Whoa- There’s an online ad bubble?

Doc Searls says this in a blog post about some Flickr user losing all her pics:

Regardless of whether or not you think the online advertising business is a bubble

via Doc Searls Weblog · What if Flickr fails?.

He does say he’s a voice in the wilderness, but my issue is that he says it so easily as to make it sound like others have voiced similar concerns.  A bubble in early stage tech valuations is one thing but let’s not conflate that with the notion of an online ad bubble.

An early stage tech bubble implies high valuations on early stage companies.  Surprisingly big VC rounds, lots of strategic acquisitions, eye opening IPOs, ridiculous share prices on SecondMarket.

On the other hand, an ad bubble implies that ad rates– CPCs and CPMs, are higher than they should be and will implode.  That’s not what the popular media blogs are talking about.  In fact, they are saying the problem is that online ad CPMs are too low for the industry.

Reading through the rest of the post, it’s clear that Doc’s fallen behind on the online ad industry so I’ll wrap the rest of this up in a few bullets:

  • Facebook shares are valued in a completely different way than Google shares.  Analysts have enough ad revenue data to build models for Google but not for Facebook
  • Wall Street is not upbeat at all about Yahoo.  In fact, the last time I checked, the stock was valued for only the cash and Asian properties
  • Paid content and services has it’s place online but it’ll take a lot for it to become bigger than ad-supported content.  I’ll bet everything on online advertising growth over paid content growth
  • If you have enough experience trying to coax users to take an online action, you know how hard that is (users are lazy!).  Good luck getting those people to self host anything.

To reiterate– let’s not conflate an early stage bubble for an online advertising bubble.  Tech blogs are complaining about high startup valuations not high CPM rates.  Heh, I’m sure a lot of us right now would love to see bubble-like ad rates in this medium.

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2 thoughts on “Whoa- There’s an online ad bubble?

  1. Not that I am a MySpace fan, but during an “ad bubble” how can the entire non-US MySpace ad revenue be $14 million Dollars & dropping quickly?

    Yahoo! is a great point. The US company is basically seen as being without value (then again, as the CEO rips the soul out of the company and they outsource everything but the logo, they will likely lose many more verticals where they are a player, eventually they lose leverage with the partners they outsourced too as well when those contracts get re-negotiated).

    Another interesting point (to me anyhow) is how Demand Media isn’t a high margin business in spite of their efficiencies and low wages, and partnerships with some of the mainstream media for instant distribution of the content. How can they design around the most profitable segment of online ads & still have a low margin business if online advertising is a bubble? And they have done some aggressive stuff like 301 redirecting expired domains into deep eHow pages…so if that is a low margin business, I would love to see some of the high scale high margin ones (are there any outside of search?)

    Outside of travel, there are few online verticals where the leading publishers in the space are worth much north of a billion.

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    If anything, ads are still under-priced for multiple major reasons:

    – they are typically priced on ROI rather than lifetime customer value
    – most of the payout is at the demand fulfillment end of the funnel (like search) whereas demand creation is relatively under-funded
    – at the search end of the funnel companies like Google (rather, especially Google) are forcing many brands to buy their own brand, or see some of those clicks get sold to competing businesses…that allows Google to suck revenue out of existing brand equity as well
    – the rise of video ad formats will create additional yield
    – someone will eventually find a way to automate local ads with strong relevancy & personalization baked in (likely Google IMHO)
    – as the forever recession continues some offline choices are being trimmed back. that only further accelerates the growth of online when you have to buy some specialty items from either much further away or simply have them shipped to you.
    – even search engines are not monetized well in many foreign markets. in 2011 some (perhaps most?) of the 2nd / 3rd world search ad markets are less mature than US search ads were in 2002.
    – lastly, there is the classical comparison between time spent consuming media vs ad budget allocation. if the web is an ad bubble then so to is the rest of the media ecosystem (only worse!)

    Your bit about paid/subscription media being brutal is spot on. As a person who has run 2 membership sites I know they are anything but the easiest money in our revenue mix.

    And there was recently an article about how Youtube only sold ~ 600 rentals of $2.99 movies

    http://paidcontent.org/article/419-exclusive-google-weinstein-co.-strike-film-deal-/

    And there has been a load of articles about media fuming because Apple wants 30% of app sales. Yet those same articles highlight how abysmal Apple’s media sales are, even as Apple customers are willing to drop an extra $100 on $2 of memory in a piece of hardware designed to self destruct in a few years, they still don’t want to pay *anything* for media.

    I also expect that within a couple years Google will start displaying a lot of ebook excerpts in their search results. Those will linked to Google-hosted ebook pages which are wrapped in ads. The first publishers in will exclaim the great revenues, then everyone else will be carried along. And then online publishers will have that many more competitors to split revenue against.

  2. I use “bubble” in a broader sense than its investment meaning. See an earlier post here

    I’ll post more after I’m back home and have some time. Right now I need to catch a plane. Cheers,

    Doc

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