Narrative: Advertising Sustainability
Each narrative page (like this) has a page describing and evaluating the narrative, followed by all the posts on the site tagged with that narrative. Scroll down beyond the introduction to see the posts.
Narrative: Advertising Sustainability (Jan 9, 2017)
Updated: March 23, 2017
This narrative was the subject of a weekly narrative video, which you can see here on YouTube or embedded at the bottom of this post.
Advertising is the major source of revenue for two of the most high profile tech companies: Google and Facebook. These two, in turn, dominate online ad revenue growth, with very little growth left over for all the many other online ad companies.
Given that total advertising revenue across all media has remained relatively constant as a percentage of GDP over time, it seems reasonable to assume that online advertising revenue will only grow inasmuch as it is able to take share from other ad media, and that there is an absolute ceiling for online advertising equal to the total ad spending across all media, though the latter is still very far off. But there’s also an argument to be made that as online advertising becomes more effective and efficient, companies will need to spend less to get the same results they once got from less targeted campaigns. They could, of course, choose to spend the same amount on advertising and get a bigger bang for the buck, but they might also choose to spend less and achieve the same effect.
There is also the question of the sustainability of the ad business model as it requires more and more data on users to be effective, threatening user privacy. While many users have shown themselves perfectly willing to make this tradeoff, others are less comfortable with it, and Apple and other companies have attempted to differentiate themselves based on their respect for user privacy. Long-term, this trend could go either way – users might slowly yield up their concerns, or they might feel the invasions of their privacy to be increasingly creepy and start to resist ad-based business models. I suspect we’ll actually just see a continued bifurcation by generational cohort, with younger generations increasingly oblivious to privacy invasions and older generations remaining more cautious.
Meanwhile, every company but Facebook and Google is struggling to capture its own morsel of the slice of the pie left by the two giants. Twitter, Snap, Yahoo, and many others are all fighting over this remainder, albeit with different trajectories. And then there are the ad tech companies, who aren’t fighting over ad spend per se, but are still competing for some of the same dollars as Facebook and Google. This is a tough business to be in, but as ever capturing the right audiences and serving up appropriate ad products will win a fair share of ad revenue, as Snap appears to be showing.
In March 2017, we saw another challenge associated with the ad-based business model raise its head in a much more prominent way than previously, as several brands in the UK and then the US began to boycott YouTube and in some cases Google more broadly in response to their ads appearing against undesirable content. At root, this is a problem of scale, with YouTube seeing 400 hours of video uploaded every minute and algorithmic analysis falling short with both false positives and false negatives. Google will be hoping that it can assuage advertisers’ concerns, but this issue brings creators (who want to see ads appear against the widest range of videos possible) and advertisers (who want to limit where their ads appear) into conflict. There’s no easy way for Google to solve the problem without tightening policies around advertising and content in general, which won’t go down well with creators. While YouTube and Google are the main targets of the wrath of advertisers for now, the same problems could plague other hosts of user generated video (such as Facebook) and other ad platforms which focus on programmatic buying.
In my first piece about the UK backlash against YouTube by advertisers last week, I said that I saw no reason why the trend shouldn’t spread to the US, because the same issues applied here too. Now we’re starting to see signs that – despite YouTube’s somewhat vague reassurances earlier this week that it would do better – US advertisers are indeed beginning to jump on the bandwagon too. And the first big name is AT&T, one of the biggest advertisers in the US, and that’s likely to lead to more. As I’ve said in previous pieces on this topic, this is a thorny issue for YouTube, which can’t simply remove all ads from more obscure videos. Even its existing standards for which videos are suitable for advertisers are sometimes controversial, as this Guardian piece suggests, so going further down that road is likely to alienate at least some smaller creators, and of course have implications for Google’s revenue as well. At least some financial analysts are already downgrading Alphabet on that basis, and if this continues to snowball I’ve no doubt we’ll see more of that. Update: this story is moving fast: Verizon, Enterprise, and GSK have also joined in.
via USA Today
Almost 20% of digital ad spending could be wasted – Axios (Mar 22, 2017)
The first thing I thought of when I saw this headline was the famous quote from John Wanamaker about half his advertising dollars being wasted, but not knowing which half (and Sara Fischer told me she had included a reference to it, but removed it for brevity’s sake). The difference here is that the “waste” referred to isn’t poorly targeted advertising, but fraud and “invalid traffic” – in other words, ads that no-one sees at all but which are nonetheless recorded as having been seen and therefore paid for. Fraud – especially in programmatic, where 29% of dollars are apparently wasted – is one of several big issues for online advertising at the moment, and it isn’t going away soon, even though the authors of this report have a proposed solution.
Last week, there was a blowup in the UK over ads showing up next to videos promoting hate and terrorism, and Google issued an initial response in Europe without promising any specific changes. It’s now talking about the problem on a global basis and getting slightly more specific about how it’ll tackle the problem. Given that the initial post highlighted the challenge of human curation, Google’s promise to do better in policing content is too vague to be reassuring – how will it do this? By hiring thousands more people to check individual videos? Better computer video analysis? On the other hand, it’s finer-grained controls for advertisers and tighter default settings are very much in line with the solutions I proposed last week, but come with other risks. If by default advertisers’ ads won’t show against the long tail of YouTube content, that will dramatically reduce the attractiveness of posting video to YouTube for creators, and revenue for YouTube as well. So the devil is in the detail here, and detail is something this post is incredibly short on. Hopefully we’ll see a lot more specifics as Google works its way through this. There are no easy solutions here though. Update: one other thing worth noting, which I had intended to include earlier but forgot: Google is going to be cracking down on some content not just from an advertising perspective but in terms of what can be posted to YouTube in the first place, which feels like a significant shift.
This situation in the UK doesn’t seem to be getting much attention here in the US, but it should be, because although the boycott is UK-only for now, the issues at stake aren’t UK-specific at all and could easily spread to other markets. What’s happened is that some UK companies as well as the UK government have become increasingly concerned that their ads on YouTube have been appearing next to some pretty undesirable videos featuring extremism or promoting terrorism, and Google’s tools for avoiding this don’t seem to be doing their jobs. As a result, several companies and the government have now stopped advertising on Google at all as a protest until Google fixes things. A blog post from Google makes clear just how hard it is to police the video on YouTube – 400 hours of video are uploaded every hour, and it stopped ads from showing on 300 million videos last year, which provides some sense of the scale and the impossibility of monitoring all this with human beings alone. Google is never going to be able to police the content itself at sufficient scale and with sufficient accuracy to solve the problem directly. The solution is therefore probably paring back the kinds of videos on which at least certain ads would appear – such as limiting big brand advertising to channels with long histories, large numbers of subscribers, and a good track record. However, it’s likely that many brands would choose to limit themselves to this higher quality material, which in turn would mean the long tail of videos on YouTube might go un-monetized or monetized at a much lower rate, which would have a severe impact on not just creators but YouTube’s financials. Not only could this problem spread to other markets, but Facebook will have to deal with many of the same issues as it ramps up video advertising on its platform.
This feels like an extremely stupid move for Google. Though Google claims this wasn’t an ad, that’s utterly disingenuous, and inserting ads this early in the Google Home lifecycle (if ever) is a huge mistake – this is just the kind of thing that will put people off buying a Google Home, especially because it fits a narrative of Google only being interested in advertising. This is a hardware product, for which users have paid a decent price, and it shouldn’t be playing ads, especially without an opt-out – there is no indication that users would hear ads in any of the marketing material. I just tried my own Google Home to see if it would play this message, but it didn’t, suggesting that Google may have stopped playing the message. If so, good, but it never should have happened in the first place, unless Google wants to kneecap its own product this early in its competition with Amazon’s Echo.
via The Verge
The timing of this new data from eMarketer is perfect, because I just wrote a piece for Techpinions subscribers today about the battle for third place in online advertising. The reality is that Facebook and Google have been dominant for some time in this space and that shows very little sign of changing. As I argued in my piece this morning, some of the big Chinese names are actually the strongest contenders for third place on a global basis, but they mostly operate only in China, so it’s largely other US companies which are competing in the rest of the world, and they’re all pretty small in comparison to the big two. Between them, Google and Facebook appear to have search and display advertising pretty well sown up, with only the crumbs left for other players, who largely have to compete among themselves rather than having any prospect of taking meaningful share from the big two. As I also pointed out this morning, though Snapchat gets lots of attention, it’s currently behind even Amazon, let alone other bigger names like Microsoft and Yahoo, and will have to wait years to break into the top five. Meanwhile, Twitter is a cautionary tale about even once promising companies stalling before they reach their perceived potential.
WPP is one of the world’s largest ad agencies, and Martin Sorrell is its CEO. As such, what he says about trends in advertising is worth listening to, and he says he worries more about Amazon than almost anything else. That’s because Amazon’s ad business is both growing fast and has the potential to displace agencies and work directly with advertisers, much as Facebook does. This story is fascinating, because it’s a great reminder that Amazon is building a decent-sized ad business largely under the radar – hardly anyone ever talks about it, but it’s becoming pretty big. This article cites eMarketer forecasts, which are about the only estimates I ever seem to see, and which suggest the ad business is getting pretty big – over a billion dollars in 2016. You may not have thought about it much, but certain searches on Amazon lead to pages literally full of ads. Given how many people now start product searches on Amazon, it’s in an enviable, Google-like position of being able to serve up ads that are directly relevant to what consumers are interested in right now. That combination of relevance and timeliness is rare – almost everyone else can manage relevance, but timeliness is much tougher. Though Amazon isn’t going to rival Google or Facebook’s scale in the near future, it’s arguably got a strong shot at becoming number three in online advertising in the near term.
via Business Insider
This feels like a clever little idea from Google – showing people ads for games in which a tiny version of the game itself is embedded, making the ad playable. It could also be part of an eventual path to Progressive Web Apps and other web-app hybrids Google is working on, just as some of these tools are already served up in search results. There are some other clever enhancements here too – it feels like app ads are far from done as a medium.
Amazon’s Twitch acquisition was one of the most interesting it’s made, and one of the few big ones it’s made which weren’t in the e-commerce space. Since the acquisition, it’s pursued two separate tracks with Twitch, one focused on the core gamer space it’s always served, and the second broadening its reach and appeal beyond gaming and becoming something of a YouTube clone. This announcement belongs in that first strand, though it also ties in the online sales angle by putting a buy button next to video game video encouraging viewers to buy the game being played in the video. This is a unique take on the ad revenue sharing model YouTube popularized, and could be pretty lucrative for at least some channel owners over time. It’s also a great way to provide very relevant advertising around a video platform, something that’s often tough to do beyond broad demographic profiling.
via The Verge