Before we get to the “death” part of this article, let’s focus on the current issues with online advertising that are already causing major problems. There are two main problems. First, online advertising companies are highly centralized—Google and Facebook are the two biggest players. Ads are bought through these centralized ad platforms and delivered through their own apps. The majority of this ad spending flows through ad networks that are also centralized. This makes it difficult for advertisers to access data and results, and to scale their campaigns across different channels. The problems continue from there. The second major issue is the performance gap between expectations and reality when it comes to the precision of digital advertising. Let’s look at each of these in turn.
Impact of Poor ROI on Online Advertising
There’s a massive gap between the promises and actual results of online advertising. This, coupled with the fact that it’s a $50B industry growing at a $10B/year rate, has led to massive CPM (cost per thousand) inflation in online ads. For example, if the average cost per thousand impressions (CPM) in 1999 was $1.23, by 2018 it had risen to $16.85, a surge of 838%. This is happening because online advertising is not generating enough revenue to pay for itself, much less make a profit. In fact, online ad spending is not even generating enough revenue to pay for its own cost of operations. A report by the Association of National Advertisers found that ad fraud and ad avoidance cost the industry $16B in 2018—40% higher than in 2017.
Return to Traditional Advertising
A particular problem for the print and broadcast media industries is the additional “death” of traditional advertising. The onslaught of online ads has led to a phenomenon called “banner blindness”—where people just completely ignore banner ads on websites. A survey conducted by Forrester Research found that 49% of respondents completely ignore banner ads, 18% look at them for less than one second, and 20% look at them for an average of one to two seconds before moving on to something else. Banner blindness is one of the most significant issues that advertisers face today.
Many traditional media companies have been able to capitalize on this phenomenon. The Wall Street Journal, which has always charged for its ad space, instituted a paywall in 2007, and the paper’s online ad revenue has been rising ever since. Similarly, many radio and TV networks have begun to introduce online ad campaigns. They’re finding that it’s much easier for their clients to manage a single campaign over their owned media than over the various digital media outlets.
Implications for Online Advertising Platforms
The implications for Google, Facebook, and other online ad platforms are significant. The two major issues with online advertising, its centralized nature and the lack of precision, are being exacerbated by the poor ROI of online ads. The more money that advertisers spend on online ads and get nothing in return, the more they will shift their budgets back to traditional media, including radio and TV. This will make it even more difficult for digital ad platforms to generate enough revenue to support their centralized operations.
Conclusion
It’s clear that online ad spending is not generating sufficient revenue to support its current level of spending, and many advertisers are switching their budgets back to traditional media. This indicates that the centralized nature of digital ad platforms and the lack of precision of digital ad targeting make it difficult for advertisers to maximize their return on investment.
At the same time, the poor ROI of online advertising is making it difficult for digital ad platforms to cover their costs. This indicates that the major issues with online advertising—its centralized nature and the lack of precision—are being exacerbated by the poor ROI of online ads. This suggests that the death of online advertising may be near.
