A digital channel can deliver a solid ROI (>200%) at $10K-$50K / month. Advertiser is excited, wants to scale to $500K / month. ROI drops to 110%. Woops, not as good. So what does advertiser do? Advertiser finds the max scale they can run at to maintain an acceptable level of ROI (for ex, 140%) and that is $100K / month of spend on that channel.

The interesting shift we're seeing is that historically, advertisers just went on and multiplied the number of channels, spending $10K / mo on channel 1, $50K / mo on channel 2, $500K / mo on channel 3. However, the cost of maintaining each channel and optimizing is greater than the added value. So current trend we're seeing is consolidation of this spend, and understanding that they won't be able to spend as much on ads since they still to need that 140% ROI, but only on a few channels.

As to measurement, incrementality measurement (usually two methods, ITT (intention to treat, divide your entire audience in 2 parts and show ads to only 1 of the group) or ghost ads (described below) delivers a very clean metric as to whether ad spend if bringing any sort of value and how much value it actually brings. Assuming a healthy p-value is present (aka, assuming advertiser is running enough marketing spend $ that results are significant), that's your answer to how much more you should invest on the current marketing campaigns (or it will show that you need to change your campaigns because current ones are not performing)

Also: please disclose your specific conflict of interest, presumably you have some since you appear to work in the field.

As to conflict of interest, I did mention we work with a lot of advertisers but certainly not a conflict of interest, simply sharing the thought process of advertisers today. When we run incrementality tests, sometimes it shows that the campaign is not performing and then we stop the campaign.

So my comment above is not intended to mean “spend on marketing”, but rather “if you do spend on marketing today, you should make sure it actually delivers incremental value and therefore you should measure that incrementality.

Regarding the efficacy of online advertising, some businesses do notice but at the same time there's a larger question which is the trade-off between what online ads can achieve for different products at different stages.

Imagine a scale from "sitting in front of someone and explaining the value prop" to "an adwords ad."

If you're trying to remind someone about a brand they already know about, or attract them to a value prop that is easily explained online ads are great. If you have an unknown or hard to explain value prop you'd be better off starting elsewhere.

I agree that we need more research. Also, some suggested reading for anyone who's interested:

Traction: https://www.goodreads.com/book/show/22091581-traction (Good comparison of different marketing channels)

Scientific Advertising: https://www.goodreads.com/book/show/2621927-scientific-adver... (1923 book on measuring marketing)

Positioning: https://www.goodreads.com/book/show/760025.Positioning (First book to properly capture the ideas behind "brand marketing")

This is basically tautological though. Yes, the status quo is that advertising drives the revenue that dominates most of the content and app creation that exist today. Who can say what it would be like if advertising were removed? I don't think this is easy to answer, and I'm default skeptical of research since the conflict of interest seems likely in many funding scenarios.

Don't most of us here remember the olden days of the web? When internet advertising was a waste of time and most websites were funded from the pockets of the creators. I mean, even today that's partly common - how many bloggers and podcasters are asking for topup funding.

It's silly and wrong to think the internet would die without advertisers. Big content producers could make fairly priced single article access (don't you remember micropayments? instead we got subscriptions), and generally return commerce to the olden days when people anonymously purchased what they wanted from a shop, instead of signining away access to their bank account and email address (password collection points abound in the modern internet, deliberately or not, and everyone who encourages us to create a password is damaging the personal security).

Amateurs could use such platforms as well as advertising driven tools that are merely less effective at stalking you.

Really it's only the stalkers themselves who would be hurt by such a change.

I am, of course, delusional. But I can dream.

No? I don't think I've ever seen a working pay-per-single-article system, rather than a subscription. The amounts involved are too small, doing a payment for anything less than about a dollar isn't viable.

It's like the situation on smartphones with apps. Many people and companies have tried to get people to pay for them again (like Nintendo with Super Mario Run), but the audience wasn't having any of it, since they'd gotten used to 'free with in game purchases/ads' as the default. So the attempts faltered, and most went back to the exploitative models instead.

[citation needed]

I am of the opinion that internet would be a much saner place if advertisement was purely and simply banned.

If you mean journalism, that's a business that has been going out of business even with ads. Advertising is just a historical implementation detail for them, like "printed on newsprint", or "tossed on my porch every morning". It does not look like a serious contender for how to make journalism profitable in the long term, any more than "teenager bicycle delivery system" will continue to be the ideal distribution mechanism for weather reports and sports scores.

The group that operate under commercial reasons can also be split into two groups, those whose primary revenue is from advertisement and those whose primary revenue is from non-advertisement sources. Hacker news for example belong to the later and gain revenue from investing.

To answer the question on how would the internet exist without the subgroup of people who operate website for the commercial reasons of advertisement is difficult as each of those groups also compete with each other, but we can be pretty sure that the other groups wound increase in size.

I'd gladly add a few dollars to have an ad-free web and I bet many people would as well.

Othertimes, the same way we breathe air for free. [Some things are too difficult to contain.]

Still other times, the same way we drink water for free. [Some things aren't really free though they feel like it. Instead, we pay for them at another point.]

Please review page 22 to see that there has been a significant shift towards digital advertising since 2010.

https://www.researchgate.net/profile/Rachel_Soloveichik/publ...

TV typically caters for the big brands who want the mass public to know about their brand/product.

Targeted advertising is starting to emerge on TV, where you basically have the digital model of targeting and ad at an individual, the cost per individual is then higher than broadcast ads.

Now, how does that apply to e-commerce? I don’t see the linked chart showing these changes.

There are many other structural shifts that a simple trend in a given Ads sector would show.

That isn't the best question. Businesses spend stupid money on advertising in the mere hope and faith of grabbing attention. Sites like Google (the actual search engine) are really good at measuring effectiveness because their entire revenue model is built on micro-auctions measured by engagement.

The better question is: If digital advertising were so effective then why couldn't advertising customers contract to ad suppliers a percentage of their ROI for the supplied traffic?

The real answer is that a traffic impression certainly isn't a retail conversion. Those two are completely orthogonal. The hope is that increased total traffic volume suggests greater potential conversion rates, because 1% (assuming 1% of Google traffic converts on your site) of a 1,000,000 new customers from Google is a larger number than 20% of 5000 users from word of mouth marketing (assuming 20% of that higher quality traffic converts).

Unfortunately, this thinking is severely flawed, because traffic consumes resources and customer support that can be monetized as a fractional cost per user that quickly adds up. After consideration of expenses a retail site is likely still better off with the 1,000 (20% of 5,000) converted users from word of mouth marketing than the 10,000 (1% of 1,000,000) converted users from search engine traffic.

These things can be figured out decisively with precise numbers by analyzing past traffic, search engine spend, and conversion rates for any major online brand. Its just a few numbers with some applied calculus reviewing historical trends. Knowing this some business leaders see online advertising through the lens of a crack addict.

The drug addiction of online advertising for a major online brand works something like this:

1. In order to grow an online presence needs more traffic, so they increase marketing spend.

2. Marketing spend will bring traffic, but its expensive and that traffic may not buy anything. We called this dirty traffic.

3. Increased traffic means more eyeballs on the site not generating revenue, so put online advertising on the site so that those freeloaders can at least deliver some value back.

4. Nobody likes online advertising. Online advertising really repulses people, which is a hit to conversion. This hit is measurable.

5. Since conversions per capita nosedive you are pressured as a business leader to make up for the downward trajectory. Fixing the business takes time. Users take their time with purchasing decisions, which is what we called the buying cycle and this is also measurable. Click through on adds brings instant revenue at a substantially lower margin than a user purchasing anything (even really cheap crap). The hope is the difference in the immediacy of the result makes up for the reduced margin, but it won't.

6. By this point there are a couple of things going on. Traffic grows in a short term as marketing campaigns only (there are some rare exceptions) result in short term growth spikes that can dip once the campaign ends. The conversion rate drops and expenses go up. Impatience increases as the business cannot wait for the natural buying cycle to make up the difference on a macro-economic scale when the revenue from ads is instantaneous and predictable. Since ads decrease conversion need more traffic to feed the online ads to make up the difference, which means more marketing spend and further still more dirty traffic reducing the conversion rate.

Its a cycle of death to e-commerce. I can speak to this because I worked as an analyst and brand experiment engineer (A/B tests) for one of the most well known online brands of the last decade that ultimately failed due to a combination of internal conflict from management and over-spending on marketing. The brand still exists, but its now just a white label owned by its former primary competitor.

If only business leaders can wrap their head around recursive feedback and have the courage to account for it.

Absolutely.