20 Bln reasons to get advertisement right

I do not dislike advertisement. If you are a regular reader of my posts, then you might get that impression. For example, I have started a countdown for the downfall of Facebook when they first mentioned their stealth ad system.

It is not advertisement I dislike, it is the effect advertisement money has on current web 2.0 business models I don’t like. It is the easy way out for investors and service owners. Provide something for free, and as a user deal with the consequences (you get ads). The current ad word auction model and underlying pay per click is fraud sensitive, and enforces walled gardens. The revenue generation machine of a “free” web 2.0 service is based upon locking users in the platform. Getting them in, and not letting them out. Of course, you need really massive amounts of traffic in order to get enough clicks to make an advertisement revenue living. But with size, operational costs increase, and with increase costs you need more traffic and lock in users harder. It is a deadlock situation where the user, the advertiser and service owner are trapped into. And a deadlock situation where everyone is held hostage rarely provides real winners. I have discussed other possible business models earlier, and will elaborate on that in the future. Some suggest that there lies an opportunity to offer customers premium ad free services, replacing the ad model. I have written about that as well, but from a different perspective. Don’t let people pay for not getting ads, let them pay for value they get.

We should try to rethink this advertisement model by taking the user perspective. It is his valuable attention the advertiser is looking for in this attention economy. If attention is a scarce commodity and economics is needed to control this, then the economic laws better start making some sense out of this user.

So what do Internet users do most? I’d say they spent most of their time on activities like: search, discover, interact with others, share things, publish, and buying and selling stuff. During some of these activities ads are good, and in some they are bad.

Lets start with the obvious one, search. Google gets that right. Search can be monetized with ad revenues. If a user is searching for something then a sponsored link addresses the need of the user. And as John Battelle points out, all search entries (often not controlled by the advertiser) are important brand building aspects. Let’s make no mistake about the value of this type of advertising. The IAB just reported a new all time high Internet advertisement revenue this quarter, passing the $5.2 Bln and up 25% with respect to last years 3rd quarter.

But lets also not forget that the majority of these advertisement revenues go to Google, as they have reported a $4.3Bln revenue the 3rd quarter, an increase of 57% with respect to last years 3rd quarter. So Google takes perhaps 75-80% of all on-line advertisement revenues and they do it with search!

Discovery is another activity. Whereas the goal of search is to find, with discovery the process is the goal. Earlier reports show that Facebook users do a lot of discovery. They look at other people’s profiles, pictures and interact with applications. Profiles feel as private space to a user. Combining those with ads is probably not a good idea. Building up social graphs will provide valuable information about relations, bu it cannot be exploited easily within the same network as the user is likely to distrust the motives of the advertiser. It becomes what Nicolas Carr has called the Social Graft. Discovery in relation to Facebook applications is different. Here is a chance to provide the user with value (through the application) and combine it with branding or advertisement activities.

People love to interact. A profile in a social network is filled with information about the way I would like to be viewed, it doesn’t necessarily depict reality. But interaction is more pure. It reflects much about me and my relation to the one I interact with. As interaction is mostly personal it is difficult to combine it with advertisement. The “this message was sponsored by” advertisement is invading my private space and won’t do. The same thing goes with more subtle forms of SocialAd advertisement. If I mention in my activity feed that I went to the movies, this might have value to my friends. But having this news being accompanied by a complementary SocialAd doesn’t provide my friends with value.

What SocialAds try to do is help advertisers influence word of mouth advertisement. Amazon makes a fortune out of it. If I get a recommendation for a product from a friend it will be worth much more than an advertisement from the product owner. We all know this phenomenon. Tara Hunt describes very well how advertisers should be connecting to communities.

It starts with trust and the buildup of social capital. It is about listening to your customers, not talking. But an advertiser who buys a Facebook page does not have trust in the community just by being there and adding fans as a friend. It needs to listen first, it needs to build up social capital within the community. But here is exactly where I feel Facebook might take a false turn with its SocialAds and Beacon scheme.

These fans are not fansumers and displaying their like of a brand or product in their newsfeed is hardly a “word of mouth” advertisement. In essence it is more like a personalised billboard which loses value very quickly as friends will see it for what it is, not what it was meant to be (an advise from a friend).

So let’s try to get rid of the illusion that the advertiser has active influence on word of mouth via SocialAds. Direct interaction with your customers is far more influencing. Word of mouth in the physical world is based upon a different process. By exchanging thoughts, emotions, speech, touch, look, feel we have meaningful interaction. In this interaction a recommendation from a friend builds up and creates value for me. By agreeing or even disagreeing the advise of our friends gains importance. This interactive process leads to word of mouth advertisement. It is futile to think that an advertiser can influence this process directly, unless they are in direct contact with their customer. People are thinking for themselves, better deal with it. The whole power of word of mouth advertisement lies in the indirect influencing.

There is one exception to the interaction activity. If a user is publishing, or self-expressing himself to a bigger audience, then advertisement may have value. It can create a podium for the user to self express and find an audience. Like an artist being sponsored by a brand.

That leaves buying and selling. Here advertisement can play an important role. People looking to buy or sell something won’t mind if advertisement is added to the orientation or transaction phase. Advertisement adds value to the user action, especially in the orientation phase where it acts as a specialised for of search.

So what do you think about this? I’m interested in hearing if you know examples where advertisement creates value for the user (not including search). Do you think that SocialAds will add value (besides making services “free” to its user?

There are $20 Bln reasons to get advertisement right. Google probably takes up 75%, leaving the rest of us with $4Bln to figure out how to apply advertisement in such a way that it draws the attention of the user and actually provides him with value. We better start working on it.