Home Online Advertising The death of Internet Advertising (as we know it)?

The death of Internet Advertising (as we know it)?

by tmnsoon

For almost two decades now automated ad exchanges have been the staple source of revenue for online services. It’s taken for granted that so long as you can get people to view your “content” ad networks will pay for the clicks and impressions. It’s easy for publishers and advertisers, who don’t need to deal with each other directly but leave the allocation of ad-space to algorithms, trading desks and exchanges. And it makes things FREE for the users, so what cracks are developing in this business model that could seriously damage it?

From the publisher’s side, the YouTube’s “demonetization” scandal has become a major issue since the 2016 U.S. Presidential election. Many YouTubers are having their videos “demonetized” en masse, with YouTube citing that they are not “advertiser friendly”. And while it is true that sensitive political topics may not be what companies want to run their ads with, it’s far from just these topics that are being demonetized. YouTubers have seen videos about seemingly uncontroversial things such as a Burger King review, an update on Hurricane Irma, and a video about escaping from North Korea, being demonetized. Some YouTubers are reporting that their revenue has dropped to a quarter or less than what it was before demonetization measures were in place. Whether the cause of this is ideological thumbjiggery or simply overreaction, the impact on how YouTubers make money is serious.

YouTubers are realizing that relying on a single third party platform for their income might not be the best idea.

Up until recently it was a given that if you could generate a lot of traffic to your videos you could earn reliable advertising revenue from YouTube, and many YouTubers have been relying on it as their primary source of income. With this instability however fewer people will want to risk having all their eggs in one basket.

So what kind of alternatives are Youtubers seeking? One of them is not to abandon advertising altogether, but to forge affiliations directly with advertisers as opposed to relying on a third party platform to serve up ads. If you’ve watched a lot of YouTube recently you’ve probably seen a number of videos sponsored by Brilliant.org, Squarespace and Blue Apron, among others. Video content is especially suited for this as a plug for an affiliate can be woven into the video, effectively bypassing ad-blockers. This kind of implementation is typically of a higher quality as the content creator will need to directly interact with the company they are affiliated with and actually learn about their products/services in order to promote them. The advertiser on the other hand will have direct control over which videos and channels they sponsor.

Another method is to simply ask users for donations or subscriptions. Of course this is nothing new, however in the wake of demonitization services such as Patreon have been growing steadily. Unlike a static PayPal “donate” button which used to be ubiquitous with online donations and subscriptions, Patreon makes the process of supporting creative endeavors much more engaging and appealing. Content creators can offer supporters exclusive content and other rewards in exchange for their subscription. You can also see how many others are subscribed and how much they are paying.

 

Will Facebook’s recent privacy scandal also hurt Internet advertising? Concerns regarding invasive targeted advertising and trackers following you all over the Internet have been pulled out into the public’s eye, so one would expect interest in ad-blockers to spike. However this does not seem to be the case. As seen in the below Google Trends graph, search interest for Facebook’s recent scandal has not coincided at all with increased interest in ad-blockers or script blockers.

 

Adblocker usage is continuing to grow overall, however the growth rate has slowed significantly since the early 2010s. The rate of British Internet users blocking ads has stabilized at around 22%, while in the U.S. it has steadily grown to 32%. This is likely because most computer literate users have already installed ad-blockers, leaving the two thirds or so of “normal” users who are much more passive and nonchalant about their Internet experience. Most would certainly prefer to have ads blocked, however there are a large proportion of people who either aren’t aware ad-blockers exist, or don’t know how to install them so don’t bother. If every computer literate person took it upon themselves to install ad-blockers for 10 of their illiterate friends/family the blow to online advertising would be enormous. Without this happening however ad-blocker usage will in all likelihood continue to stagnate for the near future — save for ISP’s blocking ads at the network level, however that’s a massive legal and political nightmare which is probably off the cards for now.

So conventional online advertising is burning some content creators whom are seeking alternatives, users are on the whole pretty passive about it… what about businesses? They are the party in this trifecta whom are paying directly with dollars, so what do they think about online advertising in its current form? Last year P&G, one of the largest advertisers in the world, cut their quarterly online ad spending by 100 million after their chief brand officer referred to it as “murky at best and fraudulent at worst”. And the result? No decline in sales. Of course the goal of some types of advertising is to expose consumers to a product constantly so that when they need it they immediately think of the product advertised and buy it. Considering how prone to fraud online advertising is however, using it for brand or product awareness is much more of a gamble than offline advertising.

Ad fraud. It’s expected to become the second biggest revenue source for criminals by 2025 according to the World Federation of Advertisers.  And why not? It’s a crime where the perpetrator has very little risk of being caught and prosecuted, it doesn’t require an immense amount of skill and the payout can be very attractive. If you’re going to get into cyber-crime nothing beats online ad fraud.

Payout vs risk for various crimes according to HP

Every ad exchange, agency and tech giant will of course claim they have sophisticated systems in place to detect and prevent fraud. And to varying degrees they surely do — there have been cases where relatives of webmasters have purposely clicked on ads to earn the webmaster money, with the webmaster being kicked off the Google Adsense platform as a result. No doubt a big reason why Google is so successful is because they are better than the competition at detecting ad fraud. However there is no way of knowing just how much of online advertising expenditure flows to fraudsters — depending on which researcher you ask the rate is as low as 2% of as high at 90%. Successful fraud is the fraud which is not detected, so the traffic or clicks found to be fake are only the unsuccessful attempts. No one can really know how many successful attempts have been made.

If you were to purchase a billboard overlooking a freeway or a banner ad on the side of a train it is difficult to get totally ripped off, because if you have any doubts about how many eyeballs are seeing your ads you can go and see for yourself! On the other hand after purchasing an online ad through an agency the pathway to the viewer is obscured by a murky maze of plumbing which includes trading desks, demand side platforms, data providers, targeting programs, verification programs and exchanges. The advertiser does not know where their ads end up, which circles back round to the YouTube demonitization scandal mentioned earlier.

An example of the path an ad might take to get from advertiser to publisher. This process eats up as much as 60% of the advertiser’s spending.

Whenever a new industry develops people overestimate it in the short term and underestimate it in the long term. It booms, crashes, then re-develops in a different and more sustainable way. This happened with online services in the late 90s/early 2000s — most of the early services and websites were useless, and wouldn’t make any money for anyone. Of course the dotcom bubble bursting was the result. Afterwards however online services that were actually useful to people grew out of the ashes and are doing very well today. A similar dynamic is likely occurring now with online advertising. Just like how in the late 90s the Internet was going to revolutionize commercial services overnight, online advertising was supposed to do the same for advertisers. Once the honeymoon phase is over online advertising will not die per say, but will likely restructure to become more realistic and sustainable.

Affiliate marketing is the most robust form of online advertising, and is one that will survive any pullback in the industry whether it be businesses cutting spending after being ripped off or a global recession. A product is suggested, the user follows the affiliate link to the vendors site, and if they buy the product the webmaster gets a commission. Even if the user leaves the vendors site and returns later the webmaster still may get their commission, as many vendors use cookies lasting anywhere from 24-72 hours to keep track of which affiliate referred the sale.

There is no way for fraudsters to swindle vendors when it comes to affiliate marketing — either a sale is made or it’s not. The disadvantage however is that affiliate marketing only works for certain products. A car manufacturer for example would have no use for this kind of advertising, as a car cannot be purchased online — and even if they could, the purchase of a new car is something you will mull over for quite a long time before making a decision. Same goes for advertising aimed to raise awareness of a product — a new energy drinks for example is not something you would buy online, but if you are exposed to a lot of advertising for a particular energy drink you may be more likely to buy it when you’re at the gas station.

Ultimately we could see a significant reduction, if not collapse, in online advertising which is served up by automated exchanges. Advertisers whom can form direct relationships with publishers will have much more control over where their ads run, will be less susceptible to fraud and will be able to save money without the 60%+ overhead which exists in the automated model.

Overhead costs in online advertising, from the World Federation of Advertisers

In the more distant future cryptos could disrupt online advertising, as they have the potential to solve the issue of micro-transactions and thus make it much more feasible for users to directly pay publishers for content they consume. Our current monetary system does not allow for very small sums of money to be transferred efficiently. Sending a few cents to a person or company is not currently feasible, because the fees would end up costing more than the amount being sent. The handling of fiat currency is also resource intensive in terms of regulations, security and fragmentation (different currencies in different countries), so the less handling required the better. What Internet advertising essentially does, is transfer a tiny bit of money from a large number of people (website visitors) to the much smaller number of webmasters. A small number of visitors pay the advertiser a significant amount of money for a product or service, whom then pays the webmaster in a lump sum. Not every visitor will pay every advertiser of course, but it evens out so that a webmaster can receive a steady income over time.

With a crypto-currency, it is possible to send small amounts of money to many different people, because the fees can be extremely low. This makes it possible to directly “tip” publishers whose content you find valuable. The ownership, storage and transfer of cryptos are also not restricted in the way fiat is — anyone at any age from any country can easily send a universal crypto-currency to one another.

Among the most prominent alternatives to regular Internet advertising currently is Brave’s Payment service. Brave is a web browser which focuses primarily on privacy and security. Brave Payments is a service built into the browser which utilizes the BAT (Basic Attention Token) crypto-currency, allowing users to directly pay webmasters whose sites they visit. The user deposits BAT which is stored in their Brave web browser, no third party payment processor required. The browser keeps track of sites visited and the duration, and each month payments are made to the appropriate webmasters based on the time spent on their sites. At any point the user can remove sites which they do not want to pay, and can pin sites they like so they get a fixed percentage of the payment, regardless of how much time spent on them.

Brave Payments settings window.

Once a webmaster has a certain amount of BAT allocated to them (currently it is $100 USD worth) they will be contacted to sign up to Brave Payments in order to receive their money. If the webmaster does not respond after several attempts the BAT will go into a pool and be given out to new Brave users in order to encourage them to use the platform.

If you use an ad-blocker then Brave’s Payment Service is a great alternative to pay the websites, publishers and services you patronize. Unlike automated online advertising the control is fully in your hands — adjustments can be made so your favorite publishers get a larger slice of the pie, and if you see an organisation on your list that you don’t want to give your money to they can simply be removed.