Cup of Joe: Transparency is Killing Ad Profits.




Not long ago we reported that Hulu is now attracting more viewers than Time Warner Cable. However, despite that, the cable networks that own Hulu are still making the majority of their ad profits from traditional media.

Hulu is not the only one suffering from failed ad programs while their user base rises. Facebook now has a user base larger than most first world countries. Despite this they have failed to turn a profit even after releasing a sophisticated ad platform.

Even as users are flocking to online media, traditional media companies are still making the majority of the ad profits. Lets take a look at how traditional media is making loads more than online publishers.

How to Be a Traditional (Rich) Media Fat Cat.

  1. Develop addictive content, that preys on people’s emotions.
  2. Use preexisting infrastructures to scale and distribute.
  3. Keep your advertisers in the dark.
  4. Sell ad space at inflated margins.

Notice that I put an emphasis on point 3. This is the most important aspect of the above formula because with out it, point 4 won’t fly.

The truth is, most of the corporations that buy ad space in traditional media have absolutely no idea if it works or not. Sure they can look at their sales numbers over time and predict that this ad or that commercial was successful or not, but compared to Internet marketing they are literally in the dark.

With Internet marketing we can use analysts tools, sophisticated tracking techniques and even user behavior analysis to nail down conversion rates to exact numbers. Couple this data with PPC and CPM ad models and we can calculate ROI to the penny–in real time–and make adjustments to ad spending instantly.  All of these exact measurements can enable the advertisers to only spend the bare minimum needed on ads.

And this is why online publishers are failing at making a profit. Traditional media companies make huge profits on wasted ad spending. In an attempt to lure big money to the Internet, companies like Google pushed tools and ad platforms that enabled advertisers to spend less. In the end the only way a company can make substantial profits in this radically transparent environment, is to monopolize the flow of information.

Hey folks I just reread this post for the third time, and I realized that its incredibly boring! I am sorry about that. To make up for the above, here are a few things to look at that I think better represent my regular style of content. Enjoy!

  • http://www.tradeseo.com Mike

    Not boring at all… maybe obvious, a little frustrated, but not boring. Traditional media also has done a good job of selling the positive benefit of long-term branding.
    .-= Mike´s last blog ..Weight Loss Postcard =-.

  • http://strategyweb.wordpress.com/ Oscar Del Santo

    Definitely not boring at all.

    I think it is also essential to highlight the different philosophies underpining each model, the ‘one-size-fits-all’ of traditional advertising and the more closely- targeted, often ‘long-tail’ online model.

    In any case, does this tell us anything about the need to upgrade the levels of quality, creativity and even the budgets in online advertising?
    .-= Oscar Del Santo´s last blog ..Tweetdeck y Seeismic: cuando Twitter se enamoró de Facebook =-.

  • http://www.byrnehobart.com/blog/ Byrne

    Maybe that’s true

    But if it is, it won’t last.

    I know this, because I know lots of people who have come to the same realization you have. And I know what they say next.

    What they say is: “Why should I spend so much money on traditional media, if I don’t know exactly what I’m getting, but I know I’m not getting much?”

    I usually say “Good point!” (and not just because I sell online marketing services).

    No matter what you’re advertising–whether it’s sandwiches, soap, or supersonic jets–the rules are the same: the more you tell, the more you sell. Old media don’t tell you much, but they sell a lot of ads because they have a lot of momentum. New media outlets can’t afford to behave that way, so they tell their advertisers everything they can, which is why they keep growing.

    In the short run, Facebook is losing money. But they’ve raised over $700 million so they can keep on losing money until it makes sense to flip the sell-hard switch, crank up their advertising, and start practically minting money.
    .-= Byrne´s last blog ..The Typo Test: Do Typos Ruin Online Copy? I’m Going to Find Out =-.

  • http://jozsoft.com Joe Hall

    @Byrne – But what makes traditional media so much money is the fact that they are thriving on wasted ad dollars. If internet marketers make it possible for advertisers to not waste any money, they will never make a profit even if ad sales increase on the long term.
    .-= Joe Hall´s last blog ..WhosTalkin.com Moves To Media Temple! =-.

  • http://www.pozenunti.com Poze Nunti

    I know that traditional media had a real succes in the past but now… no way that can be used against the new media.

  • http://strategyweb.wordpress.com/ Oscar Del Santo

    I think there is hopefully room for both approaches to advertising to co-exist and develop independetly of each other.
    .-= Oscar Del Santo´s last blog ..PR & SEO : Together We Stand =-.

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  • http://larrydkeen.com Larry D Keen

    The money trail will always win. When twitter gets in the mix, I think it will start a new trail. I think it is smart for them to get the entire globe hooked, then monetize the system.

  • http://fashionow.net Aoobi

    I know that traditional media had a real succes in the past but now… no way that can be used against the new media.
    .-= Aoobi´s last blog ..The Introduction of Opal =-.

  • http://www.digitaltonto.com Greg Satell

    Joe,

    Your post wasn’t boring, just not particularly accurate.

    Advertisers certainly demand transparency and traditional media is thoroughly researched through not only industry wide monitoring but also through ongoing tracking studies that are proprietary to individual advertisers.

    Moreover, there are some very good reasons why advertisers are willing to pay more for branded content than for user generated content. You can read about some of them here: http://www.digitaltonto.com/archives/67

    -Greg

  • http://www.webmarketingwatch.com Sage Lewis

    I am always blown away by the huge double standard of offline vs. online media spend. Online media spend gets nickle and dimed and offline gets a snow blower full of money thrown at it.

    Part of the problem is time. Our industry is still young and needs to build a brand of value.

    Another problem isn’t that offline is charging too much. Online is charging too little. This whole auction marketplace where the advertisers decide what a cost per click is worth is too efficient. It works too well for the advertisers.

    Major, high traffic, phrases should have a base per click cost of, say, $20/click. Google could do that tomorrow because they own the market. Advertisers would have to pay it. And then the entire industry would move up a notch. That would become the standard.

    Small businesses would be pushed out of that market. But they could still be given niche phrases that are placed in the no-base open bidding environment.
    .-= Sage Lewis´s last blog ..Getting Ready For My Paid Search Panel =-.

  • http://www.crearecommunications.co.uk Luci

    I agree with Sage, i often find it interesting/amusing/horrifying the amounts that people will spend in offline advertising, but when it comes to their online campaign, it’s a drop in the proverbial ocean. And the reason is usually to ‘see how it goes’ – while this make sense, it also.. doesn’t. LIke the more you spend on your ad space, the more you spend on seo for example is worth it longer term.