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Weekly Column

Ignore That Man Behind the Curtain!: Why Internet Advertising Doesn't Really Work, But We Pretend It Does

Status: [CLOSED]
By Robert X. Cringely

Between San Jose and San Francisco, along the sides of Highway 101, are some of the most expensive billboards in America. This year, they will yield $66 million in gross revenue, up from $15 million for the same billboards only five years ago. What these billboards nearly all advertise are Internet companies. But why billboards? There was a big story in the Wall Street Journal last week about the huge number of web advertisements running in traditional print publications and on radio, too. Look in any newspaper, turn on any commercial radio station, watch a few hours of TV, and you'll see ads for dotcom after dotcom. It's all that IPO money being spent, I guess. Watch this Christmas, when TV ad rates will go through the roof. But no one has yet made the corollary observation that web sites are doing this in lieu of spending on their own medium. After all, this was the big claim of the Web — that you could do targeted advertising. And clearly, 100 percent of people who see your Web ad are ALREADY on the Web, probably on a similar site, and only half of TV and radio listeners have ever been on the Web at all. So what is going on here? It's simple: Web advertising doesn't really work.

Hey, wait a minute! Isn't that a banner ad at the top of this page? Yes, but that's not to say that just any page can get by on banner ads. We can do it here at I, Cringely because, well, I just work too cheaply. Most commercial web sites have a much harder time than I do. Most sites have a hard time selling ads at all.

It's a sordid little bit of truth that most Web ads aren't bought for money. They count on barter deals in which one overpriced Internet company gives free ads to another overpriced Internet company. "I have 'bought' an incredible amount of banner ads (literally, $500,000+)," crows one Internet entrepreneur. "These banners were in very popular sites like AOL, Microsoft, Lycos, etc. but we have never had to pay a cent, doing barter deals instead. We just traded for whatever else we could come up with. And I've got to think that other people are doing the same."

So the question follows, why do people ignore free Web advertising and instead go to traditional media and pay top dollar? Because, as I already said, Web advertising doesn't work.

There are several reasons for this:

1. Banner ads are billboards, which are rarely compelling, unless they arevery targeted and are doing you a big favor (e.g. Holiday Inn, next exit).Worse yet, banner ads are little billboards, and people have grown to ignorethem. The click-through rates are miniscule.

2. It is very expensive to monitor the site to determine if your ad waseven placed. You never know what time it will go, if ever. If you buy TV orradio advertising, it will run at a designated time, and anyone can tune into see if it ran. Worse yet, all ads run at the same time, so it's nearimpossible to avoid them.

This is why I believe people like Nielsen will never really measure theWeb, because they are entirely absorbed with the advertising angle and fail to see how people really use the Internet. It is NOT a true mass medium, but rather a personalized experience that just happens to have millions of participants.

The fact that Web advertising doesn't work does not mean that the Web is a failure or is going away. It just means that we are wrong to look at the Web in the same way we do other mass media. For one thing, on the Web there are not many couch potatoes to be found. We SURF, which implies constant motion, while ads attempt to arrest that motion or control it. This is where the system starts to fall apart. You see the truth is that the World Wide Web is about gaining and gathering information and the ads just distract from that purpose. Ads are a nuisance.

Let me explain. We go to travel sites not to click on travel ads, but to arrange trips. The travel sites, like any travel agent, make commissions. The same applies for every kind of site from Dr. Koop to Joan Severance; the pages that are successful find a way to charge for something, even if it isn't immediately obvious. And because they charge, they have to offer both good service and value, which is what will make the Internet succeed, not ads.

Sometimes ads work, like here at I, Cringely, but that's because we have modest needs. Just wait, though, until we start selling action figures and commemorative tea towels.

If Web advertising doesn't work, why do companies keep doing it? Because it is relatively inexpensive, and because they think investors expect it. Remember that the only money being made on the Internet these days is on Wall Street. Web entrepreneurs don't by nature overestimate the intelligence of their audience, though perhaps they should. Almost any page that is totally ad-supported has almost no hope in hell of even breaking even on pure advertising, much less making big profits.

The lie that's told over and over is that we'll make it up in volume. Once the Internet grows to a certain size, everything will change, and the old ways of making money on radio and TV will transfer to the Net. But it won't happen. Right now, we have 95 million Americans on the Internet. How many more do we have to have before a critical mass can be claimed? If it was going to happen, we'd already be there.

So the truth is the Internet doesn't work the way people think it does, and that is good. The Internet actually does real work. It informs and entertains and titillates audiences on an individual basis. And the reward for this is an individual reward, typically in the form of a transaction share. We make money on the Internet not from advertising cars, but from selling them, not from explaining software, but from delivering it. That's why it is worthwhile to advertise Internet services on the television. What we are advertising are services, not another advertising medium.

It's the new model and a good one. Everywhere but here at I, Cringely. You won't see us advertising on TV, I promise.

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