This article makes a huge mistake that many entrepreneurs also fall victim to:
You and your friends are not the Internet.
There've been studies done on who clicks on ads (one was even linked here). It's midwestern housewives, the same people who watch daytime TV and enter magazine sweepstakes. I don't know a single person who watches Jerry Springer, enters sweepstakes, or uses MySpace over FaceBook, yet those people obviously exist. They're worth billions of dollars.
For that matter, my friends usually don't pay attention to TV or print ads either. They Tivo past the commercials or get their TV episodes off BitTorrent. They skim past the advertisements in magazines. They only look at the newspaper classifieds if they're actively looking to buy something.
A bigger problem for entrepreneurs is that roughly 99% of startups seem to target the same 10% of the market - the part that doesn't click on ads. If your users come from TechCrunch or Digg or news.YC, it's a pretty good bet that they've learned how to filter out ads. Most of the big consumer-web success stories - MySpace, PlentyOfFish, and lots that we don't hear about because they're not plugged into the Silicon Valley scene - succeed because they target a demographic that most of us can't identify with.
Hank's right on. It doesn't matter if they click, because without purpose (intent to buy/find) the click is proportionally worth so little as to be nearly worthless.
As Agent Smith says: It's purpose that created us. Purpose that connects us. Purpose that pulls us, that guides us, that drives us. It is purpose that defines us, that binds us.
What you find, with some modest rounding, is that print circulation is about 10% of total audience reach, while online advertising revenue is 10% of total ad revenue — the economics are nearly the perfect inverse of what they should be.
actually, as the commenter below indicated, according to jackob nielsen's research, I am absolutely right.
http://www.useit.com/alertbox/banner-blindness.html
Summary:
Users rarely look at display advertisements on websites. Of the four design elements that do attract a few ad fixations, one is unethical and reduces the value of advertising networks.
The unethical here is tricking people into thinking popups are system dialog boxes.
The economics of the situation are clear. 100,000 magazine readers is a business. 100,000 web readers is lunch money.
I'm sorry, but you've completely ignored the comment you're replying to to make an unsubstantiated point. Nostrademons pointed out current research that states clear demographics interested in advertising. Jakob Nielsen's research presents generalized findings that don't contradict the research Nostrademons is referring to.
actually no I am not ignorning his point. Its just not statistically meaningful. The truth is that of the people that click on ads, they are midwestern housewives. But there are statistically not enough of them to make many services that rely on them profitable. TV and print are broadly successful at attaining users attention. The web is not - at least for display ads.
Well, he's right, though not exactly for the reasons he states.
Display ads are in fact worth much less than search ads, for most web sites. Display ads aren't about clicking, they're about exposure/influence (kind of like outdoor or TV ads without an explicit call to action). There the CPMs are much lower, since they by definition less effective at producing sales. (though they are not completely valueless, since eyeballs without immediate conversions may still eventually convert)
He's also right that most people's idea of "making money on the internet with ad-supported" has in mind the glory days of $4 CPMs on banner ads. We haven't been there since '01 or so. So everyone's economic model is screwed up.
There are only two (and a half) ways to make money with ad-supported content on the internet:
-- 1) Conventional CPM display ads-- but you have to have millions of pageviews a month, and extremely low marginal costs, to make this profitable.
-- 1.5) Conventional CPM display ads, but on a extremely valuable niche site (e.g. a forum for doctors or lawyers). Here, though, there are probably more profitable ways of monetizing than ads.
-- 2) Extremely SERP-friendly content with adsense/affiliate ads: If your content is targeted enough that it appears in a Search Engine Result Page (or if you can arbitrage the traffic through paid search), then you can get visitors who are in search mode (marketers call this "intent"), who will click through to your site, and then click an ad on your site related to their search. Think "mesothelioma" splogs.
If none of these work for you, you should consider alternate monetization methods (freemium, subscription, traditional bizdev/affiliate programs, etc).
I mostly agree with the author, but I also think it depends a lot on the ads that are used.
For instance, I think most people have become very good at mentally filtering out Google AdSense ads. But relevant, attractive, eye-catching advertisements still work occasionally.
Case in point, I have a site that I run mostly as a hobby (shameless self-plug: http://devfunnel.com) that has both Google AdSense and SnapTalent ads. The SnapTalent ads have always fared a LOT better than the Google Ads. I think the reasons for this are 1.) People tune out Google Ads, and 2.) The SnapTalent ads are more relevant to the readers, and often the verbiage on the ad attracts users' attention.
I also tried to make the ads blend in with the site visually.
I've gotten similar results on my blog (I guess I won't shamelessly self-promote my blog). The AdSense ads are largely ignored, the SnapTalent ads get hits. I've removed the AdSense ads from the blog because they were kinda tacky and not making money anyway.
I can see why print ads would be more effective for things like brand awareness for large companies, but I can tell you that running a small MMORPG, I am getting over 3:1 return on investment on Adwords image ads.
If I ran a print ad, people would have to care enough about the ad to put down their magazine, go over to their computer, type in the URL and then play the game. Banner ads catch people who may be idly clicking through gaming sites and are just as happy to click on my banner ad as any other link. And that click and subsequent download are so easy compared to what would have to happen with a print ad, I find it really hard to believe that print ads would have a better ROI, at least with the budget I'm spending at which is about $4k per month.
He makes several good points about how internet ads are ugly, easy to ignore, not as sticky as print ads, etc. In spite of these drawbacks, internet ads are compelling for providing ROI metrics and targeting abilities. And they are gaining in sophistication everyday.
The next round of ad serving technology being built now will be all digital and medium agnostic - you can push your ad on radio, tv, browser, social networks, apps, billboards, etc all using a single interface with granular targeting, ROI reports and even retargetting based on geography, past history, relationships, etc. Think Minority Report.
I disagree, I think display ads work much better than text ads. Display ads have the benefit of always being SEEN, which means that I'm getting the message the advertiser wanted. When I see display ads for some TV show, game, or upcoming movie it registers with me even if I don't click though on the ad.
I'm sure Jakob Nielsen can make his statistics say anything he wants, just like everyone else's statistics. All I'm saying is that I hardly, if ever, click on a text ad but I do see banner ads. Different kinds of web surfers are impacted by different advertising schemes, we can't always fit everyone into one little box.
There are practical reasons ads don't work, but they are bad for other reasons.
Display ads also suck because it's really hard for life to have meaning when what you do with your precious time on this planet is manipulate other humans into harmful economic behaviors. It must be hard to make a living selling a certain kind of advertising and not want to kill yourself, or at least realize deep down in your soul that you truly suck on a cosmic scale and when you are breathing your last breath, instead of reliving your life, experiencing the iconography of whatever religious superstition you happen to believe, or dissolving into blissful non-being, your consciousness will expand into a loop of all the disconnected distracted moments when people clicked on your shitty psychologically manipulative ads running over and over again. Just your soul, or whatever component of your waking experience that is responsible for your experience feeling like it's yours, and the endless distraction for an entire cycle of existence. The people who create shitty advertising must be aware of this, but incomprehensibly go on advertising, making money manipulating morons, and ignoring that increasingly desperate little voice that tells them everything is wrong, by increasing the level of distracting surface activity.
I hate advertising so much. As children of whatever beautiful, chaotic, creative force is responsible for our existence, we have to be able to do better then this. There is a practical case against advertising as a business model, but there are also other more meaningful considerations. Is a life of bad advertising and lying to yourself about the morality and implications of what you are doing really why you exist?
(Sorry for my (slight) rhetorical extravagance. I was reading Thomas Ligotti earlier with my coffee.)
You and your friends are not the Internet.
There've been studies done on who clicks on ads (one was even linked here). It's midwestern housewives, the same people who watch daytime TV and enter magazine sweepstakes. I don't know a single person who watches Jerry Springer, enters sweepstakes, or uses MySpace over FaceBook, yet those people obviously exist. They're worth billions of dollars.
For that matter, my friends usually don't pay attention to TV or print ads either. They Tivo past the commercials or get their TV episodes off BitTorrent. They skim past the advertisements in magazines. They only look at the newspaper classifieds if they're actively looking to buy something.
A bigger problem for entrepreneurs is that roughly 99% of startups seem to target the same 10% of the market - the part that doesn't click on ads. If your users come from TechCrunch or Digg or news.YC, it's a pretty good bet that they've learned how to filter out ads. Most of the big consumer-web success stories - MySpace, PlentyOfFish, and lots that we don't hear about because they're not plugged into the Silicon Valley scene - succeed because they target a demographic that most of us can't identify with.