May 10th, 2006

Online Ad Rates Accelerate the Advertising Death Spiral


I’m not making this up — brands really are eschewing paid media advertising and are instead creating their own media 2.0 platforms for connecting with consumers directly. And the web makes it possible, because anyone can create media AND because spiraling online ad pricing are driving brands to more quickly abandon the paid media ad model (from thestreet):

Believe it or not, Google and Yahoo! don’t always benefit when companies advertise online.

Increasingly, huge advertisers ranging from Dunkin’ Donuts to Anheuser-Busch are trying to lure consumers directly to their own sites with content and promotions — potentially bypassing the largest search engine and top Web portal. Both companies are eager to capture more spending from brand advertisers.

Though Google and Yahoo! are too huge to ignore entirely, the incentives for marketers to try and lure consumers on their own are increasing. Space on the top Web sites is becoming increasingly scarce, and rates for banner ads and video content are rising.

Examples of the direct marketing 2.0 approach:

Dunkin Donut’s D Stop
McDonald’s Global Casting
Pepsi Worlds’ Sports

Meanwhile, media execs remain clueless about this sea change:

FEE-BASED MEDIA SERVICES OF ALL kinds will increasingly give way to ad-supported models in the next few years, according to media execs on a panel discussion titled “Defining the Next Generation of Mobile Consumers,” part of the Mobile Entertainment Symposium hosted by Banc of America and Interep at the Grand Hyatt in New York City.

Remember that you heard it here (if not here first) — advertising is in a death spiral. I can’t predict how long it will take, but the evidence is mounting daily.

If you’ve got content or a web service, better hope someone will pay for it directly, because the days of the convoluted advertising subsidy business are numbered.

Comments (12 Responses so far)

  1. Scott Karpsuggests that as online ad prices go up, advertisers will find creating their own media instead of advertising to be a more effective means of marketing and brand-building. He quotes [IMG]

  2. Power BibleCD: Easy-to-use Bible software for Windows. … 2006 Phil Lindner, Online Publishing, Inc. All rights reserved. PO Box 21 Bronson, MI, 49028, USA. … CyberiaNet Cyberia Lebanon, Internet Service Provider. Publishing 2.0 ” Online Ad Rates Accelerate the Advertising Death Spiral Online Publishing (16) Online Video (1) Open Web (5) Orwell (2) Pegasus News (1) Podcasting (1) … I’m not making this up brands really are eschewing …

  3. Scott,

    I first started reading your blog because you were a voice of calm who recognised the values in Web 1.0 were applicable to Web 2.0. Now it seems you have caught some kind of “bubble fever” which has the unfortunate symptom that you feel compelled to declare that anything 1.0 is dead, dying or unecessary :( Please get well soon.

    Advertising prices are going up because demand is high, not because it is declining. Demand is higher because advertisers now realise that they can advertise online effectively. The market is growing, it’s the nature of the spend that is changing. Whether a company spends money on ads, direct mail, or in-house marketing it’s still money spent on promotion.

    As I mentioned recently in my post Social networks are (Demographic) Search Engines, much of the future of advertising on the web is personalised direct marketing. Companies, particularly those in food service, have always used direct marketing to reach their customers; it’s just that the tools to do so on the web have not been that great so far.

    You have overestimated the ability for humans and corporations to effectively to do their own marketing. Just as a blogger is not a media company, a burger company is not a media company. It is unrealistic to think they can, or should, be able to deliver the kind of results that are required to consistently gain attention in the market. Ad agencies and media companies are simply better at collecting potential customers. Note that all the campaigns you mentioned were created and promoted (using PR and advertising) by intermediary ad agencies, using the clients’ advertising and promotions budget.

  4. Yes, but to back up Scott’s point, Dunkin’ Donuts is just cutting out one middleman– they still hire professional marketing people to create their media experience, branding, etc. They’re just bypassing ‘networks’, be they internet, television, radio, etc.

    There’s no reason to think that a large proportion of the smarter people who work at NBC, TNT, ad agencies, marketing firms, etc. etc. won’t still have jobs and be making money in the future, as you need something to attach your brand to, because Dunkin Donuts is just not that interesting all on its own. There is no reason for 99% of people to ever have anything to do with Dunkin Donuts outside of their retail operations unless they create a reason for you to do so. And it’s not going to be done in-house because retail coffee is a tough business in and of itself; creating and managing an in-house creative team nimble enough to respond to changes in customer behavior, etc. is just too much trouble.

    Marketers, creatives, people who can make interesting stuff will always have jobs because our system allows (and indeed depends on having) many choices of similar products, and an emotional response needs to be imparted into those products to give them resonance in the consumer’s mind. There will always be a group of people who are able to synthesize an appropriate emotional response that will create long-term value, and those people will always be in demand– it’s just that artificial networks which depend only on very basic brand-attachement (advertising in blocks betweek content) will not be as cost effective in the future as personal choice keeps expanding, and bottom-up networks define what people consume.

  5. My personal favourite has to be My Dog Blog. Large fonted, user created blogs – Real web 2.0 pedigree.

  6. Advertising almost certainly isn’t in a “death spiral” – it’s just evolving with the internet.

    As to corporates creating their own communities – IMO this is never going to work for a lot of markets. People simply don’t want to be “owned” by a brand unless it’s a helluva brand, and offers something real in return.


  7. For these corporate sites to prosper, they need a lot of eyeballs.

    Yupper, a great site experience and word of mouth/mouse can get you some eyeballs, but it will take a lot more promotion for these companies to get sufficient enough traffic for their website traffic to impact their success.

    The game just changes. Sure, you no longer need to do what P&G did, by producing the soap operas, on somebody elses network. But you still need an audience for what ever content you put up on your site.

    That is bubblish speak, indeed.

    So, it’s fun for us all to figure out the new creative solutions. But, definitely an overstatement, to call this a free-falling spiral.

  8. [...] [...]

  9. The reason firms like Dunkin’ Donuts and McDonalds are doing promotional stuff like you mentioned is that no one is searching for ‘cheeseburgers’ or ‘donuts’ online. That’s less an indictment of targeted online marketing and moreso an affirmation of the fragmentation of media consumption (which is bad for brand marketers).

    My own opinion is that the economy *is* going to get really, really bad soon & for 5-15 years, and that a large general downturn in the economy will hurt the advertising industry. Within that, though, online marketing will fare much better because it’s more measure and still under-utilized relative to traditional media. Also, keep in mind that advertisers will improve their conversion rates & that will allow them to continue to spend more on online advertising; likewise consumers will get their online purchase behaviors worked out so that they convert more often themselves.

  10. [...] Online Ad Rates Accelerate the Advertising Death Spiral. Not many of his commenters agree with him, but Scott Karp has another worthwhile and provocative post about the end of advertising. [...]

  11. [...] Maybe, I told the Santa Monica audience, Microsoft isn’t chasing a share of a $500 billion advertising market after all. Maybe it will only be a $250 billion market. In subsequent postings, Scott has suggested even that may be optimistic: "The network effect turns everything into a media platform, while at the same time obviating the need for media as a marketing vehicle because brands can use the network itself as a marketing vehicle," he wrote on May 4th. "So, you have the new media/technology industry orienting its collective business model toward advertising … at the precise moment when the paid media advertising pie may be on the verge of shrinking." "Advertising is in a death spiral," he added last week. "I can’t predict how long it will take, but the evidence is mounting daily. If you’ve got content or a web service, better hope someone will pay for it directly, because the days of the convoluted advertising subsidy business are numbered." [...]

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