Will Facebook go bust and bring down the whole online advertising edifice?

[Chabrenas]

Take a look at this pessimistic assessment by Michael Wolff in technology review . Some facts that won't surprise Experienced People, such as the fact that online ads are getting steadily less effective, but a lot of other interesting observations.

[Kay]

Interesting article, as you say, thanks. Did you have any opinions about the author's take on things?

I don't have the time right now to go into it in depth but it seemed to me that he was saying that FB's business model is flawed. I think there's a good chance that it is.

He also says that online advertising spend is becoming less effective, that's possibly true. But he didn't give any figures of actual spend and whether or not that's declining. Maybe advertisers will pay more to achieve the same effectiveness they had previously. I would like to see some evidence that the overall online ad spend is on a downward trend before I could really form an opinion on whether Michael Wolff is right in his speculation about this or not.

Coincidentally, yesterday I was looking for some figures about online advertising spend but I didn't find anything particularly useful.

[tke71709]

Interesting read, if filled with silliness like how Facebook failing will take down the Internet with it.

The truth of the matter is a simple one, advertising, for the longest time, was unmeasurable. There was no way for companies to run an ad campaign and correlate that ad campaign directly to their bottom line. So advertising executives got a free pass on actually producing results. So long as they could claim that X million people saw their ad, they got paid. They did some demographic targeting (diaper ads on shows for moms and the such) but nothing compared to what online advertising can do.

The simple fact of the matter is that most search terms and the such are not worth advertising on, and so what happens is that those terms are therefore not bid on so their price drops. It's as close to a perfect market as you can get. Supply and demand fluctuates in almost real time and the prices adjust at the same time.

What the author really seems to be saying is that Facebook is overhyped and overvalued and not worth 100 billion dollars. I can sympathise with that assessment, but to say that it's going to take out the entire online advertising industry is a rather grandiose statement.

In a free market, you will always find equilibrium, if online advertising can only pay for content mill style writing then that is what people will get. It will bring back the age of the paid community and paid forums to get around the junk. The issue right now is that people expect rock star quality for free, and that is NOT a sustainable business model.

[Chabrenas]

tke, my take is similar to yours. I think Wolff was probably being deliberately outrageous in suggesting that a Facebook collapse would trigger a collapse of online advertising. I haven't read any of his other stuff, so I don't know anything about him (or the persona he uses professionally).

If we look at the whole online advertising scene, it is quite interesting. Push-style TV advertising is giving way to interactive online games, usually played on smartphones, that are used to promote brands. I AM PLAYR simulates the on and off-pitch life of a soccer superstar, while the Nike brand appearances are natural, like product placements in a Bond movie. Of course, this is the big brand, high-spending part of the game - it would be interesting to see a full breakdown of trends in different types of online ad, but that's only likely to be available from high-priced publications that I no longer have access to (e.g Ovum reports).

[grynge]

Interesting article, as you say, thanks. Did you have any opinions about the author's take on things?

I don't have the time right now to go into it in depth but it seemed to me that he was saying that FB's business model is flawed. I think there's a good chance that it is.

Is it flawed or are they just like most people and want the easy buck? Isn't it much simpler to copy an existing working system than come up with your own new ideas? Google copied Yahoo's ads, FB copied google system. You see so many website owners just pushing AdSense (for a few cents per click) because it is simple, rather than chase their own advertisers.

He also says that online advertising spend is becoming less effective, that's possibly true. But he didn't give any figures of actual spend and whether or not that's declining. Maybe advertisers will pay more to achieve the same effectiveness they had previously. I would like to see some evidence that the overall online ad spend is on a downward trend before I could really form an opinion on whether Michael Wolff is right in his speculation about this or not.

I don't think overall online ad spending is down what the article is saying, is that cost per user to advertise is down. The big boys are sort of having a fire sale to try and attract the big corporate accounts. According to the article FB earnings per user is $5 per year, yet the new york times earnings for offline users (paper subscribers) is still worth $1000 per year.

I wonder is anyone here AdSense revenue on a percentage increase that users are coming online? With an internet growth rate of anywhere between 20% and 1100% depending on where you are, shouldn't AdSense rates have increased by some percentage?

[Kay]

Grynge, I understood that the article wasn't saying that overall ad spending was down. My point was more that it didn't discuss the overall spend in relation to the reduced advertising cost per user. I mean, if cost per user is down, say halved, then advertisers can reach twice as many users for the same money. Does that make them want to half their ad spend for the same no. of users, pay the same for twice as many users, or increase their spend to get even more users?

This is what I was trying to figure out re the advertising spend. Our AdSense revenue is down and probably on a declining trend. This is despite stable traffic post-P/P. I keep reading that overall ad spend is increasing rapidly, so that suggests to me that either I'm just getting a smaller slice of the pie for some reason, or perhaps the AdSense pie is smaller as a percentage of total ad spend.

I wonder is anyone here AdSense revenue on a percentage increase that users are coming online? With an internet growth rate of anywhere between 20% and 1100% depending on where you are, shouldn't AdSense rates have increased by some percentage?

That's pretty much what I was wondering too, although I was shutting up shop ready to go to bed when I replied before so perhaps I didn't express myself very clearly. I would like answers to that question too, but it's going to take a little while to analyse the results. It's not enough to say AS is down, I probably need to be looking at RPU. And then closer at RPU in different niches.

[Chabrenas]

So does anyone here have access to reports that answer the questions that we are coming up with (anyone prepared to divulge the overall picture, at least)? I'd be surprised if none of the big analysts has produced a relevant report, although I'd not be surprised to see a £500+ price tag for it. I used to read thick Ovum data processing industry reports 30-odd years ago that cost about £300 at the time.