1. There Must Be Something Other Than Advertising:
The
expected drop in internet advertising revenues this year was neither
unpredictable nor unpredicted, nor was it caused solely by the general
recession and the decline in retail sales. Internet advertising will
rapidly lose its value and its impact, for reasons that can easily be
understood. Traditional advertising simply cannot be carried over to
the internet, replacing full-page ads on the back of The New York Times
or 30-second spots on the Super Bowl broadcast with pop-ups, banners,
click-throughs on side bars. This might be a subject where
considerable disagreement is possible, if indeed, pushed ads were still
working in traditional media. Mostly they have failed. One newspaper
after another is going out of business across the United States, and
the ad revenues of traditional print media, even of highly respected
magazines, is declining. The ultimate failure of broadcast media
advertising is likewise becoming clear.
Pushing a message at a
potential customer when it has not been requested and when the consumer
is in the midst of something else on the net, will fail as a major
revenue source for most internet sites. This is particularly true when
the consumer knows that the sponsor of the ad has paid to have this
information, which was verified by no one, thrust at him. The net will
find monetization models and these will be different from the
advertising models used by mass media, just as the models used by mass
media were different from the monetization models of theater and
sporting events before them. Indeed, there has to be some way to
create websites that do other than provide free access to content, some
of it proprietary, some of it licensed, and some of it stolen, and
funded by advertising.
The idea that content has a price and net
applications should find ways to earn a profit without providing free
access to other people’s content gets explosive reactions; when virtual
reality pioneer and tech guru Jaron Lanier suggested in a New York
Times Op Ed that authors deserved to be paid for their content he
actually received death threats. But other models are possible and
several suggestions for alternative forms of monetization are offered
below.
2. Advertising will fail:
The
internet is the most liberating of all mass media developed to date.
It is participatory, like swapping stories around a campfire or
attending a renaissance fair. It is not meant solely to push content,
in one direction, to a captive audience, the way movies or traditional
network television did. It provides the greatest array of
entertainment and information, on any subject, with any degree of
formality, on demand. And it is the best and the most trusted source
of commercial product information on cost, selection, availability, and
suitability, using community content, professional reviews and peer
reviews.
My basic premise is that the internet is not replacing
advertising but shattering it, and all the king’s horses, all the
king’s men, and all the creative talent of Madison Avenue cannot put it
together again. To analyze this statement we need a working definition
of advertising, and I proposed the following, which is as general as I
could make it:
Advertising is using sponsored commercial
messages to build a brand and paying to locate these messages where
they will be observed by potential customers performing other
activities; these messages describe a product or service, its price or
fundamental attributes, where it can be found, its explicit advantages,
or the implicit benefits from its use.
It is frequently argued
that the advertising industry will provide sufficient innovation to
replace the loss of traditional ads on traditional mass media. Again,
my basic premise rejects this, suggesting that simple commercial
messages, pushed through whatever medium, in order to reach a potential
customer who is in the middle of doing something else, will fail. It’s
not that we no longer need information to initiate or to complete a
transaction; rather, we will no longer need advertising to obtain that
information. We will see the information we want, when we want it,
from sources that we trust more than paid advertising. We will find
out what we need to know, when we want to make a commercial transaction
of any kind. The conventional wisdom is that this is exactly what paid
search helps us to do, but all too often they are nothing more than a
form of misdirection, as I explain further below. Instead, we will use
information that we trust, obtained at the time that we want to see it.
Better
targeting of ads using individual interests and individual behaviors
will ensure that we do not bore or annoy as many people with each ad,
but cannot address the trust issue. As for paid search, it is closer to
other mechanisms that allow a website to sell access to potential
customers. It works effectively as a revenue source for Google, of
course. But it surely is not replicable for the average content website.
3. Advertising will fail for three reasons:
There are three problems with advertising in any form, whether broadcast or online:
Consumers
do not trust advertising. Dan Ariely has demonstrated that messages
attributed to a commercial source have much lower credibility and much
lower impact on the perception of product quality than the same message
attributed to a rating service. Forrester Research has completed
studies that show that advertising and company sponsored blogs are the
least-trusted source of information on products and services, while
recommendations from friends and online reviews from customers are the
highest.
Consumers do not want to view advertising. Think of
watching network TV news and remember that the commercials on all the
major networks are as closely synchronized as possible. Why? If
network executives believed we all wanted to see the ads they would be
staggered, so that users could channel surf to view the ads; ads are
synchronized so that users cannot channel surf to avoid the ads.
And
mostly consumers do not need advertising. My own research suggests that
consumers behave as if they get much of their information about product
offerings from the internet, through independent professional rating
sites like dpreview.com or community content rating services like
Ratebeer.com or TripAdvisor
Yes, both network executives and
their ad agencies have noted that we are not watching traditional ads,
and they attribute this to the fact that we have moved beyond
newspapers, televised network news, and broadcast movies, to video
games, iPods, and the internet. Porting ads to a new medium will not
solve the three problems noted above. The problem is not the medium,
the problem is the message, and the fact that it is not trusted, not
wanted, and not needed.
4. Alternative models for monetization are available:
Again,
my research suggests that there are three general categories for
creating value that can be monetized, including selling real things,
selling virtual things, and selling access. Some websites exist solely
to sell real things. Many of the best-known perform aggregation of
demand, so that there will be enough customers to justify stocking and
selling items for which there is only limited demand. Amazon is merely
the best-known example. Sites like Amazon and Zappos are especially
good for long tail items … where else do you go for a copy of the Green
Sea of Heaven, Elizabeth T. Gray’s magnificent translation of the
Ghazals of Hafiz, or for a pair of size 20 basketball shoes? Selling
real things online has been studied since the advent of interest in
eCommerce and will not be discussed further here. Other websites sell
virtual things. These activities fall into three categories:
Selling
content and information, from digital music to news and information.
Some of these sites are funded by subscriptions, like Gartner Research;
some are by direct micropayments for purchases, like iTunes; and some
currently attempt to fund themselves through advertising, like Business
Week or The New York Times, while still searching for a more effective
business model.
Selling experience and participation in a
virtual community, including Second Life and World of Warcraft,
Facebook and MySpace, Flickr and YouTube, or LinkedIn. Not all of
these have found a way to charge for participation.
Selling
accessories for virtual communities, like completed homes and stores,
furnishings, clothing, and pets in Second Life or characters and
accessories that would be difficult to earn in World of Warcraft,
although this behavior is generally despised by serious World of
Warcraft players.