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Web (Revenue) 2.0

Last week, Tim O’Reilly gave the key note at the eponymous O’Reilly Etech conference. You can see the video here, his main message was simple: “Work on stuff that matters.”

O’Reilly covered a number of worthy areas, and took care to make clear that “stuff that matters” could include commercial, for-profit work, not just non-profits or governmental work.

But I wish he had encouraged the thoughtful, smart geeks in the audience to focus on figuring out new ways for web sites and services to make money. There have been many advances in web services these past 5-10 years; but precious few in the way web sites generate revenues. You could argue, plausibly, that there has been just one real innovation — the Vickrey auction of keywords on Google.com search, then extended to other web sites through Google Adsense.

So, if you are a web publisher today, in 2009, you are essentially presented with two ways to make money:

1) Google Adsense (or other, less effective but similar services), or;

2) Sale of display ads which is for the most part unchanged since the dawn of web.

AdWords has made Google a lot of money. AdSense makes publishers some money; but it’s not clear if the innovation Google has brought to search-based keyword will ever translate to pay-per-click based ads on other sites.

And display ads present us with one riddle upon another. Will they endure? How are they valuable to advertisers in the interactive, click-based online world? If you click on a display ad, and that click is measured an desired, is it really display? What are the advertisers trying to achieve?  Is there some distinct, less measurable (even online) benefit to “branding” online? What is the ideal form of a true online display ad, that integrates as seamlessly into the product as a print ad?  And, adding further complexity, if brand advertising lives, how will it work and be bought and valued in the increasingly social web?

I’ve built and run web-based businesses for the past 12-13 years, and I find that the answers to these questions are as few and unsatisfying today as they were in 1996 and 1997. This entire time, we’ve mostly had conflicting answers from two warring camps: the “web revolutionaries” and “ad sales realists.” The web revolutionaries proclaim online (and maybe offline) “display advertising is dead.” The ad sales realists proclaim “long live display ads.”

One of my favorite web thinkers, Umair Haque, made the clear case against display ads 18 months ago:

Marketers have to figure out how to make “ads” that benefit consumers – not impose nuisance costs on them.
In a world where control shifts inexorably, ineradicably, irreversibly to consumers – because of the elemental structural imbalances between media supply and media demand – there is no other possible outcome for marketing.

Display ads are all about “nuisance costs.” The whole idea is to divert your attention from the other things on the screen that you’re trying to read, watch or click. They are architected to take you away to another site. A generation of ad technologies for the web have been focused on increasing the intrusion — pre-roll videos, Flash-based fly-outs, web site takeovers.

Display ads have, of course, thrived in media where supply was constrained and limited — by the costs of printing, or the purchase of airwave spectrum — and in which consumers of the media were not in control. Clay Shirky neatly described this in his now much cited post this past weekend about newspapers:

If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage — a breaking story, a key interview — at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience.

Of course, today’s printing press is free — you just need a keyboard and internet connection. What better illustration of this than Shirky’s post itself — on a website powered by WordPress, the open-source and free blogging software. In the past, one might have seen analysis like this in the Wall Street Journal, or maybe a trade magazine, or an expensive subsctiption-only newsletter.

But here, access to the post was itself free, of course, and the page on which it was displayed was free of adornment — no ads, no blinking text, no Flash animations of the Geico frog. Distribution was free, and nearly instantaneous, through links on Twitter, blogs, blog readers and other platforms. It cost Shirky nothing (more or less) to publish to millions.  All he needed was a few hours (one presumes) to write it, and a few dollars for his blog host.

Reading first Umair Haque’s posts, and then Clay Shirky’s more recent writing, and it’s not hard to think display is dead — or will be dead soon. The very environment in which display ads have thrived — the world in which media publishers had control, and we were just an “audience” — is done. Shirky clinically reviews what has happened with newspapers, and it’s easy to fast-forward and see these same forces obliterating television, radio, and on and on. We now make the media, and we decide how we want to interact with that media. Too often, display ads just get in our way, and don’t help us do either of these things.

And so I find myself firmly aligned with my brothers — Haque and Shirky — gleefully awaiting the death of display ads (as a user) and deepening my resolve to live in a world of Pay-Per–Click (“Like that Madonna song, buy this ringtone!!!) as a web entrepreneur and publisher.

Until I talk to an “ad sales realist.” I ask them, hopeful glimmer in my eye (hopeful like a mortician talking with a future client) — “Display dead?” And almost invariably I’m laughed off, told that the business is fine, that there are still buyers, that the formats are evolving and need to evolve and will evolve. And that there will always be buyers. I had just this conversation today, with the head of ad sales at a very popular ad network who said: “What else they gonna do?”

Both parties (me and the revolutionaries, the ad sales realists) can point to the market and to statistics to buttress our claims. Scores of data to show that online users ignore banners and buttons and even more intrusive ads, and click on them hardly ever. But dollars flowing in from the marketplace — albeit in much reduced quantities recently — suggest a heartbeat, if a bit more feint with each passing year.

One irony in all this — perhaps the way forward can be glimpsed from those dying dinosaurs, newspapers and magazines. Print advertising has never offended me that much; it often complements the editorial, and it’s gone with the simple flip of the page. When I look at an ad in a magazine, the magazine isn’t ripped from my hands and replaced with a product brochure. But that’s just what it feels like when you click on a banner ad — you feel punished.  So we’re trained not to do it. Display ads in print are, ironically, far more user friendly than their online counterparts.

Can we do that in our online world? Could we make display advertising that is untethered from performance metrics (the click-through) and just a thing of beauty or interest that makes our users aware of a product? Can we make display advertising that works for the advertiser, and liberated from the tyranny of the click-through? I don’t know, I’d love to hear what others think.

Which leads me back to O’Reilly. For too long, those of us making web products and services have punted on figuring all this out. We outsourced the problem to the IAB, to our ad sales teams or ad reps, or to Google. We blamed crappy creative for dismal performance. We’ve bitched about the horrible experience of online display.  It’s time for the product makers to step up and figure this out.

If we don’t, and we’re left with pay-per-click performance ads as the only viable form of online advertising, it’s not hard to imagine many online web publishers will end up just like the newspaper business. Without ever having tasted the glory of newspapers’ golden age.

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3 thoughts on “Web (Revenue) 2.0

  1. joshuarex says:

    Hi,

    We’ve given much though to the display media problem. Bottom line is that display media never worked. We, among others, are creating display formats that do work: formats that combine display utility with organic distribution and search optimisation. We predict a long overdue move towards pull based ad formats that users opt-in to. What we need to do is give the pundit a utility that has value and integrate brand advertising within. As for revenue models: CPM is good for generating footfall but does nothing to drive engagement – hence it really is unaccountable. Cost Per Engagement and Rev shares will be the future. Take a look at the latest format we have developed for mydeco.com

    http://www.thisisopen.com/blog/2009/03/mydeco-design-box-v12/

    All the content is intelligent and dynamically managed. Publishers are on selling the format which creates additional revenue streams.

    A glimpse of the future….

    http://thisisopen.com

  2. Pingback: Web Revenue 2.0 | The Open Agenda

  3. Pingback: Experiments with Advertising on Showyou | Showyou

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