By Josh Quittner
October 12, 2007
October 12, 2007

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Henry Blodget, who’s been truly brilliant at Silicon Alley Insider, posts intelligently about Nielsen’s report Wednesday that online advertising fell from August to September.

We continue to believe that we may be in the
first stages of a cyclical downturn for advertising and the Internet
sector–one that could affect not only start-ups and second-tier players
but majors like Google (GOOG), Yahoo (YHOO), AOL, et al. Such
downturns do not begin suddenly, and they are not instantly obvious
(except in hindsight).

I see you and raise you one, Henry: I think this could be a particularly nasty downturn in online advertising—very similar to the first time online ads crashed at the high middle of the last bubble. I also think this is the best opportunity for social networks like Facebook because if someone can figure out how to make ads work in that environment, it’s game over. Hence the Facebook mania these days.

Those of you old enough to remember Web 1.0, will remember the pattern:
Money started to flow into the baby Web because advertisers and
agencies were surprised at the early click-through rates on their
flashing banners and popups. Who could believe that consumers were so
hungry for this kind of advertising? And yet, in the early days, they
clicked with abandon. Of course, that fell off sharply over time. Why?
I always believed that the folks who were clicking on ads in those days
were so new to the Web that they had poor mouse control–they were
clicking to make that damned blinking ad go away. Once they figured out
where they were, the learned to ignore the ads.

Something similar is going on now. If online advertising were working,
it ought to be increasing as we move from the end of the summer to the
fall. (Look at magazines, which are starting to put on their winter
weight.) No, it’s becoming increasingly clear that online advertising
doesn’t really work for the most part. Yes, search-directed advertising
totally works. If you’re searching for “hotels in Hawaii” and an ad
comes up offering you a low, low package deal, you’ll click on it. And
if you go to certain vertical sites, such as, and you get
hit with auto ads, that works too. The rest of it, in my opinion, is
particularly useless.

Of course, it’s cheap, and that appeals to the customer and the agency. But you get what you pay for…

Again, this is why I think the best new opportunity for killer ads online is what my pal, Seth Goldstein, calls “social ads.” They work in the same way that search ads work–they have an immediacy and relevance that, if done properly, are utterly compelling. These are “smart” ads because they “know” you. They know who your friends are and they know what you like. Putting those two data streams together is dynamite. Imagine an ad that knows you play Scrabulous all the time with your pal Michelle. And imagine an ad that pops up some day saying, “It’s Michelle’s birthday in 10 days. Maybe this lovely custom set of Scrabble tiles would be appreciated.” That’s advertising that works.

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