Posted on: Monday 7th of March 2016
The first installment of our blog trilogy on the crisis in the advertising industry.
The rise of ad blocking has triggered an existential crisis in the ad industry. Is the ‘deal’ that has underpinned the ad/media industry for the last century (an exchange of attention to ads for valued content) unravelling? What’s the new ‘deal’ that consumers will accept and also continue delivering results for advertisers?
Today’s crisis isn’t the product of just one development. It’s the result of a confluence of factors. Let’s review the critical ones.
Why consumers don’t like advertising
Consumers know that the purpose of advertising is to help sellers sell – it’s a service to the advertiser, not to the consumer. This colours their view of advertising.
Some ads add value for consumers, but others destroy value. Some ads bring new products and offers to consumers’ attention, inform them about what’s available on the market, or educate them about new products, possibilities and technologies. On the other hand, some ads are deceptive, manipulative and plain unhelpful.
Trouble is, advertisers measure advertising ‘effectiveness’ by its value to the advertiser, not the consumer: by its impact on sales. Advertisers’ metrics measure only one side of the value equation and are blind to whether the ads in question add or destroy consumer value.
This blindspot is strategically dangerous.
Advertising has always been a top-down process that’s ‘done to’ and ‘at’ consumers. The dominant language of advertising – ‘targeting’, ‘audiences’ – reflects this. Regardless of what an ad says or does, this sends a message about the underlying relationship: it’s not mutual.
This sense of being at the receiving end of something ‘being done to me by somebody else’ is exacerbated by the way many ads work: gaining consumers’ attention by interrupting. There are many degrees of interruption: online pop-ups and TV ad breaks are more interrupting than passive print media ads which consumers can choose to pay attention to. But overall, the top down, interruptive nature of most advertising reinforces the message to consumers that ‘it’s not about adding value for me’.
The above three factors mean that, overall, consumers don’t like or trust advertising. Nevertheless, for many decades, advertisers and consumers found a working modus vivendi. Advertising subsidised something really valuable – media in the form of newspapers, magazines and TV. Consumers were content to trade their attention for something they really valued. A ‘win-win-win’ was created where everybody – advertisers, media owners and consumers – benefited, despite the underlying lack of value and trust.
Now, however, this value exchange is morphing and being renegotiated.
At first blush the ‘new deal’ looks very similar to the old one. Consumers ‘pay’ for online media with their attention and for online services such as social media and search with their data.
But this superficial similarity hides some important differences. For consumers, the downsides of advertising seem to be growing. Why?
First, consumers are still paying for content with their attention. But now they’re paying twice, also with their data. And, unlike the attention-for-content deal which had clear limits, today’s data deal is taking the form of a blank cheque. With traditional media, consumers knew exactly what the deal was: so many minutes per hour of interruptions in ad breaks for example. But with data it’s different. There is currently no agreed limit to the amount of data that online players collect and seem to want to collect. Result: privacy intrusion is being added to interruption as a new downside.
Meanwhile, interruption itself is getting worse as a growing number of pop-ups, ad videos and the like take over the online experience. To add insult to injury, this online ad explosion is also eating up bandwidth, slowing down access to services while eating up data costs.
We also need to remember the underlying economics of advertising: every penny spent by every advertiser on advertising (trillions of dollars worth) is ultimately paid for by consumers because the costs of advertising are subsumed into the costs of the products and services that consumers buy.
A degrading value exchange
So let’s review the new value exchange from the point of view of the consumer.
Yes, I’m getting free editorial content and free online services such as social media and search. And yes, they are very valuable, and they are paid for by advertising. (Though the value varies: services like social media and search are probably more valuable than editorial content, of which there is an over-supply).
But I’m now paying for these services many times over.
- I’m paying for the money cost of advertising via the products/services I buy
- I’m paying money for bandwidth via my ISP, and that bandwidth is increasingly eaten up by ads I don’t want
- I’m paying with my attention
- Ads are interrupting my online experiences more and more, reducing the value I get from online services
- Access to these services is being further degraded, slowed down by ad-loading
- I’m writing a blank cheque on the collection and use of my data, adding privacy intrusion to interruption
- All this for ads that rarely add value for me in the first place and often do the opposite.
In the two posts to follow, we’ll further explore problems with the current advertising model and set out alternatives.