Why Google Rules the Online Ad Market, and How That Could Change

Over the last few weeks, I've been pre-occupied by an online debate over a crucial question, and its implications for online content and advertising: Is the Internet making us more stupid, or more intelligent?

On one side: Nicholas Carr. In an article for the Atlantic, Carr argued that "the Net... is chipping away my capacity for concentration and contemplation". Because it encourages us to read shorter articles and flit between them via links, he says, our capacity for thought is becoming impaired. In support of Carr's view, writers are being taught to assume that readers have almost no attention span when reading on the Web.

On the other side: Scott Karp. Karp claims that our shift in reading behavior to shorter, hyperlinked articles on the Web is a more efficient way of gathering information, and that our mode of thinking may be changing for the better.

This debate has pre-occupied me because, after months of research and planning, we recently launched what we think is the best free financial news product on the Internet (Market Currents). And guess what? No coincidence: It consists of tiny bite-sized nuggets of information, with outbound links in almost every sentence. Perhaps we just contributed to the dumbing-down of humanity.

In pondering the question of whether the Internet is reducing our capacity for thought, I've come to the conclusion that the problem isn't what we read on the Web, but how we read on the Web. And this distinction provides the key to a question of huge economic importance to anyone involved in the Internet: Why aren't online ad rates higher? Let me explain.

Carr and Karp focus on the brevity of most articles on the 'Net and the existence of hyperlinks between them. For Carr, constant reading of short articles shrinks our attention spans, entailing the loss of our ability to read books and longer articles. For Karp, shorter, hyperlinked articles are a more efficient way of finding information, so he views them as an advantage, not a threat.

The real concentration problem

But as I examine my own online reading behavior, I find that my inability to focus isn't due to the length of Web articles, but how I'm reading them. Four factors reduce my concentration when reading articles on the Web:

1. When I'm reading an article on the Web, I often shouldn't be. A frequent scenario: I'm reading and responding to emails, and one of them contains a link to an article. So I click on it, and quickly skim the article. But really I intended to spend this time responding to emails, not reading articles. Another scenario: I'm working on something, but take frequent and short breaks to check the news. In both cases, I haven't intentionally allotted time to reading an article on the Web; I've been distracted into reading an article on the web. Contrast that with reading a newspaper: when I read a newspaper, I've consciously decided to allot time to that, so my concentration level is far higher.

2. When I'm reading an article on the Web, I'm often distracted by other activities. Once I do decide to read an article on the Web, I'm constantly distracted. Reading anything on a PC is hard, because PCs make it so easy to flit between tasks with a single click. Email, again, is the worst culprit: somehow its real time nature lures me into checking email frequently even when I'm doing something else. I let myself be pulled into answering emails as they enter my inbox, whatever else I'm doing.

3. Hyperlinks within articles themselves can be a distraction. Often I'll click a hyperlink to check it out, and that pulls me away from the article I'm reading. Prof. Michael Jackson says that hyperlinks are turning us into a race of mental grasshoppers. "Links help you to pick your own path through a complex mass of information," he says , "but they also distract you, tempt you into pointless digression, and break the coherence of your thought."

4. Reading is harder on a screen. I remember reading an article by Jacob Nielsen in which he estimated that it's 25% harder to read an article on a PC monitor than on a sheet of paper. (If you know the source, please leave a link below.)

The core problem, then, isn't that short articles are cutting my attention span, but that when I read articles on the Web my concentration is weak to start with. Put differently, when I read an article on the Web, I don't have strong enough intention and focus to do what I'm doing.

Do bloggers have A.D.D.?

If correct, this analysis explains an unusual phenomenon we've seen at Seeking Alpha: Blogger A.D.D. Some background: each quarter, U.S. public companies issue their financial results and do a conference call with analysts to discuss their results. These calls are packed with valuable information about companies and industries. But the calls are hard to listen to -- they last an hour and often overlapy with each other. So professional investors read transcripts instead of listening to the calls themselves. We decided to make these transcripts available to everyone by publishing them for free every quarter, with powerful search tools.

But remarkably, bloggers, who are arguably the most Web savvy Internet users, hardly ever read the transcripts or link to them. Bloggers are writing regular commentary on Google, Apple, the newspaper industry and alternative energy, but are ignoring unquestionably the best source of information on these topics, which is now available for free. Moreover, the transcripts contain not only the best information about companies and industries, but also a ton of great quotes. The problem is that they're over 10 pages long (though you can view them on Seeking Alpha in a single page). In contrast, Seeking Alpha's regular readers -- investors, who perhaps have longer attention spans as they research stocks -- are consuming over a million page views of transcripts in a typical month.

My guess is that bloggers, at the forefront of Internet usage, have lost the level of concentration required to skim a long document. How else to explain the fact that this earnings season, tens of bloggers will write about Google and Apple's results, but not one of them will read the transcripts of those companies' conference calls to find out what's really going on in their businesses?

Why banner ad prices are so cheap

Weak concentration when reading Web content also explains why the value of online banner ads is far lower than it could be. In theory, online ads should command higher rates due to three advantages they have over print or TV ads. First, online ads are usually contextually or behaviorally relevant. Second, they're clickable, so you can quickly execute a transaction or find more information about the advertiser. And third, their impact is measurable.

But the reality is that most online ads command far lower rates than print ads. Why? Because readers of online content are only "half there"; they often haven't intentionally allotted time and mental space to think and ponder when reading online. So they don't adequately consider ads, even when the ads are contextually relevant to what they're reading. In contrast, when I personally read a newspaper, I'm "fully there", and when I pause to think about an article, my eyes meander to the ads next to the article which I consider with more concentration than online ads.

Google's dominance of the online ad market

This also explains why Google (GOOG) dominates the online ad market. When I'm searching online, I'm doing something that requires intention -- I have to type in a search phrase, rather than just click a link. I'm interested in results related to my search, even if they are ads. In other words, I usually have far stronger intentionality when searching than when reading an article. As a result, Google's search ads have better performance than most banner ads. Combine that with the frequency with which Web users perform searches, and it's clear why Goolge dominates the online ad market.

Google's dominance of the online ad market will change if ads displayed next to content perform better. For that to happen, we need to stop ourselves becoming "mental grasshoppers".

How will we achieve that? The Internet and mobile devices have both given us great tools for instantaneous connectivity. Now we need to develop better tools to combat unimportant interruptions, and provide better prioritization and time management. Top of my list: stop using email as a de facto time manager, because what arrived most recently isn't necessarily the most important claim on your attention. Constantly checking email disrupts concentration on other, more important tasks.

If we can spend more time doing what we really intend to do when we intend to do it, the Internet will enhance our knowledge processing and analysis rather than curb it. Online disply ad rates will then rocket, to the benefit of publishers like the New York Times (NYT), Time Warner (TWX), News Corp (NWS), Pearson's FT.com (PSO), Yahoo! (YHOO) and TheStreet.com (TSCM). And Google's share of the overall ad market will decline.

Update, July 27th: Motoko Rich wrote an article for the New York Times looking in more detail at the impact of Web use on child literacy.

Comments

[JonathanSwift]

If the extent of your thinking is limited to information gathering, you probably were not going to add anything of real value to human understanding of anything important anyway. Those who make a meaningful difference, think way outside of that kind of box. The rest is all static and chatter.

[Tom B]

The POWER of the internet is that it brings diverse data points together. You heard the old saw: "What's THAT got to do with the price of tea in China?" Well, with the "Web" (great term), you can find out what ANYTHING has to do with the price of tea in China, or anywhere else. Filtering out the noise and avoiding the pleasant distractions is your responsibility.

[Gmel]

This article reminds me of all those Alpha skimmers who have to add a comment to the postings even though they only read every second paragraph. Also makes me consider the attention span of all the comment makers here who have nothing to say with the subject of the articles but only want to comment on the perceived lack of intelligence and knowledge of the writer. Someone the comment makers here -- who have been studying the subject of article about 6 nano-seconds are always just SO much smarter than the article writers who stayed up all weekend writing their articles.
(In other words thanks for a different look at the news biz).

[BillF]

Information NO.6. Information. The reason people read online articles.

Opinions are nice too. But this opinion article has a number of misplaced assumptions.

Reading is not harder on a screen! It may have been with the the old CRT monitors with much lower resolutions. Not today. Most of the population is over 40 and use reading glasses. With the larger screens and ability to increase text size, many can get by without.

Do bloggers have A.D.D.? Possibly. But there is also the newspaper term for burying a story. Maybe a large part of the company transcripts is simply covering up the burial plots.

The format of advertising on the Web laughable as well as being relatively ineffective. Google, right now, relies on "mental grasshoppers" for dominance. The technology advantage of Google can be blunted by the first company to combine Technology with Physiological and Psychological understanding of ordinary people.

[iThinkBig]

1) Yahoo was dominant and ran lots of banner ads. Decent model but the ads began dominating more then the content. The writer has this point correct. Social networks are having this problem now also.

2) Site usability studies is something every major web property should do, but doesn't. Same as in any sector, lack of research kills.

3) Google will lose market share when marketers as a whole learn about value propositions. Google is still very cost effective at generating qualitative sales leads for an organization.

I know these things because I run a Consumer Healthcare website as a business and marketing model. Grabbing market share is easy now on a price-per-lead model that relies on a client's acquisition targets. The lack of marketing competition whom knows Economics 101 and is willing to use business intelligence to gather all the targeted sites for banner purchases is stunning.

Google won't cannibilize there pay per click model until they have to. Same with MSN for that matter. Right now both companies have time.

Meanwhile, a small competitor like me grabs major Fortune 1,000 accounts because my company knows how to eliminate advertising risk. It's not really amusing marketers in general are so dense, but I am asked constantly what the catch is when I am on conference calls with senior marketing management with our sales team. I tell them I remembered how to use a spreadsheet to calculate media buying to target and put up my personell costs to prove it in a small test budget. Then most importantly, my company does what it says.

[DavidJackson]

Thanks for these comments.

BillF -- I thought this point was particularly interesting: "Most of the population is over 40 and use reading glasses. With the larger screens and ability to increase text size, many can get by without."

iThinkBig -- Can you expand on what you meant by this: "The lack of marketing competition whom knows Economics 101 and is willing to use business intelligence to gather all the targeted sites for banner purchases is stunning."