Friday, August 16, 2013

Why more digital advertising options is not helping digital advertising

In my last blog post, I stated that the ever growing overload of digital advertising options for advertisers is becoming an issue.

Specifically, I said: “In my mind, the growth of ever more platforms, solutions, apps, options and choices is simply beginning to be too large. As a result, both consumers and advertisers might start to retreat and choose only a limited number of (in their mind) relevant options, leaving 90% of what is out there to fight over crumbs of attention or ad dollars.

In fact, perhaps the overload of digital advertising options is turning out to be a hindrance for the digital advertising industry to mature and not a conduit. More in this case is probably worse, not better.

Here is how I have been thinking about it. Let’s see if you follow along and agree.

Simple economics teach you that whenever there is a lot of “something” available through multiple suppliers/sellers, then prices for that “something” typically go down. Remember the price tag of the first CD or DVD player?  The price tag on a Levi’s 501 when they just came out?

This notion is why the Department of Justice in the USA has just filed suit against the proposed merger of American Airlines and US Airways. The DoJ argues that in a lot of markets the merger will lead to less competition coupled with a decrease in flight capacity and as a result prices are likely to increase. Brett Snyder, aviation industry blogger and Cranky Flier Extraordinaire, has a very different view (based on a pesky thing called facts) in case you are interested.

But the point is: competition and large supply drive costs down. Good for the consumer. But tough for the companies duking it out because margins will become, well, marginal and income comes under pressure.

And in the case of digital: also difficult for advertisers as the number of options and choices simply become so overwhelming that it leads to lethargy and not innovation.

By the way, when I say “digital” I include in this all platforms, whether they are consumed on a computer, tablet, phone or even connected TV. To me, there is no difference between them, and they are only first, second or third screen dependent on the user’s time, place and reason to be on them. I’m just sayin’….

Let’s look at online video. There is a HUGE amount of inventory available. YouTube alone offers 150 content channels and I believe there is like 70+ hours of video uploaded every minute. Then there are the HULU’s and Vimeo’s of this world, as well as Netflix, iTunes, Amazon, TV stations, etc., etc. And all of these content suppliers are fighting over a limited supply of eyeballs: yours.

HULU used to be able to command a pretty terrific premium price for its offering because they had content that nobody else had. They would sell one pod of advertising prior to the content and as an advertiser you would be king in terms of attention and impact.

No longer. The content is now available across a multitude of channels (can you say “monetization” by the content owners?) and so HULU’s pricing came down. Because that led to lower income, they increased (surprise!) the number of ad options. Here is a link to their advertising options page. It basically is whatever you want…

Let’s look at Facebook. Here is a screen grab of a very early Facebook (via Mashable). Nice and clean, huh?

facebook screenshot_ad

Now let’s look at a screen grab of my FB feed from just a few days ago. There are no less than 8 advertising messages there and only one piece of content I actually am interested in. This amount of clutter and uninvited noise is a real turn off for consumers. And it will only get worse because the pressure on FB to deliver income and profit to the street is unrelenting.

Now think app store. Between Android and Apple there are hundreds of thousands apps. They don’t all depend on advertising revenue, or solely so. But even if it is half of them, good luck selling at a cost that is going to make you rich…

I think you get the picture, right?

So, as the amount of advertiser options in digital increase, three things will happen:
  1. The consumer will switch off, tune out, throw up a firewall, pay extra for ad free environments, write to their congressman to legislate, etc.
  2. Platform owners will generate less and less income and margin, and the bubble will burst. 
  3. Advertisers will (a) struggle to figure out where to allocate among the myriad options (and as a result defer to the tried and tested. In other words: mass media and crappy promotions that say “Like us, and…”). And (b) they will pay ever lower advertising cost as prices will come down as a result of the overkill, which brings us back to argument (2) just above.
The outcome can only be ugly...

Like I said, I see the first signs appearing. In my last post I referenced the first challenges to FB’s audience. And this week I read a very interesting article about the biggest danger to FB: how not to become the next Yahoo (= big but challenged).

And then there are the VC’s, and I quote from a Pando Daily article: “A new study out today surveyed hundreds of investors around the globe. VC’s in 11 out of 13 countries had less confidence in the social networking/new media sectors than last year. That dip was even more dramatic for the US, with VC’s ten percent less sure about social then they were in 2012.”

And finally, there is this tool to “clean up” the mess Facebook is making of your newsfeed. FB didn’t like it and threw it off FB, but you can get it here (no endorsement and I have no idea if it actually works). And it is kind of ironic that they allow advertising on their site... for a tool that will (allegedly) clean up advertising on your FB feed.

So what do you think? Is it all a sign of the times or is it all good?

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