Is Online Advertising Really A $42.8B Industry?

Last week’s press release from the IAB, in conjunction with PricewaterhouseCoopers, stated that total U.S. online advertising spending in 2013 was $42.8 billion.  “More than TV for the first time,”shouted the headlines. I bet a few TV sales reps glanced at this story, chuckled, and then poured themselves another scotch and drank in how great life is selling television advertising.

As an industry, if we took an honest look in the mirror, we would see a clearer picture of who we really are, complete with the structural flaws we mask with these inflated figures.  Let’s pull the curtains open on this smoke-and-mirrors total spending show, and see what we really have.

First off, one company contributes to half of the total industry billings we report.  If Ford generated 50% of all auto sales, wouldn’t the release of “total car sales” feel like a Ford press release?  We have to put Google’s revenue somewhere, but calling ourselves a $42.8 billion collective “industry” comes with one gigantic wink when half of these reported dollars come from one bank account.

A more significant reason why this reported total feels misleading, however, is that 65% of this spend is pure direct marketing -- which I get is a “form of advertising,” but we continue to talk out of both sides of our mouths.  As an industry, we constantly clamor to be recognized as a medium that creates branding and awareness, and we talk endlessly at conferences that the “click” poorly defines our value -- yet we happily report an industry spend total including almost $28 billion that doesn’t get collected unless someone clicks on an ad.

By my count, that leaves us at a $15 billion “advertisers paying for ads to be seen online” business, and things start to crumble further from there.  Conservatively, 50% of these ads we sell to advertisers never get seen by people. So phantom dollars for phantom ads are part of this reported total as well.  If you discount those dollars, it leaves us at a legitimate $7.5 billion “pure advertising” business online. 

If we can just own up to this figure, we can rally behind a strategy on how to grow this kind of advertising business from $7.5 billion to a $40 billion-plus business.  This goal is an achievable one -- but to get there, we would have to do the opposite of what is being done now.

To increase this kind of advertising spend online, we would have to increase the value of the exposure that occurs, sell more if it, and then raise prices.  So instead of running a thrift shop for ads, we need to start acting like a Neiman Marcus.

Right now, we have too many ads being served on one single page view.  Right now, we serve ad executions (pre-rolls, pop-ups, exapandables, auto-plays, etc) that literally, not figuratively, infuriate consumers.  Right now we welcome ad creative so awful it’s hard to look at.  Right now, we are killing the value of an ad’s exposure, not improving it.

And that’s my point.  We publicly gloat about the overall spending figures we “can report,” trying to convince everyone how great we are doing, when in fact we are imploding.  If we continue to report these total dollars spent without being more honest with ourselves about how and why these dollars come our way, then none of these structural flaws affecting the value of the ad exposure we sell, will be addressed.

If we want to grow a pure online advertising industry and not a direct-mail business online, then we need to:

  1. Limit page views to one single advertiser.
  2. Stop the insanity of pop-up surveys and offers that distract users from consuming content.
  3. Stop the ridiculousness of auto-play video ads, and move pre-rolls to mid-rolls.
  4. Stop any and all overlays.
  5. Say no to advertisers who run crappy-looking creative.
  6. Sell ads that get seen.
  7. Put users back on a pedestal instead of using them as a stepping stool to cheap revenue.

We have serious issues. A press release touting $43 billion in total online ad spend doesn’t help fix problems -- it just helps cover them up.

Recommend (13)
8 comments about "Is Online Advertising Really A $42.8B Industry?".
  1. James R. Brouwer from THINK Communications, LLC , April 17, 2014 at 12:48 p.m.
    Ari — Brilliant piece. Each of your seven closing points is dead on!
  2. Bob Gordon from The Auto Channel , April 17, 2014 at 1:06 p.m.
    When responsible people are responsible for results things will change...
  3. Craig Mcdaniel from Sweepstakes Today LLC , April 17, 2014 at 2:59 p.m.
    One other thing you forgot. This is Public Relations or PR. These PR people get paid a lot of money and if they can get a story online for free, they still get paid. I hear from them every week about a new sweepstakes or contest. When you tell them that we get paid, then they say, "we don't have any money budgeted". Yet they get paid and is part of the total budget. Most of the PR people who contact me are professional liars and hurt the online ad industry.
  4. Paula Lynn from Who Else Unlimited , April 17, 2014 at 6:48 p.m.
    What ads on line ? I don't remember one of them nor click on them even if I saw something (they have to do more than that for their $.0001 and do not track). The audience have become immune.
  5. Ari Rosenberg from Performance Pricing, LLC , April 17, 2014 at 7:57 p.m.
    Leave it to good ole Paula Lynn so sum up our problems four words when it took me over 700 :) -- "what ads on line" -- luv ya Paula
  6. Seth Ulinski from AdTech Advisory, LLC , April 18, 2014 at 7:12 a.m.
    Ari, much needed "real talk" with regards to the overall industry spend (painful but true!). Point #1 definitely makes sense: do reputable brands subject themselves to co-presenting in TV or magazine ads? For some crazy reason BMW is OK appearing next to a 48-hour Hollywood diet offer.
  7. Mike Einstein from the Brothers Einstein , April 18, 2014 at 5:34 p.m.
    We'll be fine once we realize we've been buying and selling the wrong clicks all along.
  8. Pete Austin from Triggered Messaging , April 20, 2014 at 6:13 a.m.
    Brilliant. Also be aware that a lot of clicks, especially on mobile, are made by accident because e.g. Facebook has little tiny targets for actions such as blocking ads, and the reader immediately clicks the back button instead of reading the landing page.