The advertising problem of the Web industry: banner ads

Like TechCrunch I too noticed that Yahoo dropped like a rock today and wondered what that means for Silicon Valley. Why is Yahoo in peril here? Banner ads.

Ford, for instance, has literally stopped spending anything on non discretionary things. Just one company can have a huge impact.

So, what’s discretionary? Banner ads.

You know, those colorful banners that you’ll see on lots of sites, particularly old-school sites.

So, why isn’t Google seeing a huge drop like Yahoo did? Easy. Google’s income relies on text ads that only pay when people click on them.

Those “cost per click” kinds of ads are NOT discretionary.

This reminds me of the 1980s when I helped do the advertising for LZ Premiums, a now-defunct camera/appliance store in Silicon Valley. Advertising for us back then in the Mercury News was discretionary. We did it only when we had some money from a camera manufacturer that was slated for advertising. Our ad in the Yellow Pages, though, was NOT discretionary. Do that and your business would almost stop.

Google is the new Yellow Pages. If a business stops doing Google advertising it might as well just fire everyone and send them home.

That’s the difference between the advertising world today and the advertising world back in 1999.

Back then we didn’t have any advertising types that weren’t discretionary. Search the word “car” on Google for instance, and you’ll still see GM advertising there.

In a recession I think Google will even see MORE advertising as businesses get more desperate to find buyers.

Hint: banner advertising doesn’t bring buyers (at least not provably so). Text ads do.

Winner here? Google. Which is why Google is only down a couple percent today while Yahoo is down 13%.

Comments

  1. Have you looked at the bottom of almost every (perhaps every) Engadget post lately? Who is the sponsor?

    Ford. For a great set of videos, BTW. So Ford hasn’t stopped spending money, but perhaps they are refocusing HOW they spend it. I blogged about this a few days ago:

    http://lagesse.org/index.php/2006/09/13/bold-moves-homepage/

    Ford hasn’t stopped spending money – but perhaps they are starting to learn HOW to spend it in this new economy.

    Time will tell.

    Rob

  2. Have you looked at the bottom of almost every (perhaps every) Engadget post lately? Who is the sponsor?

    Ford. For a great set of videos, BTW. So Ford hasn’t stopped spending money, but perhaps they are refocusing HOW they spend it. I blogged about this a few days ago:

    http://lagesse.org/index.php/2006/09/13/bold-moves-homepage/

    Ford hasn’t stopped spending money – but perhaps they are starting to learn HOW to spend it in this new economy.

    Time will tell.

    Rob

  3. [...] Scoble attributes Yahoo!’s recent 13% stock price decline to banner ads and their inherent “discretionary” nature. I don’t fully agree and think there is a little more to it. [...]

  4. Robert – I love you but you’re treading on very thin ice with this post. Online banner advertising is every bit as measurable and targettable as Search ads. The click through rate is definitely lower, but for the right type of advertiser – focused on brand building rather than customer acquisition – they are definitely still valuable. This post is a dramatic oversimplification of what is going on at Yahoo! vs. Google.

  5. Robert – I love you but you’re treading on very thin ice with this post. Online banner advertising is every bit as measurable and targettable as Search ads. The click through rate is definitely lower, but for the right type of advertiser – focused on brand building rather than customer acquisition – they are definitely still valuable. This post is a dramatic oversimplification of what is going on at Yahoo! vs. Google.

  6. Meh, personally I think Yahoo! is blaming their situation on ads but it’s more than that. I think they are falling behind Google, MSFT, Amazon, and eBay in brand image and innovation. There are bold experiments like Amazon Unbox and Zune and I can’t think of a thing that came out of Yahoo! recently.

  7. Meh, personally I think Yahoo! is blaming their situation on ads but it’s more than that. I think they are falling behind Google, MSFT, Amazon, and eBay in brand image and innovation. There are bold experiments like Amazon Unbox and Zune and I can’t think of a thing that came out of Yahoo! recently.

  8. Another problem here is that auto and financial companies do the most online advertising. Anybody that has large percentages of their content connected to those two spaces will be open to huge swings in their revenue.

    One other thing that caused the problem was that Yahoo! said they were caught by surprise by this. I think that it was a mistake to say that; especially concerning the auto industry. That’s like Ford saying they didn’t know that people wanted vehicles with better mileage.

    It made the management look like they didn’t know what they were doing.

  9. Another problem here is that auto and financial companies do the most online advertising. Anybody that has large percentages of their content connected to those two spaces will be open to huge swings in their revenue.

    One other thing that caused the problem was that Yahoo! said they were caught by surprise by this. I think that it was a mistake to say that; especially concerning the auto industry. That’s like Ford saying they didn’t know that people wanted vehicles with better mileage.

    It made the management look like they didn’t know what they were doing.

  10. Robert, you might be wrong for auto industry. People do not buy a car because they happen to click an ad in google search when they were looking for car.

    People buy a particular car because they trust the brand at the offered price. So it is branding in auto business which is slightly more important than those pay by click ads. If I get a good impression of Ford or GM brand, I will go to their website whether or not I could find a link in paid-search. I would hope to find a link in organic search in fact. If the search engine does not do that then I will swicth the search engine.

    Good impression is created by good products and good branding.

  11. Robert, you might be wrong for auto industry. People do not buy a car because they happen to click an ad in google search when they were looking for car.

    People buy a particular car because they trust the brand at the offered price. So it is branding in auto business which is slightly more important than those pay by click ads. If I get a good impression of Ford or GM brand, I will go to their website whether or not I could find a link in paid-search. I would hope to find a link in organic search in fact. If the search engine does not do that then I will swicth the search engine.

    Good impression is created by good products and good branding.

  12. For what it’s worth… Clear Channel Radio is about to roll out a very aggresive, nationwide campaign to get Sales People to better understand how to sell online. The biggest focus seems to be banners and video/audio content with 15 second spots at the beginning. And since they’ve teamed up with Google, they got local and national text ads as well.

  13. For what it’s worth… Clear Channel Radio is about to roll out a very aggresive, nationwide campaign to get Sales People to better understand how to sell online. The biggest focus seems to be banners and video/audio content with 15 second spots at the beginning. And since they’ve teamed up with Google, they got local and national text ads as well.

  14. Don’t forget. When Chrysler was going under it took two things vision and back to the basics management.

    The natural product that followed was innovation/profit.

  15. Don’t forget. When Chrysler was going under it took two things vision and back to the basics management.

    The natural product that followed was innovation/profit.

  16. “There are bold experiments like Amazon Unbox and Zune….”

    Um, huh? These are neither bold nor experiments. They both a copies of things others have been doing for years.

    Oh yeah, and one of them is getting slammed everywhere and the other isn’t a real product quite yet.

  17. “There are bold experiments like Amazon Unbox and Zune….”

    Um, huh? These are neither bold nor experiments. They both a copies of things others have been doing for years.

    Oh yeah, and one of them is getting slammed everywhere and the other isn’t a real product quite yet.

  18. [...] Scoble says that Yahoo’s problems stem from the fact that their advertising is not targeted well enough (lots of banner ads) so as to be indispensable. Google’s ads are sometimes the entire customer aquisition means of a business, because they tend to be very effective, while Yahoo’s are more discretionary and brand-building. He’s oversimplifying, but there are good points in there. Posted: September 19, 2006 by Nathan Weinberg in: [...]

  19. On.. Google AdSense and Website revenue streams.

    Well seeing as we’re in the new renaissance of the moneytised web I thought it was worth doing a bit of a brain dump on something that has been bubbling around my head.
    I, along with a lot of other developers, would like to make money out of website …

  20. I do recall Yahoo redesigning their home page, however it didn’t leave much impression on me and now that I think about it I haven’t been back.

    True that both Unbox and Zune are being slammed (I critisize both myself) but they are both out there to be judged, good or bad. People are interested in both products, while the execution is messed up. So what’s going on with Yahoo! Video or Yahoo! Music? Anything new?

    I have heard Yahoo! is starting an ad campaign getting people to re-visit their home page (which it sounds like I’m one of those people), so there’s no question something is wrong over and above ads. It’s brand, it’s creating buzz, it’s doing something that people want to check out and incorporate into their daily lives.

    Seems like their own ad campaign is a step in the right direction. Maybe Yahoo! should advertise on MSFT, Amazon, Google, and Apple’s sites.

  21. I do recall Yahoo redesigning their home page, however it didn’t leave much impression on me and now that I think about it I haven’t been back.

    True that both Unbox and Zune are being slammed (I critisize both myself) but they are both out there to be judged, good or bad. People are interested in both products, while the execution is messed up. So what’s going on with Yahoo! Video or Yahoo! Music? Anything new?

    I have heard Yahoo! is starting an ad campaign getting people to re-visit their home page (which it sounds like I’m one of those people), so there’s no question something is wrong over and above ads. It’s brand, it’s creating buzz, it’s doing something that people want to check out and incorporate into their daily lives.

    Seems like their own ad campaign is a step in the right direction. Maybe Yahoo! should advertise on MSFT, Amazon, Google, and Apple’s sites.

  22. Is that why Google prides itself on not spending money on text ads, yet makes a consistent effort to brand all of its syndicated products like site search?

    Counterpoint: Banner ads work much better on celebrity gossip blogs than text ads. Thats taking your short-term minded click metric, not even counting the branding value.

    Your arguement also doenst make sense because ad format and ad pricing are independent. There are CPC graphical ads and CPM text ads.

  23. Is that why Google prides itself on not spending money on text ads, yet makes a consistent effort to brand all of its syndicated products like site search?

    Counterpoint: Banner ads work much better on celebrity gossip blogs than text ads. Thats taking your short-term minded click metric, not even counting the branding value.

    Your arguement also doenst make sense because ad format and ad pricing are independent. There are CPC graphical ads and CPM text ads.

  24. Tips for Being a Successful Landlord

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    On a similar topic make sure you are carrying enough property and liability insurance to cover yourself in any situation. A well designed insurance program can protect your rental property from losses caused by everything from fire and storms to burglary, vandalism, and personal injury lawsuits.

    I hope that this has been helpful to you. Just remember, as long as you follow these simple tips you will be on your way to a happy and fulfilling landlord future. Best of luck!

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  25. Tips for Being a Successful Landlord

    In today’s apartment rental market there are several things that are “must do’s” for becoming a successful landlord. The reason you’re playing the real estate rental game is to have the check in your mailbox on the first of the month, right? Here are a few tips that can help you to achieve this with as little aggravation and frustration possible.

    First and foremost is finding the right tenant to rent your apartment, house or other rental. This is the most important ingredient in the recipe. Checking the prospective tenant’s credit history to make sure they are paying their bills is one of the best ways you can screen. A tenant that pays their bills on time most likely will send you their rent on time. Establish a clear system on collecting rent, handling complaints from the tenant and how you will contact them if you need to gain access to the apartment.

    Secondly, get all the important terms of the tenancy in writing. You have the option to have a basic rental agreement or draw up a formal lease. Whichever you decide, the important thing is to document the terms that you and the tenant agreed to. Clarify who is paying the utilities, the rental price and any other agreements made between you and your tenant.

    It’s a good idea to stay on top of the repair and maintenance needs of your property. When you are notified of something that is broken or not working, repair it as soon as possible to prevent further damages. You may also lawfully enable the tenant to withhold rent, sue for injuries caused by defective conditions or move out without notice.

    On a similar topic make sure you are carrying enough property and liability insurance to cover yourself in any situation. A well designed insurance program can protect your rental property from losses caused by everything from fire and storms to burglary, vandalism, and personal injury lawsuits.

    I hope that this has been helpful to you. Just remember, as long as you follow these simple tips you will be on your way to a happy and fulfilling landlord future. Best of luck!

    ABOUT THE AUTHOR: Eric Goldstein, associated with http://www.AllSpacses.com which Conveniently Connects All People with All Spaces in All Places, has been dedicated to the real estate rental market for over 8 years. He has assisted over 25,000 landlords with their renting needs. Any questions about renting apartments, houses or other rentals feel free to visit http://www.AllSpaces.com or email him at Eric@AllSpaces.com.

  26. Perhaps the decline is due to poor customer service. I signed one of my clients up for Yahoo Search Marketing 4 weeks ago and they account is still not active. First there was a spelling mistake in how Yahoo entered the client’s domain which prevented emails from reaching the client. We finally got that sorted out but the account is still not set up. I contacted Yahoo about it two days ago and I still haven’t heard back.

    I’m trying to give Yahoo money and they are finding ways not to take it. Repeat this many times and I think that speaks more to the problem than whether banner ads work or not.

  27. Perhaps the decline is due to poor customer service. I signed one of my clients up for Yahoo Search Marketing 4 weeks ago and they account is still not active. First there was a spelling mistake in how Yahoo entered the client’s domain which prevented emails from reaching the client. We finally got that sorted out but the account is still not set up. I contacted Yahoo about it two days ago and I still haven’t heard back.

    I’m trying to give Yahoo money and they are finding ways not to take it. Repeat this many times and I think that speaks more to the problem than whether banner ads work or not.

  28. Yahoo, Google and Banners, Oh My

    I guess everyone saw the announcement from Yahoo about their earnings being at the bottom half of its forecast range due to weakness from two of its biggest advertising segments, financial and auto, and the subsequent big dip in their…

  29. Robert,

    First, banner ads do bring buyers. I can tell you this as a person who worked for the last seven years in ad systems department of a large ISP. I cannot give you exact numbers, but I’ve seen them, and they prove that you’re wrong on this one. I am not sure how well they perform in relation to Google ads, and I am not ready to analyze the cost effectiveness of those two types of ads – though I strongly believe that under different circumstances (for different types of products, on different pages etc.) different ad types will perform better.

    Another important thing is that bringing buyers (directly) is not the only purpose of banners. Banners can, for example, increase brand awareness much better than text ads.

    In general, I think that each ad type has its own benefits, and I strongly doubt that banners will becone ineffective in any near future.

  30. Robert,

    First, banner ads do bring buyers. I can tell you this as a person who worked for the last seven years in ad systems department of a large ISP. I cannot give you exact numbers, but I’ve seen them, and they prove that you’re wrong on this one. I am not sure how well they perform in relation to Google ads, and I am not ready to analyze the cost effectiveness of those two types of ads – though I strongly believe that under different circumstances (for different types of products, on different pages etc.) different ad types will perform better.

    Another important thing is that bringing buyers (directly) is not the only purpose of banners. Banners can, for example, increase brand awareness much better than text ads.

    In general, I think that each ad type has its own benefits, and I strongly doubt that banners will becone ineffective in any near future.

  31. To #30:

    They are already less effective. I used to use Yahoo as my start page, even after Google became more popular for search. I liked being able to set my color scheme, 3 columns, news, weather and feeds just a certain way and Yahoo provided all of that. But they also got slower and slower as the ads contained fancier graphics, got physically bigger and started using Flash animations, Javascript, etc. These ads typically come from servers different than those providing the actual news content and at times those ad servers were slow, or down completely. I’d see a blank page and a status message saying something like “Waiting for adserv2.yahoo.com”. That’s about the time ad blocking software got really popular and I suspect some of the thinking at Yahoo was along the lines of “if you aren’t going to view our ads we won’t show you the rest of it either”. Some ad blocking software can get around this, and a combination of pop-up blocking in firefox plus a “hosts” file with the most popular few hundred ad servers pointing to a fake IP adddress makes Yahoo and a lot of other pages load right snappily, with the spaces reserved for the ad (unfortunately these days about half the page) either blank or some error message. But at least you get to see the content that brought you to the page in the first place. Can Yahoo measure the number of people (like me) who view their content but are totally unaware of the ads? Do they want to share that information with their advertising customers (or have those customers figured it out on their own)? I wonder.

    When Google came out with their personalized home page I switched quickly. There ARE NO ads on that page. Nothing to block, nothing to slow things down. There are of course targeted ads in Gmail, and on search results page. If Google knows what you are searching for, or know the subject of an e-mail message they will match ads to it, and on many occasions I’ve clicked thought to the advertisers site because of that fact. That HAS to be worth a lot more to an advertiser than anything Yahoo is providing. More importantly though, graphics or no graphics, the ad and the content are QUICKLY combined onto a single page coming from a single server. I’m not sure I could block them if I wanted to, and as long as they don’t take up too much space or slow things down, there is no reason to block them.

    I suspect part of Yahoo’s problem (and this may apply to MS too) is that they have already sold their customers on these splashy ads, and now they have to serve them up. Could they go back to those customers and say, hey, how about we replace your nice Flash presentation with 6 words of text for the same price? Guess what they are going to say? Google has no false promises to backtrack on, plus they seem to have the server technology to make this all work quickly and seemlessly. There is an unstated infrastructure issue in these quarterly reports from the likes of Yahoo.

    How long did it take Yahoo to get me a nice AJAXified web mail id? Three years by my counting. They have a lot more problems than are shown in their quarterly reports I suspect. Saying ad revenue is down has a nicer ring to it than “we’re clueless as to what to try next, and our existing system is too complex to easily change”, but I suspect that latter version comes closer to the truth.

  32. To #30:

    They are already less effective. I used to use Yahoo as my start page, even after Google became more popular for search. I liked being able to set my color scheme, 3 columns, news, weather and feeds just a certain way and Yahoo provided all of that. But they also got slower and slower as the ads contained fancier graphics, got physically bigger and started using Flash animations, Javascript, etc. These ads typically come from servers different than those providing the actual news content and at times those ad servers were slow, or down completely. I’d see a blank page and a status message saying something like “Waiting for adserv2.yahoo.com”. That’s about the time ad blocking software got really popular and I suspect some of the thinking at Yahoo was along the lines of “if you aren’t going to view our ads we won’t show you the rest of it either”. Some ad blocking software can get around this, and a combination of pop-up blocking in firefox plus a “hosts” file with the most popular few hundred ad servers pointing to a fake IP adddress makes Yahoo and a lot of other pages load right snappily, with the spaces reserved for the ad (unfortunately these days about half the page) either blank or some error message. But at least you get to see the content that brought you to the page in the first place. Can Yahoo measure the number of people (like me) who view their content but are totally unaware of the ads? Do they want to share that information with their advertising customers (or have those customers figured it out on their own)? I wonder.

    When Google came out with their personalized home page I switched quickly. There ARE NO ads on that page. Nothing to block, nothing to slow things down. There are of course targeted ads in Gmail, and on search results page. If Google knows what you are searching for, or know the subject of an e-mail message they will match ads to it, and on many occasions I’ve clicked thought to the advertisers site because of that fact. That HAS to be worth a lot more to an advertiser than anything Yahoo is providing. More importantly though, graphics or no graphics, the ad and the content are QUICKLY combined onto a single page coming from a single server. I’m not sure I could block them if I wanted to, and as long as they don’t take up too much space or slow things down, there is no reason to block them.

    I suspect part of Yahoo’s problem (and this may apply to MS too) is that they have already sold their customers on these splashy ads, and now they have to serve them up. Could they go back to those customers and say, hey, how about we replace your nice Flash presentation with 6 words of text for the same price? Guess what they are going to say? Google has no false promises to backtrack on, plus they seem to have the server technology to make this all work quickly and seemlessly. There is an unstated infrastructure issue in these quarterly reports from the likes of Yahoo.

    How long did it take Yahoo to get me a nice AJAXified web mail id? Three years by my counting. They have a lot more problems than are shown in their quarterly reports I suspect. Saying ad revenue is down has a nicer ring to it than “we’re clueless as to what to try next, and our existing system is too complex to easily change”, but I suspect that latter version comes closer to the truth.

  33. [...] Yesterday I wrote in response to Scoble’s post regarding the drop in YHOO stock. More specifically, I argued that banner and in general CPM ads did not suck and can be measurably effective, in particular for brand-concerned campaigns. I brought up the example of Youtube’s Flash video player as a “new age banner ad.” Today I dug up some research regarding the effects of non-click conversions, a benefit that can generally be associated with rich media “banner” ads. Peter Greb writes at iMedia Connection on the importance of not neglecting non-click conversions in campaign reports. It’s also noteworthy that the particular definition of “non-click conversion” that Greb uses is a conservative one, considering that it does not attempt to take into account conversions that might occur in the real world as a result of being exposed to and/or communicating with certain banner advertising. [...]

  34. [...] There is, of course, a catch. The revenue model for television and radio has long been established – networks buy shows, sell advertising. Advertising goes in between and during shows. Viewers watch advertising, thereby being transmogrified into consumers. Game, set, match, money in the bank. Of course, now that’s all changed. In the infinite landscape of cyberspace, where the average video length is somewhere between thirty and ninety seconds, no user is going to sit around to watch a half-minute ad, no matter where it’s attached to the video. And banner ads, while a helpful supplement, are crude and ineffective, rarely producing the results marketers desire. Thus, comes the question – how to monetize. [...]

  35. As a consumer, I am sick of banner ads slowing my web experience to a crawl. The only way I know to put in my 2 cents is to NEVER click on an internet ad of ANY kind. If the buying public would abstain for just 30 days, we could break this mess up.

  36. As a consumer, I am sick of banner ads slowing my web experience to a crawl. The only way I know to put in my 2 cents is to NEVER click on an internet ad of ANY kind. If the buying public would abstain for just 30 days, we could break this mess up.

  37. I am a small business owner and do much of my business online. For years, I had Yahoo as my home page. Their banner adds are driving me crazy. I actually have to hit refresh up to 6 times because the new mail page will load the banner and say “Done” – won’t load the mail! I have moved my home page to Google – but have to keep the Yahoo e-mail because I have had it so long. But just because customers are keeping Yahoo mail doesn’t mean they LIKE it. We HATE Yahoo AND their banner ads! I doubt that’s what they intended when they started putting that mess on their sites – but that’s what they got – ALL of their customers looking for another place to jump to.

  38. I am a small business owner and do much of my business online. For years, I had Yahoo as my home page. Their banner adds are driving me crazy. I actually have to hit refresh up to 6 times because the new mail page will load the banner and say “Done” – won’t load the mail! I have moved my home page to Google – but have to keep the Yahoo e-mail because I have had it so long. But just because customers are keeping Yahoo mail doesn’t mean they LIKE it. We HATE Yahoo AND their banner ads! I doubt that’s what they intended when they started putting that mess on their sites – but that’s what they got – ALL of their customers looking for another place to jump to.

  39. What happened to yahoo? Well a lot of their advertising was paid by people that were chatting. In fact, yahoo had more bots chatting then people but refused to fix it. Not only did some ads refuse to download to messenger but they took over the whole page when they did. Now yahoo fixed it, actualy just part of it, after all the reliable chatters left.

  40. What happened to yahoo? Well a lot of their advertising was paid by people that were chatting. In fact, yahoo had more bots chatting then people but refused to fix it. Not only did some ads refuse to download to messenger but they took over the whole page when they did. Now yahoo fixed it, actualy just part of it, after all the reliable chatters left.