The Coming Subprime Advertising Crisis

The subprime crisis of 2008 surprised a lot of people. But looking back, we are almost as mad at ourselves for not seeing it coming as we were at those who created the crisis. Media, specifically advertising, is about to go through a very similar period, and we are going to be just as angry looking back. In addition, unlike (perhaps) Wall Street, we are not too big to fail.

As you may recall, the subprime crisis was created by:

1. A market that rewarded the wrong things: namely, making housing loans even if the recipient had no hope of being paid back by the loanees, creating a flood of near-valueless assets.

2. Then, bundling near-valueless assets (the bad loans) and dressing them up to resell them as something of value to unknowing (or worse, complicit) financial institutions.

Sound familiar to anyone in media space? Let’s replace a few words and see if light bulbs go off.

1. We reward the creation of the wrong thing: namely, “impressions,” even if the consumer barely, or never, even sees them, creating a flood of near-valueless assets.



2. Then we bundle these near-valueless assets (so-called “impressions”) to resell them as something of value to the unknowing (or worse, complicit) networks, media buyers, marketers, and so forth.

The easy, common-sense reaction looking back on the subprime crisis is to look at the individual loans. Any ordinary person could have told you that individual X could never repay particular loan Y. But bundle tens of thousands of these loans, add some financial analysis jargon and...voila! Grade A assets that are being traded for billions.

Similarly, a layperson could tell you that an impression that cannot be seen has no value (besides being an oxymoron). Or that an impression that can be seen for one second has very little value. Or that a video advertisement that doesn’t have sound, or is on a page crowded with other content and fighting for attention, has little to no value.

Common sense can tell us that a vast majority of what is being defined as “assets” by our industry are near-valueless. BUT, bundle up a few billion of them, cloak it all in some “programmatic” or “data-consumer-profile-ROI” jargon, and voila! Grade A assets that are being traded for billions.

The problem is that right now a lot of people are making money off the system, so it will keep feeding itself and getting worse until the system breaks. What will the break look like? Some publishers will perfect delivering the bare minimum required to count for an “impression” -- because why do any more if they are all the same? Be ready for lots and lots of lists. And meanwhile, a number of quality publishers will look for alternatives to advertising, like subscriptions, and the effectiveness of those already-near-valueless impressions will rocket towards zero.

This problem is finally getting some attention. Last month, The Wall Street Journal’s article “A ‘Crisis’ In Online Ads: One Third Of Traffic Is Bogus” pointed out the fact that so many ad “impressions” are just completely fake and generated by bots. Around the same time, a marketing company put together this infographic with stats from ComScore and a handful of other industry number-crunchers, revealing that click-through rates have plummeted 97.5% since the late ‘90s. The use of ad blockers continues to grow 40% year-over-year. Online ad dollars are almost completely wasted.

But I don’t think we have the sense of urgency we need. And we need that because, unlike the financial services industry, advertising is not too big to fail. Millions of Americans have not placed their life savings in advertising. In fact, in part because online display ads are so terrible and so oversaturated, most ordinary people don’t particularly like advertising and wouldn’t care if it went away. And there are backups primed to take over, like subscription revenue.

I love advertising when it’s done well. Great TV commercials are cultural touchstones, and our industry has a fantastic legacy that I want very much to preserve. And thousands of companies rely on advertising to reach customers and turn a profit.

But we’re going to have to preserve our industry ourselves by making the right changes to focus on quality and preventing shady tactics so that advertising can thrive. We have to get ourselves out of the subprime advertising crisis.

Trust me, no one else is going to do it for us.

22 comments about "The Coming Subprime Advertising Crisis".
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  1. Ron Stitt from Fox Television Stations, April 17, 2014 at 10:13 a.m.

    Wow! What a great way to frame this - brilliant! Advertisers are the main ones who have to step up to the plate on this and stop rewarding the creators and purveyors of these "advertising derivatives". Stop waiting for "3rd party tech solutions" to this problem. Or a more positive way of looking at it - start rewarding premium publishers, take their calls - don't let your quants tell you "we can get the same stuff for a song on the exchanges". Otherwise, many of the good advertising outlets will disappear behind paywalls, and you'll be left with mass volume & clutter on the long tail.

  2. Nicholas Fiekowsky from (personal opinion), April 17, 2014 at 10:30 a.m.

    Great story. The financial quote is, "Once the tide goes out you find out who was skinny-dipping." Time to start figuring out which organizations will start feeling exposed.

    Another similarity - the Wall St Journal was warning of low quality mortgages and financial exposure from 2006 or earlier. Nobody wanted to hear for the same sort of reasons.

  3. Christopher Sanders from The Ingredients Group, April 17, 2014 at 11:13 a.m.

    Well written and fantastic overview, with an even more insightful comparison we can all identify. The article seems to focus on just online. So you think with the recent rise in "tv programmatic talk" ( talk also in quotes because most of what is discussed seems like vapor ware) endangers our most valuable medium too (tv)?

  4. Mike Einstein from the Brothers Einstein, April 17, 2014 at 11:16 a.m.

    Forget all the stories about viewability, rampant fraud, etc. One need look no further than the sales operations of the big ad sellers to gauge the relative worthlessness of digital impressions. I mean, let's face it, if Facebook will sell me a thousand impressions for fifteen cents, what does that say about their own opinion of their own value? And what does it say about a media buying culture lazy and insipid enough to support it! This whole thing reminds me of Woody Allen's routine about the two old ladies having lunch in the Catskills: "The food isn't very good this year." "And such small portions."

  5. Joe Marchese from true[X], April 17, 2014 at 11:44 a.m.

    Thanks everybody. I have been thinking a long time at how to best frame the craziness, and only recently realized that framing how it compares to a craziness everyone remembers and, for the most part, understands really helps.

    @Mike - Love the Woody quote!

  6. Jim Rice from Piiku, April 17, 2014 at 1:17 p.m.

    Its hard to beat the comments before me on this. Kudos Joe. I hope this analogy sticks and has a long life as I anticipate it will. I certainly plan on using it with full credits. Have already in one communication. Just great stuff. It certainly resonates. Thanks for continued intellectual leadership and common sense arguments to make headway in solving the problem. Keep'm coming!

  7. Joe Marchese from true[X], April 17, 2014 at 1:37 p.m.

    No need to "beat" any comments! I appreciate them all (event the critical ones). Let's you know who is out there and they took the time to engage.

  8. Bob Gordon from The Auto Channel, April 17, 2014 at 1:37 p.m.

    Way to go Joe.. now if only those wonks in charge of media buying could read.

  9. Todd Garland from BuySellAds, April 17, 2014 at 1:56 p.m.

    Ron is right, it really just comes down to working with quality publishers who are passionate about the content they are creating. Curation is critical for folks selling media, if they want to stay above the impending implosion of the junk being bought/sold these days.

    The only thing I disagree with in the article relates to impressions: the value of an impression really doesn't matter, or have as much impact as the article would suggest for advertisers who are actually measuring their ROI. It's just an industry wide standardization on which to charge for access.

    If a buyer tie's back media spend to ROI, whatever metric you sell them on ultimately doesn't matter and only changes how they calculate the ROI.

  10. Paula Lynn from Who Else Unlimited, April 17, 2014 at 7:24 p.m.

    Standing ovation !!!!!!! You hit it when you say there are so many people buying and selling the worthless paper (and not even paper) that until it is noticed that the tulip bulbs are totally worthless and the chips fall, the party continues.

  11. J Jenner from PACCOM, inc, April 18, 2014 at 8:49 a.m.

    Great piece Joe! Now let's imagine what happens when advertisers begin to realize how flawed Google ad words is at delivering business. Basically "the emperor has no clothes ". Lots of expensive clicks, and so few sales compared to earlier click-through systems. If and when that cold realization gets into their stock price there will be hell to pay.

  12. Dave Morgan from Simulmedia, April 18, 2014 at 11:27 a.m.

    Great piece Joe! Very timely. Perfectly framed. And, unfortunately for many, probably very prescient.

  13. Kenneth Fadner from MediaPost, April 18, 2014 at 4:42 p.m.

    Great piece, Joe. Thanks. Premium publishers SHOULD rule 'cause who you go around with DOES matter.

  14. Joe Marchese from true[X], April 18, 2014 at 4:45 p.m.

    Thanks Ken. It should matter, and it will once everyone pays just a little more attention and is released from this pricing trap.

  15. Kathy Newberger from TBD, April 18, 2014 at 6:39 p.m.

    Loved this - thank you. Hope your article and the wise comments above encourage some brands to reconsider what they ask of the companies that work for them. Reminded me of:

    "There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person’s lawful prey. It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better." John Ruskin/19th century

  16. Shawn Riegsecker from Centro, LLC, April 18, 2014 at 6:43 p.m.

    Joe, beautiful article and couldn't agree more. Thanks for framing it with an excellent historical analogy. Our industry needs to get cleaned up and the sooner we can deal with the valueless assets the better it will be for everyone in the industry.

  17. D Mourey from Mourey Consulting, April 20, 2014 at 12:38 p.m.

    Joe, thank you for this outstanding articulation of what many of us understand but don't quite know what to do to change. The comments here add to the overall importance of the piece in the sense that 'the emperor has no clothes', including Google Adwords and others.
    This momentum shift.. disintermediation is going to happen, it's just a question of when and how. If you were going to recommend a path forward for us to share with our clients (and in my case, also my grad students) what would that be? (beyond awareness...)
    With your permission, I would like to use this as a case study for my students in their Master's of Strategic Marketing course in digital.
    Another person I know who is shaking the trees is Jason Calacanis Do you know of others who are calling out the idiocy? er challenging the status quo?
    Thank you and I look forward to reading more from you.

  18. Joe Marchese from true[X], April 20, 2014 at 5:41 p.m.

    Kathy - That is a killer quote!

  19. Mike Einstein from the Brothers Einstein, April 21, 2014 at 9:29 a.m.

    @Clint: Looks like someone forgot to take his logic pill today.

  20. Joe Marchese from true[X], April 22, 2014 at 5:44 a.m.

    @Clint - I am genuinely confused. If all digital is priced on a click, why do CPM rates even exist?

  21. Ben Garvin from Wildtangent, April 22, 2014 at 5:50 p.m.

    Amen Joe. Nail on the head. At the end of the day, we're hyper-optimizing crappy display ads (on our best day). Applying a layer of data makes clients and agencies feel warm and fuzzy. But it doesn't change the fact that it is still just a crappy banner ad.

    Some days I feel like going on Tommy Boy rant. Quality matters!

  22. Rick Monihan from None, May 1, 2014 at noon

    While I agree with the premise, there are several ways to look at this. Part of the subprime mess was 'bundling' - buying lots of bundled assets at a price which assumes there's enough good stuff mixed with the bad to offset any downturn. Problem was, nobody could prove if this was correct, and purchases were made making a very broad and later determined to be incorrect, assumption. The purchase of impressions via networks and exchanges may seem like the same thing, but it isn't. Mainly because there are some metrics which are returned that allow agencies to make a determination of value. Things like clicks or attribution. Are premium publishers better values? Yes, probably. But the price for most of the 'stuff' purchased at the low end of the ad content funnel is low enough that it seems worthwhile to agencies. I agree with everything you wrote, but it's hardly mind-blowing or even surprising. Agencies know this stuff now, but simply don't care too much at the moment. Why should they? They are getting data back which allows them to 'close the loop' and provide some level of justification for their purchase (as far as they can tell). Viewability is supposed to help in this regard. But where is viewability being applied at the low end of the content funnel - the content it was designed for? Premium publishers are the ones who are bearing the brunt of the viewability wave, and while we support it and want it to happen, it needs to be applied fairly and equally across all purchases. I don't really see that happening YET. Hopefully it will. But in the short term, it's being used to leverage premium publishers to provide 'extra-premium' inventory. Over time, all this will sort itself out, and it probably won't be as messy as the sub-prime bubble mainly because the things that will wind up sorting it all out are already being accumulated by the agencies - data, data, and more data. Which is, if you really want to get technical, why publishers should worry as much, if not more, about what data they are sharing and why they are sharing it, as they are concerned with the issue of things like viewability (which, by the way, is just data).

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