The "Ad bubble" ?!

Fascinating article in the WSJ on Tuesday regarding the focus on Ads into most Web 2.0 companies and investments.  There has obviously been a significant focus on the Ad space over the last few years (post-bubble), primarily driven by Google’s amazing ability to monetize their search capabilities through the Ads on their results pages. 

When a company like Google becomes wildly successful people intuitively follow. So, with that leader firmly in place many have followed.  But we are suddenly back to a place where “traffic” and “page views” (previously known as “eyeballs”) are seemingly all that matter. 

Consumer interactions with online Ads are known to be fairly limited (in terms of click-through rates) and yet Online advertising is one of the fastest growing industries on the globe.   But if consumers aren’t interacting with them then how is this industry growing so quickly?  The simple answer is because the value doesn’t have to be a consumers interaction with the Ad, but rather the consumer simply needs to see the Ad, hence us being back to “eyeballs”. Google just announced their Ad strategy within YouTube – they will charge $20 per 1,000 impressions as the Ads roll across the bottom of the video screen for 10-15 seconds at the beginning of the Ad; again, no interaction, except that the viewer can rid the Ad fairly easily.

Google brings up another interesting question.  How is the Ad industry going to shake out?  Right now, Google, Yahoo and Microsoft are the clear leaders in the market. With recent acquisitions by all three of these companies (i.e. aQuantive and Double Click) they now own much of the ‘network’ (publishers and advertisers) and the inventory.  And yet, every day there is a new “Ad company” that gets funded – how these all survive is another story entirely.

Interestingly, just prior to this article, I have had two conversations regarding the “Ad bubble”. The first time I heard that term was from a well-respected VC who said that he doesn’t have any idea how this “bubble” continues, nor how so many companies can build their Web 2.0/eCommerce/Service businesses can survive, let alone thrive, on the Ad model.  I don’t disagree.   

It’s going to be interesting to see how this all plays out. The last “bubble” was ugly, to say the least. I don’t believe the “Ad bubble” will be anything close to the bubble that we saw a few years ago, but it’s something to watch...closely.

Comments

[Hashim]

And of course, you feel e-commerce is a better model.