Troubles Ahead for Internet Advertising; Much of the commercial Web relies on advertising, but increasing use of ad-blocking software is just one of the problems that advertisers face.

AUGUST 29, 2013, 2:29 PM

Troubles Ahead for Internet Advertising

By QUENTIN HARDY

When it comes to advertising, the Internet is at war with itself.

Much of the Web relies on advertising income, but anti-ad technology could put a dent in that revenue. A recent report from the Web service PageFair said that on average 22.7 percent of visitors to 220 Web sites were using ad-blocking software, which automatically removes most ads from a Web page. The figures were highest in gaming and technology Web sites, which tend to have a large concentration of savvy users.PageFair said the practice was growing at a rate that suggests almost all sites will appear without ads by 2018.

There are plenty of reasons to say that isn’t so. For one thing, PageFair makes money by helping companies get around ad blocking, so it has an interest in making ad blocking seem like a problem in dire need of solving. In an e-mail, however, PageFair executives defended their methods and conclusions. The company compared visits recorded on Google Analytics with the ad impressions recorded by a separate ad server.

In addition, Till Faida, a co-founder of Eyeo, which produces the Adblock software for numerous browsers, said Adblock for browsers was being downloaded 170,000 times a day. “Faster than ever,” he wrote in an e-mail.

Eyeo claims over 200 million downloads of the software since it started offering Adblock in 2011.

Earlier this year, Google kicked Adblock for Android mobile devices off its store, making it harder to get the mobile version (it’s still available at an Adblock site). This “had a significant impact on user growth,” he said.

Google is keen to make income from mobile ads, partly because the price advertisers pay Google for largely nonmobile Web advertising has fallen for the past seven quarters.

Risks for ad industry workers

There is another, possibly more serious problem ahead for online advertising — or at least the people working in it. What ads are, how they work, and what role they play in the final goal of arousing buyers are changing, too.

We are all increasingly tracked, online and offline, and our friendships and tastes are noted in order to send us the ads that algorithms suggest we will act upon. If we do seem interested in something expensive, like a car or a trip, we may be tracked and fed information for a period of days or months. That means a single ad is relatively less important.

Advertising, in effect, will have a less distinct role in overall marketing. And when a product or function is subsumed, it typically loses some of its profit margin.

“Agencies have to think about having a ‘journey strategist,’ neither a data head or a pure creative, who maps where you’re going with a product, and figures out the best possible way that journey goes,” said Phil Fernandez, the chief executive of Marketo, an online marketing company. The relative value of studying and understanding someone, he said, will be greater than just a pitch. Advertising, marketing, and even sales “are all going to be much more continuous,” he said.

Mr. Fernandez says he often counsels companies to put out even more ads, which is often done more cheaply than was possible even a couple of years ago. The surprise to him, he said, is how little traditional agencies seem to understand how much tracking and data manipulation threaten their businesses. “I see shockingly little presence” in Silicon Valley, he said.

“Their customers are going to start doing this themselves,” he said. “Corporations now have campaign people and infrastructure people, they are building databases of advocates for themselves. They are thinking about durable relationships with their customers.”

Salesforce.com, which makes sales management software, is likewise investing in social media marketing and direct advertising companies, likewise anticipating that corporations will be communicating directly and less expensively.

“Companies are setting up to maintain relationships with 100 million or more people at a time,” said Marc Benioff, a founder and the chief executive of Salesforce. “They will connect with their customers from all sorts of places: Canon from inside an Internet-connected camera; Toyota from inside a connected car.

“The killer app for marketing today, television, still gets the vast majority of the dollars, and agencies procure those,” he said. “It’s early days, but there is a new standard emerging.”

If it does turn out that companies turn their products, like cars and cameras, into media devices, much of what used to be ad messaging will travel there. At that point, not just agencies, but Web pages that depend on them (like, to some extent, this one) will have struggles of their own.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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