Web Advertising Bubble

John Robb echoes a point I had made obliquely earlier:

There has been a troubling recurring trend in Web advertising. It’s called monetizing the margin. For a short period of time, it allows certain content owners to print money. We saw it once, and we are seeing it again.

Three years and lots of pain and suffering later, the Web advertising model has gained some IQ points. Advertisers don’t want impressions anymore, they want click-throughs (for the most part, most advertisers still don’t track click-throughs all the way to purchase, so they are still in the dark on how these ads are performing). This new philosophy has led advertisers to search engines to provide contextual advertisements on a per click-through basis (in the hope that better contextual information will help people click-through more often). Performance is now the watchword of the moment.

Unfortunately, the search engines have figured out how to monetize the margins of this advertising model too. There is a way to manufacture click-throughs on “contextual” content. The first step is to put advertising on weblogs that are “qualified” as contextual content through an automated mechanism of keyword analysis (Google’s Adsense). A flawed mechanism if there ever was one. The second step is to trust that visitors to weblogs are very likely to click-through on Adsense text ad in order to provide, at zero cost to themselves, a small stipend to the author of the weblog. This “click to contribute” impulse will grow until the system breaks down.

We are about two years away from this collapse. During this time Google and Yahoo will profit and the advertisers will squander lots of money (and lots of small players will find ways to make a modest income gaming the mechanism). The Web’s advertising model will break down again.

The future will see us move to a publish-subscribe web. Advertising helps connect people – it can become much easier through RSS and syndication.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.