Why Do Traditional Advertising Formats Fail on the Web?

As media companies struggle to figure out their digital future, the elephant in the room is that they have only been able to monetize online audiences for pennies on the dollar compared to traditional media. Here’s why: Traditional advertising formats FAIL on the web. By traditional advertising formats, I mean display ads, video ads, and any other ad whose format and value proposition approximates or imitates that of an offline advertising format.

Google (GOOG) is the ONLY company that has succeeded in web advertising. Why? Because it perfected search advertising, an entirely web-native form of advertising, whose value proposition is perfect for the web and which has no offline analogue.

Why do traditional advertising formats fail on the web? Because people have no patience for them, as they did in traditional media, where we were habituated to look at print ads or watch TV commercials.

Research by Jakob Nielsen puts this into sharp relief:

Now, when people go online they know what they want and how to do it, he said.

This makes them very resistant to highlighted promotions or other editorial choices that try to distract them.

“Web users have always been ruthless and now are even more so,” said Dr Nielsen.

“People want sites to get to the point, they have very little patience,” he said.

This is why pre-roll ads on online video = fail, why overlay ads on online video = fail, and why online display advertising is a commodity business, where online publishers have to shovel page views and battle for every $1 increase in CPM. Some sites can get $50-100 CPMs on some pages from certain advertisers, but $1 — even $0.10 — CPMs are common on the web.

Just ask newspapers and magazines about their ad pricing power in print vs. online. Can you imagine a print publisher getting $1 for 1,000 times an ad was seen? You’d go bankrupt after one issue.

Here’s a sobering thought: If all advertising in offline media got converted to current online media CPMs, it would probably be worth a fraction of the value, i.e. $300 billion would become $50 billion.

If 1 to 1 transfer of advertising value is at one end of the spectrum and 1 to 0 transfer of classified advertising value to Craigslist is at the other extreme, most of online media is closer to Craigslist — online publishers are vaporizing advertising value in the shift of dollars online.

Even Google has struggled with this problem, as it still makes virtually all of its money from pay-per-click search and contextual ads.

But why, why is this so? Because most online advertising creates NO value for consumers.

Search advertising, because it is relevant to what users are already searching for, creates enormous value. But the search advertising is largely about helping people buy what they already know they want.

What about the objective of advertising to convince people to buy things they don’t yet know they want or need (or would never otherwise want or need)?

Consider this: What is the most successful type of advertising online advertising that convinces people to buy something they weren’t in the market to buy?

Email spam.

Spam is probably the most inefficient form of advertising every created, and it creates more hate and loathing among consumers than the worst 30 second TV ad ever created.

But it works. With millions of emails sent at virtually no cost, a 0.001% response rate can still be highly profitable.

The reason why most online advertising fails is that web users see it as little better than spam.

Display ads are ignored in the same mindset as spam is ignored — I’m trying to get something done online and your display ad is getting in my way.

As Nielsen highlights, web use is driven more and more by utility.

Despite the popular notion of viral content, e.g. viral videos, even entertainment on the web most often happens in a utilitarian context.

Sure people browse videos on YouTube, but searching YouTube is the killer app. Want to find video content? Search for it on YouTube, and chances are someone has uploaded it (legally or not). Why do you think Google acquired it?

Social networks have hit hard against the online advertising wall — I’m trying to talk to my friends and you’re showing me ads — get out of my face. I’m trying to talk to my friends and you’re shoving down my throat notifications of what my friends are buying (i.e. Facebook Beacon) — get out of my face!

Is it any surprise that most ad spending still happens offline? Most advertisers use the web themselves. They know how annoying traditional ad formats are on the web.

So what’s the solution?

We need to invent new forms of advertising on the web. But it’s more than that. Facebook introduced Beacon as a new form of advertising — but it didn’t create a lot of value for users.

Online advertising must create value for users or it will create little or no value for advertisers.

This would seem self-evident, but it has not been the case with traditional advertising, which was developed for CAPTIVE audiences, and web users are increasingly anything but captive.

Comments

[Andrej Ravn...:]

Gr8 article. Internet is in the hands of its users and so is its marketing. Key of the success is simple, its called USER EXPERIENCE. Brands without gr8 UX will be just another bad search hit.

2008 May 25 07:15 AM

[Dale Johnson:]

There is a way to engage the searcher without alienating him.
Our system will play a 5 to 8 second audio ad, which will steer the searcher to say a mushroom grower’s website. So our searcher hears the ad once. Now the searcher continues to click on the various sites he is seeking info from. Once again he comes to a site where one of our opted-in Pay-Per-Play websites has allowed the plays to occur. Now you as the buyer of the ads have the option to tell our system to play the same ad again or play a similar ad to steer the searcher again to your site. So the mushroom website advertiser can opt to play the same ad three or four times at three or four different websites. How we do this is unimportant. Why do we do so? It dramatically impacts the focused listener. Searchers have now heard the same ad on three different websites as they were doing research on a subject that they wanted information on now. They are not doing something else. They are present, focused, and the audio ad is contextually related to what they are searching for. Will it have impact? Absolutely and unequivocally yes. We believe that we can achieve the action that you as an advertiser want that potential customer to do. Instead of taking 20 listens to get that action to occur from a radio station, we believe we can bring it down to 6 to 8 listens for it to occur on the Internet.
It works well as the searcher opts to open the new page by hitting a keyboard key. The advertiser can offer the user either a direct opening of his web page or the opening of our keylink mini window which offers a clickable link to his website. The searcher can continue on with his search by simply closing the mini window, or he can open it. The net effect is the advertiser got an audio branding ad to point attention to his brand. The searcher got offered something that was already pertinent to his search so the ad intrusion was really not irritable. If the seacher clicks onto the ad and goes to the advertiser's page, then the ad is equal to Google Pay Per Click advertising. We can give Super Bowl advertising numbers weekly with this system. Dale

2008 May 25 11:09 AM

[aripap:]

Articles like this discredit the whole SeekingAlpha concept. This is a classic point of view of an outsider who doesn't understand internet advertising but loves seeing Google's model continue to gain share. Have you noticed that Internet ad revenues are skyrocketing at every major media company, including newspapers? They're not running text ads, my friend.

2008 May 25 01:02 PM

[LookingConf...:]

Yes ......"This is a classic point of view of an outsider who doesn't understand internet advertising....."

And I couldn't agree more. It's still only early days, but there is no doubt that quality "vertical-ised" content will always attract special interest audiences more-so in time and 'Geo-d' contextualised Ads will see both publishers & advertisers with much improved returns.

The quality publisher will always be sought after and advertisers will (in turn), be willing to "bid-up", to gain a position on such sites.

It's quickly becoming a Global marketplace & on such a scale that both Global "brands" and likewise "Local" retail will both get to see tremendous value when target-ing.

Ad/Pub Networks along with OPEN Exchange "interconnectors" will soon see much improved (and a more fairer) returns for both/all parties concerned. Niche content (vertical) sites attracting 'users' Globally, will in-turn attract strong bidding for placement alongside, from advertisers coming from all corners of the world market-place.

Any future (site) introduction of ACAP will then ensure publisher protection of their unique work that they offer. Yes, it's still "early days" as yet and that we can be sure of....... And as print media becomes increasingly, no longer ...........

:)

2008 May 25 07:29 PM

[jmichaelman...:]

Great article Mr. Karp. I think this is a fundamental issue facing marketing today. I think TV ads will stay in some form, even though there will be thousands of niche outlets through the merging of cable and tv. Print ads is the problem, especially newspaper ads. Henry Blodget had a recent article about how this will just disappear. If there is no equivalent outlets in web, this part of corporate marketing budgets may just disappear.. Money may be diverted to other departments such as customer support and product development. However, this situation does create enormous opportunities for entrepreneurs to invent the new internet ad outlets as this article indicates.

2008 May 26 10:46 PM

[User 200334:]

This is quite naive to say that "traditional" ad formats have failed online. First, they're not traditional at all; I never saw a rich media medium rectangle in a magazine or a TV show, so they're different from the get-go. Second, they're hardly a failure when you consider that literally billions of dollars are being thrown at them -- particularly for a young medium. Third, there are hundreds of sites that do have CPMs approaching or exceeding TV and print. More to the point of why average CPMs are much lower is simpy that there's so much more choice/supply of outlets online, and that's the simplest reason why the averages are low. But again, when you look at premium branded sites with niche demographics, they're very similar to what you'd see with niche cable or magazine rates.

2008 May 27 10:46 AM

[new media man:]

Karp seems like he is shilling for Google (only successful online advertising company?), either that or he is complete neophyte to the online advertising world.

Search marketing is an (admittedly) incredible/effective but it is only part (limited due to searches available) of the media mix that needs to take in account additive effect of offline+ other online graphical display advertising. Kudos to Google for dominating this space but the online ad market is really in its infancy, where focus was on Direct response. But the future battle is for the huge ad budgets that sit on the branding side and this is up for grabs as i don't believe most marketing people are convinced that search marketing is the solution to address their issues.

Additionally with display advertising there is another level of engagement that is lacking in the offline world. To say that it does not work, how do you explain the large display advertising businesses of MSN, Yahoo!, AOL as well as large publishers in other markets around the world like Mail.ru in Russia, T-Online in Germany etc. and all the of fortune 500 type companies spending money there (beyond search and note: now Google is trying to move to Display world too via Doubleclick)? The argument for online advertising goes beyond just creative formats, there is argument on how to reach the audiences that advertisers are looking for (ie. the large portal publishers who have the audiences via the product/services/conte... they provide).

Karps Article/argument is not convincing to me and shows he is bit ignorant of the larger ad market and marketing in general.

2008 May 27 07:18 PM