
mikro2nd
And I think my point is that they probably didn't really _need_ that crap, but
the advertising convinced them that they did. I think that's a bad thing.

(And possibly I'm straying offtopic for the thread. _Begs forgiveness_.) :)

------
nl
In his seminal essay _Dabblers and Blowhards_ Maciej Cegłowski made the case
that Paul Graham's essay _Hackers and Painters_ was inaccurate in its
depiction of many programmer's work habits being similar to that of painters.

Cegłowski's argument was compelling because he had worked as both a
professional programmer and a professional oil painter. That deep expertise in
both fields made it possible for him to pick the holes in PG's arguments.

It seems that Cegłowski hasn't done much work in the AdTech industry. Pity,
because his summary of the _Scott and Scurvy_ [2] story is a wonderful piece
of writing.

[1]
[http://www.idlewords.com/2005/04/dabblers_and_blowhards.htm](http://www.idlewords.com/2005/04/dabblers_and_blowhards.htm)

[2]
[http://idlewords.com/2010/03/scott_and_scurvy.htm](http://idlewords.com/2010/03/scott_and_scurvy.htm)

~~~
jacquesm
I think the article goes off the rails where he says that the money going into
advertising companies as investment ends up in the pay-out stream. I have seen
no evidence of that to date (but I'm happy to be informed if there is such
evidence). Up to there it is mostly accurate.

The path investor money takes if it ends up with the industry is that it is
used to buy advertising for new products and services backed with investor
money.

And so I also disagree with the conclusion. There will not be an implosion,
but what there will be is a change of direction to maintain revenue. This has
historically been true of advertising in general, ads today on TV for instance
are totally different compared to ads on tv in the 90's, the 80', the 70's and
so on.

------
skybrian
The problem with this article is that it says (in an entertaining way) that
the numbers don't add up, without showing or linking to any math.

~~~
punee
That's because the article is just a thinly veiled ad for the author's ad-free
service.

~~~
icebraining
How does that work? "Advertising is dead - that I means I should subscribe to
this specific consumer ad-free service"?

~~~
punee
"Advertising is very bad and unsustainable and it's going to bring about the
end of the universe because of evil venture capitalists. Is this what you
want? No! So if you want to save your soul, you can repent now and start using
sustainable, ad-free services. Like mine. Only $11/yr."

~~~
icebraining
What he says is that _publishers_ , who rely on ads, will suffer from the
bust. His service is in no way related to publishers. He also doesn't directly
link to his service on the page.

I think your accusation is completely spurious, frankly.

------
chjohasbrouck
I'm not a marketer so correct me if I'm wrong, but I'm not sure I agree that
it's even possible for advertising to bubble in the traditional sense.

The biggest budgets are all pretty tightly regulated. They have surprisingly
good information on exactly what impact their ad buys are having, and that
information informs their allocation.

The smaller budgets don't necessarily have that, but I assume they
consistently churn as businesses open and close. Is this article suggesting
the churn of new businesses is going to suddenly drop to zero?

How could advertising bubble with that level of transparency?

~~~
jldugger
Well, for one, the riskless rate of return could raise above zero, and you
might have to factor in the amount of risk your ad buy represents. If you
advertise in order to grow your user base, but that userbase is neutral or net
negative, when funding costs go up, your gamble that you can shift customers
from neutral to profitable is less viable.

But imagine a secondary structure of ad buys: you buy mobile ads promoting
your app, which monetizes itself through ads. If the ad market falls, you've
effectively bought ads high and sold them low.

------
Animats
As I pointed out a few weeks ago, only three of the top 50 current "unicorns"
are ad-supported: Snapchat, Instagram, and Vice Media. Since then, it's come
out that Snapchat isn't doing too well and their valuation is down; we may be
down to two ad-supported unicorns soon. The current startup boom is not ad-
supported. That's a good thing.

~~~
mschuster91
What about Twitter? Actually it's only a bit of ad revenue and a huge chunk of
investor money keeping it afloat.

------
fauigerzigerk
There is no advertising bubble. I used to think there was one but this article
convinced me otherwise:

[http://www.bloomberg.com/bw/articles/2014-03-03/advertisings...](http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-
century-of-flat-line-growth)

What may exist (maybe that's over as well) is an advertising startup bubble.

~~~
whatever_dude
Great link, thanks. More people need to take a look at this (actual) data.

I do think the (online) ad business is going to change radically over the next
decade, but it's far from a bubble ready to burst. It'll be much slower.

------
Jerry2
Given the current economic conditions and recessions around the world, I guess
it will take some time for it to register in ad sector. Ad sector is still
full of investor money and it will take months (and in some cases, years) for
them to feel the pressure from the economy.

PS: Maciej is such a great writer. I enjoy his writing immensely. Everyone
should emulate his clear & concise style.

~~~
toomuchtodo
Why does the ad sector trail so far behind the rest of the economy? Poor
signaling?

~~~
jacquesm
Because it works. For now. Think of ad spending as you would think of spending
on arms for a war. If you don't out-spend your competitor they'll own the
market. So until the problems are really large the ad sector will actually
make _more_ money rather than less on the same volume of products moved
because the amount of money required to effect a certain level of user
engagement is a larger one.

------
javajosh
Well, I think it's easy to overestimate the damage "hideous monstrosities ...
left flopping on its muddy bottom" will do if and when money leaves adtech.
Sure, they've been surveilling me. But what damage can they _really_ do?

They probably roughly know where I live, roughly where I work, and when I move
between A and B. They know my age, race, gender. They may know a sizable chunk
of my social network. Maybe the porn I like. It seems possible, but unlikely,
that they'd know my bank, ISP, or actual home address.

So they sell my info. What will the purchaser do with it? Send me more, better
spam? So what - I'll block it and move on.

~~~
lsc
The fear is that they'll use it to blackmail you. "Give us $X or we will send
your wife all the texts you sent to person Z." or perhaps more realistic,
"Give us $X or we will publish that embarrassingly bad love letter you sent to
person Z" or even "Give us $x and we will reveal your alternate handle"

The first bit of comfort is that the details you would want if you were to
blackmail someone are not the details that advertisers want when trying to get
you to click on an ad, so the people who end up with this private data might
find it less useful for blackmail than we think. They probably don't have my
embarrassingly bad poetry.

but... they probably do have all my alternate handles, and that's embarrassing
enough.

I think one of the major saving graces here is the unreliability of the data;
especially once it has been sold a few times, it's gonna have a lot of
mistakes. Because for advertising? a few mistakes don't really matter. This is
gonna make the "deny everything" defense a lot stronger.

Of course, the big thing about blackmail is that it mostly only makes sense
when going after the big fish; there is a lot of hard to automate work in
finding the victim's weak spot, and then actually extracting the money (or
whatever)

Most of us probably don't have to worry about being blackmailed unless we get
rich or someone rich wants something from us... but it's still pretty bad for
us if a giant cache of data that can be used for blackmail ends up in
desperate hands.

~~~
jacquesm
> The fear is that they'll use it to blackmail you. "Give us $X or we will
> send your wife all the texts you sent to person Z." or perhaps more
> realistic, "Give us $X or we will publish that embarrassingly bad love
> letter you sent to person Z" or even "Give us $x and we will reveal your
> alternate handle"

As a rule that is information advertising companies do not have or have access
to.

~~~
lsc
as I point out later in my comment, they probably don't have the love
letter... they probably _do_ have my alternate handles, as I sign on from the
same devices.

------
loginusername
"There's more money being made from advertising than consumers are putting
in."

Should we care how Google, Facebook and others make so much cash? Should it
matter?

Honest question.

(The author suggests the firesales by these companies when things go south
will involve internet users' personal information. I agree.)

~~~
surferbayarea
And interesting thing is how people are all up in arms about the NSA tapping
private information, but are completely oblivious to advertising companies
doing the same. At least the NSA's objective is to fight terrorism, companies
like Google/Facebook invade people's privacy for the sole purpose of making
money from it.

~~~
IIAOPSW
I implicitly agreed to Googles terms when I used Google. I never asked to be
born in the States.

~~~
mirimir
You implicitly agree to citizenship by not renouncing. And in any case, the
NSA may (supposedly) surveil non-citizens with fewer restrictions.

~~~
IIAOPSW
You have to pay to opt out of citizenship. Name any other club that you have
to pay over 1000 USD to not be a part of.

~~~
mirimir
Mafia

Anyway, the parent comment made no sense. Maybe people expect privacy
_because_ they're US citizens. But the NSA doesn't specifically surveil people
for that reason.

------
connoredel
The idea that advertising is a consumption tax is wrong. You don't use "cost-
based pricing" in advertising (i.e., you don't decide how much to charge to
make sure you are covering your costs of acquisition). You decide how much to
spend on a given ad channel based on the average revenue you expect to get
from a customer. There may be other important metrics like payback period --
or sometimes even less tangible things like the number of customers may be
important if scale is an end in itself -- but in any case, rational people in
charge of acquisition are making sure they are getting some benefit out of the
ads at the optimal price that was set independently. If you start marking your
price up beyond what people are willing to pay just because you want to make
some ad channel effective, you'll see conversion drop and the channel will
become _even more inneffective_.

I would argue that two companies with identical products -- one who acquires
customers organically and one who acquires customers through advertising --
should set the same price. The first will have higher net margins but the
other will enjoy more total profit if they are smart.

------
laurentmeyer
I don't get what imbalance this article is talking about? Advertisers pay
publishers to market their products, and sometimes it is financed with VC
money - but this is true of any market, not particularly adtech.

Someone sells inventory, someone buys inventory, and there are middlemen to
make this happen. Maybe too many companies are competing to be the middleman,
but that's a problem that exist in every market (food delivery?). In the end
some companies will die, so what?

I can't see where a gap is created other than this. Investors are betting on
technology companies, that are supposed thrive when even more money is spent
on programmatic than today (taking away budgets from TV, search...)

Maybe the author is not making a good enough distinction between publishers
and technologies? The diagram of "advertising" the author refers to is almost
entirely composed of technologies - very few agencies or publishers.

------
joshuaellinger
Rick Webb's comments on banner ads are a pretty good indirect rebuttal.

[https://medium.com/@RickWebb/banner-fraud-doesn-t-matter-
fc8...](https://medium.com/@RickWebb/banner-fraud-doesn-t-matter-fc84413fe59c)

------
phamilton
A counterpoint to this is that adtech startups that have gone public have been
crushed. Look at Rocketfuel, Yume, and Tremor for examples.

------
smartera
(I work in market research industry for promotions/ad optimization and
effectiveness; off and on-line)

I agree completely with Maciej points. There is one other factor that should
be considered; the more ads served to us (normal consumers); the less our
reception to them is thus the new ads need to be more powerful. Only giant
companies can fund the creativity and subtlety needed for very effective ads
on a large consumer scale; everything else is noise in the consumer mind
except for tiny well-targeted niches. Those are the two groups (giant
companies and very niche businesses) that will survive the consumer-ad bubble
burst easiest.

------
htormey
This article seems very light on data to back up its main claim:

"You'll notice that the incoming and outgoing arrows in this diagram aren't
equal. There's more money being made from advertising than consumers are
putting in"

All the figures I have seen seem to show the exact opposite, i.e that online
advertising is growing and profitable, for example see:

[http://venturebeat.com/2015/05/27/this-is-mary-meekers-
eye-p...](http://venturebeat.com/2015/05/27/this-is-mary-meekers-eye-
popping-2015-internet-trends-report/)

------
padobson
I don't immediately agree with the premise of this article: that the consumer
pays an advertising tax on the good or service being purchased.

I tend to believe that advertising actually adds value to the good or service,
especially when it's exactly the same as a competing good. When you buy
General Mills' Honey Nut Cheerios instead of Offbrand Honey Oats, the
advertising on the sale has actually payed for itself and then some,
increasing the profit margin above the good itself.

On a macroeconomic scale, the best example I can think of is the Soviet Union.
Advertising was thought to be a drain on society under the Marxist thinking of
the time, so the Soviet Union didn't allow it. But then they found without
advertising, it led to under consumption. I think there were other problems
too, but eventually the Soviets started advertising, despite their initial
misgivings about it.

A quick google didn't reveal any good citations, so I'm certainly open to
other ideas on this, but my main point is that this article over-simplifies
the value that advertising generates for an industry.

Edit: Found an interesting article on the Communist world's relationship with
advertising:
[http://www.acrwebsite.org/volumes/5816/volumes/v03/NA-03](http://www.acrwebsite.org/volumes/5816/volumes/v03/NA-03)

~~~
gnoway
Adds value from the perspective of the seller, sure. If I buy the honey nut
cheerios vs. the off brand honey oats, I've received poor value because I've
paid more for the same thing. And it's only adding value for the seller if
they can sell the product for more than they pay in advertising - if this
wasn't the case, people would not advertise because they would lose money.

I'd also like to suggest that the Soviet 'underconsumption' you speak of might
be better characterized as 'proper consumption'. It's not a mandate that we
buy a product just because someone's selling it.

~~~
padobson
_I 've received poor value because I've paid more for the same thing._

I disagree with this completely.

Did you buy it because price wasn't important to you and it was on a more
convenient shelf? General Mills paid for that shelf space out of their
marketing budget, so the added value was convenience.

Did you buy it because your kid likes the cartoon bee and wouldn't eat any
other cereal? Then the added value was entertainment. This is the same value
you get when you buy a movie ticket.

What about when someone buys shoes from Gucci as opposed to loafers from
Kmart? The consumer is paying for the marketing, without question. But they're
getting something for their money - self esteem, status, etc.

~~~
gnoway
Honestly, this reads like an argument from an advertiser trying to justify
their purpose.

Where a box is on the shelf - at least in every supermarket I've visited - has
no effect on the convenience of the product. So that's a stretch.

I don't have kids but I am aware of the phenomenon of children making choices
that an adult would not make. I won't assert that I would never buy my kid the
cereal s/he wanted because it was marketed to them, but I will suggest that
the value of entertainment gets canceled out by my feeling like a bad parent
in that situation. Maybe I'm just bitter because my parents wouldn't buy me
the fancy-box cereal.

Finally, I think Gucci is in the image business, which I agree is heavily
dependent on advertising to sell the image. Without advertising it wouldn't
surprise me if Gucci didn't exist. If your self-worth is tied up in what shoes
you wear then I agree, advertising has added value here.

------
numair
Someone should study what would happen to Facebook/Twitter's financials if
startups stopped buying app install ads.

Startups will buy more of these (out of desperation to get growth from their
remaining funding) before they buy none (because they will finally run out of
cash). See AOL's 2001/2002 financials for a past example.

Oh, and by the way, we are at the beginning of a huge funding crunch (perhaps
someone else can pitch in with some citations on funding activity etc), so
this WILL happen.

------
randomsearch
This article seems rather vacuous, and I'm not sure why it has so many points
or comments.

Ignoring the way the article is presented, its point could be explained in a
single sentence: startups are spending a lot on advertising, which is causing
an investor-funded bubble in startups dependent on advertising.

Whether this is really true depends on the relative quantities of the money
being spent on advertising by startups. A quick google says over $100 Billion
is a reasonable estimate for online advertising annual spend, as a ballpark
figure. Startups are raising say $20 billion [1] a year.

Even assuming a large percentage of funding is going to online advertising,
we're only talking about say a percentage point increase in the size of the ad
market. So I think this article is probably incorrect.

[1] [https://www.cbinsights.com/blog/internet-startups-
vc-2014/](https://www.cbinsights.com/blog/internet-startups-vc-2014/)

------
throw20151116
I see Google Contributor as an answer to this. It would be especially
compelling if GC offered site owners a way to make GC users _never_ see ads
and / or perhaps had a way to nudge users into being GC users. GC is so close
to fully realized micropayments for content, and that seems to be what we need
to escape the advertising swamp.

~~~
melted
Nice try, anonymous Google employee.

------
fweespeech
1) People don't really want to understand how they are getting fucked. They
are getting fucked gently enough they don't care.

2) There will be no reckoning. There will be "bubbles" like any other industry
but, ultimately, they'll recover at the same pace of housing did after 2008.
I'm sure people who post these articles will be convinced that was the
"reckoning" but it is just the normal cycle of business in the capitalist
system.

3) All this article does is really re-hash the history that has existed for
decades and, ultimately, is "necessary" for mass market sales. The corner mom
& pop doesn't need to advertise in this manner because its local and the
locals advertise for them via word of mouth. Its also dead outside of the
service industry because even with the cost of advertising its cheaper to
advertise+mass produce. [i.e. restaurants, barbers]

------
seekingnames
"The only way to make the arrows balance at this point will be to divert more
of each consumer dollar into advertising (raise the ad tax), or persuade
people to buy more stuff"

You could also raise the price (CPM) of digital advertising.

Remember all these adtech companies deal in digital display. They take (for
the most part) from traditional tv, print, classified, search (basically
Google's monopoly), billboards etc. These decisions driven by ROI (cost
benefit analysis based on price)

Sure, its competitive. And I agree that investors get excited about 'revenue
traction' that isn't real traction. But in 2015 the winners have already
separated from the losers in my opinion. There's maybe 5 to 10 companies on
the Luma chart that are winners (outside of FB, Google etc). And to be a
winner you need revenue growth, real profits and real cashflow (I'm talking
net income, not adjusted EBITDA).

------
Paul_S
Wish I knew someone working in advertising (words not often spoken) so I could
ask them but from a consumer point of view I have a suspicion that advertising
is adapting just fine and shifting even more from overt to covert advertising.
My friend's gamedev company pays an ad agency to astroturf on amongst other
places 4chan. I suspect now broadcasting is within the reach of anyone
advertisers will take advantage of this mercilessly and you will not be able
to tell it's an ad because it will be coming from the same channels that
normal people use. It already made online reviews worthless by making fake
ones. Now every other form of communication will be suspect. Overt advertising
at least isn't immoral but this covert approach is a deception from the start.
Must be horrible to know you're making the world a slightly worse place to
live in.

~~~
vdnkh
>My friend's gamedev company pays an ad agency to astroturf on amongst other
places 4chan

Does this actually work? Shills are pretty obvious on 4Chan due their usual
lack of "culture fit" and tendency to call anyone praising a videogame a
shill.

~~~
Paul_S
I don't know if it works. At least they believe it does, otherwise they
wouldn't be doing it. It's just part of the bigger social media package so I
don't know if it's even possible to evaluate it individually. How would they
track it? I think it's all madness and it must be a soul crushing job to do
the menial work on this completely aside any moral judgements.

------
morgante
It's not surprising that this article is at the top of HN because a
surprisingly large contingent of HN is convinced, against all evidence, that
advertising doesn't work.

Unfortunately, the article doesn't actually offer _any_ evidence of there
being a bubble in advertising. If anything, online advertising is actually
being underbought at the moment.

For there to be a bubble, advertising spend would have to be growing at a rate
which outpaces supply of advertising space. In fact, when it comes to online
advertising the reverse is true.

Consider first that advertising _in general_ is actually a remarkably boring
business. The entire industry consistently consumes 1-2% of GDP, and we have
not gone out of that historical band. [1] There's just not much evidence of
there being a bubble in the overall advertising industry.

When it comes to internet advertising specifically, the argument for a bubble
is even weaker. Ad spend on internet platforms (particularly mobile) continues
to lag behind consumer attention. [2] Consumers are spending tons of time on
mobile, but advertisers aren't spending nearly enough on mobile to match that
supply. If anything, I think advertisers should be spending $10-20B more on
internet advertising than they do.

Finally, consider that advertising prices are at rock bottom. That seems
extraordinarily inconsistent with there being a bubble. The author ignores
this fact by attempting to insinuate that the bubble is entirely investor-
driven, but that doesn't match his hypothesis. Firstly, if investors are
currently subsidizing the entire online advertising industry, then when
investment pulls back we would fully expect advertising prices to
rise—enabling the investors to be paid back (ie. not a bubble). Secondly, it
doesn't match my experience: the late 2000s was a good time to be in adtech or
social media, but these days most VCs aren't actually that interested in the
sector.

Yes, advertising is annoying. Maybe it "doesn't work" on you. But that's not
an argument against it being an effective industry, _especially_ if you're
arguing against targeted online advertising specifically. The biggest online
ad budgets are very tightly run and you can be quite sure that the advertisers
have studied and confirmed that they have a significant ROI.

Finally, one note about the insinuation that "it's going to get ugly" because
adtech companies have our personal data. This ignores how incredibly noisy and
inaccurate most adtech data is. It's "accurate" in aggregate, using
statistical models, but it's just not very reliable when it comes to an
individual. When the individual data is not accurate or trustable, the
capacity for danger (or blackmail?) is extremely limited.

[1]
[http://www.bloomberg.com/bw/articles/2014-03-03/advertisings...](http://www.bloomberg.com/bw/articles/2014-03-03/advertisings-
century-of-flat-line-growth) [2] [http://www.kpcb.com/internet-
trends](http://www.kpcb.com/internet-trends)

------
elorant
In my seventeen years online I’ve never ever bought a product or service based
on an ad. I’ve bought from newsletters but never from ads. The difference the
way I see it is that newsletters are highly targeted because they originate
from a web site that I _frequently_ visit. Whilst ads rarely take into account
the frequency of your searches. You happen to search for shoes once and then
for weeks, or even months, after you’re bombarded with relevant ads.

~~~
eterm
Well that's one anecdote, here's another:

My first ever online purchase was direct from an advert.

I needed 128mb more RAM, so I bought it from crucial. I knew of crucial
because a gaming forum I visited had a single banner advert for crucial that
never changed, so I always noticed it.

Advertising works, and even if you think it doesn't you're wrong. Every day
you'll make purchasing decisions and often you'll tend toward products you
recognise the name of. That process doesn't come from magic, it comes from
advertising, the majority of which you'll not even notice.

~~~
throwaway800
My everyday purchasing decisions are mostly driven by opening my cupboard and
checking if there is enough muesli left for the next three days. I haven't
seen advertising inside my cupboard yet but any day now...

~~~
sharemywin
so you can't name one brand. If so then advertising is working. when you went
to go make a purchasing decision if that brand was even considered advertising
did it's job.

~~~
throwaway800
Is this a useful definition of advertising, especially in the context of
everyday purchases brought up by eterm? The most prominent brand I interact
with is a major grocery chain. This is because they have a huge store 5
minutes from my house. I'm not going to start going to another store even if
it carpet-bombs my browser to get brand awareness. VC-funded adtech won't help
anyone scale brick and mortar.

My purchasing decisions are based mainly on whatever is the cheapest. I do
find brands useful, to the extent that if a product is brand-name, it's likely
to be more expensive than the no-name variety one shelf below. Saves some
mental effort of comparing prices more closely.

The muesli I purchase is store-brand. I have made the decision by comparing
nutritional content of a number of varieties.

I have been advertised to to get me to look at the nutrition labels, I
suppose.

------
kriro
Possibly naive question but...is there a repository of ad-banners that are
currently being served somewhere (and maybe also an archive of historic
banners)?

~~~
chillydawg
Probably not in any searchable form. You could spider top 10000 sites and pull
the banners they serve. Even the big firms who actually server the banners
probably do not have a good archive, it's all disposable JPGs and PNGs to
them.

~~~
TheLogothete
Of course there is. Adbeat, WhatRunsWhere, even a YC funded company, but I
can't remember the name.

------
swingbridge
The targeted ad technology sucks. It basically just shows me ads for things
that I've already purchased... for months afterwards. Also, I'm convinced most
other ads just don't work.

Once those finding this current circus realize the above the bottom is about
to fall out of the market real quick (and many "apps" / "sites" that rely
purely on ad revenue wil go with it).

------
JacobJans
The diagram being used to demonstrate the complexity of the ad space is
ridiculous.

For example, listed under "infrastructure:"

\- Google \- Php \- Stack overflow \- jQuery

Need I go on?

------
alanh
It’s been festering for a while. Three years ago, I overheard (in SF):

> _[Overheard]: Online advertising is getting bizarre; it’s almost like
> derivatives trading…_

(original:
[https://twitter.com/AlanHogan/status/268458504673693696](https://twitter.com/AlanHogan/status/268458504673693696))

------
gtpasqual
When I was working in a startup, I remember to be constantly shown ads from
the startup itself, even though it sold something I would NEVER buy.

The way these recommendation systems worked is heavily flawed at a large
scale.

------
intrasight
And it not just advertising. My understanding is that consumers pay less for
Amazon products than those products cost Amazon to deliver. The difference is
being made up by Amazon investors.

~~~
dangrossman
That's not the case. Amazon's e-commerce division is profitable. Last quarter
it showed a bit over half a billion in profit.

------
intrasight
"The prognosis for publishers is grim. Repent! Find a way out of the adtech
racket before it collapses around you."

------
Dirlewanger
Any word on these mentioned startups trying to circumvent ad blockers? What
are some of them/what are they using?

------
shawlang
Great points

------
hawkice
I am extremely skeptical of the accuracy of the adtech-over-time chart. I
looked for companies I knew revenue numbers for, and I saw revenue flat and
them suddenly appearing in the last box despite existing for years before his
timeline even starts, for instance. [This is a bit hard to write compellingly,
because you can figure out precisely who I am if I say the exact companies,
and I'd prefer not to have LinkedIn be the sidechannel resource for people to
violate my non-disclosures about revenue.]

