Traditional advertising fails on the Internet.

Despite robust growth, the market share of internet advertising in both Hong Kong and Japan is about 10 percent. Singapore’s internet advertising market share, as a portion of its total advertising market, is 6 to 7 per cent. China’s market share has grown to 9% of its total advertising spend while Korea’s is about 12%.

But even at these low percentages, the importance of the Internet is still seriously underestimated. Or is it?

Research conducted by Professor Eric Clemons at Wharton University in the USA indicates that many advertisements in traditional media are failing. “The problem,” he says, “is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed.”

One newspaper after another is going out of business across the United States. The same is happening in other markets as more and more people migrate to the web.  Although newspaper ad spending was still 51% larger than Internet ad expenditure in 2010, newspaper spending is shrinking 1.4% annually.

Ad revenues of traditional print media, even of highly respected magazines, is declining. The ultimate failure of broadcast media advertising is likewise becoming clear. Meanwhile, Internet advertising is forecast to grow at an average annual rate of 14.4% between 2010 and 2013 overtaking newspapers.

A decline in Internet advertising?

The Internet in Asia is still nowhere near the potential that marketers are hoping for. Media time spent by consumers vs. Internet ad spend is still out of whack. With the economy in serious decline in many parts of the world, there has also been a drop in Internet advertising revenues.

Yet Internet advertising’s decline wasn’t caused by the general recession nor the decline in retail sales. Clemons argues that Internet advertising has the potential to lose its value and its impact due to the simple fact that advertisers continue to use traditional advertising formats, and these fail on the web. They simply cannot be carried over to the Internet, replacing full-page ads in newspapers or magazines. By traditional advertising formats I mean display ads, video ads, and any other ad whose format and value proposition approximates or imitates that of an offline advertising format.

Google is the only company that has succeeded in web advertising, having perfected search advertising whose value proposition is perfect for the web. Google’s share of the Internet ad market has risen almost 10 percent in the last five years, from 34.9 percent in 2006 to 44.1 percent in 2010, making it the undisputed Goliath in online advertising. Google also dominates global search, accounting for 85 percent of all searches.

The reason traditional ad formats fail on the web is because people have no patience for them, as they did in traditional media. People want sites to get to the point; their attention span is diminished. An ad message that is pushed at a potential customer without their approval to view it,  or when the consumer is in the midst of something else on the net, is a recipe sure to fail as a major revenue source for most Internet sites.

If, as research reveals, only the top 0.01% of websites can generate sufficient revenues from advertising, advertising is almost irrelevant for the success of the Web.

Web advertising should be valued in terms of the value of the business it creates from the new users it attracts to your site. This value is usually very small, which is why Web advertising works poorly and (while not completely useless) will be one of the smallest contributors to the future of the Web.

The problems with advertising

Clemons predicts that online advertising is going to be smaller, not larger, than it is today.  He thinks that it cannot support all the applications and all the content we want on the Internet. Online, he says, is not the answer. There are three problems with advertising in any form, whether broadcast or online:

1. People don’t trust advertising. They are distrustful of ads and messages attributed to a commercial source. A Forrester Research study also concludes that advertising and company/brand sponsored blogs are the least-trusted source of information on products and services, while recommendations from friends and online reviews from customers are the highest.
2. People don’t want to view advertising. Think about your own behaviour when you watch TV. Most of us channel surf or fast forward to bypass commercials. We even leave the TV to get a snack when the commercials come on.
3. People don’t need advertising. There is a vast amount of trusted content on the net.  Most of us now form our opinion of a product from online reviews and independent rating sites.

Marketers and their ad agencies are realising that we are not watching traditional ads as much as we used to. They attribute this to the fact that we have moved beyond newspapers, magazines, outdoor, and television, to the likes of video games, Smart Phones and the Internet.

A survey of people who had actually bought things on the Web revealed that only 12% of buying customers had arrived at the website from an advertisement.  88% of the shoppers had navigated there in other ways—via search engines and links. Proof, that if you offer content-rich pages, other sites will link to you.

Online advertising must create value for users or it will create little or no value for the marketer/advertiser’s bottom line. This would seem self-evident, but it has not been the case with traditional advertising, which was developed for captive audiences, and web users are increasingly anything but captive.

Personally, I think the future of online advertising will involve the old school method of clever product placement. The “editorial” won’t be about the product, but the product will exist within the editorial. The future of modern online advertising is integrating product placement with high quality content.

Porting traditional style ads to a medium like the Internet will not solve the three problems noted above.  The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed.

Mike Fromowitz

OCTANE