I basically agree that what Amazon (and Google for that matter; disclaimer: I work for Google on display ads) is intent and intent is huge. Much as Facebook would like to become the de facto Internet, I don't see it ever capturing that intent (let alone Twitter).
That being said, I think people discount what an inordinate amount of good advertising has done and just focus on the negatives (eg the "shit you don't need"). For example:
1. While you might be able to afford a few dollars a month to pay for the cost of GMail, as one example (note: I have no idea what the cost would be here; I'm just making up numbers), would you? People are highly reluctant to spend on this. But more to the point, what about people in Africa or Asia for whom a few dollars a month is a significant sum of money? Those people can enjoy the same service with an ad-supported model; and
2. Traditional advertising channels (print, radio, TV) weren't affordable to smaller businesses. Things like Adwords have allowed many businesses to exist that otherwise couldn't before the advent of online advertising. How many jobs do you think this has created and supports?
But I do see the whole "eyeballs-then-advertising" SV model as peaking if it hasn't already. Facebook may well be the 800 pound gorilla that broke the camel's back on that one.
And while the author notes that advertising space is growing faster than purchasing power not all advertising space is created equal. What you simply has is a diversity of distribution channels for your advertising. That's a good thing. But not everyone will succeed with an ad-supported model, that's true.
To the author's problem of working on big problems, I agree. The fact that SpaceX spent less developing a launch system and reentry vehicle than was spent buying Instagram  with its 13 employees makes me sad that so many bright minds are working on the apocryphal social network for cats.
: I realize with the 50%+ drop in Facebook's IPO price, that sum is now significantly less.
2. To address the second question, the cost of traditional media: Adwords made new businesses more feasible because of the intent harvesting. It allowed people to pay to advertise to consumers who specifically wanted something, as opposed to a demographic block.
Instead of advertising to every 25-55 man who might want a corvette, they could advertise to men who were thinking about a Corvette right now. Previously, it cost serious bucks to reach those men thinking "right now" because it was dumb luck -- advertise to enough men in the right demographic, hit a few guys who had the intent.
To a significant extent, the additional data provided by Twitter and Facebook is no better or more useful than traditional demographic data made available by TV stations. Knowing you're a soccer mom with an SUV in Baltimore is only slightly more useful than inferring that from the market, income bracket, sex, and age group of viewers on a TV block.
Worse, a lot of that broad-demographic advertising is branding. It will always be easier to make an impression with a 30 second full audio/video TV segment than with any kind of internet ad.
Twitter/Facebook targeting information might be revolutionary in combination with TV ad inventory. Pairing that same data with internet ad inventory is (patently) not nearly as valuable, and it never will be.
For the "desirable" 1st world citizen, that's still free - it's stuff they do anyway. Everyone else either pays the $10 or goes elsewhere. Win-Win-Lose
What ad platforms like Facebook, Google, and most others is missing is some form of curating. A hobby of mine is woodworking. In the past I have been involved in amateur radio and know several people who still are. We homeschool our children. I bring this up because when I encounter a magazine on one of these topics I buy it, largely for the advertisements. I want to know what products are available. Repeated another way, not only am I looking at the ads, but I am PAYING for the privilege of looking at the ads. Why? The ads are always on target, directly related to the topic of the magazine. The number of scam ads are close to 0. I don't click on an ad to be taken to a "landing page" asking me for an email address to sign up for a service that doesn't exist yet.
Want to fix ads online? Develop an environment where the ads are that good that I want to see them and will not be wasting my time.
What's in the ads that makes you enjoy them?
Using Google for example, in addition to the natural cost of its services, we one way or another pay the following additional costs:
• Cost of building and operating Google's ad infrastructure and business. Huge.
• Cost of ad production, ad agency, and other overhead. Huge.
• Cost incurred by the advertiser's competitors who don't need to advertise, but are forced to do so to not lose customers to the other. Expensive advertising arms race ensues. Huge.
• Social cost. I'd argue this is the largest. The health of society, democracy and the free market rests on the populace being well informed, not misinformed, not manipulated. The rare cases where advertising is honestly informative are far outweighed by dishonest or manipulative advertising. If you don't see this, I won't try and convince you right here, right now. There are better ways to inform the public about good products, for example something like Yelp but without Yelp's conflict of interest which stems from, yes you guessed it, advertising!
Who do you think ultimately pays these new costs (in addition to the original costs)?
As to your point about the developing world, or the poor for that matter: I think you are trying very hard to feel better about your job. I understand. I had to work on an advertising system for a few years. But advertising often targets the least informed and the least educated in society, and when it does, it wreaks its greatest social cost.
I'd dump money at Google if they monetized Gmail. While Google brand is great and proven, other services that are 'free' gives me the impression that it won't last and not safe or guaranteed. Gmail is the exception - and I'd fork money gladly if they ever decide to charge for it.
I know that's not a particularly popular opinion, but looking around me, I can see several things I first heard about via advertising, later purchased, and still enjoy.
Bad advertising's bad - not all advertising.
What sort of businesses? SEO?
You fail to to recognise that business directories aka the yellow pages in some countries were around long before Google or Adwords existed. That's where small business advertises.
Neither Google nor Adwords is anythng like print, radio or TV. It's like the yellow pages. Except Google has has the lure of being a gateway to noncommercial content. There's reason to use Google even when you have no intent to purchase. There's little reason to use the yellow pages unless you are planning a purchase of some sort.
As such you have millions of people looking at Google search pages who are not looking for anything commercial in nature. And that audience presumably makes Google look like a more attractive place to advertise to a small business than the yellow pages. Whether it is actually more effective for these advertisers in terms of sales is another question.
We come back to that word again: intent.
For an advertiser, targeting a large crowd of people, _some_ of who may have an intent to purchase might seem more appealing than targeting a small group of people who _all_ have intent to purchase.
Whether it's more cost-effective for small business to devote its limited resources toward targetting the crowd or toward targeting the small group is still an open question. For Google, it's not necessary to answer that question. As long as advertisers believe the big crowd, which may include lots of people lacking any intent to purchase, is a better choice, there's no reason to question if it's true.
Maybe public libraries should start selling ad space? Surely some patrons might have an intent to purchase or could be persuaded to make one.
Google has its origins in a web-based library project at Stanford so this comparison is not as bizarre as it might sound. Subtract the non-commercial "library" aspect of Google and what's left? Adwords? SEO? Content farms, on-demand "articles" laced with display ads?
There are many, many industries that rely on brand awareness to sell there goods. There is an amazing quote which I unfortunately couldn't find that goes something like this:
"In order to reach the small segment of the population
that is interested in buying Mercedes, everyone in the
world must know what our brand stands for."
This is kind of misleading.
We certainly do need a substantial portion of that two trillion dollars worth of consumer packaged goods.
Perhaps not all of it - the electric powered corn buttering gadget is not a "fundamental need" - but things like kleenex, towels, soap are pretty basic, no?
I drank the bottle of water on my nightstand when I woke up this morning in my hotel. I was a bit hungover and feeling lazy. Advertising had nothing to do with it. I wanted the bottle of water to make my morning a little easier.
Yes, people buy things they want but don't need! It's almost like there's more to life than the raw inputs the human body requires.
No, you merely wanted water. It could have as easily been a pitcher and glass and would have satisfied the want.
Actually, no it wouldn't. If you read closely, my want was not water. I'd say my want was closer to convenience. I explicitly did not want to pour a glass of water, my other (free) option.
I wanted to chug down 16 ounces of clean H2O and roll over. Which I did. And it was awesome. Well worth the 2 bucks the hotel is going to charge me. In fact... I'm probably going to make the same decision tomorrow morning. Explain that!
Edit: waiting on a cab, so I'll be even more explicit. This morning I woke up, exhausted after a week of travel and a night of whiskey. Ad usual, a bit confused and not eager at all for my last day of work here in California before I fly home tomorrow to NYC. definitely going to sleep in another half hour at least. I know I need water but I don't even want to move. I can walk to the bathroom but at that point I might as well get up for the day. I look over: cheapo bottled water. The kind where the plastic is so thin you start to crush the bottle without trying. That decision takes less than a second: I grab it, unscrew the smaller-than-a-soda-cap cap and literally squeeze the entire bottle's worth down my throat in under 5, 10 seconds. Sated, I turned onto my stomach, buried my face in a pillow, and welcomed the sandman.
No way a pitcher and glass beats that. Even for free.
Since the $2 isn't much at all to me, that's all the more reason to treat myself to the bottle of water. I don't call that delusion, I call it not sweating the small stuff and living in the moment. Feel free to call it conspicuous consumption, but I'm not sure who you think I'm trying to impress with this story. I'm not sure such a person exists.
You're the one who thinks that my blowing a couple bucks for a nice moment in the morning is evidence of some kind of bane on society. Justify that, why don't you? I've given you my entire thought process.
We all agree that bad advertising is annoying. We all agree that most advertising today is bad advertising. But that's no reason to stop working on advertising.
EDIT: Advertising is a $600B a year industry. It isn't going to disappear. Improving advertising seems like a good goal to me. Yes there are loftier goals, but this is a good one.
EDIT: I'm fascinated by the downvotes. Could someone comment on how I've violated the guidelines here?
"Please stop working on ads. Pick an unsolved problem instead. Not only it’s potentially better for the world, but also you’re more likely to raise funding and cash out. Oh, and if you’re an investor, don’t touch ad-based stuff. If you do, you’ll be very uncool"
Apps powered by ads are a different kettle of fish but advertising is still a big deal for media and publishing businesses.
Media and publishing business are dying. What a strange example to illustrate a point.
There's a lot of room to operate between "curing cancer" and "not enriching anyone's life".
Your second sentence is a type of an argument I've encountered numerous times, but I can't seem to recall what it's called. I may get back to this later.
We have different definitions. I feel many things enrich my life from literature and magazines to cars and restaurants or walks in the park. And - drum-roll - even Hacker News ;-)
Media and publishing business are dying.
Some are. Many are thriving and growing, including mine.
I don't disagree with the point, but we've seen a deluge of these recently and not a single one has had something fresh to say. Pissing all over people working on ads, is the new working on ads.
Then stop reading them? Things get repeated, rehashed and re-posted all the time. Just be glad we arent talking about Bitcoin again :)
Personally, I would love to see these articles on HN everyday, at the top, just to make sure every software engineer has seen at least one.
The generic complaints re: "traffic first, fuck revenue!" is true, but like the above, is neither a new statement nor is it one that really needs popularizing - it's already being repeated ad nauseum in the community.
There's also a whole side of marketing being discounted - which is that it is not always necessary for ads to convert directly to a sale. Coca-Cola, for example, invests a great deal of money in advertising without the expectation that each impression convert directly to a sale. Brand maintenance is a valid field, but that's besides the point.
Your post is simply repeating a point that's been hammered home, repeatedly and enthusiastically, by various people over the last few weeks. It's getting pretty old. Which isn't to say the topic should be verboten, but can we refrain from writing another diatribe against the failure of ad-based business models unless we have something new to bring to the table?
 And another thing, and this isn't necessarily pointed at you - but these "screw ad-based business models!" posts seem to have come about mainly after the poor Facebook IPO. There are a lot of people cashing in on the schadenfreude, writing "I told you so!" posts. It all strikes me as self congratulatory and needlessly vindictive.
It's rehash of arguments that occurred the very second facebook and twitter became popular.
Weeing all over kittens is the new old.
It turns out that most successful consumer internet companies in the last decade have had to turn to some form of advertising (FB, Google, Yahoo, Twitter, Pandora, etc). And knowing how to build those systems makes you someone in high demand.
All those companies you've mentioned have huge problems which points them directly at the revenue streams they've bet on.
Facebook is taking a beating because they can't monetize the fastest growing mobile sector.
Google is desperately working against the clock to beat the bubble by branching out in all kinds of industries unrelated to AdSense
Yahoo has been bleeding money for a decade
Twitter is in the same position as Facebook sans the stock market pressure
...and Pandora has been charging monthly fees for a service because they've seen the writing on the wall.
No company on that list is doing anything exciting or disruptive that's tied to ads. It's a dead end.
"The people you know". Yeah.
It's a problem in desperate need of a solution simply because there are so many services (yelp, craigslist, pandora, etc.) that are free to users but expensive to build and maintain. It would be a shame to miss out on the next generation of ad supported content simply because we gave up on trying to make it profitable.
That's why I'm proud I work on ads. Let's take a step in the right direction (RESPECT THE USER!).
If free social networks were banned, a lot of people would still pay $5 or $10/mo to use Facebook. But since a law like that seems unlikely in most countries, people will always gravitate to a free solution or some other method of monetization more creative than direct payment has to win.
Not sure though about Facebook, HN, Reddit, etc. since they would be so much less valuable without large user bases.
What motivated me to write it is that in the past few weeks I've met SEVERAL entrepreneurs who are starting businesses that would have no choice but to depend on ads. I'm almost at the point where I want to start a campaign to convince people that this is a bad idea, given how many other important problems are not receiving enough attention. I'm not saying that people should become missionaries. Many of those problems will create huge companies. Data suggest that starting a traffic-driven business today is like starting a new Hotmail.
This would be a good place to mention some of them.
While true, it's not useful -- there's lots of evidence that there are people who feel the other way. Ideas for companies that have no more of a business model than "attract eyeballs" seem to do just fine, and there are notable examples that do more than just fine (e.g. Google). The point has been made many a time that human attention is not easy to get, and there are people willing to pay money to get some fraction of that attention.
My pet peeve is when sites that do not need to carry advertising carry large amounts of very annoying advertising -- I'm looking at you, Amazon, with your "Product Ads From External Websites", which you occasionally trick me into clicking because it looks like "Customers Who Looked At This Also Looked At". Or, far worse, is eBay, which is so inundated with ads that I find it almost unusable.
 The exception, I guess, being companies that are in the business of serving or enhancing ads.
That's really the most important part. These are the companies spending their money. Why do they want to "waste" their money on those sites if as the author states nobody goes there to buy things.
1) That's where people are. People spend 8 hours a month on Facebook out of an average of 32 total hours a month online - 25%. A company would be stupid not to want to be seen there. I'm sorry, but if your business is selling things to the average consumer, the average consumer is on Facebook. They go there to be social with their customers, friend, like, share, and follow. That leads me to my second point...
2) It's not about selling (right now). The OP makes a huge assumption that ads lead to clicks lead to sales. Ever seen a TV ad? Do you think TV viewers stop watching the program to run to the store to buy Tide? No. It's about branding, having a marketing message and making sure everyone sees it. The 30-second elevator pitch. Then when they ARE in the mood to buy, when they ARE in the store, they think about your product. "Hey, I need a new X soon, maybe I should check out product Y I've been hearing about."
I can certainly see how people can think "there's no intent to buy" on Facebook and Twitter and maybe that's often true, but that's not even the point. And ad-supported businesses will always always exist although it might not be the best model for you.
On a side note, what if you are building a startup to deliver ads? :) (Any thoughts on building a startup for ad-tech)
To play devil's advocate, if only 1 in 100 people are willing to pay for your service, how useful can it really be? I'd think those 100 people are more qualified to judge how useful it is for them than the person who built the service.
Then you are starting in an overcrowded space. The only reason that the first internet empires have been ad-based is because it is the easiest and most obvious business model to try, given the existence of a large and rich existing advertising industry that is already used to supporting a lot of old media. It is not a particularly innovative business model however and is also probably not the biggest pile of money on the table.
Likewise, I'm not sitting on the couch watching prime time television and thinking, "I need a new car, I'm going to start my research by watching car commercials." Nor is it my intent to "start my research" for any product that appears in magazines, or road side billboards, or any other similar form of advertising. Of course, that's not the purpose of those forms of advertising and OP seems to have a fundamental misunderstanding about the subject.
I don't have a problem taking checks from advertisers as long as they're willing to write them and neither should anyone else.
"A stat like $3.5 million for 30 seconds of airtime may see a serious hit in the future as advertisers realize that the internet can yield just as big an audience as football without having to go through NBC."
Ok, and until then the advertisers are still writing checks. You're not making a point that convinces people to stop using an advertising revenue model right now.
Typing the name of a product into Twitter often times tells me exactly how people feel when they are using it. This is especially true of entertainment items like movies, games or apps.
Facebook - I've been known to post "does anyone have/know/own/used a .... " and wait for my peers to tell me if it's worth it.
Online advertising is clearly a viable business model. The article correctly points out that aggregate purchasing power has grown slowly so their is more fighting for the same pool of dollars. The problem is not that advertising is a bad business, it's just a smaller business than some investors and founders expected. Facebook brings in hundreds of millions of advertising dollars per year. Not bad.
1 million uniques a month => 10,000,000 PV/month => $5 CPM => $500,000/month => $50,000/month => $600K/year.
Sounds great, but then you realize coming up with 1 million uniques by yourself is highly unlikely, and will probably depend on high costs as well.
Side Rant: Those people saying 10 million users is the next 1 million users... most of them are investors who invested in Twitter or Instagram. They have NO clue how hard it is to get even 100K users, let alone 10 million or 1 million. Give me a break.
Yes, it's the uncreative default revenue stream. Unsure how to make money? Ads! But that's also a good thing - there's a default internet revenue model that works.
If you can make money via freemium/premium/whatever, bully for you. But don't knock ads just because you think the smartest minds "should be curing cancer, not optimising CTRs". Ads have helped support many world-changing web services. It is not a coincidence that 8 of the top 10 websites are funded primarily by advertising.
I got interested when a vBulletin site I frequent added a Facebook "Like" button. I was amazed at how much crap went back and forth to Facebook every time I visited a page. I didn't have a Facebook account at the time, but it prompted me to switch to Firefox fulltime and install NoScript.
The model of facebook or twitter is not wrong. It is the same used by TV ads, newspapers etc. you try to target your potential consumers that might be perfectly good passive buyers. Not only people that search for an Hawaii vacation would buy one ....
Tough problem though. I don't want Google without ads. For other web properties like my favorite blogs to read, NYT, etc. I would be happy enough to make micro payments if doing so was really easy. (Actually, I do pay for the NYT, so why the ads?)
Maybe the conversation should be about easy to use and secure micro payments.
I dare any search engine to start charging. Go for it.
They would end up like Twitter is going to end up (if they continue down the path they're on).
If you have to bet on which site I'd most likely actually be on on a random afternoon at 2pm, it wouldn't be Amazon; it would almost certainly be facebook.
There's nothing wrong with ads - just make them good and make sure it aligns with the product (Adsense).