Traditional Advertising: Is Anybody Really Watching?
Like many online video companies, we have been plotting, planning and scheming about revenue models. Trying to create compelling models by sorting through the hype, mis-information, and data of limited reliability is daunting. Sometimes, it’s tempting to resort to the business strategy dartboard instead of even bothering. But, the latest buzz about Microsoft buying the news from News Corp. has had some surprising side-benefits. Primarily, it is causing the smoke to clear and people are talking about their numbers in more specific detail.
Through some number crunching hocus-pocus, the Columbia Journalism Review estimated that the Wall Street Journal probably gains no more than $12 million per year in advertising revenue derived from Google traffic, which represents 25% of their traffic. Think about that for a moment! According to BtoB, The WSJ has a paid circulation of 2.08 million subscribers and 25% of their online traffic is yielding them only $12 million dollars? Gosh, no wonder this stuff has been in the news so much lately. Seems like a crisis!
But, for as much as I respect a lot of the bloggers and analysts out there, I think they often miss the point. Derek Thompson at The Atlantic describes the problem like this:
The central struggle of monetizing online news is that ad rates for web pages are significantly worse than the print ad rates that once buttressed newspapers. So for a newspaper publisher like Murdoch, big online traffic helps, but it doesn’t pay for a sprawling roster of reporters and editors. Somebody’s gotta break the tyranny of revenue-light banner ads, eventually.
Derek is missing the point. There is no tyranny involved here, and banner ads are not “revenue-light”. They cost what they should given their effectiveness. Derek’s way of phrasing the problem illustrates the collective denial prevalent among those who have built their fortunes and livelihoods based upon traditional advertising models. What we are seeing is not the inequity of web-based advertising, but rather what economists call “creative destruction”: the displacement of an economically inefficient mechanism with a more efficient one.
What is “traditional advertising” and why is it dying?
I hate to use a phrase like “traditional advertising” that is bandied about so frequently without being a bit clear about what I mean.
Traditional advertising has been with us for a long time, and is based upon the idea that, by exposing large numbers of people to a message, some percentage of those people will be influenced and some number of them will spend money on the products being advertised. With traditional advertising, you pay to have your message seen, regardless of whether it actually leads to purchases of your product. The advertiser is thus one level removed from achieving their actual goal: sales.
This is a weak proposition at best, but advertisers have been trained well over the past century to believe in it. The various advertising pseudo-sciences of Madison Avenue have convinced advertisers that promoting a product is a “numbers game” and that large exposures lead to sales.
As an example of how completely engulfed in fantasy traditional advertising models are consider that a one page ad in the Wall Street Journal currently costs $277,646, with no guarantee that even one customer will buy your product, visit your website, or provide you with their email address or phone number! For more than a quarter million dollars you actually get nothing. Maybe you get a warm feeling of hope. Certainly you get nothing you can measure unless you spend even more money on your own resources to track and analyse the outcome of placing such an exorbitant ad.
Contrast this with Google AdWords. With Google, you pay nothing for exposure. If your ad is seen by 10 million people, you pay nothing for the privilege whatsoever. What do you pay for? You pay when interested people click and visit your website. You can measure the value of that and you can see exactly what you have spent your money for, and since they clicked, you know you already have their interest and have culled through millions of eyeballs to zero in on the one that is worth spending time on. If your website is effective, you can drive that visitor toward sales.
Paying for exposure is inefficient, high risk, and unpredictable. Paying for actual visits by interested potential customers efficient, measurable, and low-risk. AdWords is damned effective, and Google has found a way to make it affordable.
If you think about Derek’s claim that somebody “needs to break the tyranny of revenue-light banner ads”, you can see how ridiculous it sounds. Indeed the opposite will happen. Instead of people paying more for banner ads, more technologies like AdWords will begin to predominate. Improvements will be made and they will become even cheaper and more effective. Companies who measure their advertising dollars wisely will see that spending money for exposure is a waste of money and gradually more and more dollars will move to mechanisms which assure customer engagement.
At some point, even traditional billboards and other offline exposure-based advertising models will suffer. Why spend money on exposure when you can assure that everybody with an iPhone or other mobile device has access to what you have to sell, and you end up paying only for those people who actually call you or visit your store? True, it may be a while before the genius of online methods like AdWords graduate to mobile platforms to create this “pay only for what you need” model. But, my guess is it will happen sooner than we think and even companies who never considered the web important will see that “digital” is the only answer.
Advertising: Even the concept itself is in trouble
We have been brainwashed into believing that advertising is the method used to reach customers with new products. Remember when that was true? In 1988 I introduced a new product for my company and I remember vividly that advertising was the only method we considered for growing our market. We advertised in Dr. Dobbs and other publications, eventually we advertised in PC World and PC Week. It worked!
Today, things have changed. If you have a new product, there are myriads of ways to tell people about it. You can blog, Twitter, get involved with online communities where there is a need for your product. You can exploit every free avenue online, including news groups, forums. The more you believe in your product, and the more dedicated you are, the easier it is to find dozens or even hundreds of ways to get the word out. You might even, as a last resort, advertise. But, if you do, you will measure your dollars carefully against all the free ways you have been using. Only truly effective advertising is going to appeal to you.
This drastic change is often completely ignored by traditional advertising “thinkers”. The idea that the world could survive and economies could grow without any advertising at all is blasphemous. Yet, if you think about it, maybe it’s possible that advertising, as a concept, is in as much trouble as the Compact Disc.
People still buy, people still sell
Some things never change. People still love to buy products. Companies still create products to sell. Today, there are more ways to inform people about products than ever before. Advertising is no longer the only way to reach people, it is just one. And most traditional advertising is stuck in an age-old model that costs much more than it needs to and is fueled by a myopic ignorance of what makes economic progress occur.
So, the next time you read about “the crisis of advertising”, please don’t lament the passing of traditional models. There are better ways for customers to find and buy your products. Eliminating a wasteful and inefficient means to connect the two isn’t a crisis. It’s progress.
