Once consumers are aware of companies, they no longer need advertising; consumers need information. The net is great for explaining features, knowledge & DIY tutorials; all excellent ways for companies to reach out and gain trust.
The problem with internet marketing is the unfairness of "SEO Alimony" to get search engine exposure and the dismissive attitudes of web centric business models toward closing sales by phone. Phone centric industries like pizza and taxi service have no way to leverage advertising that was once effective in phone books to the web. Now that phone lists are transitioning to the web, they bring 'alphabetical fairness' and phone marketing competition back into the mix.
Editor’s note: The following is a guest post by Eric Clemons
,
Professor of Operations and Information Management at The Wharton
School of the University of Pennsylvania. In it, he argues that the
Internet shatters all forms of advertising. “The problem is not the
medium, the problem is the message, and the fact that it is not
trusted, not wanted, and not needed,” he writes. The views he
expresses are his own, and we present them here to foster debate.
(Obviously, we hope there is a place for advertising on the Internet
since it pays our bills).
1. There Must Be Something Other Than Advertising:
The expected drop in internet advertising revenues
this year was neither unpredictable nor unpredicted, nor was it caused
solely by the general recession and the decline in retail sales.
Internet advertising will rapidly lose its value and its impact, for
reasons that can easily be understood. Traditional advertising simply
cannot be carried over to the internet, replacing full-page ads on the
back of The New York Times or 30-second spots on the Super Bowl
broadcast with pop-ups, banners, click-throughs on side bars. This
might be a subject where considerable disagreement is possible, if
indeed, pushed ads were still working in traditional media. Mostly they
have failed. One newspaper after another is going out of business
across the United States, and the ad revenues of traditional print
media, even of highly respected magazines, is declining. The ultimate
failure of broadcast media advertising is likewise becoming clear.
Pushing a message at a potential customer when it has not been
requested and when the consumer is in the midst of something else on
the net, will fail as a major revenue source for most internet sites.
This is particularly true when the consumer knows that the sponsor of
the ad has paid to have this information, which was verified by no one,
thrust at him. The net will find monetization models and these will be
different from the advertising models used by mass media, just as the
models used by mass media were different from the monetization models
of theater and sporting events before them. Indeed, there has to be
some way to create websites that do other than provide free access to
content, some of it proprietary, some of it licensed, and some of it
stolen, and funded by advertising.
The idea that content has a price and net applications should find
ways to earn a profit without providing free access to other people’s
content gets explosive reactions; when virtual reality pioneer and tech
guru Jaron Lanier suggested in a New York Times Op Ed
that authors deserved to be paid for their content he actually received
death threats. But other models are possible and several suggestions
for alternative forms of monetization are offered below.
2. Advertising will fail:
The internet is the most liberating of all mass media developed to
date. It is participatory, like swapping stories around a campfire or
attending a renaissance fair. It is not meant solely to push content,
in one direction, to a captive audience, the way movies or traditional
network television did. It provides the greatest array of
entertainment and information, on any subject, with any degree of
formality, on demand. And it is the best and the most trusted source
of commercial product information on cost, selection, availability, and
suitability, using community content, professional reviews and peer
reviews.
My basic premise is that the internet is not replacing advertising but shattering it,
and all the king’s horses, all the king’s men, and all the creative
talent of Madison Avenue cannot put it together again. To analyze this
statement we need a working definition of advertising, and I proposed
the following, which is as general as I could make it:
Advertising is using sponsored commercial messages
to build a brand and paying to locate these messages where they will be
observed by potential customers performing other activities; these
messages describe a product or service, its price or fundamental
attributes, where it can be found, its explicit advantages, or the
implicit benefits from its use.
It is frequently argued that the advertising industry will provide
sufficient innovation to replace the loss of traditional ads on
traditional mass media. Again, my basic premise rejects this,
suggesting that simple commercial messages, pushed through whatever
medium, in order to reach a potential customer who is in the middle of
doing something else, will fail. It’s not that we no longer need
information to initiate or to complete a transaction; rather, we will
no longer need advertising to obtain that information. We will see the
information we want, when we want it, from sources that we trust more
than paid advertising. We will find out what we need to know, when we
want to make a commercial transaction of any kind. The conventional
wisdom is that this is exactly what paid search helps us to do, but all
too often they are nothing more than a form of misdirection, as I
explain further below. Instead, we will use information that we trust,
obtained at the time that we want to see it.
Better targeting of ads using individual interests and individual
behaviors will ensure that we do not bore or annoy as many people with
each ad, but cannot address the trust issue. As for paid search, it is
closer to other mechanisms that allow a website to sell access to potential customers.
It works effectively as a revenue source for Google, of course. But it
surely is not replicable for the average content website.
3. Advertising will fail for three reasons:
There are three problems with advertising in any form, whether broadcast or online:
- Consumers do not trust advertising. Dan Ariely
has demonstrated that messages attributed to a commercial source have
much lower credibility and much lower impact on the perception of
product quality than the same message attributed to a rating service. Forrester Research
has completed studies that show that advertising and company sponsored
blogs are the least-trusted source of information on products and
services, while recommendations from friends and online reviews from
customers are the highest.
- Consumers do not want to view advertising. Think
of watching network TV news and remember that the commercials on all
the major networks are as closely synchronized as possible. Why? If
network executives believed we all wanted to see the ads they would be
staggered, so that users could channel surf to view the ads; ads are
synchronized so that users cannot channel surf to avoid the ads.
- And mostly consumers do not need advertising. My own research
suggests that consumers behave as if they get much of their information
about product offerings from the internet, through independent
professional rating sites like dpreview.com or community content rating services like Ratebeer.com or TripAdvisor
Yes, both network executives and their ad agencies have noted that
we are not watching traditional ads, and they attribute this to the
fact that we have moved beyond newspapers, televised network news, and
broadcast movies, to video games, iPods, and the internet. Porting ads
to a new medium will not solve the three problems noted above. The
problem is not the medium, the problem is the message, and the fact
that it is not trusted, not wanted, and not needed.
4. Alternative models for monetization are available:
Again, my research suggests that there are three general categories
for creating value that can be monetized, including selling real
things, selling virtual things, and selling access. Some websites exist
solely to sell real things. Many of the
best-known perform aggregation of demand, so that there will be enough
customers to justify stocking and selling items for which there is only
limited demand. Amazon is merely the best-known example. Sites like
Amazon and Zappos are especially good for long tail items … where else
do you go for a copy of the Green Sea of Heaven, Elizabeth T. Gray’s magnificent translation of the Ghazals of Hafiz, or for a pair of size 20 basketball shoes?
Selling real things online has been studied since the advent of
interest in eCommerce and will not be discussed further here. Other
websites sell virtual things. These activities fall into three categories:
- Selling content and information, from
digital music to news and information. Some of these sites are funded
by subscriptions, like Gartner Research; some are by direct
micropayments for purchases, like iTunes; and some currently attempt to
fund themselves through advertising, like Business Week or The New York Times, while still searching for a more effective business model.
- Selling experience and participation in a virtual community,
including Second Life and World of Warcraft, Facebook and MySpace,
Flickr and YouTube, or LinkedIn. Not all of these have found a way to
charge for participation.
- Selling accessories for virtual communities, like completed homes and stores, furnishings, clothing, and pets
in Second Life or characters and accessories that would be difficult to
earn in World of Warcraft, although this behavior is generally despised
by serious World of Warcraft players.
Finally, some websites create and sell access to customers. Again, this can be divided into multiple categories.
- Misdirection, or sending customers to web
locations other than the ones for which they are searching. This is
Google’s business model. Monetization of misdirection frequently takes
the form of charging companies for keywords and threatening to divert
their customers to a competitor if they fail to pay adequately for
keywords that the customer is likely to use in searches for the
companies’ products; that is, misdirection works best when it is
threatened rather than actually imposed, and when companies actually do
pay the fees demanded for their keywords. Misdirection most frequently
takes the form of diverting customers to companies that they do not
wish to find, simply because the customer’s preferred company
underbid. Misdirection also includes misinformation, such as telling a
customer that a hotel is sold out when, indeed it is still available,
if the hotel has chosen not to pay a promotional fee, and then allowing
the guest to choose an alternative property. Misdirection is,
regrettably, still a popular business model on the net, although for
reasons I explored in an earlier TechCrunch post
on Google it seems ultimately to be unsustainable. More significantly
from the perspective of this post, it is not scalable; it is not
possible for every website to earn its revenue from sponsored search
and ultimately at least some of them will need to find an alternative
revenue model.
- Evaluation, assessment, and validation.
The opposite of sending a customer someplace other than where he wants
is providing the customer enough information for him to make an
informed choice on his own. Recommendations on TripAdvisor.com allow
potential guests to evaluate and validate recommendations provided by
Hotels.com; not surprisingly, Hotels.com originally owned TripAdvisor,
and benefited greatly from it. Since Hotels.com did not attempt to
influence or censor TripAdvisor content the website was (and is)
trusted and helped put recommendations from Hotels.com at a level of
trust comparable to those from an experienced travel agent. There are
at present only a few other examples of website symbiosis like this,
where community content on one site adds considerable value for
another; consider also the relationship between the Beeryard’s list of new beers and Ratebeer.com, where clicking on the name of a newly arrived beer at the Beeryard will allow you to examine reviews on Ratebeer.com.
- Social search. Social search is a way of
tailoring search based on the user’s network of friends. Rather than
searching for any hotel in Chicago, or for any hotel that paid for the
keywords “hotel” and “Chicago” I would like to be able to ask for the
hotel where my friends stay when they are in Chicago. This invades no
one’s privacy, avoids the annoyance of pushing ads at me when I am not
searching for something to buy, and provides more relevant results than
paid search usually can deliver. There are many problems with this,
including the fact that my friends may not be on Facebook or other
networks yet and those that are may not post their hotel or automobile
or restaurant preferences. Most seriously, while it is clear how
Microsoft might benefit from this, using its Facebook connection to
undercut Google sponsored search, it is not clear how Microsoft or any
other firm could monetize this directly.
- Contextual mobile ads. At present
contextual mobile ads delivered by SMS appear to offer much promise.
Imagine a hypothetical all-knowing information-based firm that (i)
knows your location because you have registered to have the information
from your in-phone GPS shared with your friends and (ii) knows that you
like Thai restaurants because it monitors the content of your email and
your online restaurant searches and (iii) knows that you are hungry
because you just said so in a text message or Twitter post you sent
from your phone. What a great time for them to text you an
advertisement for a nearby Thai restaurant, sent directly to your
phone. But why would you trust this? I remember when Hotels.com used
to refer me to the same hotel, albeit at different prices, when I asked
for a two-star or three-star hotel close to my office; I was never sure
which was more amusing, the 80% price increase for the same hotel when
I was willing to splurge on a three-star for my visitor, or the fact
that there were comparable hotels 20 blocks closer to my office. I
suspect that my hypothetical all-knowing firm will similarly be
providing sponsored content; perhaps I will take a couple of additional
seconds in order to find the restaurant I really want. This probably
does not work as a form of advertising.
Of course no one knows yet, but if I had to guess, based on my meatspace experience, I would offer the following guesses for successfully monetizing the net in the future:
- Selling Virtual Things: People will pay for superior, timely, original content and for superior online experiences. Presently I willingly pay for the Financial Times, The Economist, and Foreign Affairs,
I value the content, and, indeed, I feel I need it; I will continue to
pay for them online. Perhaps I would not be willing to pay for archive
material, which I expect that I would be able to find elsewhere, but I
will cheerfully pay for the newest content online. Similarly, I
willingly pay the cover change for my favorite jazz clubs in New York,
and expect that I would cheerfully pay to participate in Second Life or
World of Warcraft if, indeed, I had any interest in those virtual
experiences. I guess, ultimately, if we compete for status through our
purchases of accessories, clothes and homes in meatspace we will probably continue to purchase virtual accessories in Second Life, though I can’t say I fully understand this yet.
- Selling Access. Misdirection will fail
totally and completely. I use a Mac, but I have abandoned Safari for
Firefox. I have an iPhone and an iPod but I have never used the little
white earbuds, preferring instead to purchase a pair of Shure E500
phones that I think sound vastly superior. Similarly, I would be
equally happy to purchase a search service that worked for me, rather
than accept a free one that works both against me and against the firms
I patronize. In contrast, while people will continue to value community content and social search, these will be difficult to monetize. Finally, contextual mobile ads
will, likewise be difficult to monetize. With information easily
available, I will make my own restaurant choices, irrespective of those
pushed at me via SMS, especially when I know that those pushed at me
have been pushed for a fee, rather than based on an impartial
assessment of my preferences. Yes, I can imagine SMS ads initially
succeeding if they provide discounts, but ultimately this leads to
little more than a bidding war for traffic and benefits no one other
than the firm that provides the text messaging services. I can think
of a few commercial SMS services that will benefit everyone, such as
letting the most loyal guests of a restaurant know when it is still
possible to get a reservation if they act immediately, eliminating the
inefficiency of empty tables, but the restaurant will do this itself,
using its email or cell phone contact lists. I don’t see this as
advertising, or as being monetized by any intermediary. Of course, in
an age before texting and email restaurants would have welcomed the
all-knowing intermediary as the only mechanism available for
communicating quickly with its most loyal customers. Now, restaurants
have lists of their most loyal customers and can send out real time
messages of interest. If the Blue Note were to text me on some night
that I am in New York that it is still possible to get a table for two
for Clark Terry, or Tria were to text me on a day when I was in
Philadelphia that, surprisingly, there was no wait for an outdoor table
right now, I’m sure I would respond to both. Of course there is no
intermediary for this interaction, and this is more like direct
communication than paid advertising.
The internet is about freedom, and I suspect that a truly free
population will not be held captive and forced to watch ads. We always
knew that freedom comes at a price; perhaps the price of internet
freedom and the failure of ads will be paying a fair price for the
content and the experience and the recommendations that we value.
