We need more of this research, please, because advertising is a huge deal for the health of the internet, despite its vilification. And it doesn't begin and end with FB+Google
Also: It would be nice if people who comment here and work for Google or FB declared their conflict of interest
A digital channel can deliver a solid ROI (>200%) at $10K-$50K / month. Advertiser is excited, wants to scale to $500K / month. ROI drops to 110%. Woops, not as good. So what does advertiser do? Advertiser finds the max scale they can run at to maintain an acceptable level of ROI (for ex, 140%) and that is $100K / month of spend on that channel.
The interesting shift we're seeing is that historically, advertisers just went on and multiplied the number of channels, spending $10K / mo on channel 1, $50K / mo on channel 2, $500K / mo on channel 3. However, the cost of maintaining each channel and optimizing is greater than the added value. So current trend we're seeing is consolidation of this spend, and understanding that they won't be able to spend as much on ads since they still to need that 140% ROI, but only on a few channels.
As to measurement, incrementality measurement (usually two methods, ITT (intention to treat, divide your entire audience in 2 parts and show ads to only 1 of the group) or ghost ads (described below) delivers a very clean metric as to whether ad spend if bringing any sort of value and how much value it actually brings. Assuming a healthy p-value is present (aka, assuming advertiser is running enough marketing spend $ that results are significant), that's your answer to how much more you should invest on the current marketing campaigns (or it will show that you need to change your campaigns because current ones are not performing)
Also: please disclose your specific conflict of interest, presumably you have some since you appear to work in the field.
As to conflict of interest, I did mention we work with a lot of advertisers but certainly not a conflict of interest, simply sharing the thought process of advertisers today. When we run incrementality tests, sometimes it shows that the campaign is not performing and then we stop the campaign.
So my comment above is not intended to mean “spend on marketing”, but rather “if you do spend on marketing today, you should make sure it actually delivers incremental value and therefore you should measure that incrementality.
Regarding the efficacy of online advertising, some businesses do notice but at the same time there's a larger question which is the trade-off between what online ads can achieve for different products at different stages.
Imagine a scale from "sitting in front of someone and explaining the value prop" to "an adwords ad."
If you're trying to remind someone about a brand they already know about, or attract them to a value prop that is easily explained online ads are great. If you have an unknown or hard to explain value prop you'd be better off starting elsewhere.
I agree that we need more research. Also, some suggested reading for anyone who's interested:
Traction: https://www.goodreads.com/book/show/22091581-traction (Good comparison of different marketing channels)
Scientific Advertising: https://www.goodreads.com/book/show/2621927-scientific-adver... (1923 book on measuring marketing)
Positioning: https://www.goodreads.com/book/show/760025.Positioning (First book to properly capture the ideas behind "brand marketing")
This is basically tautological though. Yes, the status quo is that advertising drives the revenue that dominates most of the content and app creation that exist today. Who can say what it would be like if advertising were removed? I don't think this is easy to answer, and I'm default skeptical of research since the conflict of interest seems likely in many funding scenarios.
Don't most of us here remember the olden days of the web? When internet advertising was a waste of time and most websites were funded from the pockets of the creators. I mean, even today that's partly common - how many bloggers and podcasters are asking for topup funding.
It's silly and wrong to think the internet would die without advertisers. Big content producers could make fairly priced single article access (don't you remember micropayments? instead we got subscriptions), and generally return commerce to the olden days when people anonymously purchased what they wanted from a shop, instead of signining away access to their bank account and email address (password collection points abound in the modern internet, deliberately or not, and everyone who encourages us to create a password is damaging the personal security).
Amateurs could use such platforms as well as advertising driven tools that are merely less effective at stalking you.
Really it's only the stalkers themselves who would be hurt by such a change.
I am, of course, delusional. But I can dream.
No? I don't think I've ever seen a working pay-per-single-article system, rather than a subscription. The amounts involved are too small, doing a payment for anything less than about a dollar isn't viable.
It's like the situation on smartphones with apps. Many people and companies have tried to get people to pay for them again (like Nintendo with Super Mario Run), but the audience wasn't having any of it, since they'd gotten used to 'free with in game purchases/ads' as the default. So the attempts faltered, and most went back to the exploitative models instead.
I am of the opinion that internet would be a much saner place if advertisement was purely and simply banned.
If you mean journalism, that's a business that has been going out of business even with ads. Advertising is just a historical implementation detail for them, like "printed on newsprint", or "tossed on my porch every morning". It does not look like a serious contender for how to make journalism profitable in the long term, any more than "teenager bicycle delivery system" will continue to be the ideal distribution mechanism for weather reports and sports scores.
The group that operate under commercial reasons can also be split into two groups, those whose primary revenue is from advertisement and those whose primary revenue is from non-advertisement sources. Hacker news for example belong to the later and gain revenue from investing.
To answer the question on how would the internet exist without the subgroup of people who operate website for the commercial reasons of advertisement is difficult as each of those groups also compete with each other, but we can be pretty sure that the other groups wound increase in size.
I'd gladly add a few dollars to have an ad-free web and I bet many people would as well.
Othertimes, the same way we breathe air for free. [Some things are too difficult to contain.]
Still other times, the same way we drink water for free. [Some things aren't really free though they feel like it. Instead, we pay for them at another point.]
Please review page 22 to see that there has been a significant shift towards digital advertising since 2010.
TV typically caters for the big brands who want the mass public to know about their brand/product.
Targeted advertising is starting to emerge on TV, where you basically have the digital model of targeting and ad at an individual, the cost per individual is then higher than broadcast ads.
Now, how does that apply to e-commerce? I don’t see the linked chart showing these changes.
There are many other structural shifts that a simple trend in a given Ads sector would show.
That isn't the best question. Businesses spend stupid money on advertising in the mere hope and faith of grabbing attention. Sites like Google (the actual search engine) are really good at measuring effectiveness because their entire revenue model is built on micro-auctions measured by engagement.
The better question is: If digital advertising were so effective then why couldn't advertising customers contract to ad suppliers a percentage of their ROI for the supplied traffic?
The real answer is that a traffic impression certainly isn't a retail conversion. Those two are completely orthogonal. The hope is that increased total traffic volume suggests greater potential conversion rates, because 1% (assuming 1% of Google traffic converts on your site) of a 1,000,000 new customers from Google is a larger number than 20% of 5000 users from word of mouth marketing (assuming 20% of that higher quality traffic converts).
Unfortunately, this thinking is severely flawed, because traffic consumes resources and customer support that can be monetized as a fractional cost per user that quickly adds up. After consideration of expenses a retail site is likely still better off with the 1,000 (20% of 5,000) converted users from word of mouth marketing than the 10,000 (1% of 1,000,000) converted users from search engine traffic.
These things can be figured out decisively with precise numbers by analyzing past traffic, search engine spend, and conversion rates for any major online brand. Its just a few numbers with some applied calculus reviewing historical trends. Knowing this some business leaders see online advertising through the lens of a crack addict.
The drug addiction of online advertising for a major online brand works something like this:
1. In order to grow an online presence needs more traffic, so they increase marketing spend.
2. Marketing spend will bring traffic, but its expensive and that traffic may not buy anything. We called this dirty traffic.
3. Increased traffic means more eyeballs on the site not generating revenue, so put online advertising on the site so that those freeloaders can at least deliver some value back.
4. Nobody likes online advertising. Online advertising really repulses people, which is a hit to conversion. This hit is measurable.
5. Since conversions per capita nosedive you are pressured as a business leader to make up for the downward trajectory. Fixing the business takes time. Users take their time with purchasing decisions, which is what we called the buying cycle and this is also measurable. Click through on adds brings instant revenue at a substantially lower margin than a user purchasing anything (even really cheap crap). The hope is the difference in the immediacy of the result makes up for the reduced margin, but it won't.
6. By this point there are a couple of things going on. Traffic grows in a short term as marketing campaigns only (there are some rare exceptions) result in short term growth spikes that can dip once the campaign ends. The conversion rate drops and expenses go up. Impatience increases as the business cannot wait for the natural buying cycle to make up the difference on a macro-economic scale when the revenue from ads is instantaneous and predictable. Since ads decrease conversion need more traffic to feed the online ads to make up the difference, which means more marketing spend and further still more dirty traffic reducing the conversion rate.
Its a cycle of death to e-commerce. I can speak to this because I worked as an analyst and brand experiment engineer (A/B tests) for one of the most well known online brands of the last decade that ultimately failed due to a combination of internal conflict from management and over-spending on marketing. The brand still exists, but its now just a white label owned by its former primary competitor.
If only business leaders can wrap their head around recursive feedback and have the courage to account for it.
> Marketers are often most successful at marketing their own marketing.
I've seen this play out at places I've worked. After raising a funding round, marketing sold the leadership on letting them burn the lion's share of it, even though launching new marketing campaigns was never on the list of reasons we initially went out to raise money.
Most non-marketing management people want immediate and huge results... which are both hard to quantify and impossible to get without overspending or having an insanely lucky idea that goes viral.
Naturally this leads to asking for a bigger budget and promising bigger results, then KPIs aren't met for X, Y, Z reasons, then they're forced to justify the spend, then they either get more budget or get fired and the cycle repeats. Marketing has too many intangibles, so marketers always feel a need to justify themselves out of fear of being an easy target.
Marketing is usually one of the biggest line items for a business.
When your marketing team has little incentive to actually deliver, they're likely to ask for a ton of money only to add impressive things to their resumez, not really to deliver on their promises to the business.
If a founder is in charge of marketing, s/he's got a lot of reasons to deliver: founder's equity.
I'd be nervous if there were a co-founder who is a marketer (unless it's literally a marketing startup).
Take a look at some of the hottest tech companies right now (recent IPO, FAANG, pre-IPO, YC darlings). Would you be really afraid to work for a FAANG, or hot recent IPOed companies like Zoom or PagerDuty, or pre-IPO companies like Stripe or Flexport because of the (co)founders' non-marketing background?
So 3-6 years.
Really, they want what everyone else wants - ability to test ideas and executions before committing to a budget or unreasonable KPIs.
If FB feels like features like facebook marketplace or facebook dating are not reaching as big of an audience as they should, advertising to get the word out about those particular products the company offers is logical.
This article is awesome. In my free time I'm building an advertising platform that topic matches ads off the content of the web pages. No tracking of users.
I'm hoping to allow people to host and run their own all inclusive self contained advertising platform for just a licensing fee. I also have a way to beat adblockers that I'm afraid of bringing to light since I only want it tied to my own companies completely non tracking and ethical ads.
Hope it's not a bubble! Though first I have to finish the work and get a few customers so it's not like I can't pivot if it is.
Proxying ads through as first-party content?
If you really are invested in making them work ethically, consider these ground rules: https://bostik.iki.fi/aivoituksia/random/no-stalking.html
Videos are certainly off limits as a nuisance. However images convey a lot of information very quickly, and can be visually "skipped" in a way text cannot.
When presented an ad for protein powder alongside my workout diets article, I want to see what it looks like. The presentation of the product is an important factor in whether or not I pursue it.
It has to be remembered that advertising is a three way relationship, and all three stand to gain (presuming no scam). This is more complex than financials - displaying an advert leads to a bi-directional association in the consumers mind between the entity being advertised and the entity advertising it. It is beneficial to advertise products that have Brand values similar to yours (or ones you want to appropriate).
In all cases it can benefit the user to be advertised to as a means of discovery.
Many of us forget (or do not realise) that there are (and historically were a lot more) "papers" proudly proclaiming themselves "advertisers". People willingly read pages of adverts in order to discover products and services.
Anyway. Keep the image, it's worth 1000 words.
Some images can be skipped. I installed an adblocker on this browser today because of an advertisement that could not. An obnoxious facial expression on both sides of the article can't be ignored; the subroutines running in a brain to detect faces and eye contact seem to be pretty highly prioritized. That's why those stupid youtube thumbnails are so effective.
I agree, and I think that's part of why I disagree so hard with you on the primacy of images.
I mean, i'm not saying that a preference for text vs. a preference for pictures is objectively right or wrong, it's just a really good example of your aforementioned alignment of brand values between the content provider, the brand doing the selling, and the consumer. pictures are a way of associating your brand with values, but eschewing the (possibly extraneous) extra data in that picture, you are also associating your brand with a set of values.
I am also a consumer of protein powder... but you are way better off appealing to me with text. Ingredients, (tell me what the stuff is made of, and don't add any sweeteners) purity (Test for heavy metals or the like!) and then price are probably the attributes you want to bring forward, if you are trying to sell me a protein powder, approximately in that order. If you instead show a nice picture of the can or have a model preparing some in your ad, I'm going to see that, at best, as an irrelevant distraction. (again, I'm not saying those are the objectively most important attributes of a protein powder, but if you want my protein powder budget, that's how you get it; At a cultural level, the more I feel you focus on the things I care about and the less you focus on things I see as irrelevancies, the more I feel you align with my values.)
I mean, I'm not saying that pictures are good or bad in general, just that advertising with pictures and advertising with text have very different cultural connotations, and that advertising with text only can be a striking alignment with a consumer's values.
For many products and people that will just be the visual appeal, and advertisers target their widest audience.
This is a case where tracking can actually be seen in a positive light - I too think I would be more likely to convert if I saw a datasheet as an ad, but that's definitely not majority. At the same time, obviously fashion ads will convert better as images, in almost everyone.
I... think this is usually unwise. If you attempt to appeal to everyone, you appeal to no one. I personally think one of my advantages when I ran prgmr.com was a consistent brand? At the very least, it was very recognizable. (I don't run it anymore, and I'm not claiming to have done a great job when I did. But I can point out several mistakes I made where I would have gotten... big at least by my standards if I had zigged rather than zagged. I think I did a memorable, if not a good job at branding, and "just get my name right" is... well, it's halfway there.)
Personally, I think that if you want to appeal to different markets, you should use a different brand with a different customer-facing layer, even if in the bowels, the product is produced on the same equipment.
>This is a case where tracking can actually be seen in a positive light
I'm not sure? I mean, I think that the connection between the advertiser/brand values is important, and you destroy some of that if you tailor your advertising to the consumer... if different people get different views of the same brand, well, it's really different brands.
(Also, the decision to track/not track is a brand value decision in and of itself- a rather big one, if you can credibly communicate that to your customers.)
Rephrase that one, please. An image lies more than a 1000 words.
Beating ad blockers is not hard. Just serve them from the first party domain. If you’re not tracking users outside of whatever the first party tracks, you don’t need third party cookies either.
As a former ad tech guy though... I think the biggest hurdle you will run into is precisely the lack of tracking. It’s both problematic for privacy but also crucial for measuring ROI.
But I've been seeing an increasing amount of talk and effort in the online marketing community about finding ways to bring this first party data into the existing third party data collection machines.
If websites start doing this, all it will do is bring the privacy heat down harder, directly on the publishers themselves. I hope that websites manage to operate without sharing that data with the martech world, but I fear that they won't.
I think this is the crux of the issue. Up until now publishers have been insulated from the problem specifically because third party cookies allow it to be not the publisher's problem. If publishers bring this in-house, then the martech market will push for a standard API to allow advertisers to evaluate metrics on the ads they place, which means we've just kicked the can down the road.
Fortunately this is not a distinction that GDPR cares about.
But that would easily be solved by edge server ad splicing. Much easier to trust the CDN than a scrappy content provider. I really don't get why that hasn't been a thing for at least a decade. CDN business just going well enough as is?
Now the immediate, built-in metrics of online advertising have been eroding the business of that industry for quite a while. Those metrics are far more detailed, they boast low SNR and absolute precision as opposed to the murkyness of extrapolated trendlines in polls. It's very tempting to rely only on the built-in metrics then, and that's exactly where the problems the article is exploring are kicking in. Those old-school pollster methods that start with zero data and only measure the continual development of brand awareness plus the occasional campaign trace have something big going for them, which is that the little data they yield is universally relevant, whereas that ocean of numbers that is produced by built-in metrics can easily be a useless distraction or at worst actively misleading. Perhaps our would be wise for big ad spenders to employ some of that "zero data" brand awareness observation that could measure TV ads even when all the ad-spending is going online, into the realm of built-in metrics.
Reading this article I had the exact same thought that I relayed to a buddy of mine. I've built some conceptual search engines on top of LSA.. and my thoughts from the article about brand/keyword targeted advertising is that it doesn't get to the heart of it.
To increase the advertising effects, not just the selection effects, you need to go deeper. Drawing on the analogy from the article a smarter teenager handing out coupons wouldn't stand just anywhere or stand just in line at the store. He would say, okay this is a pizzeria. (Assuming they serve nothing else) The smart marketer should think "Maybe I should advertise at italian restaurants." The analogy doesn't really show the full depth, right? There are many products where you can get some really off the wall potential customers you wouldn't know how to reach based on concept search.
Factoring in "documents" that they're reading online back into the search engine for conceptually similar ads is a good idea.
I hope your method succeeds because it would be a whole lot better than this crappy middle ground that we have right now.
This isn't true?
Advertisers certainly do care. They don't want their ad dollars to be spent paying publishers for content that's controversial because it makes them look bad. It also has the potential to damage their brand.
This actually happened and is what led YouTube to lose a significant amount of ad revenue which in turn created the situation we have now.
I work for Google, opinions are my own.
I read this as 'advertisers don't care about the particular topic of the ad in general.' They don't care if you're watching a DIY home fixit video, or a coder streaming his working session, as long as you're a target for diapers and they're advertising diapers.
“They don't want their ad dollars to be spent paying publishers for content that's controversial because it makes them look bad.”
Because there is a good chance governments will pay for that data in the future.
Or, how about letting the publisher specify keywords they want to attract? I 'd love to have some control on which ads show on my site and do my own tests. If you have setup the tracking right, the advertisers have nothing to lose
Is your unique prop breaking ad blockers? Because category/contextual advertising is not new.
You'll never beat uBlock origin.
Works best in online direct to consumer brands.
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?
Which is the wrong experiment to run. The old adage is that 50% of advertising works, you just don't know which part. You need an experiment to prove that ad spending scales with ROI, as ad agencies claim. That may well be completely false.
Incrementality testing isn’t limited to your advertising as a whole - you can get down to very fine detail as long as your experiment is correctly designed and you wait for stat-sig results.
Specify a set of zones. Target different levels of advertising at these. Look at sales trends. Rinse, wash, repeat.
Note that major corporations often designate specific areas for product testing. The Chicago area, and Australia, see trial runs of McDonalds products and store concepts, as an example.
The fundamental concept of testing advertising effectiveness is not new. Here's an account from 1909 (from one of my faviourite sources on advertising and media, Hamilton Holt's Commercialism and Journalism):
There is a limited audience that can be influenced. Just like house ads on a site (where you advertise to sell your own goods on your own site), there's only so much that is affected because you have finite traffic. There is a curve for every permutation of context (demographic, geographic, etc).
So advertising industries use people as guinea pigs to study the "real effect of their ad dollars". No ethics committee, no informed consent, nothing.
Yet another reason to block all ads.
Internet companies run A/B tests all the time, and it's not controversial.
It is important for a brand to have their own attribution platform that measures incrementality as well as the relative contribution each ad exposure makes toward a given sale.
Both of these things are possible to measure. The problem is that the band of users that display positive ROI (when incrementality is measured) is so small that people don't believe the data.
Additionally, brand exposure is hard to measure and almost completely ignored in digital advertising. Over time I imagine that there will be more research in this area (beyond just measuring an in-view ad impression)
The flip side is that not every campaign, targeting strategy or ad will be incremental. You have to test and retest your way to it. A blanket assumption won’t work.
The fact that Web and AdTech allow the appearance of individual-level targeting does not necessarily make that a Good Thing.
It is something that could work for retargeting existing users but doesn't work for acquiring new visitors.
You define an audience. You split it. You test and measure the result.
What component of that strategy doesn't work for new visitors? Many eyeball vendors (Google, Facebook, heck traditional TV and other media!) are set up precisely to allow for such cases.
One tool with FB lift tests is to make a lookalike audience. FB will then split that audience in two for you so you have a test and control group.
The original test required two ad accounts and keeping your overall advertising static (not changing anything) for the duration. Today it is much easier and has a lot more features.
Google does a search lift test with YouTube as well. You can run a large set of ads against an audience in YT and google will either suppress them for a subset. Then you can see your overall organic lift based on your video ads.
YouTube brand lift is an indirect measure that is hard to translate to actual sales to see if the ads were cost effective.
The math is fuzzy when measuring marketing ads and it is real hard to be truly scientific.
See, e.g., ADVT5440 and ADVT5501 at Webster University, for example:
This course emphasizes the importance of critical thinking in the planning and development of message strategy for advertising and other marketing communications tools. Class discussions explore the decision making process and development of criteria for evaluation of alternative message strategies.
Or in related textbooks, e.g.,
Bob Hoffmann, very influential figure in advertising (http://adcontrarian.blogspot.com/) likes to point out that there were not that many companies which built their strong brand with online advertising only.
OK, he is old and grumpy dude and he dislikes online ads, but this is a fair point. Once company becomes big enough, it strives to buy a Super Bowl ad spot. And we are well into 10 years of internet being mainstream media, but how many brands were built online only? Not that much, and I'm saying it as "online ads work", kind of guy.
Now big company marketers are used to thinking of US as a homogeneous market for efficiency reasons and so TV still works in US if your target audience claims a broad demographic. However, they're beginning to learn that you'll simply not reach enough consumers if your target demographic is say young adults in the West coast if you do a TV heavy plan. US in general lags China in media landscape shift but the media behavior of the more valuable demographics are actually much closer to China than averages tell you.
I might be at a grocery store and I need to purchase something like dishwashing liquid. If I'm staring at two brands on the shelf priced identically (or near enough) I'm more likely to purchase the brand I recognize over a brand I've never heard of. How do I recognize the brand - from advertising.
That is not something you can measure with tracking metrics embedded into a banner ad. I'm sure there must be studies on impact this has.
The other thing I suspect online advertising works very well for is service based businesses, the kinds of things you used to look up in a phonebook. The last time I needed to find a plumber I typed my suburb name + plumber into search engine I imagine a lot of people do similar.
Can you name one?
I find it very hard to believe there are any companies that have scaled up only using online adverts. Why would the founders of a business do that when they can grow in their local market by talking to people as well as buying online ads for wider reach?
The bad news for digital direct response advertising is that the platforms are starting to remove the knobs that actually let people determine and optimize their ROI. Google is in the process of actively removing ad functionality and data that has, historically, been crucial to ad profitability. Google claims their machine learning can see much more of the data available, so "trust us." Perry Marshall, Google ads guru, has recently held several webinars about "Why Google is Objectively Evil." Not pretty.
From the article: "Suppose 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. Pizzerias do not attract more customers by giving coupons to people already planning to order a quattro stagioni five minutes from now."
It's the same in online marketing, you often target people who are searching for say a pair of shoes. People who are searching for shoes have way higher baseline probabilities of ending up buying a pair of Nikes, whether you show them a Nike ad or not. So if you do not correct for this 'selection bias', you have no idea what your ad did.
The research I describe in the article clearly shows (and please look it up yourself, the links are all there) that selection bias is HUGE, and that it's hard to know ROI, because true advertising effects are tiny if you measure them in an experiment.
Not saying all advertisers do this, but it's pretty basic data science. You should always have a control for every experiment you run.
When I was younger, I would read over and over "don't do X" when reading about how to repair a car or write a program. And I would think, if this advice is everywhere, how could anyone miss it?
And then, over time, I learned that there is a whole culture of doing things wrong, in many areas.
I saw a lot of youtube channels and reddit posts discussing how to optimize their ad spend (for example, https://www.youtube.com/watch?v=1O6feWOsbLs)
In the video the person starts a new online store and shows how he measures his return on advertising investment. It seems to be a pretty direct correlation between his ad spend and his increased sales.
How do you match up your thoughts on advertising with the prevalence of these kind of "advertising success stories"?
Hardly any of that applies to a small store with no brand awareness, since there is little/no of the "would have clicked anyway" mentioned in the article.
Another problem with measuring can be the competition. Building/Changes brand awareness (incl relative to competitors) takes time and seems unlikely to possibly be fully measured in a short experiment. Especially if the competitor currently doesn't run ads... but you not betting for them anymore might change the price and thus calculation for them.
There's no digital marketing bubble more than there is a traditional advertising bubble. There IS however a conflict of interest in advertising that's caused by the agency which performs the advertising being tasked with showing a return on investment.
I do think it's more accepted in traditional advertising that we just don't know how well it works. In digital advertising there is a grand illusion of measurement.
I spent 6 years working in ad-tech, and I was researching the incrementality effect of ads, selection bias and stuff like that for last 3 years. I want to let you know that your article is good. Online advertising is not a bubble, but your article perfectly explains why it is much harder than it seems.
In online advertising there are few people on the inside who think that non-brand advertising is a bubble. It just works too well, in too many places, and too many people are making money using it. It's reliable and effective, and those just aren't attributes associated with bubbles.
Yeah, attributing everything to the last-click isn't the best measurement in the world. But as pointed out elsewhere there are techniques to avoid it.
And there are enough direct-to-consumer brands which launch on Instagram and do nothing else to be able to see how effective it is.
"Irrational exuberance" is a famous quote about the 90s stock market/internet bubble, and it was in 1996, when the party was just getting started.
Some news sites make ads agreeable if it meshes well with the content (like NY Times and such).
The bottom line I think is that there’s too much competition for my attention and it gets exhausting unless the ads are really well thought out (original ideas) or subtle—in which case the probability of me seeing the ad is less, but the effectiveness most likely increases as its less like an ad and more like relevant content
Most of the people I grew up with today know that it’s Miller time, that sometimes you feel like a nut, sometimes you don’t, or that coke is the real thing. They learned that from TV.
Online ads? They don’t trigger anything for me. They either need to deliver information contextually, deliver preferred placement for something I’m already looking for, or be deceptive.
True. I acknowledge here that anecdote is not a synonym for data, but I will offer that despite those phrases having been seared into my brain for most of my life, I don't actually drink Miller, eat Almond Joy or Mounds, or drink Coke.
Ad quality these days has gone down for sure. Everything is formulaic and established and safe, yet nearly every major ad over the course of advertisement history was major because it was the opposite of these. I guess quantity has gone up to compensate.
To burst a bubble, you don't have to show them something that works better, you just have to convince them to stop drastically overpaying for what they've been buying.
I do growth and run experiments for a living for DTC brands. I liked this article but the research on ebay brand advertising is missing the point about competitors. If you have competitors bidding on your brand, I've seen multiple times really strong degradation on performance.
If someone searches "nike shoes" they might well get them on someone else's site. Whereas someone in the pizzeria is already buying at the pizzeria.
I agree it's important to measure, but I think your concern is overblown for most companies and most non-branded searches. Assuming those companies are measuring.
The problem is: yes, there's only a tiny chance somebody who searches 'nike shoes' ends up in your store. But the probability that someone ends up in your store BECAUSE he saw your ad is even smaller. So if you don't correct for selection effects your going to overstate ad effects by orders of magnitude.
Another study is about display ads, paid for per impression. The study gives an average figure of 0.02. These are also not the typical successful google or facebook ad campaign, and are more akin to old tv ads.
The 66 page FB study isn't clear, but it also seems to be talking about ads paid for per impression? This is not what people talk about when they say you can easily track online ad returns.
Ppc ads are easy to track. You send a user to a special landing page, and you know exactly when someone got there via an ad, as only people who clicked ads go to those pages.
That said, a lot of advertisers don't do this, so they'll definitely have very real measurement problems.
This is funny, because on HN you often see complaints about online advertising being horrifically bad because "it suggests me the products I have zero interest in", hence "online advertising sucks".
But that's the whole point! These people are complaining that they are not getting pizza coupons when they are entering pizzeria!
If it will suggest you something you are interested in already, chances are, you will buy it anyway. And if you will be suggested something strange and you will buy it, it will be incremental customer and incremental sale, and you might even become a regular client.
For me, the key bits of advertising are a) knowing the product is available b) knowing that its specifications meet my needs and c) knowing the price. Without knowing those things, I'm unlikely to buy the product. If I know (a) and (b) and want the product but haven't bought it, then I'm probably waiting on (c).
Perhaps this is an argument for the "coupons in the pizza lobby" (or at least "coupons in the food court") type of advertising. I actually like the sorts of printed catalogs/advertising circulars that stores like Target or Best Buy provide at the store entrance, because although I may have gone there to get one thing I may end up picking up another if conditions (a,b,c) are favorable.
Magazine advertising seems to work this way; if I pick up a copy of Mac|Life magazine then I'm probably already interested in Apple products as well as compatible hardware, software and accessories. Unfortunately Mac|Life is pretty anemic at the moment (along with most of the remaining computing enthusiast print magazines) so this model seems to be in trouble for print magazines at least.
With Mac|Life the decline of third-party Apple dealers probably hasn't helped, and probably the likes of Amazon and Wal-Mart don't feel they need to advertise there. But I'd like to see more ads for software, because the Mac and iOS app stores are still pretty terrible for discovery.
Otherwise, causal inference is sadly not easy.
of course if the advertisement platform is simultaneously a dominant search engine, they can simply choose to directly modulate your discoverability through the search engine, in which case it is closer to extortion as others point out.
as a potential buyer, I'd much rather have (economical) censorship free decentralized platform where every manufacturer / seller can advertise products / parts with relevant specifications / metrics. Think DigiKey, but without a central arbiter. Obviously a lot of products that are actually superior are superior because they have a better understanding of what people need than what conventional metrics show (say not just the cheapest capacitor, but perhaps the cheapest capacitance divided by electric series resistance or whatever, for a certain niche use). This would result in placing the burden of comparing products among the manufacturers, who will also make up original but useless metric formulas with the sole purpouse of making their product rank highest. So instead of having to browse products, people are browsing metrics, and it's up to both manufacturers and end users to communicate the utility of each end metric.
Something I don't like about the parts selectors like DigiKey et al, is that I can filter and rank according to proposed properties / columns, but I can't enter a formula in terms of properties, to show me the highest ranking. I always end up having to download and scrape the full list of parts so I can perform this ranking in a spreadsheet... If their search fields allowed formulas, and if people were logged in, the manufacturers / resellers could contact you to find out what made you formulate this specific metric or loss function, which gives feedback to the manufacturers what buyers are interested in. It would also give the sellers opportunity to correct the buyer that in his or her design the buyers' metric is faulty, and point out why...
Could you unpack this a bit? (I'm not making a point or anything, just confused and curious and not sure that googling would help me understand.)
FYI - you're not clearly delineating between capturing intent, prospecting, and branding. Worse, your using intent capture as a catch-all for all advertising. That's not how it works.
> Pizzerias do not attract more customers by giving coupons to people already planning to order a quattro stagioni five minutes from now."
The alternative is that the Pizzeria does zero promotion and those who are interested in "ordering a quattro stagioni five minutes from now" end up going to somewhere that does.
Ads, on Google specifically, is a zero sum game with an auction based fee structure which mostly is about capturing potential customers' intent to buy. This is the true "evil" of Google, as you basically are forced to pay a tax on all online intentions to purchase via a search from Google (it's also why Google is so scared of Amazon...hence, Google Shopping)
> and that it's hard to know ROI, because true advertising effects are tiny if you measure them in an experimen
It's impossible to know equivocally why a person makes a purchase, digital, traditional, or otherwise. Theres a lot of research on this topic but until its conclusive, we'll never have a "true" ROI.
It's obviously hard to convince an advertiser that her work is meaningless.
YMMV but for the vast majority of campaigns, the algorithm does know better.
Disclaimer: I've built bidding systems for multiple ad companies, so I'm surely biased towards "the algorithm knows better".
Advertisers utilize algorithms too. But it gets more difficult when Google removes/limits access to information and knobs.
How many ads are direct response? How many are simply clicked because they are just above the same website's entry in search results (i.e. users were already heading to that site, the ad was just there as google tax)? How many legitimate clicks on an ad that did not led to sale are discarded by google as "invalid clicks" (my adsense report has 20% invalid clicks) ? It's kind of shocking that the internet's most lucrative market does not answer those
I saw research which indicates that it is a good idea to pay the google tax. Users heading to your site may get distracted by your competitors or other stuff. The more ads are shown the less organic results (which are not easy to control) are visible without scrolling. In best case, the search results are showing your ad immadiately followed by your organic result, making up the whole screen real estate. Wherever the user clicks, he ends up on your site. Also, cost per click tends to be lower for brand search terms.
I think a lot of people would be interested on similar examples
The other aspect of online ads that strikes me as ingenious but probably not sustainable is the way Google inflates the auction system with fake money. Anyone who's run a website will have received a letter offering hundreds of dollars of free advertising with Google. Of course, it's an auction so the presence of that money just drives up the cost for everyone. Google wins every time!
This was and is surprising to me. The only explanation I have is competitors bidding on our brand keywords and taking traffic that would have come to us absent any ads. Which makes the whole thing look like a nice racket for Google. Regardless, for now we pay since the alternative is apparently to lose those users.
Either the legitimate site pays to be first, or it can watch customers go to hell, literally.
I can say the big problem in the examples in this article is the keyword selection. For example ebay advertising the word ebay to customers who are googling the word ebay is probably fruitless for the most part. Those people were already looking for ebay and would find it with or without the ad.
However if you are a lesser known online auction and you use the keyword "internet auction" or something similar, it would probably help.
This article, to me, seems to be more about the importance of experimenting and critically evaluating the data rather than an actual indictment on online marketing. With online marketing there is no clear answer: what keyword you bid on, how you target, how you write your ad copies, how your competitors are behaving all come into play. It's difficult for anyone to parse through those factor and really come out definitively as to whether online marketing is effective or ineffective in general. We can only do the smaller measurements and see if our particular ads are effective for our particular business, which in the end is all any of us who buy ads really care about.
This article assumes that:
- All online advertising is Google search
- That brand search advertising is representative of the entire industry
There are plenty of companies making double-digit ROAS (return over ad spend), especially direct response advertisers.
The problem with all online advertising is that there are huge selection effects, which are hard to correct for using conventional statistical methods. So you need to do experiments. And when economists do experiment, they find that advertising effects are so small that they are hard to measure.
For smaller companies that are just starting out, it's relatively impossible to have prior intent when people don't know who you are or what you offer. There are a number of companies who started with nothing and grew their business via online ads and this seems like a giant blind spot in the article as well as the studies that you mentioned.
But is that number statistically significant? some do, how many others tried the same route and failed, how many grew without it, etc
Experimental design, analysis of variance are such. E.g., for the farmers and from the corn fields and hog pens of Iowa:
George W. Snedecor and William G. Cochran,
The Iowa State University Press,
These methods have been widely used in the social sciences -- e.g., my wife, Ph.D. in mathematical sociology from Hopkins, got quite good with that material. The field is quite serious and mature and goes well beyond just A/B testing.
For the practical challenges of the article, academic fields closer than economics include statistics and optimization.
For the Lagrange multipliers in the article, those likely would be from the Kuhn-Tucker (Karush-Kuhn-Tucker) conditions. There without some special assumptions, e.g., having to do with cases of convexity, the conditions are only necessary for optimality and not sufficient. Generally in practice, it is more difficult to get sufficient conditions.
Yes, correlation does not necessarily mean causality. Usually showing causality needs a mechanism; in practice showing causality just from data and/or statistical methods is difficult and rare. But in practice, correlation can be powerful enough to take money to the bank.
Google and Facebook are 60% of the market, so if it would be only them this is important.
(Disclaimer: I've built multiple bidders & ads incrementality models over the years so I'm probably biased against the "supply" side of ad inventory).
And it only takes a moments thought to realise that once everyone starts doing this, the marginal rate of return is going to be driven down to the going rate in the rest of the market.
Like any other investment, if it sounds too good to be true it almost certainly is.
(1) Size of Company vs. ROA
(2) Advertising Expenditure by Company vs. ROA
(3) [Advert %] vs. ROA
I hypothesize you'll see a rapidly decreasing return on advertising due to size, and would love to be proven wrong.
Retail companies are blind to just what a shit-show their websites are (a lot of them even have ads in their online store). Any company that solves this problem for their sector will win it, and this is good news for techies as every company can and should have a unique solution.
It doesn't have total domination of ecommerce but frankly it'd run into anti-trust issues if it did. No company is going to do ecommerce bigger than amazon without getting broken up so yeah... amazon.
If coupons and discounts are the best the competition have to offer, then Amazon doesn’t have too much to worry about.
(1) Yes, I know that Amazon sells some millions or some such different products, but my experience shopping (recently moved and have done a LOT of shopping) is that the company making the product can have a good enough Web site that shows much wider range of products, e.g., for wool blankets many more colors and patterns.
(2) To me the key to Amazon is their quite well done Web site that makes it easy (a) to find products and (b) to get relatively good information about them. But can do well on (a) with just keyword searching at Google, Bing. For (b) can do well at the Web site of company making (importing, whatever) the product.
Then, yes, Amazon also pleases customers with better, faster, cheaper shipping options, their Prime program, good returns policies, relatively close warehouses (Walmart stands to do really well on this as they get their Web site polished), customer reviews of products, Amazon Choice house brand, one account for all the wide Amazon product choices instead of (having to type in banking, shipping details for) accounts at each of a few dozen companies, etc. I have found that if just go shopping at whatever on-line retail sites, can get some bad products, worse than my experience at Amazon; so, Amazon can have some trust from selecting relatively good product. It may be that Amazon can be responsive: The mid-tower case server I built supports error correcting coding (ECC) on both the motherboard and the processor; so I explained to Amazon that for their main memory sticks (DIMMs, duel in-line memory modules) they should offer ECC; they did, and maybe my suggestion helped. Still, IMHO the keys to Amazon have been just (a) and (b).
From the shopping I've done recently, it appears that a lot of retail Web sites just copy a LOT of software architecture and design from the Amazon Web site. So, we can expect that building such a retail Web site is becoming a widely, well understood art and, thus, no longer an advantage for Amazon. Indeed, the company might host their site at Amazon's cloud server farm AWS -- irony here!
Net, it looks to me like the US manufacturers and/or importers can start to do well cutting out the middleman Amazon. Ah, Internet disintermediation!!
Uh, shipping from many local warehouses? When I was at FedEx, and maybe still, shippers could just truck their inventory to Memphis and, thus, get faster, cheaper delivery to their customers -- order in before midnight and delivery before 10 AM the next day, that is, in about 10 hours. Well, FedEx and UPS could still do such -- open a few hundred warehouses, let vendors stock the warehouses with big trucks and deliver to customers with little trucks (bicycles, taxicabs, drones?). Again, a dozing if not sleeping giant here is Walmart.
Case in point: I'm in the market for a new TV. Based on my experience with prior TVs, I believe I want something with high contrast, low reflections (glare), low response time, and high color gamut coverage. Well, some balance of those criteria weighed against price. I'm new to the TV market: how do I find this (on Amazon or elsewhere?)
If I expand, the situation might seem worse. I'm tangentially familiar with two modern display technologies: LCD and LED. I know LEDs offer higher contrast and quicker response time. So I search for LED TV on Amazon. Most of the results do indeed have "LED" and "TV" in the name, and nothing on the product page suggests anything different. But look up detailed specs for that model (which takes some determination in and of itself) and it has none of the characteristics of an LED TV. The contrast is low, the response time is high, in fact it turns out it's an LCD TV! Apparently the industry markets using LED to mean LED _backlight_, which to me was misleading. So what class of TV will get me what I'm after? There are places to figure it all out, but Amazon sure as hell isn't one of them. Nor is Best Buy, Walmart, or most other retailers you've heard of. They still do an awful job helping you find what you're looking for in many cases.
For a mail order / online retailer, visit this page at Crutchfield:
Then click the red text "Explore Articles & Videos", just above the listings on the right side. Their TV Buying Guide has good visual explanation of LED-LCD vs. OLED, for instance.
Depending what you look for, calling them and chatting can work too.
// Keep in mind with any review site or retailer, paid review placement can be a thing.
shit-show or not, when I'm buying something online I strongly prefer buying directly from the company's website over using sites like Amazon.
My purchasing pattern goes like this: I want something, I search (using DDG) the web for what companies offer what I want, then I go through the companies websites to decide on where I'm going to make my purchase.
I'm certain that I don't represent the most common sort of customer, but I'm also certain that I'm not alone. Ads are irrelevant to me (I block all scripting, so I rarely see ads), so if a business wants to increase the chances that I'll check them out, what they really need to do is SEO.
Using cloud services to cheaply farm the clicks reported by the ads seems obvious.
That we collectively turn a blind eye to it is the most disheartening part.
I can't recall myself ever seeing an ad for something I did not already know of and then spending money on it.
Whenever I have found something that I didn't already know and then purchased it, it has been because of word-of-mouth (including online comments), reviews or recommendations/features on digital stores like Steam, GOG, App Store etc.
When I go to the movies, people will laugh or agree at the most stupid ads. I don't think most people educate themselves or their children about not engaging in such content. It's why those morning shows that are really just ads in disguise are still airing today.
From a sidebar ad though? Of course not, and I never will. They do get accidental clicks from me sometimes though.
Probably not, but nevertheless their efforts to polarise thinking and support the formation of echo chambers have been quite successful. While selection effect has indeed been disregarded often, in the case of CA it actually amplified the outcome.
My issue is that the article doesn't demonstrate selection effects dominating over advertising effects for companies with no major brand identity. The examples cited to back the case - eBay (which is huge), "large" retailers in the case of Facebook ads, "major U.S. retailers and brokerages with millions of customers" per Lewis and Rao 2015 - are all established companies that have already received substantial presence. Where are the experiments that demonstrate selection effects dominating over advertising effects for companies with no pre-existing brand identity e.g. The Correspondent (sorry, I couldn't resist :P)?
Second issue: the article demonstrates convincingly that
brand-keyword ads are broken, which is great. But at the same time brand-keyword ads are not (to my knowledge as a former engineer at an SEO company, so it could be imperfect) the primary kind of keyword ads. A brand-keyword ad is when someone types in "eBay" and you get paid eBay links - but the majority of keyword ads (again, this is from memory) are targeted keyword ads e.g. someone types in "fur coat" and Macy pays Google to put a link to its "fur coats" pages. Equally interesting, multiple companies can pay for the same targeted keywords, meaning you can have multiple links pointing off to different sites on the same page.
The pizzeria analogy explains why brand-keyword ads make no sense monetarily (someone searching for your brand specifically will find you anyway), but it falls apart for the targeted keyword space, where people are searching by items but not by brand.
Given that much of SEO and digital marketing are target-based rather than brand-based, I'm not sold yet on the ineffectiveness of digital advertising overall.
Not to be a jerk, but almost none of the best minds in SV or of my generation are economists.
Yet still in 2019, when I google for "Amazon" I see an Amazon ad?
Color me skeptical.
I doubt the marketing guys at the worlds biggest companies are that out of touch with reality.
Would love to know why they do it though.
Chanel and every fashion brand that has a reall business in selling stink, Coca Cola, evian, Mercedes, JP Morgan ... We could list them all day. In fact just about all companies that rely on brand perception. All of them Beg to differ
with that. And they have market cap that backs that view.
Glossy magazines, television, fancy Cinema ads, Point of Sale, event sponsorship. Nothing online. Ever. At least that I'm aware of and who can miss their advertising without which they have zero business.
Especially consider the stunning success that is Chanel selling $100+ bottles of stink that literally has a manufacturing and delivery cost of cents each. Cost of goods sold is a little higher than that when they include the brand marketing. Without it, not doing much business. Elon Musk has achieved the same, not stupid fashion shows but he is a media event and it reinforces Tesla's brand - that's brand marketing. He's brilliant at it. It's been weeks since a huge Musk media circus, he's hired the onion writers too, must be one worth millions coming up in your favourite news source soon...
It's funny, I tried the same experiment and saw no ad. Also tried ebay, no ad. I wonder how they're preventing other people from bidding that search term up.