The great banner ad swindle

The New York Times has removed almost all of its content from subscription-only. People tell me that the Wall Street Journal will soon do the same. In Chris Anderson’s recent article for Wired magazine, he names advertising as one of the 8 business models that will allow end users free content. All hail the ad-funded business model.

I have a nagging problem with this though – online advertising doesn’t work. And if it doesn’t work, people will eventually refuse to pay for it. If no-one’s willing to pay for it, then no model exists.

Its generally accepted that current click-through rates on banner advertising is 0.2%. Yep, for every 1,000 impressions, you get 2 people clicking through to the site. Lets say you’re paying £20/CPM – this gives you a return of £10 per person. Just to visit your site.

Some people have said that the downturn in banner effectiveness is a recent thing, and this is what I’d always assumed. Perhaps clients just hadn’t noticed yet. Perhaps with better creative execution, click-throughs might go up again. However, this article from 2000 suggests that in mid 2000, click-rates were already at 0.3-0.5%. That’s almost 8 years ago. Technology and the creative execution of online ads have changed a lot in 8 years. And we’ve not seen any great up-turn in clicks.

The latest potential “savior” for banners seemed to be targeting – media owners such as Facebook were going to be able to offer you incredibly powerful, micro-targeted advertising. And again, at first it sounded convincing. However, this study on who clicks on banner ads (amusingly enough undertaken by a group of media agencies) revealed that 6% of web users are responsible for over 50% of all clicks on banner ads. From ReadWriteWeb:

Those people who click heavily have a number of other characteristics of note. “Heavy clickers skew towards Internet users between the ages of 25-44 and households with an income under $40,000,” the study said, and they “are also relatively more likely to visit auctions, gambling, and career services sites – a markedly different surfing pattern than non-clickers.”

So, as long as you want to target these users, then it would seem that banner advertising is perfect for your needs. Otherwise, perhaps not so good.

People have also talked about banners building brand awareness, of which I couldn’t find a single study to prove or disprove either way. It would be interesting to see the results of such a study, although I have to say my gut feel is that banners wouldn’t and don’t build brand awareness. Besides which, in order to build awareness, the user still needs to see the banner in question. Which the phenomenon of “banner blindness” seems to suggest happens less and less. Again, this is not a new thing – it was defined in 1998, and updated studies suggest that it is on the increase.

If you add everything up, it seems absolutely crazy to me that this is now one of the largest businesses supporting the internet. Internet advertising spend is growing year on year – companies are continuing to pile money into this. Surely at some point they have to realise that the return they’re getting simply isn’t worth the money.

What this means for advertising is that you’re going to have to be much cleverer with what you do online, and you’re going to have to work harder at integrating different channels, to work together to deliver successful campaigns. No biggie here really. We all know this. And this is the fun work anyway.

What this means for the internet at large is more interesting – we’re using a fundamentally fucked model to build businesses off the back off. If clients realise that online advertising doesn’t work, then what is going to happen to the millions of sites that now rely on advertising to survive? Can they all switch to one of the other free models that Anderson suggests? Or might we see a rather large internet cull?