Study: A Billion Dollars in Internet Advertising is Wasted

Advertisers continue to plow a ton of money into Internet advertising, even in the face of an recessionary environment. At the Forbes Online Brand Summit this weekend, Citi projected 20% year over year growth. eMarketer is calling for a 23% increase.

Search remains the big daddy. According to eMakreter it will account for 40% of the $25 billion that marketers will spend online this year. Right behind it at 21% (or $5.1 billion) is display advertising. However, according to a new study, a giant percentage of these ads are wasted because they fall below "the fold"

The Eyetools/MarketingSherpa eye tracking study, released last week, found that about 60% of web site visitors see the ads that are 100% visible and "above the fold." Below the fold - e.g. the part of a web page where users are required to scroll - the situation is grim. These ads are visible to roughly 70% of web users, but only about 25% actually see those ads.

Let's do some back of the envelope math here. Assuming that all of the above data is accurate and that 50% of display ad impressions fall below the fold (this is a conservative guess - it might be significantly higher) that means that nearly a billion dollars in online advertising - $937M based on these calculations - is below the fold and ignored by 75% of web users.

The situation is actually be a lot worse when you factor in trust. A Nielsen study released late last year found that only 26% of consumers trust banner ads. So even if your display ads are visible and seen, they're not trusted by the vast majority of the public. That aint good news.

The conventional wisdom is that online display ads are good for branding. Well, this appears to be a myth for lots of impressions. Now factor in that they also continue to be a disaster when it comes to direct response.

This is a train wreck waiting to happen. Scoble called it back in 2006. And it further illustrates that marketers are polluting the web.

What this means - especially in this climate - is that at least $1B of what's spent on online advertising is completely wasted and is unsustainable. Advertisers are going to eventually wake up and recognize that unless it's a highly visible placement, banners get you largely nowhere.

Comments

[nmw]

I have a big difficulty telling advertising and non-advertising apart -- kind of like I don't know if the Bible and/or Einstein's Theory of Relativity (sorry, can't remember the exact title) should be classified as fiction or non-fiction.

Apart from that, I would say that data that is a year old (Nielsen re: Banner ads) seems rather dated. Compare e.g. some of the responses to this recent techcrunch post: http://www.techcrunch.com/2008/04/15/googles-dont-be-evil-not-ordained-motto-says-marissa-mayer

Considering I was writing about this kind of stuff several years ago already, I figure the "business community" might catch on to it by 2010 or 2011.

;D nmw

[@CoachDeb]

Great study shared!

Not surprising at all.
That's because people do not want to be marketed TO
they'd rather participate in the "shopping" process
and "discover" a good deal - through someone telling
them about something they've discovered or used personally.

We like doing business with people we like.
NOT boring ol' ads on a site. We tune them out.

That explains why more and more people are tweeting on Twitter
because there are no ads to disturb their conversations with
new and old friends, clients and connections made online.

The better we can make REAL connections online, and build
relationships with our clients and customers - the more
"advertising" will seem banal & "artificial" messages
we'll continue to ignore.

@CoachDeb
via Twitterverse

[AEklund]

With all due respect to Deb, don't get me started on Twitter and its lack of mass appeal. :) The reason banner ads are ignored is that they've never delivered on a promise of value. For far too long they've either not been directly tied to something of value (e.g. a highly contextual landing page, etc.) or the format of the banner itself was never designed to deliver value. (Can someone tell me if the standard banner sizes were ever tested? How did they come to exist anyway?)

Most important is that the web is obviously a user driven environment and banner advertising is meant to disrupt that. It's an antagonistic relationship at its core. Hence, to me, that's why banners don't work and search does...at least natural search, which to me isn't really marketing per se.

[Rex Hammock]

All advertising uses metrics that don't account for the people who may not flip to the exact page in a publication, or may not be looking at a billboard while driving down the highway or who use commercial time to get up and go to the restroom.

This trainwreck in the making was noted 100 years ago by John Wanamaker, the turn-of-the-century New York department store entrepreneur, who is credited with the famous advertising line: "Half the money I spend on advertising is wasted; the trouble is I don't know which half."

Pay per click is an attempt to overcome the "wasted" impressions dilemma, as are TV infomercials that share revenue with broadcasters or direct-marketing ads in publications that do the same type of revenue share.

However, if "branding" is your goal with advertising, "placing" the ad anywhere is not what ensures success. "Impressions" are not results, they are mere audit metrics. Increased revenues (or votes or other actions) are the only metrics that matter in the end.

Great advertising generates reactions and results.

The advertising that does not do that is wasted -- and that's a lot more than 50% of what is produced and placed.

[Rex Hammock]

All advertising uses metrics that don't account for the people who may not flip to the exact page in a publication, or may not be looking at a billboard while driving down the highway or who use commercial time to get up and go to the restroom.

This trainwreck in the making was noted 100 years ago by John Wanamaker, the turn-of-the-century New York department store entrepreneur, who is credited with the famous advertising line: "Half the money I spend on advertising is wasted; the trouble is I don't know which half."

Pay per click is an attempt to overcome the "wasted" impressions dilemma, as are TV infomercials that share revenue with broadcasters or direct-marketing ads in publications that do the same type of revenue share.

However, if "branding" is your goal with advertising, "placing" the ad anywhere is not what ensures success. "Impressions" are not results, they are mere audit metrics. Increased revenues (or votes or other actions) are the only metrics that matter in the end.

Great advertising generates reactions and results.

The advertising that does not do that is wasted -- and that's a lot more than 50% of what is produced and placed.

[Shel Holtz]

And this is different from millions sunk into television advertising through which people fast-forward with their DVRs because..?

[Paul Chaney]

And this is new why? As mentioned, Scoble nailed this back in 2006.
If there is news here, it is to testify that Google wins again.

[Josh Carr Superstar]

The only reason we can even be shocked by this data is because the internet has an amazing ability to measure results. This could never be done before.

I don't think Banner ad's will die at least not for a long time. There are still too many old school thinkers with money to spend. They have to die before TV commercials and banner advertising do.

What I think will happen is the death of the CPM (cost per thousand) approach to advertising. CPC (cost per click) is also on the way out. Eventually we will all do CPA (cost per action) once we move to a CPA model things will really start to change.

[simon]

OTS no? same as employed for newspapers and magazines.... this is not news...

[Mark]

I agree with the consensus here, no surprises at all. I did a poll a few years back in the office I was working in at the time. Out of 32 people I asked, only 2 had ever clicked on a web based ad out of interest in the product/service. Some complained of hitting them accidently. Some of an interest in the graphic or picture or game. But none of them remembered a brand/brand experience from the ad.

Shocking? I kind of thought so as I watched the online ad revenues rise and everyone seemingly ignoring the weaknesses in the system.

[Joshua]

Oh, Thats a huge number of money...

[Rob Lawrence]

Fascinating stuff! Is it no wonder that newspapers and magazines are withering on the vine as the Internet and our "virtual society" is now the predominant news medium. My 2 cents.
Warm Regards,
Rob Lawrence
http://www.battlecall.com

[Dabebo]

Good post, banner ads are hopeless. The only important thing in online advertising is going to be what actually gets sold. CPC and CPM are dying, CPA will be the long term winner, advertisers will demand it.

The major problem for banner ads specifically is the increasing level of education of the average internet user. While a certain level of naivety pervaded for a while, now more and more internet users are educated to the beauty of buying on the internet. They know that rather than click through a banner ad, if they want to buy something, anything they are far better initiating their purchase through numerous other sources. Some users might perform a search, others will go to a comparrisson site they have used or to a retailer they are familiar with or have bought from in the past. The real smart cookies will use a cashback/incentive site and take the marketers money for themselves rather than leaving it for some unknown website.

[Chales-A Rovira]

I'm wondering if the following podcast advertising model might be more effective than the current attempts at "crying in the wilderness".

1) produce an ad for you product, good or service and it gets stored on the content producer's host.
2) the content producer have reminder ads pointing to the ad.

Podcast ads hold special promise because they are downloaded "on demand" by someone who IS already interested to some degree.

This is a new model for advertising and does not have much update yet (its only a matter of time) but it could lead to a significant reduction in money wasted by advertisers to get the word out to the world.

It would permit the creation of extremely focused ads which would be delivered on demand (which is worth more to the advertiser.)

-Charles-A. Rovira

[John]

If this points out anything, it's not that 1 billion of Internet advertising is wasted. There certainly are many advertisers that track their ad spends and see a positive ROI. What it should reinforce is the need to actually MEASURE your online ad campaigns. Whether that means tracking through ROI, or conducting online branding studies for your campaign.

Optimization of your online media plans, placements and creative can reduce that waste.

[eBay Business]

That was a very informative post. I had not really realized the amount of money even spent on marketing alone yearly. It is quite amazing.

[Ed Kohler]

I guess if you assume that all banner ads - regardless of placement location on the page - are valued the same, you'd have a point.

And you'd also need to assume that banners above the content people focus on are worth more than banners placed after content where people are more willing to absorb messages, having consumed what they came for.

[Djdool]

Hum, I wonder how much marketing spend is wasted by PR firms who count impressions, and then tally the value by the same tired metrics advertising uses (insert medium here). Twice removed marketer value is better than direct how? At least this has the ability to be transparent.

Oh, to be a PR guy.

[joel]

Dumb question, but when you say "Search remains the big daddy..... it will account for 40% of the $25 billion that marketers will spend online this year ... my question is, what do you mean by "search?" Does that mean the cpc's and the investment to have your web site optimized?

Thanks,
Joel

[jive]

Just because an ad is below the fold, doesnt mean its a bad ad. Ads near the comment box or before comments are usually a pretty good spot for ads.

A lot of ads are wasted because the user might not ever let the page fully load or some ads might be wasted on "house ads" (ads promoting your own stuff).

Maybe they need to make ads only show up if
1) The entire page is loaded
2) The browser window is capable showing at least 10pixels of the ad.

[Goozman]

Interesting...
we're all suckers, either way...soon enough we'll be submitting to the likes of google because we won't have the balls to say no to their wonderful and free services...so...who cares...the world goes round on this s$!^.

[Bart Stevens]

Steve,

I assume your natural next remark is going to be ... "So a lot of this money can be "captured" by what is called Vendor Relationship Management (by Doc Searls)".

(Going from an Attention Economy to an Intention Economy)

Cheers ... ;)

Bart Stevens
iChoosr.com