Monday, May 26, 2008

Why traditional advertising doesn't
work on the web

It's a real connundrum for magazine publishers who are pressing their staffs not only to build web-based revenue, but have it deliver the kinds of returns they are used to in print.

Traditional advertising, says Scott Karp on Publishing 2.0, was developed for a "captive audience" and web audiences are anything but. (He links to some interesting research from British guru Jakob Neilsen.)

As media companies struggle to figure out their digital future, the elephant in the room is that they have only been able to monetize online audiences for pennies on the dollar compared to traditional media. Here’s why: Traditional advertising formats FAIL on the web. By traditional advertising formats, I mean display ads, video ads, and any other ad whose format and value proposition approximates or imitates that of an offline advertising format.

People have no patience for traditional advertising online -- it delivers little or no value.

Online display advertising is a commodity business, where online publishers have to shovel page views and battle for every $1 increase in CPM. Some sites can get $50-100 CPMs on some pages from certain advertisers, but $1 — even $0.10 — CPMs are common on the web.

Just ask newspapers and magazines about their ad pricing power in print vs. online. Can you imagine a print publisher getting $1 for 1,000 times an ad was seen? You’d go bankrupt after one issue.

Here’s a sobering thought: If all advertising in offline media got converted to current online media CPMs, it would probably be worth a fraction of the value, i.e. $300 billion would become $50 billion.

Search advertising, because it is relevant to what users are already searching for, creates enormous value. But the search advertising is largely about helping people buy what they already know they want.
Even more provocatively, Karp points out that the most successful type of online advertising is e-mail spam.

Spam is probably the most inefficient form of advertising every created, and it creates more hate and loathing among consumers than the worst 30 second TV ad ever created.

But it works. With millions of emails sent at virtually no cost, a 0.001% response rate can still be highly profitable.

The reason why most online advertising fails is that web users see it as little better than spam.

Display ads are ignored in the same mindset as spam is ignored — I’m trying to get something done online and your display ad is getting in my way.

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