OR ads aren't that effective in the first place and the whole industry is a house of cards propped up by middleman making their fat margins convincing people ads are necessary...
1) It's an unchecked, all-powerful evil, making people buy or believe in things they don't want or need by hoarding their data
or
2) It's a giant ineffective scam that stupid companies who aren't led by engineers waste VC money on
The two are diametrically opposed, yet, I've seen the same person argue #1 on Monday when it fits the narrative, and then on Tuesday start arguing #2--blissfully unaware of how both cannot be true at the same time.
Could it be, that both 1 and 2 are wrong, and that advertising spend is simply reduced during recessions in reaction to the reduction in spending by consumers? Why pay money to acquire customers when the customers aren't willing to spend money on new products?
Really? You remember who says what on HN?
But it happened one time. Now I get ads for chicken feet sellers on Alibaba.
I also find Overcast (podcast player) ads very useful and have discovered a lot of great podcasts because of it. Marco Arment creates his own ad network so he could control both the content and he wouldn’t have any mystery meat binary blob advertising SDK.
Suppose that if you're peddling cheap junk and snake oil, advertising is effective, because nobody will have heard of your product by word of mouth (no one would recommend it and previous victims are ashamed to admit being suckered), but if you spam enough people you'll reach enough suckers to exceed the advertising expense.
But if you're peddling a popular and quality product, everyone has already heard of it and additional advertising has low marginal utility because you were going to get most of the sales anyway.
This furthermore doesn't get you out of the prisoner's dilemma, because even if buying advertising is only break-even rather than profitable, your competitor is doing it so you have to do it too or they gain a volume advantage over you and use that to kill you on unit pricing. But then you all do it and all that happens is that everyone pays money to cancel each other out.
popular and quality product vs cheap junk and snake oil (and presumable unpopular)
An honest person would note all possible combinations in their simplified model of businesses seeking advertising
1. popular products with bad quality
2. popular products with good quality
3. unpopular (or unknown) products with good quality
4. unpopular products with bad quality
And of course the real world is more complex than this.
your analysis is bad and wrong.
Saying "your analysis is bad and wrong." comes off as dismissive and I think you should read the HN Guidelines.
Your model only includes products on the narrows of each extreme. In the middle is the wide spectrum of most products...the ones that don't meet either description.
Even if you make the exact same product as a competitor, there is no prisoner's dilemma if you're targeting a different niche market to sell that product to. Perfect competition does not exist in the real world. The only thing that comes close might be a commodity like oil or water. But even water can be targeted to different segments of the market.
There doesn't have to not exist more than A and B. If A and B both exist then 1 and 2 are each true and the further existence of C and 3 don't change that.
Moreover, even if some additional classes exist, the two examples are still central and problematic, not least because they're more likely to represent a higher percentage of ad spending.
The first because advertising is the only way to sell crummy products, since the only way to get anyone to recommend it is to pay them to, so their incentives to use it are higher.
And the second because the existence of the prisoner's dilemma is what drives up the ad spend on both sides. If you're targeting a niche that no one else is then you buy a small amount of advertising, reach those customers, make your sales and are done. If you're locked in a prisoner's dilemma with a direct competitor, you spend a little so they spend a little so you spend a little more until you're all spending a huge amount. And the fact that you're selling Fords and they're selling Chevys and they're not completely identical products doesn't really matter when they're both still cars.
The presence of pure mercenary advertising increases the global noise floor, which increases the information asymmetry by decreasing the visibility of quality signals.
The irony is that Google sees itself as a company that increases access to information.
You know what that would look like in the ad space? Product testing, reviews, and endorsements. Something like "Verified by Google" (aka Wirecutter).
Instead, Google absolves itself of responsibility via algorithms, steered by marketing folks in charge of their primary profit center.
And we're surprised by the corporate decisions they make?
I was naively surprised one time when I see quality writers shout down rating systems. Apparently making a popular quality product doesn't make scrutiny desirable.
The shortest description of the thought is: The meta data is more important than the data.
Back when google indexed peoples websites the organic ranking wasn't bad at all. People wrote niche articles about original topics, if you searched for one you would find those blog postings. I was often amazed by how specific the content addressed what I was looking for.
How well it works depends on the type of rating. It should probably start with things so obvious they are hard to game. Even self rating could work, something like: professionally affiliated with the topic 0-5 in the range 2-5 you get to provide an url.
I liked parts of PICS3.
I could see a system where we run our own rating service and rate things with a mix of original and unoriginal qualities. You use the bookmark list it generates or enjoy the persons work then subscribe to their ratings and add weight to it. We make collections of such subscriptions and use them the same way. When visiting a page the url (or other identifier) is passed around and a rating is returned. Similarly, people you've subscribed to crawl around the web and we arrive at a set of pages you should probably visit. If there is crap in the list a single click reduces weight on everything that endorses it.
For one, if you accept that advertising can sell "cheap junk" or "snake oil" then you've accepted that advertising can sell something. That could just as easily be a useful product no one has heard of so the issue isn't the advertising, it's what's being sold and advertising is effective (which invalidates (2)).
For another, you use the example of a product "everyone has already heard of". You could point to something like Coca-Cola here. But this argument has two problems:
1. There are variations companies make to keep their product "fresh". Think Vanilla Coke, Cherry Coke, Coke Zero (or whatever the current form is) and so on. By virtue of them being new, potential customers won't have heard of them and advertising solves that problem; and
2. A lot of advertising isn't about direct customer conversion but "brand lift". Now companies have dreamed of the ability to accurately measure the brand lift of advertising spend but it hasn't materialized yet.
This is also why common comments here like "I don't ever click on an ad" don't really mean anything. Now you can argue that the ability to make you desire something you don't need is "evil", which is a reasonable argument to have. I think there are cases where this is true, such as advertising to children, and these should be restricted as some countries have done.
It can sell something unknown, because then the advertising makes it sound good, they don't know anything else about it, and they wouldn't have heard of it otherwise.
Which is the opposite of what's happening in case 2 when the product being advertised is well known. It's not causing you to hear about it for the first time and if the product is low quality then the advertising is less able to overcome your existing negative impression of it than for something you've never heard of.
> There are variations companies make to keep their product "fresh". Think Vanilla Coke, Cherry Coke, Coke Zero (or whatever the current form is) and so on. By virtue of them being new, potential customers won't have heard of them and advertising solves that problem
This doesn't really explain all the ads for Coke Classic, or for that matter why so much advertising even for new products emphasizes characteristics that are either meaningless or unrelated to the product. There isn't really any information content in telling the customer that a new cola is "refreshing" or showing random people dancing.
> A lot of advertising isn't about direct customer conversion but "brand lift". Now companies have dreamed of the ability to accurately measure the brand lift of advertising spend but it hasn't materialized yet.
"Brand lift" is the prisoner's dilemma thing. When everybody does it they just cancel each other out.
Another example (this one not in advertisement) is the situation of Bloomberg. They have one of the largest financial journalism organizations and, AT THE SAME TIME, they sell overvalued software to the largest financial companies in the world. One can only guess what can happen to a financial company that stops paying the fees to Bloomberg. Even though there is no real threat (and most certainly this was never expressed by the company), every financial outlet wants to be on the good side of Bloomberg reporting. The conclusion is that having a journalist institution receiving money from companies that they are covering is a kind of moral hazard that very few people understand, unless you are part of the business.
On the other hand, there are companies with teams dedicated to make their ads as effective as possible and track/raise the ROI.
There's likely lots of companies even in between those extremes which don't even break even on the ads they pay for. (or don't know if they do or not) They may pull the ads and realise nothing changed.
>quality product, everyone has already heard of
They reached this status due to advertising, Its likely they could drop advertising for a while and coast along fine but eventually that brand recognition will start to drop.
There is also the fact that a lot of products are purchased not based on fixed needs but flexible wants. Maybe I haven't purchased a soft drink in a while and I don't think about it, an advert could make me think about it and make me want it again.
Your (1) is effective advertising that works, and your (2) is ineffective advertising that is a waste of money.
It is perfectly OK to know that both exist, and to argue against both.
A. They are thinking of what they consider an average user (most likely stupid, blissfully unaware of tracking and how companies are controlling him) whilst using ad blockers themselves or relative strong measures to avoid tracking.
B. They are thinking of themselves as the customer to some extent and knowing that they don't ever click on ads as often, it's most likely wasted money.
Again, I am not completely sure but it feels like the person is thinking of different subject in A and B when analysing.
C. It could be that the plan is to make Google look evil in both cases. By robbing both you and companies out of their money and data.
Though, to be honest, I don't think I've heard #2. I think any rational person understands that advertising has some degree of effectiveness. After all, many bright minds from a variety of hard sciences have spent decades of their lives, and extraordinary sums of money studying human behavior for the explicit purpose of selling more shit. Many of the largest companies in the world are advertising companies; before Google and Facebook there was the TV and Radio giants, who were massive, in spite of pretty serious regulations.
None of this would have happened if advertising wasn't effective. At some point in time, people would have realized it didn't work and spent their money elsewhere.
There are two big issues that I see:
1) More views have driven down bids for ad views. The ad industry is largely driven by companies bidding for views, so without a large influx of cash, the spike in views was going to depress ad impression prices.
2) Consumers have less discretionary money to spend, even if they wanted to, so the ROI on each view/click is going down.
Each of those alone would be cause for concern, but combined, they do pose a significant issue for Google, Facebook, and smaller content creators.
- A lot of advertising is effective, and a lot the effectiveness boils down to lies, manipulation and general dishonesty.
- Ad attribution - i.e. tracing how much money spent on what advertising resulted in how much profit and when - is a hard problem. It's easy to make mistakes with it, and it's also easy to lie and not get caught.
- Most people involved aren't exactly experts in statistics. That's especially true for small businesses, which don't have money or institutional expertise to hire talent just to evaluate their ad spend.
- Which means people trust they aren't being bullshitted by the very industry that specializes in lies and manipulation.
I've seen this play out in real life myself; I vividly remember working next desk to social media marketers who were clueless at maths. They'd take the numbers and graphs from Facebook's panel, write up stories that made these numbers always sound like everything is going perfectly, and send such reports to the customers who were even more mathematically clueless, and thus incapable of verifying whether the numbers and the story presented add up.
The way I see it: some advertising is effective sometimes, but you don't know which one is effective and when, it's mighty hard to figure that out, and the advertisers have every incentive to confuse the issue for you.
(Note that they'll also happily confuse the issue for themselves, too. The industry consists of a lot of players building their products and services on top of each others' products and services; there's a lot of competition happening, and there's plenty of incentive to use the same advertising tactics within the industry as outside.)
The exact same person will write 1 in one thread and 2 in another thread.
1. "Online ads are ineffective and don't work. Online ads are a waste of money".
2. "The russians bought Trump's election by spending $50K on facebook ads".
It's hypocrisy based on agenda.
You might have also noticed that when someone they disagree with gets censored, they claim "google/facebook/etc" are private companies. When someone they agree with gets censored, we cannot allow tech monopolies to drive public discourse.
There was a recent submission where france ruled that google must display and pay for news headlines. The same people saying "nobody has a right to google's platform since they are a private company" were vociferously defending france forcing google to carry news and pay for it. No doubt many of them were hypocritical news industry workers.
But that's human nature, we are all selfish.
Some companies are better than others. Instead of "buy my product" they teach consumers they look cool if they buy. We wouldn't be dealing with Apple's BS if people only cared about quality.
We live in a consumption-driven society mostly driven by aspiration, not need. We are 'induced' into keeping up with the Joneses to a very great extent. This is not a conspiracy theory.
Much of ad spend is a waste because its effectiveness cannot be measured. Marketers will tell you "I would cut my budget in 1/2 no problem I just don't know which 1/2".
And some companies will spend ads on you from you're a kid until you're an adult hoping to lure you into a few purchases (Ford Trucks, BMW etc.).
In my experience, it's not that they're stupid - but they have neither the required math skills, nor the visibility into the whole pipeline, to be able to correctly evaluate the RoI, so they trust their providers in the ad industry a lot. So the correctness of their calculations depends a lot on the virtue and honesty of people working in the industry specializing in lies and manipulation when placed in front of an easy opportunity to make extra profit by being dishonest.
Here's my take on the two sides here:
1) It makes me uncomfortable that companies can track me online and use info that to target ads (or whatever their business model thinks it needs my info for). There are things about me like my location, identity and politics that are personal and I want to be in control of, not tokens to be sold.
2) Online advertising returns much less than $1 in profit for every $1 spent, so whats the point? Only big tech companies are benefiting from it. The fact that advertisers are pulling back during this economic contraction only proves this - if $1 in ad spending bought you >$1, they'd keep up their spending.
Not everyone will agree with me, but for me, both of those are true.
Are you saying (A) no single advertiser increases their profits by more than the amount spent on advertising, (B) that, in aggregate, the amount spent on advertising is less than the additional profit earned by all advertisers, or (C) something else?
It's unlikely that (A) is true.
It's possible that (B) is true but that any individual advertiser would be net harmed if they were to stop advertising (because they can't stop their competitors from advertising).
"The fact that advertisers are pulling back during this economic contraction only proves this - if $1 in ad spending bought you >$1, they'd keep up their spending."
It doesn't prove that. Perhaps they are pulling their spending because:
- they're not selling any more due to social distancing (theatre tickets? massages? dating services?)
- they're not selling any more due to supply constraints or inability to operate their business's physical locations
- the stuff they're selling is stuff people cut in a downturn
Just because a piece of advertising isn't worthwhile when no one can go out and many people have just lost their jobs, that doesn't mean it wasn't worthwhile before.
Targeted ads for largely online companies: If your customer sees an advertisement on Facebook and YouTube, and sees a few sponsored search results on Bing, then opens an ad in an Amazon mobile app six months later and converts, which ad was effective? Which was priced right? Lets assume you can 100% correlate all of this activity. Can you justify spending $X on platform Y will return >$X?
Brand awareness ads for largely offline companies: Your products are largely sold at retail, and you are a large multinational company like Coca Cola or Nestle. Which of your ad campaigns this quarter drove sales? Can you justify spending $X on platform Y will return >$X?
Even if that is true, that doesn't mean it's impossible to prove that your total advertising budget of $X improves your profit by more than $X.
- Advertising as a first-principle works, because our biology is amenable to familiarity.
sheer repetition ⇒ familiarity ⇒ positive bias ("things I know / like / trust / ...", common pattern)
There might be more to it, but that's enough, and proved enough times in many a scientific study afaik.
- Applying the technique to a real-world problem has varying levels of efficiency; whether it's the wrong solution or badly executed.
Heed this naive comparison: not all bridges are good, and some are scams. But there's no question whether building bridges is useful in the first place. The question is and forever will be, what should be the rules for making good enough bridges, safe enough?
Advertising as a domain and market is not a special snowflake in most regards. It's actually boringly common, dare I say predictable.
____
Where it gets tricky. Where first-principles aren't enough because complexity is at a whole other level: advertising is the primary revenue for a bunch of industries, most notably the press (the media) which is otherwise considered "the fourth pillar of democracy", i.e. that quality of information in a democracy is as necessary as government, congress, and justice, the 3 branches of the republic ideal form.
How do you reconcile that the biggest "influencers" of public opinion, the press, is itself mostly influenced financially by the most interest, biased, self-tauting side of the entire economy? Wherein not rational engineers, not sane financiers, not level-headed CEOs or even just Jane and John your co-workers next door have a voice, not even sales who know that lying and deceiving is not the way to build a sustainable business... but marketing, in other words those whose job is to create a Hollywood-fiction of fabled greatness... it's not lying, it never was, it's been elevated as fiction —see: artistic awards for the best ads, superbowl hype, and the actual real cinematographic value of some of that, hands down. Nevermind that the products are asking for real money, however.
And then we wonder why the media has become such a theatrical ongoing masterpiece of sensationalist storytelling. Well, lines were crossed.
Why infotainment has become such a norm that it is now capable of higher quality than "editorialized" (read: advertiser-leashed) newsrooms. “No, Jane, we can't say that. We'd lose ad money, you don't want us to fire people, do you?”
The sheer complexity of that makes me want to duck in quantum machine learning and call it a day on politics.
I don't have a perfect solution, I can only see red lines in law and a certain sense of ethics, like we value life, we should value information. In short, bug is in human code, thus fix as well.
As an example, lets say your product has a conversion time of 6-12 months. If you strike right now and have the right content to keep people engaged over that time period while theyre in quarantine they'd be ready to "convert" right near the end of some of the most stringent quarantine restrictions.
If you don't spend, then you just burned an entire year's worth of leads in your funnel.
They aren’t so much concerned by “people buying what they don’t need” - hardy a major concern of most hackers - they’re concerned about invasive data tracking being used to target ads. So I think you’ve gotten the first one wrong. And there’s no contradiction with the second in that case.
1) The ad industry is insatiable for customer data, and is willing to violate every last persons privacy to get it
2) The utility of the advertising industry’s targeted models is suspect at best.
https://www.quora.com/How-can-I-reconcile-Facebook-advertisi...
Likewise, many advertisers aren't doing brand campaigns, they're doing direct response, that is, trying to get people to directly click to their site and convert.
Finally, advertisers on video sites tend to pay per "completed view" for some definition of completed view, usually at least a significant chunk of the video and not just the first few seconds before the skip button appears.
I certainly conceded it's possible that your statement is true. I'm skeptical of most marketers claims. However, I have to acknowledge the scope of the deception if indeed it is a house of cards.
That's a lot of smart people wasting a lot of money in a lot of different ways over a century of the biggest growth phase experienced by civilization.
The trick is, the ad industry people are the ones who design all the KPIs that determine the efficacy of ad campaigns. So there's a bit of a self-serving incentive there that could be degrading the quality of the information.
There is clearly some evidence that ad spending does help, particularly with building brand awareness and goosing demand. I think the jury is still out on how much and to what extent specific user tracking/targeting strategies work though.
The only question is if they are fairly priced. It could be argued that they were overpriced due to over-funded companies overbidding on them trying to growth hack and bot traffic being mixed in.
Then some consultant came to Ebay and proved, without a doubt that the ads don't work. So, they created a test: they removed the 20 million $ worth of ads for that top slot and watched the traffic afterwards, it was pretty much unchanged! It's because All those people that clicked on those ads, were going to come to ebay anyways, despite the ads, not because of the ads.
CMO: We spent $100,000 on AdWords.
CEO: What was the ROI?
CMO: No clue.
Mainly because selling B2B the person who clicked the ad is rarely the person who raises an order. I can use a proxy like instigating a download but that is far from perfect.
And there are also those "I spent $1k in one day by accident with no return, help!" posts.
But take a large advertiser like a Coca-Cola or Procter Gamble - they might run many thousands of ad campaigns a week across all sorts of venues. Their revenue is largely at retail, so there is no way to track directly from an ad campaign to a purchase.
How do you prove the return on any given ad dollar? You cant.
The future of ad revenue will depend on when the VC bubble will pop. As long as the interest rates stay 0%, it's not over yet.
Is this what you want to believe or do you have data to back it up?
Do you think startups like Casper and Blue Apron want to hundreds of dollars just to get a single person in the door to buy something and pray they stay for at least 6 months / don't return the thing just so they can hit their break-even point? Like if this was all a house of cards it would have collapsed by now since there are millions of eyes trying desperately to reduce the need for their ad spend.
So yeah, that quirky overproduced Doritos TV ad probably isn't doing all that much but for businesses that don't already have a critical mass of mindshare it's your lifeline.