People Don't Hate Ads -- People Hate Bad Ads

“People don’t hate ads. People hate bad, interruptive ads.” That was the response of noted venture capitalist Fred Wilson when I asked him why Twitter and Tumblr have eschewed the online ad industry’s standard display ads in favor of their own, native ad formats. The exchange took place during an onstage interview I had with Fred on the past, present and future of digital advertising at AdTech here in New York.

Fred is co-founder of Union Square Ventures in New York and one of the most respected venture capitalists in the world, with an extraordinary track record. He and his partners at USV were early investors in Twitter, Zynga, Foursquare, Tumblr, Etsy, Indeed, Kickstarter, Boxee, Flurry and dozens of other hot companies (disclosure: Fred was an investor in both TACODA, may last company, and Simulmedia, my current one). Fred is also one of the highest-profile venture capitalists out there. His blog, AVC, is among the most-read venture capital blogs, and he has almost a quarter of a million followers on Twitter.

Fred has an interesting and unique perspective on the online advertising ecosystem. In the mid 1990s, he had great success backing companies like Geocities, Yoyodyne and StarMedia. He was right in the center of the Web 1.0 world and the development of display advertising. Today, he has a front-row seat (and time in the cockpit as a close advisor to his entrepreneurs) in the development of a wide range of new Web 2.0 advertising formats and monetization models at companies like Twitter, Tumblr, Etsy and Foursquare, none of which use “conventional” display advertising, but which are among the Web’s largest consumer properties.

Over the course of the interview, Fred highlighted six key issues as critical to advertising-based Web services as they build their businesses for the future (credit to AVC community member William Mougayar for helping summarize them). Here they are:

1) Native monetization is key. The atomic unit of your content is what you should monetize. For Twitter, it is the tweet. For YouTube, it should be the video.

2) Focus on scale before revenue. It’s not an accident that Twitter and Tumblr focused first on building massive audiences before they focused on monetization. Each service reaches more than 600 million folks every month. Fred’s belief is that if you focus on revenue too early, you may never get to a scaled platform. Monetization can be distracting, drain resources and inhibit user growth.

3) Everything is going to mobile. That’s where growth is coming from for most Web services, and where all should be focused.

4) Social will reshape commerce. Fred believes that social will be an extraordinary driver of commerce and that e-commerce companies are better positioned to exploit it than social companies. His view is that it's better to make e-commerce more social than to turn social media into e-commerce.

5) Build mobile first. Try designing for mobile first, then move it to the Web experience. This is easier and more effective than going the opposite direction.

6) Amazon is more dominant in its best business than Google is in search. Guess what? Fred’s not talking about e-commerce. Fred loves Amazon’s Web services and views them as much more powerful businesses for the company than its retail business. As he puts it, Amazon is more dominant in Web services than Google is in search. That’s a big statement!

What do you think? Is Fred on the right track?

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10 comments about "People Don't Hate Ads -- People Hate Bad Ads".
  1. Ted Rubin from The Rubin Organization / Return on Relationship , November 9, 2012 at 4:03 p.m.
    Fred is clearly brilliant and knows where to invest. I first met him when i was at Yoyodyne in 1997 and 1998. What a great place to learn... Seth is extraordinary. I agree with most here, and certainly always want to hear what Fred has to say, but remember at times his commentary can be self-serving. It is good to say build the audience first, but none of the companies mentioned in his investment portfolio have yet to prove a financially sustainable business. They all need to be acquired to survive, and most of them probably will be, so kudos to and good investments for Fred... but not necessarily examples of how to truly build a business of the future.
  2. Dave Morgan from Simulmedia , November 9, 2012 at 4:16 p.m.
    Ted, I disagree with your statement that Fred's investments have had to be acquired to survive. Indeed was extraordinarily profitable before it was acquired last month (more more than $1 Billion). Zynga was generating cash from its early years. Revenue at Twitter, Etsy, Kickstarter are reportedly growing at very fast rates. Certainly, some of his companies are bought before they are profitable, probably because the acquirers know that if they don't get them then, they will never be able to afford them.
  3. Ted Rubin from The Rubin Organization / Return on Relationship , November 9, 2012 at 4:34 p.m.
    Seems to me the ones who have put growth of audience before a revenue model have no shot at surviving in the future (without continually raising capital) unless they are acquired including Twitter, Foursquare and Tumblr. I am not as familiar with Etsy's profitability, but they certainly never put audience before commerce... at least not to my knowledge (of course i may have issed that, please correct me if I am wrong).
  4. Chuck Lantz from 2007ac.com, 2013ac.com network , November 9, 2012 at 5:05 p.m.
    Ted and Dave: Your discussion is a very informative extension to the article. Thanks!
  5. Ted Rubin from The Rubin Organization / Return on Relationship , November 9, 2012 at 5:09 p.m.
    Pleasure Chuck. Thank you. Make it a great weekend.
  6. Douglas Ferguson from College of Charleston , November 9, 2012 at 9:22 p.m.
    Good ads can be watched on YouTube, typically once they've gone viral or curated into compilations of good ads, but any ad that interrupts, no matter how good, is a waste of time for someone enjoying a program. I disagree that bad ads chase away viewers, because *every* interruption can be judged a bad time. Yes, some viewers have become accustomed to watching ads, but many more are unlearning the habit, especially as technology makes skipping easier.
  7. Chuck Lantz from 2007ac.com, 2013ac.com network , November 10, 2012 at 1:11 a.m.
    I have to disagree, slightly. Some interruptions can be positive. If you're digging a ditch on a hot day and someone hands you a cold drink, for example. But if they throw a cold bottle of water at your head, it's a negative. Same deal with internet ads. Once "they" learn how to deliver the right ad at the right time, things will improve on both sides of the screen. The targetted viewer information is available, ... the next step is learning how to be clever enough to exploit it in a positive way. So far, no one is even close.
  8. Dave Morgan from Simulmedia , November 10, 2012 at 9:04 a.m.
    Bad ads do chase away viewers. When you look at second-by-second TV set-top box viewing data, you see big spikes in viewers abandoning shows and networks during direct response ads and in ads that are not relavent to their previous behaviors. I believe that we need to prepare for a future where viewers refuse to accept bads ads.
  9. olga chervyakova from MK resolutions , November 10, 2012 at 10:30 a.m.
    I Would like to interview Fred in my live global Russian-American radio-TV program. Audience is great as we broadcast in Silicon valley and beyond. Would it be possible to make it happen? Sincerely, olga@olga-show.com
  10. Vox Usi from The Voice of the User , December 21, 2012 at 1:39 p.m.
    What exactly constitutes a "bad ad"? ... We can guess that if this was known, there wouldn't be any "bad ads"... One point to ponder: if there were FEWER ads, users might actually pay more attention...