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 this week’s 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.
Several trade groups representing parties involved in online advertising have sent an open letter to the Coalition for Better Ads (of which they are themselves among the largest members) pushing for faster implementation of self-regulatory moves intended to stave off the threat of browser-based ad blocking. The context here is moves by browser makers – notably Google and Apple – to get tougher on bad ads and cookie-based tracking respectively, both of which threaten the online ad industry. The industry would therefore like to put in place self regulatory measures which have been discussed for some time but not implemented as a way to try to stave off more of this stuff, though the Apple changes have already gone into force and Google’s are likely to do so as well. The online ad industry only has itself to blame for failing to self-regulate sooner and more effectively and thereby maintaining an environment in which such moves by tech companies are deemed necessary. Poor online advertising really serves no-one well in the long term but the industry’s short-termism in allowing it to continue unchecked is now leading to nasty long-term consequences which it is essentially powerless to reverse.
via Marketing Land
Facebook’s COO Sheryl Sandberg was interviewed today by Axios’s Mike Allen on the subject of Russian election interference and other topics, while Facebook also issued some data about the effectiveness of its program to flag fake news on the platform. At the same time, the Washington Post reports that Facebook has removed a set of data from its site and tools which allowed for analysis of Russian-related postings.
The Sandberg interview shed little additional light on the topic, with the only real news that Facebook is sharing both the ads bought by Russian-backed entities and additional details associated with them with Congress, which in turn may share them publicly. However, she was also asked whether Facebook was a media company, a characterization she pushed back on, leading to several articles from actual media companies arguing that she’s wrong. There continues to be something of an ulterior motive for these stories given the tense relationship between Facebook and the media, but I continue to believe that these characterizations are wrong. To my mind, Facebook is much more like a cable TV company than a TV programmer, putting together a package of content for users but not mostly doing that programming itself, while selling ads that appear within the programming. I don’t think most would argue that cable TV companies are media companies or that they’re responsible for the specific content of the programming, while they are responsible for establishing general policies and rules about what will run on their platforms.
The data Facebook shared on its fake news flagging effort suggests that a fake news label applied after fact checking from third parties effectively reduces sharing and views once it’s applied, but the problem has always been that it takes several days for this to happen, which means most of the views have already happened by the time it takes effect. It shared the data with its fact checking partners as a way to incentivize them to do better (something they’ve been asking for) but without massive new resources from Facebook or elsewhere, it’s not clear how those organizations will be able to work faster or cover more ground. That, in turn, will continue to limit the effectiveness of the program.
Lastly, Facebook says the data it has pulled from its site with regard to Russian accounts should never have been available in the first place, and its disappearance therefore reflects the squashing of a bug rather than a decision to pull otherwise public information. Whether you believe that or not likely depends on your view of Facebook’s overall level of transparency in relation to the Russia story, which has clearly been limited. It appears Facebook at a corporate level is still desperate to control the flow of information about Russian influence on the platform, which likely isn’t helping its PR effort here – better to be as transparent as possible so that all possible bad news can come out quickly rather than continuing to trickle out.
Google has created a pair of machine-learning-powered filters for website owners which will allow them to avoid hosting racy or seedy ads on their sites. Neither of these categories are banned by Google’s policies today, and anyone who’s visited many news sites online has seen the types of manipulative, low-class ads caught by the second set of filters, while the first set will use an algorithm for skin detection to weed out ads tending towards the racier side. This set of moves is on the flip side of the controversy around YouTube and Google’s broader ad platforms earlier this year, when it was the advertiser brands that didn’t want to be associated with undesirable content, while this deals with the opposite problem of undesirable ads showing up next to high-quality content. Both are part of the challenge for Google and other online ad platforms in a highly automated, entirely price-driven system for placing ads, and it’s good to see Google offering site owners some more quality controls, just as it improved controls for advertisers following the boycott earlier this year.
Third party social media metrics company Delmondo says that across a selection of Facebook Watch videos it measured, average watch time was 23 seconds. That’s a little higher than the 17 second average for videos in the News Feed, but not much. It’s notable, too, that 20 seconds is the minimum amount of time a video must run before a mid-roll ad can be shown to the user, and I wouldn’t be surprised if those mid-roll ads are a big reason why average watch times are around that level. I continue to believe that Facebook’s mid-roll focus is going to harm viewing and ultimately ad revenue for its video platform, and it badly needs to re-think that approach. It’s still early for Watch in particular, and it’s clearly more of a destination for video rather than something users stumble across accidentally as with the News Feed, but it needs to grow well beyond 23 seconds if it’s going to be worthwhile either for Facebook or its content creators longer term.
Digiday has done some digging on the CPMs (payout rates for advertising) on Facebook’s video platform, and has found that on the whole they’re pretty low. One publisher suggested an average CPM of 15 cents, which is indeed low by industry standards, and that theme if not the exact amount was confirmed by others Digiday spoke to. One big challenge, though, in measuring CPMs or other industry-standard ad metrics is that many publishers publish videos which don’t use the mid-roll ad format alongside those that do, so the denominator may be skewing the results a little. But what seems clearer is that mid-roll ads perform far less well than the pre-roll ads YouTube has used very successfully, something I predicted in this piece a few weeks ago on Facebook’s big video pivot. I suspect Facebook will struggle to compensate creators adequately as long as mid-roll remains essentially the only way to monetize videos, and when it likely drives a high abandonment rate.
Roku IPO Sees Stock Rise Over 50% on First Day (Sep 28, 2017)
Roku went public on the NASDAQ today after filing its S-1 earlier this month with the SEC, and saw its stock pop on its first day of trading, rising from its $14 opening price to as much as $23 in the middle of the day before falling a little, settling in at around $21 at the time I’m writing, about a half hour before markets close. That’s a great start for Roku, which was far from a shoo-in as a consumer tech IPO given its big business model pivot, its losses, and the fact that it competes against three of the biggest names in consumer tech in Amazon, Apple, and Google. Other big consumer tech IPOs this year haven’t fared well, notably Snap Inc’s, but the main reasons for the poor stock performance have been grounded in poor company performance, so we’ll have to see how Roku fares in its first couple of quarterly reports, with the first one likely coming a month or so from now. To commemorate the Roku IPO, I added a Roku deck to the Jackdaw Research Quarterly Decks subscription service today, and will be recording a video voiceover for the deck shortly (a discount is available for those who buy both subscriptions, so contact me if you’d like the discount code for that).
NBC Universal is going to start allowing big advertisers to automate the placement of some of their ads through the use of an API. What this means in practice is that brands will be able to use data they have on which shows their target customers are likely to watch to select exactly when their ads will play on the various NBCU channel. Despite the obvious similarity to automated ad buying online, this is going to be far from a free-for-all: it’s starting with one partner (Target) and this will presumably be limited to big, established brands, and will certainly involve pre-approval of all the actual creative to be shown to viewers. But it’s yet another front in the ongoing war between online ad platforms and the TV companies, with the latter constantly aping the former’s techniques while claiming to be superior in other ways. The reality is that every big brand is going to advertise in both places, and Facebook is now actively pursuing a strategy of trying to tie those two channels together at a measurement level, which feels more realistic than the TV companies’ denial that the online platforms offer anything of value to advertisers.
via Business Insider
Google has announced several new tools for advertisers using its platform to reach users with video ads, and they highlight just how sophisticated the YouTube ad platform is becoming, at a time when Facebook is still struggling with basic formats and helping creators tweak their video formats to work with its ad limitations. There are four parts to the YouTube announcement: custom affinity audiences, which allow advertisers to reach users based on profile-based interests including recent Google searches; customizing video ads by context on the fly using automation; stringing together multiple ads to tell a story or react to user responses; better online-to-offline attribution. To my mind, the custom video ads are the most interesting thing here – they allow advertisers to upload a set of assets and have the system automatically mix and match them to create ads that feel like they’re customized based on the video the user is watching. As this TechCrunch article points out, that’s likely to make the videos more memorable, but it may also cross the “creepy” line for some viewers, and that’s the risk all highly-targeted advertising takes. Various elements of what Google is announcing take advantage of its increasingly strong AI and machine learning techniques as well as the breadth of its tracking of users (for better or worse) across the various properties it owns, and the latter may in future be hampered by increasing limits on this kind of targeting which will come into effect in Europe soon.
Twitter Sells Enough Ads to Launch All Planned Live TV Shows (Sep 25, 2017)
It certainly wasn’t clear at the time Twitter made its big blitz of announcements around its live TV plans that some of the shows weren’t guaranteed to air if they didn’t get sufficient ad backing, but now that they have that backing, Twitter is apparently trumpeting that fact. Since many of the shows Twitter is hosting are existing properties which will come with ads from the original sources, Twitter likely didn’t have to sell that many ad slots itself in many cases. There certainly are some unique-to-Twitter shows, so it’s impressive that it’s sold enough ads on those too, but in many cases I’m guessing that spend is experimental – no-one really knows what kind of audiences most of these shows will attract, and the level of spending involved is likely small enough to fit into niche budgets (as Snapchat long did). The big question is whether, following the first few months of this experiment, those advertisers want to re-up and commit to additional shows and seasons. That will depend largely on a combination of viewership and engagement with the ads viewers see. We don’t have many figures for individual Twitter shows to go by, but we do know that just 55 million or 17% of monthly active users spent any time watching any live video on Twitter in Q2 of this year, so Twitter and its advertisers are clearly hoping that that translates into more committed audiences for specific shows in order to justify continued investment.