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Speculation On a Second Internet Economy Collapse

kdawson posted more than 5 years ago | from the put-down-that-pin dept.

The Almighty Buck 307

David Barrett writes "If you sell three billion ads a month and can't break even, what do you do? Drop prices by 40% and switch business models, apparently. Is this an isolated incident, or does it contribute to the growing pile of evidence that ad inventory is overpriced industry-wide, with Google being the worst offender due to its policy of requiring minimum bids on keywords that would otherwise go for cheap? Check out this analysis on my blog and make up your own mind."

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307 comments

All that SOAP (5, Funny)

hostyle (773991) | more than 5 years ago | (#24302177)

Bubble 2.0. The burst is coming. See it live on slashdot.tv.

Re:All that SOAP (5, Funny)

H+FTW (1264808) | more than 5 years ago | (#24302277)

*picks up sandwich board and placard*

"the version release is nigh! repent, ye users of keyword searchs for the saviour: syntactic web 3.0 will cleanse you of spam"

Re:All that SOAP (3, Funny)

rvw (755107) | more than 5 years ago | (#24302901)

*picks up sandwich board and placard*

"the version release is nigh! repent, ye users of keyword searchs for the saviour: syntactic web 3.0 will cleanse you of spam"

Tonight at 11: sandwich with spam!

Its all CLEAR... (3, Funny)

PC and Sony Fanboy (1248258) | more than 5 years ago | (#24302359)

So, does this prove that step 3 is actually 'receive advertising funding'? It must be something important if it might precipitate the fall of web 2.0.

For example:
1. Make Website
2. Host Material (User Created or otherwise)
3. ??????? - (ADS? Really? WHO KNEW?! *sarcasm*)
4. Profit!!

Drive-by ads (4, Interesting)

somersault (912633) | more than 5 years ago | (#24302191)

I use an ad-blocker and script blocker these days so I rarely see ads (I've maybe seen two in the several months that I've used it). Even when I did see ads, I've probably only clicked on 2 or 3 in my whole lifetime before just learning to mentally filter them out. When I want a product, I go google for it. The rest of the time I may be inspired towards a general product area by an ad, but I'll look for the best product I can get in that area, not necessarily the one that I saw advertised.

I'm probably not a very average consumer, but I've always thought the whole concept of advertising market was over-rated. I get that it's necessary in some cases, but the only ads that I find relevant to me these days are for upcoming movies (which I've often already heard about anyway).

Average Consumers? How about average internet... (4, Interesting)

PC and Sony Fanboy (1248258) | more than 5 years ago | (#24302307)

Although the average consumer sees a lot of ads, the average consumer is also gradually switching to firefox (and the plugins, I expect).

And gradually ads become less relevant.

And gradually, as people realize they can eliminate ads, the trend will gradually increase.

until.. gradually, we'll have no funding for ads, and people will actually have to 'want' an internet presence, rather than being paid to have one.

I don't think that is such a bad idea... although, it'll bring back all the tripod/angelfire style accounts that were so popular 15 years ago, when ads didn't bring in revenue like they do today.

Which... will make it easier to avoid (or find) pointless websites.

Re:Average Consumers? How about average internet.. (4, Insightful)

fictionpuss (1136565) | more than 5 years ago | (#24302401)

You assume that everyone hates advertising as much as you do and thus, in the future, the trend will extend to the extreme. You can't magically extrapolate trends like that, unfortunately.

If the people who really hate advertisements, and who would never (consciously) use them to make a purchasing decision, continue to block them -- then that would seem to increase the value of each successfully delivered advertisement?

but... (0)

Anonymous Coward | more than 5 years ago | (#24302439)

But ads are paid on a bulk click / click-through rate, not usually on a commission per purchase.

Re:but... (2, Interesting)

KrimZon (912441) | more than 5 years ago | (#24302581)

When the people who would never buy something can't even accidentally click on an advert (because they block them), the total number of clicks is decreased. However, the total number of purchases doesn't really change, so a click then has a higher chance of resulting in a purchase.

Re:but... (1)

fictionpuss (1136565) | more than 5 years ago | (#24302607)

Cost-per-Click is effectively a commission per purchase. All the advertiser requests of the advertising broker is to drive traffic to the advertisers site. How does bulk ordering affect that?

Re:Average Consumers? How about average internet.. (3, Insightful)

Cro Magnon (467622) | more than 5 years ago | (#24302593)

You assume that everyone hates advertising as much as you do and thus, in the future, the trend will extend to the extreme. You can't magically extrapolate trends like that, unfortunately.

The problem is, the advertisers are making the ads more annoying. The people who don't hate ads now will start hating them when the advertisers make them jump around the screen playing bad music.

Re:Average Consumers? How about average internet.. (4, Insightful)

fictionpuss (1136565) | more than 5 years ago | (#24302933)

The problem is, the advertisers are making the ads more annoying. The people who don't hate ads now will start hating them when the advertisers make them jump around the screen playing bad music.

Really? I thought part of Googles success was the fact that the adwords it displays in search results are mostly unobtrusive, but usually relevant if you take the time to look at them.

Advertisements have become more annoying over my lifetime, but the problem with most forms of advertising is that you can't measure annoyance, you can only measure sales -- and these aren't always mutually exclusive factors to the individual.

Compare Google [archive.org] and Yahoo! [archive.org] - the latter was dominant at that time (April 1999), but the lack of clutter/animated gifs helped (along with relevant data) popularise the newcomer.

That's the beauty of adblockers and online advertising - you can now link annoyance to sales - and market forces seem to be pushing away from annoying your customer.

Re:Average Consumers? How about average internet.. (5, Insightful)

Bovarchist (782773) | more than 5 years ago | (#24303121)

I think you hit on the real problem there. It's not that there *are* ads, it's that the ads are stupid and annoying. I'm seeing progress from IBM and some others in making the ads more fun and relevant, but there is still a long way to go. And internet advertisers will eventually have to realize that just because you *can* animate an ad, doesn't mean you *should* animate an ad. I've seen magazine ads for Carlton Draught that made me laugh my ass off as well as remember their name - no animation required.

Re:Average Consumers? How about average internet.. (1, Insightful)

fistfullast33l (819270) | more than 5 years ago | (#24302473)

I use Firefox and I don't use the ad plugins. I think you make a major assumption there by assuming everyone switching to Firefox will use ad-blocking plugins. I don't want to be bothered with attempting to install some plugin that has to be upgraded over time and maintained etc. etc. I don't want web browsing to be work. I just ignore the ads.

What plugins have you been using? (3, Informative)

PC and Sony Fanboy (1248258) | more than 5 years ago | (#24302497)

I'm not sure what your idea of 'work' is, but it certainly wasn't more than 30 seconds of 'work' to install adblocker plus... and it updates itself auto-magically... and now I don't have to worry about those annoying laughing flash ads promoting 'custom smilies', and whatnot.

Re:Average Consumers? How about average internet.. (-1, Offtopic)

Anonymous Coward | more than 5 years ago | (#24302619)

your missin out if you dont install adblocking plug ins wuts rong with you

Re:Average Consumers? How about average internet.. (2, Insightful)

Jaysyn (203771) | more than 5 years ago | (#24302627)

That's pretty thin reasoning. By your logic you would have never installed Firefox in the 1st place. You realize that plug-ins "maintain" themselves, right?

Re:Average Consumers? How about average internet.. (1)

somersault (912633) | more than 5 years ago | (#24302659)

It's a lot more 'work' if you have to ignore the adverts. Ad blocker can be updated yes, but it will still work without installing the updates - I'm sure there's an option somewhere for disabling plugin update checks.. but I'm quite happy to be getting updates.

It's possible to ignore things like google ads, as they're done fairly 'tastefully', but flash ads are quite irritating.

Anyway, it's your loss - doesn't sound like you've even tried it!

Re:Average Consumers? How about average internet.. (1)

Kelbear (870538) | more than 5 years ago | (#24302735)

I have firefox, and I have adblock, with no block packages enabled.

Reasonable advertisements are fine by me, if they get too instrusive, I add it to adblock. Adblock is still useful to have even when you're willing to view some ads.

Re:Average Consumers? How about average internet.. (5, Insightful)

tb()ne (625102) | more than 5 years ago | (#24302595)

And gradually ads become less relevant.

Less relevant is fine. But there will be a problem if the ads become effectively irrelevant because there is no longer an incentive for providers to continue supporting ad-funded services (e.g., gmail). I never click on embedded ads (the 3 or 4 times I did, it was on accident.) But I'm glad there are others out there who do hit them so all these free, web-based services continue to operate

Re:Drive-by ads (1)

niktemadur (793971) | more than 5 years ago | (#24302713)

I use an ad-blocker and script blocker these days so I rarely see ads (I've maybe seen two in the several months that I've used it).

Reading the above sentence, The Buggles instantly popped into my thoughts:
"Firefox killed the internet ad"

Re:Drive-by ads (1)

mdwh2 (535323) | more than 5 years ago | (#24303025)

I think that advertising is important, but there are particular problems with the way it is done on the Internet. Part of it is they are often annoying, which lead people to block them as you describe.

But I also can't help thinking how Internet adverts are more likely to be plain rubbish. There seems to be an awful lot of:

* Avatars/graphical smilies/etc.
* Christian or Muslim dating.
* Download this 'free' thingy.
* Geo-thingy that doesn't work (images of women who all live in the same town, that isn't the town I live in; and today I am getting adverts from Slashdot of some social networking site in German).

Not that there's anything inherently wrong with the first three, obviously they have their market, but they seem to be a disproportionate amount of ads online. On the other hand, adverts for actual products seem to be rare.

Inflation (0, Troll)

TornCityVenz (1123185) | more than 5 years ago | (#24302195)

Why should'nt it collapse...everything else is... Inflation takes it's tolls in many ways, Not only to do things cost more to buy. But many things get sold less.

Re:Inflation (4, Insightful)

fictionpuss (1136565) | more than 5 years ago | (#24302279)

Meh - if you shift 3 billion units/month, and still can't turn a profit, then you deserve to go out of business. Blaming Google for it is misleading at best; suggesting an imminent internet economy collapse because of ones own failure is projecting at its worst.

Wish there was a "Free market" advertising system. (1, Insightful)

cybrthng (22291) | more than 5 years ago | (#24302197)

Sadly I wished Google/Yahoo/MSN was entirely "free market" - but it isn't. Google being the worse in how they manipulate it with Yahoo chasing up to emulate every move. With MSN its fairly easy to see the data and see the expense but still stuck with minimum bids that ultimately take away from potential sales & traffic.

Re:Wish there was a "Free market" advertising syst (5, Insightful)

H+FTW (1264808) | more than 5 years ago | (#24302253)

as opposed to allowing people to bid on every unclaimed typo and spam the system to hell....

equally the minimum bid system is common to all forms of auction.

yes Google are being a bit dodgy in how they manipulate the system but equally they (as the article says) don't want people to know exactly otherwise it makes it too easy for the system to be gamed at which point it looses all possible value. Google ads do well because they are generally clickable - in that you have a good chance of clicking on something relavent to what you searched for - that reputation is something that google understandably wants to protect.

Re:Wish there was a "Free market" advertising syst (4, Funny)

draxredd (661953) | more than 5 years ago | (#24302265)

free market means one can establish a new business in said market. NOT that established business shouldn't set their own price for the service they are selling.
Go ahead and establish a more efficient service than google's... but wait, what would be your interest in driving prices down, once you'll be the dominant player ?

Re:Wish there was a "Free market" advertising syst (0)

cybrthng (22291) | more than 5 years ago | (#24302855)

Duh.. that's why i put it in quotes. "Free market" as in creating a "Free market" a-la ebay where they selling price is the price the community is willing to pay.

Sadly google bumps the minimum selling price higher than the final value fee so in essence i'd rather have a real "free market" system than googles massaged fixed price quasi market demand system.

With googles increased control of such "Free market" becomes an even strong reason to get them to open up. The potential for control they exert seems much more dangerous than web browser or media player wars of the past.

Google is overvalued (4, Informative)

dreamchaser (49529) | more than 5 years ago | (#24302221)

I've been saying that since the IPO. Yes I bought shares, and yes I dumped them at a good price. The stock kept going up but I do not regret it at all. Ads are *way* overpriced, and when this next bubble bursts Google stock is going to tumble.

I am not a stock analyst so I'm not going to predict where the price will settle, but $477 a share (as of this posting) is WAY WAY WAY overvalued.

Re:Google is overvalued (1)

JoeFromPhilly (792856) | more than 5 years ago | (#24302435)

Slightly off topic, but I've always wondered about stock like Google. If a stock doesn't pay dividends is there any point in owning it beyond hoping that some sucker will pay more for it than you?

Re:Google is overvalued (1)

iwein (561027) | more than 5 years ago | (#24302629)

No, but there are a lot of suckers. Also some companies actually increase in value, so you wouldn't be that much of a sucker to pay for the shares. That sums it up really.

Re:Google is overvalued (2, Informative)

SpiderClan (1195655) | more than 5 years ago | (#24302641)

That's probably the most cynical way I've heard it described, but no, there is no other point. The general idea, though, is to buy it when it's undervalued so that you can sell at its proper price when the market corrects itself, rather than just buying at random and hope that somebody doing the same is willing to pay more than you did.

The reason that so few people do well is because it takes knowledge and diligence to recognize the true value of stock and make sure that it's sufficiently undervalued when you buy it. Few people have that knowledge or are willing to put in the work, though many people think they have the knowledge and don't need to put in the work. Hence, they fail.

I'm not saying it isn't... (1)

Junta (36770) | more than 5 years ago | (#24302509)

But judging soley from the price of a single share is incomplete data. If I had a company at $10,000 dollars a share, but only 10 shares, it'd be a very low valued company (whether deservedly so or not). Many companies that are popularly tracked would have split on an ascent like Google's, but they chose not to. A better, but imperfect measure would be market cap.

That said, Google's market cap is 150 billion. CBS is at 12 billion or so. One analogy I've been fond of thinking of is comparing television advertising to internet advertising. It's imperfect, but still. The business models are different, as CBS has a higher demanding expense I would guess (TV show production/content creation/distribution I would guess more expensive than even Google's indexing of content from other people), but still over a magnitude more valuable does strike me as steep...

Re:I'm not saying it isn't... (1)

somersault (912633) | more than 5 years ago | (#24302785)

CBS has a far more limited market than google though, so an order of magnitude wouldn't be too far off. I've heard the name CBS, but I couldn't tell you what shows they make. I've maybe even seen a couple of them, but as I live in the UK, I don't have a channel called 'CBS' at least. The google brand name probably has more than 10x the recognition of CBS?

Re:I'm not saying it isn't... (1)

rho (6063) | more than 5 years ago | (#24303101)

Market capitalization is not a good metric either. There isn't a One True Metric, but a sound bullshit-o-meter is the P/E, which in GOOG's case is somewhere around 33 IIRC. That's practically fantasy material. Warren Buffet didn't become rich--real rich, not paper rich--by buying a lot of high P/E companies.

While it can be argued that a high P/E means an expectation of future growth, that's a daft assumption in the case of an Internet company. Their whole business model goes ffffft if another nerd makes a better search engine. Not to mention the recent trends of only caring about quarter-over-quarter growth and a lessened enthusiasm for paying dividends rather than re-investment.

Re:Google is overvalued (1)

192939495969798999 (58312) | more than 5 years ago | (#24302565)

Just like the ads themselves deflating in price, the stock will deflate. I wouldn't call it a tumble as much as a natural market correction. What's happening with a 500+ price is the unnatural part -- a runup of the price based on speculation that the company could somehow take over a huge percentage of however much internet profits are available to everyone.

I don't think it is, and who benefits from low... (1)

plasmacutter (901737) | more than 5 years ago | (#24302837)

I've been saying that since the IPO. Yes I bought shares, and yes I dumped them at a good price. The stock kept going up but I do not regret it at all. Ads are *way* overpriced, and when this next bubble bursts Google stock is going to tumble.

I am not a stock analyst so I'm not going to predict where the price will settle, but $477 a share (as of this posting) is WAY WAY WAY overvalued.

I don't think this is the case at all. Other companies, if you equate shares, would have the same price without stock splits.

Of course, morons will probably read posts like this proclaiming gloom and doom, and lose confidence for no reason at all.

The bigger question is, who benefits from this rabid rumor-mongering trying to lower confidence in google's stock?

Who is sueing google right now over youtube in one part of a multi-front SLAPP attack to stop all "unauthorized user participation" in the internet?

Re:Google is overvalued (1)

Kelbear (870538) | more than 5 years ago | (#24303133)

The price isn't really an indicator of a company's value. The overall value is divided by the number of available shares and Google hasn't made that many available. Many companies just split the stock so that there are more shares to trade around but the overall value of the shares as a whole doesn't change even though the price is reduced.

http://finance.yahoo.com/q/ks?s=Goog [yahoo.com]

The P/E is more akin to what the parent post intends to refer to, which is Price/Earnings. If the price per share is high, the earnings per share being pulled into the company needs to justify what you pay. Google's is freaking high at above 30 right now(It's been higher!). It'd take them 30 years at their current earnings rate to buy back the stock from its shareholders! After 10 PE people start to get edgy, a 10 year is already a long gamble, 30 is a looong way.

http://en.wikipedia.org/wiki/PE_ratio [wikipedia.org]

This means that they're not betting that Google is going to make the money needed to pay for its stock, they're betting Google will eventually expand profitability in the future to the point where they can make money off a jump in the stock price. So they're gambling on future, unknown expansion, rather than actual money-making.

So far this high PE hasn't deflated because people really believe Google is going to one day rock the world with a tremendous new product with enormous profitability. Google experiments in numerous areas with a sharp "google" approach, so people expect them to one day find that new product, and that's how Google's managed to support this expectation. If the internet bubble bursts, it'd probably start elsewhere since I doubt Google is going to cease this practice anytime soon. Google'd have to worry about investors running off scared from other internet companies falling apart, but Google itself is somewhat insulated since their exploration is intrinsic to their methodology, and is a known risk that isn't a suprise to anybody.

Here's where he's wrong (4, Insightful)

dkleinsc (563838) | more than 5 years ago | (#24302231)

He assumes that it costs $0 to put up an ad. That makes his entire argument (that ads aren't there because Google forces up the price beyond $0.01) bogus.

But considering what advertising in other media costs, with less targeting or chance of success, and you'll have some idea as to how much of a bargain online ads really are.

Re:Here's where he's wrong (1)

Yvanhoe (564877) | more than 5 years ago | (#24302363)

It also puts a value on the fact that Google is going to slightly piss its users by putting ads on their screens. It is worth taking into account as well.

*Relative* bargain (1)

GameboyRMH (1153867) | more than 5 years ago | (#24302613)

...they're still horrendously overpriced considering what it costs to run the ads (almost nothing).

The whole advertising industry is bound to collapse eventually, when some proper data on the effectiveness of advertising becomes available (I was searching for an old post I made on that topic but couldn't find it, it was in a discussion involving in-game advertising IIRC). I doubt this is it though, and even if it collapses on the web, the bullshit parade of advertising will continue on other media.

Re:Here's where he's wrong (0)

Anonymous Coward | more than 5 years ago | (#24302813)

It's not only a bargain, you get a pretty reasonable grasp on your ROI if you know the first thing about analytics. I run the E-Commerce operation for a retail presence in Canada, and if an ad isn't working, we simply get rid of it/change it. In the end, our campaigns have largely broken even (every dollar spent has lead to a direct dollar back), and when you factor in the cost of customer acquisition/compare that to traditional media, I personally think it's a steal even if we lost a bit per ad.

In contrast, I've seen what our more traditional marketers have dumped into their advertising campaigns-- the amounts are obscene in comparison and the ROI much harder to ascertain.

Income from ads (1)

Lord Lode (1290856) | more than 5 years ago | (#24302243)

Where does all the money from online advertising come from? The ones placing the ads online must gain more money from the views of the ads than they pay for displaying them, so appearantly a lot of people pay money to buy stuff after seeing ads? I don't know any people who have ever bought something by seeing an online ad. Add all the money paid by people buying something from an online ad in the entire world. Then subtract everything in that money that is related to the product and not its online advertising. How much is left? Enough to feed all those internet giants? Appearantly it is.

Re:Income from ads (1)

H+FTW (1264808) | more than 5 years ago | (#24302541)

Your assuming at advertising exists purely to get people to buy things the moment they see it (or click on the link)

Most advertising is beneficial by raising the profile of a product and/or the person selling it. if you want a new book (for eg) you go on google type its title and most likely will buy from someone in the top 3. If one of those is the same website that you saw, say on your favourite blog there is an association there that is likely to make you see that provider more favourably, thus increasing the chance of a purchase.

Ads on the net are highly useful - if no one knows you are there how will they find you? About the only ads i click on are for the occasional webcomic - i don't then buy something from the new comic (some of which i've found this way are very good) BUT i then increase the traffic to that webcomic and so increase the value of their ad space.

In summary: Advertising is MUCH more subtle than you expect (well some of it) and is more about reputation and profile than making you run out and buy something (although again some of it is).

One final example: think of a chocolate bar, now think of cola, and finally think of a search engine.

depending on where you are you probably just thought "cadbury's" "coke - cola" and "google". If you wanted one of these products there is a good chance that given a choise you will buy the cadbury's and coke-cola and search about it on google. Thats why it works - not by making you go and buy any of them but making them what you think about when someone says "chocolate" or "fizzy drink"

Re:Income from ads (3, Insightful)

SpiderClan (1195655) | more than 5 years ago | (#24302697)

It's likely that people don't realize they've bought something after clicking on an ad. The ads in google tend to look like search results if one isn't paying attention and doesn't know any better, and many people probably don't think of text ads as ads at all. They just saw something interesting and clicked on it, but they're much too smart for all the flashy animated marketing crap and would never buy from them ;). People also probably don't recognize that many ads set cookies, so even if they go back to the same site later and buy something, they statistically bought something after clicking an ad.

Ads (4, Insightful)

Narpak (961733) | more than 5 years ago | (#24302255)

As long as companies is willing to pay the price, google (and others) are willing to profit from it. Should advertisers become convinced that they pay more than what they see in return; then they might cease paying the price demanded. At which point ad-supported sites and services might see a drop in their budget. But until then, I do not think they will lower price just because they can.

Economics 101. (4, Interesting)

140Mandak262Jamuna (970587) | more than 5 years ago | (#24302261)

From the article:Don't believe me? Search for "Flash" and you'll see it has zero ads. In a totally free market, that means you have no competition, and thus should be able to bid as low as you want to get your ad to appear. But when you try to create an AdWord for the "Flash" keyword, you'll see it sets the minimum price at $0.10. So even if the market (me) only wants to pay $0.01, it's priced 10x higher than the market (I) will bear. Which is why there are no ads on the "Flash" keyword.

Free market wants to pay zero dollars for an ad? You mean people want to pay more than zero dollars for milk, cereals and bread? Come on! No body wants to pay more than zero dollars for anything. But the other side of the equation is, no body would sell things below the cost of production, at least not for sustained long durations. Google has a minimum bid because that is the cost of production for that ad.

The author displays profound ignorance about economics.

Paying Zero Dollars... (1)

PC and Sony Fanboy (1248258) | more than 5 years ago | (#24302345)

Actually, sometimes I want to pay for services. It creates a contractual agreement between the buyer and seller, and (in theory) guarantees that you'll receive service for payment.

If you want for email servers, then you get what you pay for... but if you use google's free service, you can't whine and complain when it doesn't work right.

Free as in crappy (1)

Spittoon (64395) | more than 5 years ago | (#24302583)

Parent is dead on. I don't want to pay TOO MUCH for things, but unless I pay for something I have no basis for argument if it eats my brain. *cough*Linux Audio Apps*cough*

Re:Economics 101. (0)

mmurphy000 (556983) | more than 5 years ago | (#24302535)

Google has a minimum bid because that is the cost of production for that ad.

And your proof of this assertion is...what, exactly?

I have an ebook [commonsware.com] on the market for developing applications for the Android platform, with the print edition slated to appear in bookstores any day now. I am trying to run an AdWords campaign to help promote the book. I have 52 keywords set up in AdWords to run my ad against. 51 of them are "inactive for search" because the minimum bid is $1.00, so they won't show up on Google's sites, though it will help them show up on AdSense sites (as I understand it).

So, please explain to me:

  • How it costs $1.00 to inject three lines of HTML, including one hyperlink, into search results?
  • How come it costs $1.00 to do that for a search on android documentation but not for android assistance, for which there is no enforced minimum bid?

There may be valid reasons why Google has a $1.00 minimum bid on some Android-related keywords, but I have a very tough time believing that it is related to "cost of production".

Re:Economics 101. Build a better mouse trap (4, Insightful)

140Mandak262Jamuna (970587) | more than 5 years ago | (#24302875)

Well, you think you could do it cheaper? Then do it man! That is what the free markets are for. You are free to enter and undercut prices of established players. If you can't, someone else will. If someone else does not, it means things are more complex.

Injecting a bit of html tags does not cost that much. But the value of Google is not merely tacking on bits of html. It is collecting all that data on the net and making it easily available. It costs money. That cost gets amortized over every bit of html it injects in.

I am sorry for your predicament, you want the service at a lower price. But so does every body for everything. As I said earlier, it is a free market. Google does not have a vendor lock or a platform lock on its user base. Any one can compete with Google. There is no switching cost to the user to go from Google to its competitor. If it is pricing the ads too high, it will go out of business. It is not like Microsoft with a defacto monopoly on OS or Office software.

Re:Economics 101. (1)

mortonda (5175) | more than 5 years ago | (#24302945)

Cost of production isn't the right term; it has more to do with "opportunity cost" and the simple fact that they are unwilling to sell below a certain value. You may think they are wrong, but that's ok.

I have a car to sell, but there's a certain minimum value that I'm unwilling to go below. Sure, there's someone ready to give me 10% of that value, but I think I'll wait.

Granted, opportunity cost usually applies to scarce goods, but I think there is room for an updated model in the virtual world.

Re:Economics 101. (1)

jotok (728554) | more than 5 years ago | (#24302691)

The author displays profound ignorance about economics.

Eh. This is a little disingenuous because it seems like your entire critique is based on an interpretation of the term "wants" when everyone reading the original article understands it to mean "is willing."

I.e., nobody is willing to pay the entry prices for certain terms, so there will never be any ads for those terms.
We are willing to pay >$0 for bread, milk, etc. We want to pay nothing but since you (the seller) demand something we see we have to come to an agreement. The entire argument is about the failure of the sellers to accomodate the consumers sufficiently, so the system has to crash rather drastically.

I have seen this in commercial real estate before. There is a feedback loop between the amount of retail in an area and the success of retail stores. However, quite often you see property owners who bought a storefront outright and are paying, say, $5000/year in taxes on the property trying to charge that much per month. None of the owners on a street will lower their prices, so one by one the businesses die or move...until it's an avalanche and you wind up with a street full of empty storefronts on which NOBODY wants to open a business! The owners don't care because it's not a huge loss TO THEM, and they know that the city will eventually sell bonds and subsidize new business in order to spruce the place up.

The market always adjusts, either gradually, or all at once (spectacularly). This is the OP's Econ 101 lesson.

Re:Economics 101. (1)

iwein (561027) | more than 5 years ago | (#24302695)

Google has a minimum bid because that is the cost of production for that ad.

You think? Would that be mostly raw materials or labor according to your estimation?

Re:Economics 101. (1)

Zerth (26112) | more than 5 years ago | (#24302823)

Incremental cost of lost goodwill from your ad pissing off searchers.

Re:Economics 101. (1)

iwein (561027) | more than 5 years ago | (#24303041)

Isn't that a bit expensive? My goodwill can be bought for 0.01 per ad. But those schemes never worked somehow.

Re:Economics 101. (0)

Anonymous Coward | more than 5 years ago | (#24303033)

All Economics is bullshit because it tries to make a Science out of knowing when someone with an empty belly will finally pick up a stone. Everything else is just thought candy.

tf

Re:Economics 101. (0)

cliffski (65094) | more than 5 years ago | (#24303065)

sustained long durations. Google has a minimum bid because that is the cost of production for that ad

even if that's ture, the cost of production must be the same for every ad, and its way below $0.10. I know this because I sue adwords and pay an average below that, and sometimes the minimum bid is $0.02. If you have a helpful, targeted ad to a carefully selected range of keywords, the minimum bid is much lower. Google are trying to ensure the ads are relevant. With niches, thats easy. With huge keywords like "holiday "flash" "car" etc, it's going to be way higher, to ensure that only relevant ads are shown.

Sensible, Google probably would rather not show any ad, than ad which was likely to be considered irrelevant, even if earned them $.0001.

Ironic... (0, Troll)

whisper_jeff (680366) | more than 5 years ago | (#24302309)

"Check out this analysis on my blog and make up your own mind."

Translation: Visit my website to increase my ad impressions so I can make more money.

Ironic? I think so.

Re:Ironic... (4, Informative)

4D6963 (933028) | more than 5 years ago | (#24302387)

"Check out this analysis on my blog and make up your own mind."

Translation: Visit my website to increase my ad impressions so I can make more money.

Translation: I didn't even bother to visit the site to make sure it even had ads before claiming so. Not like I would let reality get in the way of sarcasm anyways.

Pwned? I think so.

Re:Ironic... (1)

T3Tech (1306739) | more than 5 years ago | (#24302727)

My initial thought on seeing this was pretty much the same as GP's.

Sarcasm aside, it wouldn't matter if I did bother to visit the site - I have my own proxy server blocking out ads so in most cases I can't even tell if ads really are on a page. And I'm doing development work on a system that has an ad-based revenue model.

Ironic? hmmm, maybe.

Re:Ironic... (1)

whisper_jeff (680366) | more than 5 years ago | (#24302943)

Yeah, because the summary was so interesting that I felt compelled to read the rest of the guy's thoughts. I think not.

Re:Ironic... (2, Insightful)

zehaeva (1136559) | more than 5 years ago | (#24302407)

I was wondering who he is that his blog on this subject is so important. With out knowing this guys expertise the summary reads like some know-it-all wanting to espouse his pet theory about how the whole of society will collapse and lead us back to the dark ages.
unless this guy is some emanate professor of economics my first thoughts were "Why should i care what your blog says?"

Re:Ironic... (2, Interesting)

Dunbal (464142) | more than 5 years ago | (#24302517)

I was wondering who he is that his blog on this subject is so important.

      More to the point, why is anyone's blog important? Like "advertising" on the internet, blogging certainly needs a healthy dose of due diligence.

That's why you must at least visit the link.. (5, Informative)

heteromonomer (698504) | more than 5 years ago | (#24302479)

at least once in a while. The author's page has *no* ads. That's right, no ads. If only you had bothered to visit the blog page, not even RTFA. And the fact that the parent post is now at +5 insightful tells a sad (oft-repeated) story about /.

HA (0)

Anonymous Coward | more than 5 years ago | (#24302841)

so everybody needs to visit the link to see for himself that there are indeed adds, or not... I'll just take my chances and not look at the article nor the blog. I'm perfectly happy making uninformed jokes from here.

If the author was smart... (1)

lottameez (816335) | more than 5 years ago | (#24302319)

...he'd have put a few ads on his blog page. Getting slashdotted would have earned him, uh, maybe as much as $5.00!

No ads (1)

4D6963 (933028) | more than 5 years ago | (#24302347)

Check out this analysis [CC] on my blog and make up your own mind.

And that's not even a trick to make us view ads, as his blog doesn't have any. A sign that times are changing!

Naive Question (3, Interesting)

xoundmind (932373) | more than 5 years ago | (#24302399)

How many of you have ever actually made a purchase based on seeing a web ad?
I'm pretty sure that I've never done that.

Re:Naive Question (2, Funny)

Anonymous Coward | more than 5 years ago | (#24302459)

How many of you have ever actually made a purchase based on seeing a web ad?

I'm pretty sure that I've never done that.

Well, that's why you don't have a 14" penis like I do.

;-)

Re:Naive Question (2, Insightful)

fictionpuss (1136565) | more than 5 years ago | (#24302487)

I don't buy much online, period. But I have clicked the occasional "sponsored link" when I've been searching for a specific product or service.

If you mean seeing a banner ad for random product and thinking "gosh, I need that", then no.

But then, I've purchased items from ThinkGeek, based upon an internal reputation meter they've generated through their consistent marketing/branding.

So yes?

Re:Naive Question (1)

xoundmind (932373) | more than 5 years ago | (#24302579)

Maybe the larger issue for me is that I am generally suspicious of the value of advertising in general. I certainly have made purchases based on seeing ads for new products that appeal to me. So it obviously worked for me in those cases. Otherwise, it seems like such a waste of money for those involved. In my mind, there's almost a mutual assured destruction attitude among providers of products and services. "We have to advertise or else!"

I'm sure I've seen thousands of ads for Cheer in my life, but I always buy Tide. Probably because that's what we had in my house 45 years ago when I was a kid.

Re:Naive Question (0)

Anonymous Coward | more than 5 years ago | (#24302651)

I haven't. Then again, I can't remember the last time I've actually seen an advert.

(posting anonymously 'cos I've modded in this thread.)

Re:Naive Question (4, Insightful)

Tridus (79566) | more than 5 years ago | (#24302663)

How many times have you seen an ad for coke on TV, then immediately run out to the store to buy it? Can't say I ever have, but they keep on doing it.

Advertising exists for more then making instant purchase decisions.

Re:Naive Question (2, Funny)

GNU(slash)Nickname (761984) | more than 5 years ago | (#24302895)

How many of you have ever actually made a purchase based on seeing a web ad?

Well, I always make it a point to click on the ads for those sites that try to sucker people into paying to download free software. Does that count?

Re:Naive Question (3, Insightful)

home-electro.com (1284676) | more than 5 years ago | (#24302939)

But it is a wrong question to ask. It's like asking "how many of you ever purchased stuff based on receiving spam email?" -- It will be virtually nobody, but we all know SPAM WORKS for those spammers....

Re:Naive Question (1)

Talar (1245824) | more than 5 years ago | (#24302993)

How many of you have ever actually made a purchase based on seeing a web ad? I'm pretty sure that I've never done that.

How many of you have had your "brand awareness" of the advertised product increase because of a web ad. I'm pretty sure it happened to me a few times.

Minimum prices (2, Insightful)

JaySSSS (859968) | more than 5 years ago | (#24302403)

I realize this isn't the primary thrust of the article, but ALL auctions start with a minimum bid, and the person selling the "item" sets the minimum bid. You don't see every item on eBay starting at $0.01, do you? Many do, yes, but the seller sets the minimum bid, and a reserve price. I don't see why you think this is so evil.

It is not a burst (3, Informative)

Yvanhoe (564877) | more than 5 years ago | (#24302417)

It is a single company that doesn't manage to make money in this market because it does it wrong. What Google has proved in the online-ads world is that what pays is to deliver the correct ad to the correct people. The first article clearly states that Lookery is not very picky about who to deliver their ads to and proceed to explain that its competitors manage to sell ads for 5 time Lookery's price because they craft their inventory more carefully.

That's not a new bubble, that is a vestige of the first one : failing to understand that one online ad on a webpage do not have a fixed value but that many parameters are to be taken into account.

Other Industries Prosper on the Internet (4, Funny)

ehaggis (879721) | more than 5 years ago | (#24302447)

"The first internet bubble popped largely because all business models failed except for ad selling." (from the article).

I disagree. Pornography and Gambling as well as on-line RX have proven to be profitable over time. Perhaps the monetary profit margin is inversely related to the moral and cultural benefit to society.

Re:Other Industries Prosper on the Internet (2, Insightful)

Spittoon (64395) | more than 5 years ago | (#24302817)

Well, no.

Wall Street Journal seems to have done well. Also travel sites, turbotax online, ticketmaster, fandango, amazon, ebay (despite recent trouble), craigslist (although they do live off ads), netflix, Angie's list, and many more. I know a bunch of artists that make money selling their work on their Web sites, and some small contractors rely on their site to give people more information and generate that all-important call for an estimate.

Bottom line is that businesses that make something that people want will make money. This generally means a product or service that actually impacts the user's life offline, in whatever way. This needs to be more valuable to the customer than the price they are asked to pay-- on the Web right now that payment is mostly time. Someday the payment will include money, and the Web will shrink but it certainly won't disappear.

The bubble was a lot of foolishness based around clever ideas that were either not profitably executable at the time (WebVan) or that it turns out PEOPLE DIDN'T ACTUALLY WANT.

The Web didn't negate the classic rules of business, as many people learned to their financial dismay.

Re:Other Industries Prosper on the Internet (1, Insightful)

laederkeps (976361) | more than 5 years ago | (#24303109)

So you're saying pornography does not grant society a cultural benefit?

How many wars are prevented by cake?
What about money, how many wars are prevented by money?

And how many of the uber-aggressive war-bent leaders of the world are, by their stated beliefs, against pornography and other "immoral" things?
Don't you think at least a few of them would calm down and think of alternative solutions after a good few hours of non-stop masturbating took the edge off?

I say we should grant the presidents, prime ministers, etc of the world access to an all-you-can-eat porn buffet before any aggressive measures are discussed, it might help!
Calming them all down might not be a cultural benefit, but how many of them do you think would be so radically opposed to these "immoral" things after a year or two of this?

Psychology catches up everything (4, Insightful)

Kupfernigk (1190345) | more than 5 years ago | (#24302523)

The value of any new advertising medium declines over time as people find ways to avoid seeing it, or mentally filter it out. The problem is that there are 2 types of advertising:
  • Directories
  • Trying to make me buy stuff

People over time get sick of the "Trying to make me buy stuff".

Example: When I was a kid magazines like Amateur Photographer contained piles of ads which were basically directory listings. Item, price, condition. They were in fact useful data for buyers. What's the nearest supplier who has a second hand Leica M3 in excellent condition? Nowadays, the ads in photo magazines are demand-creators; reams of eye candy. More advertising, in color, is needed to pay for the content. What does it tell me? Five guys have half a page of trying to sell me the same digital camera I don't want. Do they have what I do want? Hard to say.

Google's problem is it wants to be a directory, but its advertisers want to distort its market by directing irrelevant traffic in the hope of selling something. Like bad coinage, bad ads drive out good ads. (Just like eBay with the crooks driving out legitimate sellers.) Ultimately the public gets turned off. (Do I ever click on a right hand link on a google page? No. Do I ever click on the top 3 links? Hardly ever. That's experience, not prejudice.)

So, my 2c worth is that this may be nothing to do with the recession and everything to do with the great public having had time to realise what a scam much internet advertising is. Someone will have to come up with a better paradigm. If people will still pay money for print magazines, how much will they pay for a verified Google for instance (I would personally pay a $10/month for a shit-free search engine where abusers were removed from search results, no messing.)

Flash adwords (2, Interesting)

Potor (658520) | more than 5 years ago | (#24302529)

I am not sure what to make of the blog, since one of its empirical claims is wrong. I searched flash, and www.google.be (my default Google search page here in Belgium) returns

Gesponsorde Koppelingen
Flash presentations
Custom design, advanced programming
multilingual; international clients
www.but.be

Opleiding Flash
Volg gratis proefles bij Eduvision.
Uitgebreide Flash opleiding
www.opleiding-flash.nl

Flash designer aangeboden
Voor maar €24,50 per uur kunt u
onze Flash specialisten gebruiken
www.grafi-offshore.com/flash

And on google.com, I get

Sponsored Links
Flash presentations
Custom design, advanced programming
multilingual; international clients
www.but.be

, which is certainly geographic specific. But they do sell that adword, so what do I make about the rest of the piece?

Re:Flash adwords (1)

Collective 0-0009 (1294662) | more than 5 years ago | (#24302881)

Well, when I did it from here in the USA, I didn't get any ads, as promised. I immediately considered buying some "flash development" ads, but alas, I am not that good with flash. Perhaps those Belgium flash programmers just jumped on the opportunity quickly.

Ad is not the only successfull business model ! (1, Interesting)

Anonymous Coward | more than 5 years ago | (#24302549)

"The first internet bubble popped largely because all business models failed except for ad selling."... This article already starts with a wrong assumption !!!
eCommerce is another business model. And it works quite well (CAGR approx. 20-25%/year).
ISPs have also another business model on the internet (selling pipes) and they make money.
Hosting, ASPs and SaaS (Software As a Service) are another business model and see the success of Salesforce.com for example...
Not without mentioning iTunes which is a mortar-to-click business model (you buy an iPod first and then you buy the service) that is quite sucessfull..

So what? Bad brokers should fail. (2, Interesting)

lancejjj (924211) | more than 5 years ago | (#24302585)

If you sell three billion ads a month and can't break even, what do you do? Drop prices by 40% and switch business models, apparently

This is a sign that ad brokers and resellers MUST provide added value in order to make money.

Anyone can become a broker. The trick is to add value, so that customers will pay your premium prices. Advertisers will not pay a huge premium for unproven "advanced ad campaign technologies" that many of these brokers purport to provide. And if your competition charges less for a better service, don't expect to stay in business very long. At that point, your only choice is to substantially lower prices or change your business model.

Sound familiar?

a bit simplistic (4, Insightful)

jollyreaper (513215) | more than 5 years ago | (#24302649)

"The first internet bubble popped largely because all business models failed except for ad selling." (from the article).

He's forgetting that there was also the speculative insanity that goes along with any bubble in any industry. There were many companies that made enough revenue to be possible if only the executive spending could have been reined in. I'm forgetting the name of it but there was a new media company that was doing something like $180 million in business but was spending $200 million. They produced content, text! It's not like that requires a huge capital investment. People are the biggest expense, get a cheap building somewhere, have your people work there, maybe rent a small bit of office space in a posh tower for impressing investors. But no, they put the whole organization in the posh tower, aeron chairs in every office, and shot their whole wad on overhead.

The internet has nothing to do with that kind of stupidity, it's endemic to human affairs. And the matter of crazy-stupid shit getting funded just because someone has a business plan? Again, common in any bubble, be it tech or tulips.

It's the speculators! (2, Funny)

WPIDalamar (122110) | more than 5 years ago | (#24302719)

Clearly this is the fault of the speculators and not the underlying business models!

We should boycott this speculating blogger and refuse to visit his site!

CIA, etc. (-1, Flamebait)

Anonymous Coward | more than 5 years ago | (#24302779)

Google's model has always been flawed, its just a front for the CIA, etc. to data mine user habits. Look at who invested in Google. Watch and see what their actual business methods are.

Adblock (2, Insightful)

mgichoga (901761) | more than 5 years ago | (#24302853)

Maybe its being caused by the fact that more users are using firefox + adblock feature. No one is clicking on ads anymore :(

Its counter productive.. (2, Interesting)

Joker1980 (891225) | more than 5 years ago | (#24303003)

at least it is for me, at best an advert will produce a 'Meh'. Usually they actually put me off whatever the product being hawked is. And this applies to companys too, but as been mention by a few posters already im not exactly the type of consumer theyre aiming this shit at.

Internet Economy Collapse? NO. (2, Insightful)

imstanny (722685) | more than 5 years ago | (#24303095)

The only thing that would collapse under lower pricing of ads is those that sell ads, ie Google, Yahoo, etc. Those who purchase ads, however, would flourish since these ads would become cheaper.

Well I guess Ty Coughlin was right! (2, Funny)

Illbay (700081) | more than 5 years ago | (#24303131)

You know, the "beach-bum from Hawaii that made a pile of cash on the Internet [ezinearticles.com]?"

He tells us in his latest radio ad that we have "only two years before they change the Internet, and you won't be able to make money like I did any more."

We'd probably better get to his website and sign up, before it's too late!

I mean, would a beach-bum from Hawaii steer you wrong [stevegigl.com]?

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