Internet Advertising -
What Went Wrong?
By: Sam Vaknin
The decline in Internet advertising - though paralleled by a similar
trend in print advertising - had more serious and irreversible implications.
Most content dot.coms were based on ad-driven revenue models. Online
advertising was supposed to amortize start-up and operational costs
and lead to profitability even as it subsidized free access to costly
A similar revenue model has been successfully propping up print
periodicals for at least two centuries. But, as opposed to their
online counterparts, print products have a few streams of income,
not least among them paid subscriptions.
Moreover, print media kept their costs down in good times and bad.
Dot.coms devoured their investors' money in a self-destructive and
But why did online advertising collapse in the first place? Was
Advertising is a multi-faceted and psychologically complex phenomenon.
It imparts information to potential consumers, users, suppliers,
investors, the community, or other stakeholders in the firm. It
motivates each of these to do his bit: consumers to consume, investors
to invest and so on.
But this is not the main function of the advertising dollar. Modern
economic signal theory has cast advertising in a new and surprising
- though by no means counterintuitive - light.
According to this theory, the role of advertising is to signal to
the marketplace the advertiser's resilience, longevity, wealth,
clout, and dominance. By splurging money of advertising, the advertiser
actually informs us - the "eyeballs" - that it is here to stay,
sufficiently affluent to finance its ads, stable, reliable, and
"If firm X invested a million bucks in advertising - it must be
worth more than a million bucks" - goes the signal. "If it invested
so much money in promoting its products, it is not a fly-by-night".
"If it can throw money at an ad campaign, it is stable and resilient".
This signal is missing in online advertising. It drowns in noise.
The online noise to signal ratio was unacceptable to advertisers
- so they stopped advertising. When the noise to signal ratio tops
a certain level - ads cease to be effective. The readers or spectators
become inured to the messages - both explicit and implicit. They
The noise in online advertising stems from two sources.
A critical element in the signal is lost if the ad is not paid for.
Only paid advertising conveys information about the purported health
and prospects of the advertiser. Yet, the Internet is flooded with
free advertising: free classifieds, free banner ads, ad exchanges.
The paid ads drown in this ocean of free ads. There is often no
way of telling a paid ad from a free one - without reading the fine
Moreover, Internet users are a "captive audience". It is easy to
flip ad-besieged channels on TV, or turn the ad-laden leaf of a
newspaper. It is close to impossible to avoid an ad on the Net.
Banner ads are an integral part of the page. Pop-up ads pop up.
Embedded ads are embedded. One needs to install special applications
to avoid the harassment.
This leads to desensitization and a revolt of the user. Users resent
the intrusion, are incensed by the coercive tactics of advertisers,
nerve wrecked by protracted download times, and unnerved by the
content of many of the ads. This is not an environment conducive
to clinching deals or converting to sales.
There is also the issue of credibility. The bulk of online advertising
emanates from dot.coms. Even prior to the recent stock exchange
meltdown, these were not considered paragons of rectitude and truth
in advertising. People learned to distrust most of what they read
in Internet ads. Scorched by scams, false promises, faulty products,
shoddy or non-existent customer care, broken links, or all of the
above - users learned to ignore Web advertising and relegate it
to their mental dust bins.
More about credibility on the Web here: The In-Credible Web Will
the medium ever recover? Probably not. As the Internet is taken
over by brick-and-mortar corporations and governments, online fare
will come to resemble the offline sort. Online ads will be no more
than interactive renditions of their offline facsimiles. The revenue
model will switch from advertising to subscriptions and "author-pays".
The days of free content financed by advertising are over.
This does not mean that the days of free content are over as well.
It only means that new, improved, realistic, and clutter-free revenue
models will have to be found. There are some interesting developments
in scholarly online publishing as well as in the fields of online
reference and self-publishing. But these are early days and the
medium is dynamic. Ad-driven content was a failure. The next model
may be a roaring success - or yet another dismal defeat.
AUTHOR BIO: Sam Vaknin is the author of Malignant Self Love - Narcissism
Revisited and After the Rain - How the West Lost the East. He is
a columnist for Central Europe Review, United Press International
(UPI) and eBookWeb and the editor of mental health and Central East
Europe categories in The Open Directory, Suite101 and searcheurope.com.
Until recently, he served as the Economic Advisor to the Government
of Macedonia. Visit Sam's Web site at http://samvak.tripod.com
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