I absolutely agree with his take on this; and I've echoed a similar sentiment in my comment history.
The advertisers who advertise on TV are the biggest, slowest, oldest companies. They're largely just interested in "brand advertising" and they don't understand how to properly do digital advertising.
TV money is absolutely going away -- the future of TV is commercial-free subscription VOD (like Netflix). But we haven't replaced TV with anything that the marketing managers at these companies know how to measure and report on. For all its faults, the cause-effect relationship in TV advertising is well-understood. That's not the case for digital, so advertisers aren't as comfortable spending $300 million on digital ad spend. They don't believe that they have to change the balance of media buys and creatives; it's been an invaluable rule their whole career so why change it now?
The big question is "What does TV advertising get replaced with?" I'm not sure digital is the answer; and I think the need for traditional advertising somewhat disappears along with their use cases. As we start to rely more and more on AI to make decisions for us, promoting one product versus another in AI applications will become a new form of advertising (which is why Google is all-in on AI).
But we don't know what form those products will take because the market hasn't taken shape yet. The next 5 years will be really interesting on the AI front with regards to advertising.
Snapchat. Recently, they’ve been injecting ads into their stories (these clips are on average about 10 seconds). A few things I found interesting about the implementation and observing others interactions with the ads:
1) At being 10 seconds, the ads are relatively short and contextually relevant. They flow more naturally in the stories than a television ad in linear programming. There’s likely strict quality control being enforced by Snapchat. It will be interesting to see them scale this.
2) As a user progresses further along in a story, does a user become more invested in the story (this is a thread of related snaps that Snapchat curates) or are they more likely to bounce before the end. In television, you’ve got the hook of the narrative keeping the user until the end. That would dictate ad placement. Recently Snapchat has done something interesting to combat this: giving the user different story paths to go into (from a given story point).
3) Most importantly, as a user, you’re able to skip the advertisements if you want (and go on with the story). This creates a pressure on the advertiser to create engaging and contextually relevant ads. The feedback of length of time played, number of times skipped, etc all create signals on creative performance (historically difficult to judge on television as it’s not an interactive medium).
This is markedly different from the typical television advertisement. There’s the element of engagement of the user (skip or stay), the constrained view time, and constraint of being relevant to the surrounding content. This creates a competitive pressure that television ads haven’t faced.
Edit: This isn't to say that Snapchat is final platform for this medium of advertisements. These learnings (and more) will likely be applied to most social networks that enforce constraints on short-form video advertisements.
I take issue with this. An ad for Deoderant spliced into the middle of my friend's feed is not contextually relevant. The list of "suggested feeds" aka ads they shoved into the top of the client are not contextually relevant.
It's difficult for their ads to be on target for anything other than their promoted feeds. Video is not search.
There’s likely strict quality control being enforced by Snapchat. It will be interesting to see them scale this.
Given that a small number of companies are responsible for a large proportion of brand advertising spend, I would posit that it isn't too difficult to scale quality control if you focus on building relationships exclusively with heavy spenders. Quality control becomes a bottleneck at the long tail end of the market, where ad budget per creative is much smaller. At the top end, you can behave like a TV channel and reuse established quality control practices. If you have 100m+ active users and a video-heavy medium, this shouldn't be impossible to accomplish.
That said, I have heard several reports about Snapchat's eagerness to build programmatic ad expertise, which (in the context of this discussion) may pointing to one of the following possibilities:
1. Large brands are not exhibiting TV-style buying behaviour (i.e. large upfront buys) on Snapchat. This would make sense as it mirrors trends in the rest of the industry. If you, as the buyer, have access to technology that lets you better control and manage your spend, gather intelligence, and understand ROI, then why wouldn't you? This is the buying mechanism that programmatic technology enables, and its more or less incompatible with TV-style upfront buys.
2. Snapchat wants to open their doors to mid-market and long tail advertisers. The goal might be to boost spending, drive up prices, or to go after performance advertising dollars. If I were a Snapchat investor, I'd find this second scenario slightly worrying, as quality control becomes very very difficult.
Agreed with most of your points. I commented elsewhere in here, but a lot of their options here seem somewhat hinged on implementing better tracking (which , which seems to go against their brand promise of anonymity.
How do you see their recent policy updates[1] in this context?
The only thing that stands out in that piece is that they're collecting advertising device IDs. Those IDs are anonymous and resettable. Snapchat doesn't need them internally since they have a more persistent identifier, i.e. snapchat user ID.
It might be that they want to pass this ID into programmatic platforms. Some systems treat them as pseudo-cookies for frequency capping, measurement, and basic targeting.
The challenge for them (which Ben has addressed on Exponent previously) is that their promise to their users historically has been anonymity. That directly goes against what brand advertisers need to succeed. At least DR players can see performance metrics even if they can't easily identify audiences. But for brands, they need audience data. So Snapchat has an interesting challenge on their hands...how to get more info from their users and convince them not to leave in droves when that promise of anonymity is taken away they make it available to advertisers. And I'm not talking about advertisers getting direct access to uniquely identifiable users. I'm talking about Snapchat collecting and storing that data. Their recent ToS changes make it seem like they are moving in that direction.
I'm a digital advertiser here, and I largely agree with your sentiment with one caveat. A good amount of the inventory for programatic video and display is just straight up bots. In some cases it even approaches 50% of inventory that just doesn't exist. With traditional forms of media inventory is a little more predictable.
Yeah; but that's just the deal with programmatic. Everyone knows that it's probably 50% garbage, so they just pay 50% less than they otherwise would. It's a game of moving averages and benefit per dollar. Fraudulent impressions are a problem, but ultimately I think that a bigger problem is the huge number of low-value impressions that just drive the price of the entire market down. When an advertiser has 30 ad slots on a page, not all 30 are really worth buying...
Why can't advertising be replaced with honest advocacy? People federating to find the products that best serve their needs, and rooting out bad actors who express opinions for personal benefit?
edit: Information is now free, barring firewalls. Consumer Reports had to rely on low bandwidth magazine delivery, and its transparency was limited simply due to how well it could communicate its own internal structure and activities. We can now create peer-to-peer systems where people could solely rely on information approved by people who they already trust, and that trust could be revoked at any time. In addition, people could recommend who to trust, and that recommendation could be revoked at any time.
Unwanted advertising is just cynical manipulation.
I totally agree! Let me copy a previous comment of mine:
Whenever a debate about advertising pops up on HN, many people defend it as the necessary way for consumers to find out about good products. Healthy free markets depend on informed consumers, but to think that advertising results in informed consumers makes little sense. I find it strange that a community of logic and science oriented people can hold such a notion.
When communities were small, reputation was king. If your town had two bakers, everyone knew which one was good and which one sucked. No amount of advertising would fool the townsfolk into going to the sucky one.
But this doesn't scale to huge cities with tens, hundreds or thousands of choices. We can't know the reputation of such a wide array, and we can easily be fooled by advertising. Internet-based recommendation systems make the grapevine and reputation scalable. I hope we see more innovation. Yelp is a start, but it fails miserably because if I rate a place 5 because I love very authentic Thai food, and another person rates it a 1 because they are used to Americanized Thai, the restaurant gets a 3 (I'm simplifying for illustrative purposes). In other words, Yelp's rating is useless to both me and the other person.
I'm hoping for a future where recommendation systems and collaborative filtering get so good that they render marketing and advertising useless.
It's because a plurality of the people on HN make a living from malicious advertising, and have to rationalize it. If there's a main thrust to anything that technologists as a whole are doing, it's to make direct, unmediated-by-unfriendly-interests communication between people as difficult as possible.
The ad agencies are safe because brand is everything to a Fortune 500 company. TV or online - doesn't really matter, since big agencies are on a retainer and considered a department of a corporation or brand. Most of that coin goes on strategy, so the media spend on TV isn't really that big a deal. I know that's not the thrust of your comments, but I think needed it probably needs to be added.
As for what TV gets replaced with - well I believe we're in a kind of awkward patch between platforms at present. One AR matures and reaches a critical mass it will set the course for the next couple of generations of advertising.
Peer to peer is an important part of 21st century advertising. Peer to peer replaces the slow, impersonal work sales people and broadcast advertising campaigns would perform in the 20th century to educate customers and to negotiate the customer's needs and budget.
Nowadays it is very easy to find people just like you online and ask them what they bought and whether or not they are happy with the product (although not everyone has trained themselves to do it).
That neighbor to neighbor information dispersion replaces a lot of the function of broadcast advertising.
> That neighbor to neighbor information dispersion replaces a lot of the function of broadcast advertising.
Not from the perspective of companies, who are the ones paying for advertising — their goal is to get the word out about a specific brand or product, which sometimes aligns with consumers' needs, but definitely not always.
Being on the Internet breaks the advertising model (CPMs are much, much lower online versus TV ads due to the sales channels they use). Moreover, the Internet has conditioned people to think "Subscription = No ads!"
Hulu isn't the future of TV; Hulu is the future of TV as envisioned by a bunch of major TV networks. I think HBO and Netflix are closer to the future of TV than Hulu is.
No, early cable TV was a way to provide signals from broadcast (and, thus, ad supported) channels to areas where, for geographic reasons, there was poor reception.
(The CATV acronym frequently used for cable TV originated as an acronym for its earlier name, "Community Antenna Television" -- reflecting it as a model of consumers sharing an antenna to receive broadcast signal.)
Premium, ad-free content, cable-specific programming didn't turn up until decades later. So, you've basically got it backward: instead of being something that originally promised subscription fees for no ads content but fell away from that, cable is something that initially offered subscription fees for access to ad-supported broadcast content but later evolved to include subscription-based (and pay-per-view) ad-free content available on top of the basic ad-supported content.
That's not the most rigorous of samples (reddit users), I believe those results might be biased - I think commenters on sites such as Reddit or HN might be more likely to take this kind of actions.
I'm not sure what Netflix's endgame is, but they're leaving a LOT of money on the table by going subscription-only.
I did not have a Hulu subscription until Hulu began offering an ad-free experience for a premium. HBO Now is also ad free.
I'd be curious to see the percentage of users choosing to pay more to avoid ads as it makes the entire experience so much better.
Do you think they'll phase out this feature, or continually ratchet up the fees? I suspect they realize there's a market of individuals who have no tolerance for ads and want to capture that market rather than lose them to bittorrent or just total cord-cutters who can take or leave television.
Even Hulu has an ad free version now for only a couple dollars more a month. I find it unlikely that anyone would choose the ad supported model when you can pay a little more to not have ads.
Ads should only exist in free/no subscription fee content.
I don't know what Hulu's numbers look like, but what % of US consumers who will spend $7.99 a month on something won't pay $11.99 instead to avoid commercials? If the gap was between free and $11.99 then I would very strongly agree with the price sensitivity.
Amazon and HBO are already basically forcing ads in front of the shows now though it remains self-promotional. There is a substantial amount of value that could be unlocked if TV ad budgets moved to Amazon and Netflix. Irregardless of current claims I wouldn't be surprised to see some form of sponsorship appear on Netflix if subscriber growth starts reaching its limits. Quite honestly strongly merchandised brands like Disney should be paying for video distribution rather than licensing it out.
If I'm paying for content, but that content also has tons of ads I feel like the provider is double dipping. Charging me to access the content and making money from advertising.
If the content is distributed for free (as over the air TV originally was) then I understand the advertising supported model.
If I'm being charged for it then I think ads are not acceptable under any circumstance.
Consumers are sensitive to pricing relative to free, but when you're charging for both I suspect most would pay extra for no advertising.
> No, the future of TV is like cable TV, but on the Internet (Subscription Fee + Ads)... like Hulu.
No, the future of TV is like cable TV, but on the internet -- a mix of subscription + ads services, subscription ad-free services, and ad-free pay-per-item services. The difference is that, in the internet form, these services are more likely to be separately purchased rather than bundled on top of each other.
> Relatedly, big box retailers that offer little advantages beyond availability and low prices are being outdone by Amazon on both counts. In the very long run it is hard to see why they will continue to exist.
I have lately noticed amazon is increasingly more expensive and return policies more restrictive. Yes, it is good for their business but I find amazon is getting less compelling offering for me.
And the 'very long run' part is cleverly phrased obviousness. I mean in the very long run I do not see why human with so many shortcomings would not be replaced by some superior digital form of life.
Beyond the dinosaurs being the big spenders on TV, there's no way digital advertising as we know it today will replace TV advertising. Creatively, you really can't even compare the two. A TV spot is the opportunity to make someone laugh or make someone feel something – anything. A banner ad or a spot with a "skip now" button is not going to do that. You really can't tell a story (as cliche as that sounds, its true). Digital advertising has less creative opportunity for the people making it and basically no reason for anyone seeing it to care.
This is why Snapchat and Facebook starting to really figure out video is so huge in adland. As attentions shift there and it starts to house real content, advertisers will have an actual digital channel to create content people might actually care about.
I would posit that Snapchat and Facebook are working so hard on videos because video ads have a much higher payout in the current ecosystem. I don't know that it's necessarily because of efficacy.
The higher CPMs are because it is a "new" format that has less ways of avoiding it (ie. prerolls) compared to banner ads.
Effectiveness is totally dependent on a variety of variables, and as someone very well versed in these things, I can confidently state that most advertisers have no clue about things like "cross channel attribution," how to go about finding a proper value for view-through conversions (hint: it sure as heck isn't 100%), viewability, etc.
For example, right now FB counts a view as a video that plays for three seconds[1] (could have sworn it used to be 2). A lot of advertisers, myself included, would laugh at that in terms of properly conveying the value of most messages (Geico ads aside--they really know their medium).
Combine that with Facebook also counting view-throughs as conversions with 100% credit (albeit with a short lookback window) by default, and you have the recipe for overvalued CPMs on video. And that's just on FB--other sources can be much worse.
Part of me wishes Ben had guests on Exponent. I listen to every episode, and would LOVE to dig into this stuff with him from an advertising perspective as he actually has a somewhat solid sense about it. But what I've been disappointed in is his inability/refusal to dig deep into these key points.
Performance for video and display overall is super hard to measure effectively given the nature of the beast. Just because there's lots of data available doesn't mean it is the right/best data, and he should point that out more. Attribution is a hairy beast, and ad sales people take full advantage of people's lack of knowledge on this.
> there's no way digital advertising as we know it today will replace TV advertising
As people adopt DVRs and quality show producers move on to online platforms like Netflix and Amazon (as they entice them with full creative control and no ad interruptions), won't the only thing remaning that resembles TV advertising be during live broadcasts (sports, maybe news)
One perspective I try to keep in mind is that all media will one day be addressable. That means whether an "ad" is video, social, mobile, desktop, or VR, it will be accessible to marketers. That turns television commercials into video ads and the ads will be powered and purchased in real-time depending on the end user. I agree traditional TV buying will decline, a new more holistic approach (digital buying) will replace it. For the end user this means more targeted advertising. There are several companies that have embedded their tracking into modern televisions.
No one is going to click a link in their feed to buy a car or laundry detergent, and a brick-and-mortar retailer doesn’t want to encourage shopping to someone already online.
Automobile manufacturers have been working with digital advertising for years and their methods are quite sophisticated (1). Every day tens of millions of people see their campaigns on Facebook, mobile games, SERPs, etc.
Brick-and-mortar retailers are also using ads to drive people to their websites or to their stores. One example that springs to mind is the Best Buy campaign in the runup to the Superbowl to get people to come in and buy a wide-screen HDTV before the game. I don’t know how effective it was, but surely some people clicked on the ads.
No one clicks on a link to buy a car not because no one wants to, but because, unless you're buying a Tesla, you can't, you have to buy through a dealership.
"Looking at data since the 1920s, the U.S. advertising industry has always been about 1 percent of U.S. GDP. It’s surprisingly consistent, mostly tracking between 1 percent and 1.4 percent—and averaging 1.29 percent."
The advertisers who advertise on TV are the biggest, slowest, oldest companies. They're largely just interested in "brand advertising" and they don't understand how to properly do digital advertising.
TV money is absolutely going away -- the future of TV is commercial-free subscription VOD (like Netflix). But we haven't replaced TV with anything that the marketing managers at these companies know how to measure and report on. For all its faults, the cause-effect relationship in TV advertising is well-understood. That's not the case for digital, so advertisers aren't as comfortable spending $300 million on digital ad spend. They don't believe that they have to change the balance of media buys and creatives; it's been an invaluable rule their whole career so why change it now?
The big question is "What does TV advertising get replaced with?" I'm not sure digital is the answer; and I think the need for traditional advertising somewhat disappears along with their use cases. As we start to rely more and more on AI to make decisions for us, promoting one product versus another in AI applications will become a new form of advertising (which is why Google is all-in on AI).
But we don't know what form those products will take because the market hasn't taken shape yet. The next 5 years will be really interesting on the AI front with regards to advertising.