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Comment by chasebank | Hacker News Reader

You’ve clearly never worked in direct response marketing. The cost of customer acquisition vs lifetime value of a customer is terrible compared to traditional retail. In 2007, you could print money. In 2023, you’re most likely barely breaking even buying digital ads. The OPs thesis is quite correct. I’ve been in the space for 14 years and have tens of millions, if not hundreds, in DR adspend across multiple platforms / industries.

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I've been in the direct response industry as well for a while and kind of at a loss for what to do.

Being a small time app developer and seller of random things. I can't afford these new CPMs, $15 - $50 is a LONG shot compared to 2019 and paying $3-5 CPM.

Mind you I've spent close to $400k between Fb/Snapchat/Tiktok.

What do I do now that these companies have shut me out? Anything I build I can't see a path forward on acquiring customers without say buying email lists or hitting SMS lists. I feel very unfairly screwed.

I think direct advertising for your products is a suckers game. You have to compete against everyone for ad spots, and there's always another company that has better margins who will outbid you.

I've had success with two strategies:

1) Maintaining a semi-popular Open Source project adjacent to my app. The website of the open source project mentions my paid app. It's free advertising that noone can outbid.

2) Word-of-mouth: My app is recommended by users to others. It's also free advertising, you just need to make a nice product...

Is there anything inherent in your products (as opposed to someone elses) that entitles them to an audience?

Nearly perfect competition does imply a profit margin near zero.

I don’t think this is a case of “nearly perfect competition driving prices down so nobody makes a profit” (e.g., you working for a social media company trying to argue how perfect competition this is ;-) ) - BUT potentially rather a case of “monopoly power of social media charging so much for customer acquisition that it drives profits to zero”; so rather a shift in profit from high prices from the manufacturers pocket to Zuck et als pockets…

It's an auction. The buyers are driving up prices until it's no longer profitable.

This is hard core wrong. Only the preferred buyers have access to the product that everyone wants to buy. They negotiate above and beyond the auction system and the platform obfuscates that by making it more difficult for the users who are not preferred and must participate and in the "free market" to tell why their ads perform poorly.

Spoiler alert: it's because they are being sold garbage impressions while being shown "analytics" that make the lay person believe it's their content, or ad, or targeting, or whatever... and not the fact that the platform just pooled all the valuable impressions outside the auction and gave them to a preferred customer who never touched the auction system to begin with.

If that's true, that demonstrates the sellers aren't exercising monopoly power to set prices artificially high. A preferred buyer means someone able to negotiate.

Wow, that I did not know - but totally believe

With only one seller ;-) That’s usually kind of what you call a monopoly. A bit like just a single entity selling oil and then arguing “oh this is a free market because we auction of the oil…”

No?

Alphabet, Facebook, Microsoft, Apple, Tencent, Alibaba, Baidu, Bytedance, Yandex each have more than 1% of digital ad spend marketshare, and none of them have 50% of total marketshare. They compete in many areas too.

I think there are credible Indian competitors growing too.

Theres OPEC, theres Russia, theres Iraq, …

These companies have margins >>20% whereas the advertisers barely break even.

> Theres OPEC, theres Russia, theres Iraq, … These companies have margins >>20% whereas the advertisers barely break even.

How is oil & gas relevant to digital ads?

I was relating an example from oil oligopolies with the Ads market.

Social media making $$$ whereas the companies buying Ads barely breaking even is not equal to an “open efficient and free market” as the initial thread suggested.

There can exist different market dynamics in different sectors?

I'm not really sure why your trying to compare oil & gas with digital ads, it doesn't make any sense. You can't extrapolate conclusions based on the market dynamics of one to the other.

I don’t agree with how you measure market share in order to try and argue that we do not see an abuse in negotiation power by Meta et al.

Here is another oil&gas comparison: OPEC countries aren’t distorting the market in their favor, because oil is just a fraction of the total energy market (e.g., nuclear, wind, solar,…)

> just a fraction

1/1 is a fraction. What fraction is oil of the total energy market?

I still don't see how this is relevant.

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