Web Companies Scrambling for Holy Grail of Ads
It's like we hit the Silicon Valley's Run for the Roses, only instead of horses, there is a line of social networking and media companies, and instead of a blanket of roses (and a whole lot of money), the prize is advertising sales (and even more money, in theory). Such companies as Facebook and Twitter are heavily on the hunt.
That's got to mean it's a sound revenue stream, right? Because the wunderkind are out in front. Maybe not. Although there's a lot going on, there are also massive red flags that suggest using advertising as your main business model may not be the road to long-term sustainability.
First, just some of the ad mania we're seeing:
- Facebook again tried to use your face and name in ads. The backlash during a one-week comment period was strong enough that Facebook will put off changes in its data use policy--at least for another week. This comes shortly after Facebook agreed to a $20 million settlement with people who were not happy about finding their likenesses used without permission.
- Facebook was also planning to introduce video ads in users streams, but that's pushed back as well from a planned October announcement.
- Twitter acquired mobile ad technology firm MoPub and plans to sell ads on apps from other companies.
- Instagram (back to Facebook again) expects to start selling ads within the year, a potentially tough bill for users to swallow.
- In yet another ad move, Facebook is increasing the size of its ads.
- But enough of Facebook. Details magazine wants to bring in so-called native advertising--ads that look like normal editorial. To do so, management is using its network of 150 bloggers to create content. And some publications like Mental Floss and Mashable are using staff to create the ads, at one time a complete no-no.
- Some sites are packing more ads per page than you might get sardines in a tin, all to boost revenue, even though realistically most ads won't get any attention.
What all these companies and approaches have in common is desperation. Facebook is desperate to grow quickly enough to justify its stock price and investor expectations. Twitter needs enough growth to justify all the investment it's received. Details, Mental Floss, and Mashable are, well, just desperate. Any time you start breaking up the furniture to burn and keep warm, things aren't looking cheery.
What breeds desperation? Fear. And that comes from the powerful forces like the following:
- Ad-blocking software vendor AdBlock is raising tens of thousands of dollars on Kickstarter to advertise its wares. If it can raise enough, this would become a Times Square billboard, a New York Times full-page ad, or--and this would take millions--a Super Bowl ad. One of their approaches to revenue is to charge companies to allow some ads through. Sound like a shakedown? Google is reportedly paying to play.
- Some studies suggest that huge portions of ad traffic are fake, which means companies are wasting money. If as much as 46 percent of Web and 35 percent of mobile ad impressions are fake, someone will want to rein in spending.
- Video ads may be performing worse than many expected.
- One recent report suggests that more than a fifth of Web users employ ad-blocking software. All those ads stacking up on pages? Poof!
- A new device promises to kill ads on any Wi-Fi connected device within its reach.
In other words, the future of ads on the Internet is shaky. Although users seem disinclined to pay for pretty much anything online, ads have been a fallback. But they may no longer be, and it's time to investigate alternatives (such as they are).
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.