There is No Relationship Between Time Spent Online and Advertising Dollars
Warning: Rant ahead.
One of my pet peeves when it comes to discussing online advertising is pinheads who look at time spent online and then compare that to other media and conclude that online advertising is poised to close that gap between dollars and time spent.
The relationship between time spent and dollars is completely and utterly disconnected. The reason why? It’s comparing apples to oranges. So much of online time is spent communicating and active states of mind; very bad environments to advertise in. Brand dollars are spent against passive environments like radio and television where people are listening and watching.
I spend probably 5 hours a week taking a dump. That doesn’t mean that advertising in toilets should approach 25% of television ad spending.
In the late nineteenth century, several businesses tried to make the fledgling telephone an ad supported medium. It didn’t work. The environment is not a good one.
Now to online advertising. Nearly two-thirds, as defined by the IAB, is search related (search + classifieds + lead gen). But search represents 5% of total online time.
That right there should raise a huge red flag to any person whose IQ is greater than room temperature. That total time spent online is in no way correlated to total online advertising dollars.
What’s the gap? You guessed it, forms of communications. Now things like MySpace and Facebook are blurring the lines between communication and entertainment but there is a huge question mark as to whether folks can turn those environments into an advertising medium that is even vaguely on the same scale as TV and radio.
But in every iteration before (IM, email, free web pages like GeoCities), firms have failed to create something meaningful. That is one part costs, where now these businesses can run on so little dollars that even the meager CPMs they get will create fantastic profitable small businesses (small in the sense of say a CBS or NBC revenue perspective).
p.s. As a tangent, here are a few great posts on why VCs and entrepreneurs make so many bad assumptions around online advertising. The original from HipMojo’s Ashkan Karbasfrooshan and a follow up from Dealbook.
The two biggest assumptions that kill businesses in online advertising is number one by far, that the gap between time spent online and share of overall advertising dollars will converge towards each other in a causal relationship. And the second, that big brands will move their brand-directed dollars online in a meaningful way.
Well said. Here’s a similar post from a UX point of view from Josh Porter.
PS: fiber. get on it.
“The two biggest assumptions that kill businesses in online advertising is number one by far, that the gap between time spent online and share of overall advertising dollars will converge towards each other in a causal relationship. And the second, that big brands will move their brand-directed dollars online in a meaningful way.”
But both of these assumptions have been coming true. The gap between time spent online and share of overall advertising dollars is converging, and many big brands have moved meaningful brand-directed dollars online.
There is some correlation between time spent consuming media, the level of engagement with the media the percentage of time/screen/mindshare an advertiser gets as a percentage of that media, and the corresponding dollars spent on that advertising.
The reason email/chat doesn’t monetize well per hour is because the advertising as a percentage of mindshare is small, because the consumer is otherwise focused. The reason search monetizes so well is because the mindshare, timing, and relatedness of the advertising to the consumer need is huge.
Time spent IS a contributing factor to ad spend. It’s just one of many, and not necessarily more important then the others.
John, maybe I am confusing myself. My point is the two trends have no causal relationship. That is, if we froze time spent online as it is today, the amount of online advertising would not go up because the gap between % of time spent and % of ad market would converge.
That’s the key. Sure time spent is a contributing factor (that is, if no one spent any time on the Internet ad spend would be 0%) but I guess what I am arguing is that there will be a permanent discount. That % time spent online will always be much higher than % of ad market and people assuming one of the drivers of growth is that difference going away and I totally disagree with its premise.
5 hours?! you need some fiber.
Aren’t they already incorporating a lot of ads in those social networks? I got rid of my My Space account years ago and I’m not particularly interested in venturing into Facebook (as tempting as my sister makes it out to be). What I like about the latter though (what I have seen) are those banners that correspond to charitable causes.