Digital ad scandals and ad blockers are undermining online ads – but what happens next?

SUMMARY:

Scandals and uncertainty have rocked the online ad industry, raising questions for advertisers on value versus cost. Facebook and Google are hogging the growth, leaving publishers and their ad clients with uncertain futures. But what are the alternatives? And when will readers get fed up with invasive, ad-heavy UX? Yes, gory screen shots are included.

Either the online ad industry is in crisis, or they are in dire need of some fake news – some good fake news. Just in recent weeks:

The situation probably isn’t as dire as the Ad Contrarian says (Online Advertising Is Corrupt At Its Core). But when a site as visionary/well-funded as Medium flails to invent a new model, while mainstream sites blast out ad tech and desperate, UX-destroying pop-ups, you get the distinct sense that the ad ship is sinking, with dim prospects of a rescue from a fresh model. Ad-reliant publishers are taxis, but instead of Uber rising, they are simply running out of gas.

To be fair, the digital ad revenues aren’t exactly on the decline. The Interactive Advertising Bureau reported that the third quarter of 2016 was the biggest ever for digital ads, with a total of $17.6 billion in revenue – a 20 percent increase from the same period a year in 2016. The main drivers? Growth in mobile and video.

But as Fortune.com notes, this happy news is really only good for the online advertising duopoly:

If you look beneath the surface, however, it also reflects the fact that a majority of those audiences are controlled by Google and Facebook – and if anything, their control is accelerating.

In 2016, Jason Kint of Digital Content Next estimated that Google and Facebook accounted for 90 percent of all growth in the digital ad business. Recently Kint updated those numbers, and, unless you are a Google or Facebook shareholder, the findings are stark:

Based on the IAB’s numbers and public financial numbers from Google and Facebook, the two digital giants accounted for about 99% of the $2.9 billion in advertising growth in the third quarter—with Google making up about 54% of the total and Facebook about 45%, leaving just 1% for everyone else.

Ad tech is taking a pounding as a result. In his 2017 predictions, Investor Fred Wilson predicted that:

The ad:tech market will go the way of search, social, and mobile as investors and entrepreneurs concede that Google and Facebook have won and everyone else has lost. It will be nearly impossible to raise money for an online advertising business in 2017.

Amidst that happy backdrop came the news about Chase’s ad budget cuts. Spooked by the multiple ad placement controversies, JPMorgan Chase cut its ad appearances from 400,000 web sites a month to about 5,000 web sites. Brace for impact – no impact.

The New York Times quoted Kristin Lemkau, the bank’s CMO:

Surprisingly, the company is seeing little change in the cost of impressions or the visibility of its ads on the internet, she said. [Note – An impression is typically counted each time an ad is shown.]

Stories like this chip away at the mythos of “programmatic advertising,” which automates the ad placement process by placing “targeted” ads on niche sites that reflect the browser-based interests of readers:

The change illustrates the new skepticism with which major marketers are approaching online ad platforms and the automated technology placing their brands on millions of websites.

(B)ad tech UX – will readers revolt?

Add to the cauldron of reader discontent: the problem of ad tech UX. I’ve written before about the impact of ad tech cookies on page loads, and why the mobile web in particular can suck as a result (many big news and tech web sites load twenty or more ad tech/”tracking” cookies onto browsers).

But with readers tuning out ads, sites are getting desperate. I pulled this screen shot from ZDNet a while back. It shows an autoplay video running in the background with an email newsletter pop-up lobbying for attention in the foreground: ZDNet-ad-tech-fail

If you look hard, you can see one sentence of editorial content in the lonely background. Otherwise worthy sites have taken to passing the hat like street musicians. The Guardian, determined to find a balance via reader support, now includes polite and/or guilt-inducing messages to readers about paying for content to avoid paywalls. I thought this was fairly stated:

guardian-reader-plea

Note that bit about “advertising rates across the media are falling fast.” The push to invent a new model is high pressure. That means many publishers have declared war on ad blockers. In Ad Blocking Battle Drives Disruptive Innovation, Forbes’ Jason Bloomberg does the delicate dance of writing about ad blockers on a site that well, disables ad blockers:

Grumble if you will – but put yourself into Forbes’ shoes for a moment, or any other firm that depends upon ad revenue. Ad blockers cut directly into that revenue. Who suffers in the end? You, the consumer, because without ad revenue, many online firms would cease to exist.

This cycle of ad block disruption is a poker game with Facebook playing the big stack of chips, duking it out with firms like AdBlock Plus as each raises the stakes with new releases intended to subvert each others’ blocking mechanisms. The never-ending push to get targeted ads in front of consumers raises ethical stakes. Rose:

Should advertisers have the right to push ads on consumers whether they want them or not? Should consumers be able to turn off all ads, even though doing so impacts the ability for content publishers to create content profitably? Or should ad blocking companies or mobile carriers control which ads you see and which you don’t, for a fee?

These questions just got murkier in the U.S. with the legislative change that means, in theory, that ISPs can now collect and sell your data.  I would argue, however, that the Forbes’ reader experience is already broken, making me wonder how long readers will be willing to put up with the amount of interruption advertising Forbes finds necessary to please advertisers. I took this screen shot while reading Rose’s article:

forbes-ad-fail

I think the article continued somewhere after all the pop-ups and ad blow ups (in case readers were wondering, this wasn’t a very personalized ad as far as my interests).

My take

Lost in all this UX and business model pain is one company that seems to have figured out a few things. Yes, BuzzFeed, now heading towards an IPO, which has been heavily reliant on sponsored content and/or native ads to reach readers. BuzzFeed’s model isn’t perfect and publishers can’t necessarily mimic their success, but it is a rebuke to those who claim that a free site can’t profit at scale.

Most publishers are experimenting with a wide range of monetization schemes, from reader-supported to “premium” offerings. Whether they find an answer before things get uglier is a question. The one thing that seems obvious: online advertising, in the form we know it, is not likely to save the financial day.

I’d like to say that’s good news for readers, but if firms like The Guardian don’t figure it out, we’ll all lose. It’s possible micropayment technology can help, but it takes a lot of “mini” payments to add up to one big one.

I’ve written before about how enterprise media producers and content marketers can avoid these monetization dilemmas by narrow casting free, opt-in content where the data exchange with the audience is – if we do this right – a transparent earning of trust.  Even that isn’t easy in the so-called attention economy, but it’s a far better predicament than what ad-dependent publishers are faced with.

Image credit - Business man taking a decision while standing in front of two grungy arrows on wall © ra2 studio - Fotolia.com

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