
The new dot com bubble is here: it’s called online advertising (2019) - gws
https://thecorrespondent.com/100/the-new-dot-com-bubble-is-here-its-called-online-advertising/
======
itcrowd
Discussion from 6 months ago with the author chiming in (Jesse Frederik,
jessefrederik on HN)

[https://news.ycombinator.com/item?id=21465873](https://news.ycombinator.com/item?id=21465873)

------
jlbnjmn
A copy of Scientific Advertising and some thinking are about all that's needed
to do the job well.

There are essentially 4 rules for effective advertising:

1) ignore all metrics from online platforms (especially the ones that sell
ads)

2) ignore all metrics from ad agencies

3) run tests that make sense*

4) measure in dollars

The hard part is convincing the founder/owner to stop messing with stuff long
enough that you can actually measure the results. Also, companies tend to way
overspend on ads and data scientists while underspending on skilled
advertisers. (They can be forgiven for the latter, there are too few skilled
advertisers, and lousy advertisers usually sell themselves as experts.)

*Example: your job is to advertise a business with 20 locations in 2 cities. You want to know if radio ads are better than search ads. So you do the obvious thing: buy radio ads in city A and search ads in city B, then compare sales. If the difference in sales is big enough that managers get defensive and start pointing out why the test wasn't valid, you may have a winner. Run it in both cities and see if it still works.

(Rule of thumb: if nobody is upset with the outcome, the variations were too
similar. Run bigger tests.)

~~~
libertine
The problem is that the outcome of some campaigns doesn't reflect in dollars,
and still you have a winning campaign.

In fact, probably the most expensive campaigns are used to consolidate market
shares, brand positioning and notoriety.

People just seem to forget that advertising existed before the internet, and
it worked without the bloat of metrics.

~~~
bigtechdataeng
How do you define “worked”, though? Was each advertising dollar the most
effective way for that company to spend that dollar? Or was it just ROI
positive?

Most people consider the latter, because it’s hard to accept that the spend
needs to compete with every other way of spending that money, not with other
ad media.

~~~
cortesoft
Opportunity cost strikes again

~~~
jlbnjmn
The opportunity cost of calculating opportunity cost is often higher than the
underlying opportunity cost.

Analysis paralysis.

------
kposehn
As this is a repost (no offense to OP), I'm going to repost my original
comment (thread here:
[https://news.ycombinator.com/item?id=21468505](https://news.ycombinator.com/item?id=21468505))
about this which is still applicable:

Reliably someone comes along every few months to question digital ads. I
always come back to analyses of incrementality as the real proof.

Take an audience of X people. Divide them in two. Show ads to your test group,
don't show to control. Watch your business grow and gauge the lift between the
two audiences.

The companies that know how to advertise at scale do this constantly and can
gauge the real effect of their ad dollars. Facebook, Google and others make
these tests possible in their platforms, while other software suites such as
Impact Altitude and VisualIQ allow you to do this kind of analysis and testing
as well.

In the end, most of it proves out to be incremental. There are notable
exceptions of course, but when are there not?

~~~
0xDEEPFAC
The thing is I am not sure a large percentage of advertisers are aware of such
things and adjust their expectations. Facebook and their ilk encourage you to
believe their numbers even though they are mostly phony - I mean how many
people do you know that haven't block ads that actually click on them without
them making their ui so confusing that you do it by accident?

The market is overhyped

~~~
jakear
I block ads on desktop, but on things like mobile Instagram, there’s not much
you can do.

To some extent I’ve learned to stop worrying and love the tracking, and I will
with some regularity tap through to story ads I see with genuine interest in
the product (generally outdoorsy things). I’ve not bought anything yet because
the websites have failed to convince me the product isn’t junk, but that’s
their problem — Facebook has successfully completed their side of the deal
(get eyes on the website).

~~~
throwaway8941
Have you tried DNS-based ad blocking like pi-hole or
[https://nextdns.io/](https://nextdns.io/) ?

~~~
jakear
I’m likely different from many hn readers, but the ads really don’t bother me
all that much, and fussing with technology bothers me quite a lot.

I like my personal devices to Just Work (tm), and configuring dns/setting up
raspberry pi’s/etc is the antithesis of that.

If I have free time I’ll spend it in the shop, kitchen, or outside —
absolutely not fussing with technology.

------
toddmorey
Been realizing how the global pandemic is exposing what a complete and utter
disaster advertising supported journalism has become on the web. It's really
now a race to the bottom--even the largest media brands basically exist to
make you click fake articles. (It's bad even without considering astroturfing
comments, entirely fake news sites, etc.)

Newspapers had their yellow journalism days and have always been adverting
supported, but it's never been this bad. The internet solved the information
availability problem, now we have a huge trustworthiness / curation problem.
My hope is a marked return to subscriptions, the way the NYT has done. I just
loathe any hybrid where you subscribe and _still_ get ads. I want to leave
that crappy model way behind.

~~~
MajorBee
Of course, bringing a healthy online-subscription model back into the
mainstream is definitely ideal for journalism. Even more than that, I do wish
there was a quick/easy/safe way to purchase individual articles (or even whole
issues could work if needed) for a few bucks. Back in the old days, if you
were curious about a hot running story, you just went to the news-stand and
bought a copy, not a whole year's subscription then and there.

The ability to participate à la carte would certainly help paying customers
like me.

~~~
Nasrudith
One thing which could also help would be a "Netflix for news" given the pain
points for payment and economies of scale. The tech scale mixing is beautiful
in that way in that big providers and small can both be provided to the end
user and revenue apportioned based on usage.

Of course the newspapers have been in need of reform for a long time now on
many levels. Not helping is Associated Press recycling of stories across many
different papers which leads to trying to compete as distributors instead of
content providers. Consolidation of conglomerates seem to have only doubled
down on lack of quality.

~~~
weehoo
Apple News+ already exists.

------
ping_pong
Good online advertisement is very effective.

My friend worked in online gaming, similar to Zynga. Their strength wasn't in
the games itself, because they mostly ripped off other games. It was in their
advertising channel. They had around 10M active users and whenever they had a
new game out, they would advertise it to their existing customers, and they
would get instant users for their new games. Not 100% conversion, but enough
to get traction.

By having their own home-grown advertising network, they didn't have to spend
money on Google or Facebook ads, the could just milk their existing channel. I
think things like this are pretty effective once you have things up and
running, because it's free.

~~~
jcfrei
I would call this upselling rather than advertising. You can only do that if
you have already established a distribution channel to your clients and I
would guess a large part of advertising is intended to create such a first
channel.

~~~
toast0
This example is more crossselling than upselling. Upselling is when you come
for one thing and leave with the bigger thing. Crossselling is more about you
having one thing and using that relationship to sell you something else.

------
rossdavidh
I've come to the tentative conclusion that advertising is, in most cases, kind
of like money spent on good luck charms. The company wants to spend money on
convincing people to buy their product (or service or etc.). Telling them,
"there is no good way to do that, you'll have to just make a better product",
is never going to be believed. They want to think that they can just spend
money, and get money back.

Improving your product also requires money, probably, but in addition it would
require good planning, a realistic vision, organizational competence, and a
lot of other things that are harder to deliver than just buying ads.

Executive buy ads because it's easy to do, compared to making a better product
(or service or etc.). So your ad company doesn't have to deliver better sales,
it just has to be at least as good as other people's ad services. Because most
executives are not going to promote the guy who says, "there is no easy way to
spend money to get higher sales, you're going to have to do it the hard way".

~~~
ashtonkem
As best I can tell some advertising is probably necessary; if customers don’t
know about your product it genuinely doesn’t matter how good it is.

But chances are most of the programmatic ads are a waste.

~~~
gkya
My anecdotal 2 cents: I haven't learned about a single product by targeted
advertising in a long long time, if ever. Vast majority, if not all, of
targeted ads I've seen are about things I've seen already: I check some
product out, maybe even buy it, and the thing follows me the entire internet
for days.

~~~
rossdavidh
This happened to me after I replaced my home's air conditioner. Which means,
really, I am the LEAST likely person to sell an air conditioner to. Same thing
after I bought a car. Nowadays I am always ad-blocking, but from what my wife
tells me it's not gotten any better.

------
jp555
I've been thinking more and more that when it comes to advertising, trying to
squeeze irrational behaviour into a logical system just isnt going to work
long term.

Rory Sutherland's "Alchemy: The Dark Art and Curious Science of Creating Magic
in Brands, Business, and Life" convinced me that advertising has not changed
at all, no matter how much Silicon Valley wants it to. Their delusions WILL
come home to roost eventually.

Only ~10% of advertising $ is spent on direct response.

~90% of advertising is brand advertising, with no immediate conversion as a
goal. It's about slowly nurturing the creation of a STORY inside the heads of
prospective customers.

~~~
ahelwer
At the start of covid lockdown I realized I needed a new pair of sweatpants.
Where was the first place my brain thought to look? The nike store. Why was
that? What specific ad or celebrity sponsorship can you trace that back to?
Probably something to do with basketball but I honestly do not know.
Regardless, I ended up buying a pair from nike.

~~~
lotsofpulp
I would have thought to go to Costco. Because of decades of quality
experiences and knowing their business model. Or Uniqlo, also based on
experiences and knowing they are moderately priced. I've never seen an ad for
Uniqlo though.

All of my experiences with Nike are it's either overpriced garbage, or very
expensively priced good stuff, but not good enough that it makes it worth the
marginal cost over what's at Costco.

~~~
jlbnjmn
I bought Adidas...at Costco.

~~~
lotsofpulp
I just bought Adidas socks at Costco too, but I would have bought whatever
brand they had. I know the Adidas (and Nike) brand products of varying quality
for various price points at Walmart versus Costco versus their outlet stores
versus their Soho stores in manhattan.

------
6gvONxR4sf7o
I wonder how close ad markets are to zero sum. In the limited cases where ads
are good for an individual firm, being close to zero sum would make ads a
drain on the industry. In the article, they talk about how in most
experiments, the most of the people who click your ad would have clicked your
link anyways without the ad. In a really important footnote they talk about
how this is crazy with a hugely important exception: if you don't bid, your
competitor will. Like amazon bidding on searches for "walmart."

The effect is obvious and obviously wasteful for brand name searches, but it
must extend to other searches as well. I search for "levi's" and your ad isn't
going to make me materially more likely to buy jeans, but it will make me more
likely to buy them from Levi's. Or, and here's the point, if I just search
"jeans," your ad isn't going to make me materially more likely to buy jeans.
But you have to bid or else I won't buy _your_ jeans. It strikes me as just as
wasteful as Levi's having to bid on the "levi's" search term. The money that
was going to go towards the jeans industry still goes there, except that now
Google and Facebook get a cut and the jeans industry's margin shrinks a
little.

This article does a brilliant job convincing me that most ads aren't
incremental for a firm because of selection effects, which convinces me that
most ads that _are_ incremental for the firm aren't incremental to the market.
It seems so wasteful.

~~~
jlbnjmn
If Google didn't show ads, the money would all go to the SEO companies.

~~~
6gvONxR4sf7o
Regardless, the higher the percent of money sunk into zero sum competition,
the more waste there is. That stands for SEO companies and ad companies.

------
nullsmack
Getting so sick of the ads and such online. And every website has an adblocker
detector now. You can't just look something up any more and end up on a
website where someone wants to help you. You always end up on a website where
someone is trying to make bank off of you.

~~~
karatestomp
The kind of copy Google encourages is at least as big a problem, I'd say.

Do you ever search for something, click a result, and find you have to skip
down fifteen paragraphs to get what you wanted?

It's a real problem on the Web these days. Pages with incredibly low
information density, on purpose.

Even the simplest piece of information may be buried way, way down a page with
no actual content above it, just inane rambling.

This is a real problem for search results on all kinds of topics. You may have
seen it yourself, these garbage pages with high search rankings.

How bad a problem is it? Often the entire first page of results is nothing but
pages that waste your time on purpose.

(but seriously, imagine the sheer count of person-hours wasted writing and
reading this useless fucking crap, making the Web worse on purpose, and it's
been going on long enough that I guess... Google just thinks that's fine? Ugh.
I swear it's like they just gave up on good search results around '08 or '09
and settled for _whatever_ as long as the pages serve ads and get clicks)

~~~
pbhjpbhj
>Do you ever search for something, click a result, and find you have to skip
down fifteen paragraphs [...] //

Nevermind that, how about when you go to a result and the _quoted_ "keyword"
isn't even in the page?

That was probably the straw that broke me and sent me to DDG, I don't think
it's better, but I'm over being sent results for whatever their reason is
rather than because they are what I'm trying to find.

------
9wzYQbTYsAIc
> Web-based retailers and Web sites supported by advertising revenue have
> proven to be the two most failure-prone types of Internet business, and
> there are lessons to be learned from each segment.

[https://money.cnn.com/2000/11/09/technology/overview/](https://money.cnn.com/2000/11/09/technology/overview/)

The year 2000 - how is this a new bubble?

------
franze
I made a simple model using churn, referral, paid ad spend.

In any scenario where

Churn > Referral -> Ads are a trap.

If

Churn < Referral -> Ads are a halfway decent accelerator.

Challenge is you can not really determine if Churn < Referral as long as you
run ads.

I wrote about it here if someone is interested
[https://medium.com/@franz.enzenhofer/ads-are-a-
trap-80df01d2...](https://medium.com/@franz.enzenhofer/ads-are-a-
trap-80df01d2fbaf?source=friends_link&sk=ed2680c921a7bb5a0b147b44a9a14b1e)
(free to read medium link, will migrate away from medium soon)

------
duxup
I feel like for a long time there has been talk about online advertising
collapsing because it is bad or not useful or something else.

Now I expect it will if only due to economic activity, but outside that I
personally suspect online advertising continues to be used generally because
folks don't see a lot of alternatives. What are they going to do? Radio ads?

The system might suck, but the internet is where folks are, anyone advertising
likely needs to go there / try.

------
jlbnjmn
Running ads is like running a VC fund.

95% of your money is wasted, but if you do it right, that last 5% makes up for
it.

~~~
tiborsaas
This makes me very sad because I fear it's true. I want to play around
building successful side projects, but to get traction I need to play around
with ads. To buy ads with my own money and knowing 95% of it will be wasted is
too much of a blocker.

~~~
ryanwaggoner
I’m a fan of using ads to accelerate growth, but you don’t have to. I bet most
profitable side projects got there without ads. And you probably shouldn’t
spend money on ads in the early days, for a bunch of reasons. In general, I’d
focus on organic growth channels to start with and only switch to ads when you
have that working, you have revenue that’s growing, churn isn’t too high, etc.

~~~
tiborsaas
I know I don't have to, but I don't know how to get to these organic channels.
Tried Instagram audience building, but got bored with it, zero sales. I also
can't hire a marketer since they will probably just want to spend $ on ads and
the circle closes.

It's not SAAS, but e-commerce.

------
barbegal
This is from November 2019 so pre-COVID-19

~~~
PeterSmit
The original Dutch article is a few months older even. This article is great
journalism.

~~~
jlbnjmn
I dislike ads and ad platforms as much as the next person.

But this isn't good journalism.

"Is online advertising working? We simply don’t know"

In study 5 (e-commerce) the answer was clear, and yet ignored.

Is there a bubble? Yes. Are ads magic? No. Do they work? For the right
products, yes. Extremely well.

------
libertine
>For more than a century, advertising was an art, not a science. Hard data
didn’t exist. An advertising guru of the Don Draper type proclaimed: "What you
call love was invented by guys like me to sell nylons" – and advertisers could
only hope it was true.

Man... one of these days I'll poke my eyes out if a read this Don Draper quote
again on a online article about advertising...

It's not the quote itself, it's the lack of context when/how/whom behind that
quote.

At best that quote can be used in the context: "The shit advertisers say to
try to hook a whale (big account)".

Yet journalists use it like it was the wet dream motivates advertisers, that
are so delusional and naive to believe it...

------
ngold
In house advertising is essentially non existent. Any newspaper would have in
house ads printed next to the article. All have given up their autonomy to 3rd
party vendors. You wouldn't be able to block in house advertising, but you
sure can block all 3rd party skeezy advertising that want nothing but
analytics. That largely do nothing better than an ad printed next to an
article.

~~~
jstanley
> You wouldn't be able to block in house advertising

I think you would? You'd just have to write rules that are specific to each
publisher instead of each advertising network.

------
jjgreen
Fantastic piece, particularly the "Lagrange multipliers"

~~~
_Microft
Regarding Lagrange multipliers: I don't know if this is fake or not but it
made me laugh when I saw it for the first time:

[https://htbimporter.files.wordpress.com/2011/02/wow_customer...](https://htbimporter.files.wordpress.com/2011/02/wow_customer_support_math.jpg)

------
qppo
I wonder if the only tangible value in advertisement isn't to increase your
revenue by convincing consumers to buy your product, but to decrease your
competitors' by convincing consumers they don't exist.

~~~
jlbnjmn
A lot of people use Google to find things. A lot of those people click the
first search result that matches what they're looking for (low cost, certain
feature, prestige, there's no right answer, just right answer for them).

Some of those clicks are for products and services with short buying/lead gen
cycles. Once they've clicked, many are only going back if they don't like what
they find.

The value of search ads is being the link they clicked. You can buy that
click. You can literally insert your website into a demand/supply match. If
you don't mess it up after they click, those clicks become transactions. In
dollars.

Oil changes are a great example. Some of the people who type "oil change near
me" in maps don't really care about the brand. They click the top result,
schedule an appointment, and get their oil changed.

If the click was $3 and it took 10 people/bots clicking to set one
appointment, that's $30. Now let's say the oil change is $39 so profit is ($39
- oil $7, - filter $3, - labor $5, - ads $30) = -$6 before the cost of skilled
advertiser.

Are those ads profitable? It depends. If you can upsell 1/10 on replacing a
cabin air filter for 10x cost, then yes.

Every other upsell becomes profit.

Also, at a car dealership you can sell 3-5% a car while they're there for a
nice $1700-$3200 profit, which nicely covers the cost of the skilled
advertiser.

~~~
qppo
A huge point of the article is that valuing search ads like that is highly
susceptible to selection bias.

My point was that the value of an ad is to displace other ads, in other words
the measurement you look for isn't how many people click through to your site
for an oil change but how many do so instead of the next guy.

------
loeg
[https://idlewords.com/2015/11/the_advertising_bubble.htm](https://idlewords.com/2015/11/the_advertising_bubble.htm)
(2015)

------
Supermancho
Online Advertising margins have been gutted year over year. Demand (people
willing to pay for advertising) , today, has fallen to so few players (the
largest brands and programmatic) anymore. Users have become so ineffectual to
interacting with ads (and effective at blocking them) that measurement has
become a black art of approximation, at best.

There is no bubble, as that time passed sometime before 2016.

------
melicerte
The post is interesting. The only thing that bugs me is that it only covers
companies with well established names and/or products.

It would be interesting to know the conclusion for small companies and or
startup products. Being on top of a search is so hard, maybe impossible
(except if someone knows exactly what it searches, like the company or product
name).

------
jariel
Maybe the article is written by someone who doesn't actually make a product
and sell it online?

Marketing is a 'grey game' of course it's going to full of bad spending.

But far from being 'a bubble' \- the growth is just beginning.

Online ads are relevant overall and they're only going to grow and grow.

------
grativo
I guess conditioning over time has enabled consumers to develop resistance to
ads, companies have to change things up otherwise they will see no value in
online advertising. I will say that it's ironic that often companies buy in to
the marketing produced by advertising agencies.

~~~
loosetypes
Sell your own dog food?

------
RivieraKid
It might be a Ponzi-like bubble to a (probably small) extent, there is this
feedback cycle:

Online advertising revenue goes up -> companies that plan to sell online ads
get more investment and some of it is spent on online advertising -> online
advertising revenue goes up.

------
q92z8oeif
Love they got a online ad revenue graph that ends in 2017 and then just
"predict" a dashed line moving where it left off, always up.

despite that we all know it took a nosedive, along most other revenues, in
2020 ;)

------
cs702
As this excellent article points out, lots of research shows that most online
advertising is a waste of money, due to phenomena such as targeting people who
are already looking for the advertised product or service:

> _Picture this. Luigi’s Pizzeria hires three teenagers to hand out coupons to
> passersby. After a few weeks of flyering, one of the three turns out to be a
> marketing genius. Customers keep showing up with coupons distributed by this
> particular kid. The other two can’t make any sense of it: how does he do it?
> When they ask him, he explains: "I stand in the waiting area of the
> pizzeria." It’s plain to see that junior’s no marketing whiz._

Alas, the incentives everywhere are stacked _in favor of wasting money_ :

> _Within the marketing department, TV, print and digital compete with each
> other to show who’s more important, a dynamic that hardly promotes honest
> reporting. The fact that management often has no idea how to interpret the
> numbers is not helpful either. The highest numbers win._

> _" Bad methodology makes everyone happy,” said David Reiley, who used to
> head Yahoo’s economics team and is now working for streaming service
> Pandora. "It will make the publisher happy. It will make the person who
> bought the media happy. It will make the boss of the person who bought the
> media happy. It will make the ad agency happy. Everybody can brag that they
> had a very successful campaign."_

Moreover, the online advertising complex has evolved mechanisms for
'manufacturing' more demand for online advertising, for example, by relying on
zero-sum games like "crowding out" in which _no one wins except the online
advertising complex_ :

> _If, for example, BestBuy was the only buyer for "BestBuy" search ads, brand
> name advertising would only lead to a mere 2% to 3% additional clicks. More
> than nothing, but it is hardly enough to warrant the investment. But there
> was one group of advertisers with a valid reason to purchase own brand name
> ads. Not that they were any more effective for this group, but because their
> competitors were "crowding them out" by buying ads that targeted the brand
> owner's name (so you search for "Bestbuy" but a sponsored ad for "Walmart"
> tops the list). This can enable Walmart to steal 20% of Bestbuy's organic
> search traffic._

In the aggregate, all this wasteful advertising feeds a quarter-trillion-
dollar "industry" that seems to add little or no value to anyone, and may in
fact subtract significant value from everyone's quality of life. Is it a
"bubble?" I don't know. Is it a net negative for everyone else? In my personal
experience, the answer is a big YES.

