March 4, 2008
The diminishing returns to advertising
The other day, I described my scepticism about advertising networks on the internet and whether technology would replace the traditional interaction between ad sales forces and media buyers.
John Hagel, whose thoughts on business are always worth reading, has chimed in on the topic with a long post. He states the problem facing advertisers intriguingly:
The basic paradox of the Internet can be framed very simply: The very platform that makes advertising both more relevant and more measurable is the same platform that longer-term will challenge and ultimately undermine the basic role of advertising in communicating with customers.
While I focused on the difficulties of collecting valuable online inventory, John frames the challenge more broadly: the diminishing returns that online advertising is beginning to experience. We may even be seeing signs of that in search advertising, given Google’s travails.
It makes me wonder whether advertising is not simply going to transfer online but will be cannibalised in the manner of other media industries. That has already happened for classifieds; might it spread to display advertising as well?
There’s an important point about internet advertising that has been overlooked.
They used to say the key to success in retail were the three Ps: position, position and position. In a way, for the traditional retailer, rent was a form of advertising, because it bought the ultimate form of promotion: that crucial spot on the High Street.
For the online retailer, however, it’s position on the virtual High Street that matters. Or to put it another way, it’s position on Google. That is why, for online retailers, there are still three Ps, but now they stand for promotion, promotion and promotion. For these companies, advertising will come from the budget that was once set aside for rent.
That’s why I believe online advertising is set to carry on growing for some time.
There’s a second point. 12 years ago, when the Internet was still the domain of techies, advertising on the medium seemed to be considered an anathema. I used to be told that Internet advertising would never take off because users would not allow it.
It seems to me that the argument put forward by Mr Hagel is just a 2008 update of that older argument.
It was proven wrong then. It will be proven wrong today.
Whenever there are mass audiences, and whenever there is information about these audiences, advertisers will always find ways of addressing them.
Posted by: Michael Baxter | March 6th, 2008 at 2:55 pm | Report this comment