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Lundi, 14 Novembre 2011 20:18

Felix Salmon: The Future of Online Advertising

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I gave a talk last Thursday at the AppNexus Summit in front of a few hundred digital advertising types. The first part of the talk was a macro overview, but when the Q&A session started, all that anybody wanted to talk about was my take on online media. And given how granular the discussions over the course of the rest of the day were going to be, I wanted to push back a bit against some of the unexamined assumptions which I encounter most of the time when I meet online-media people.

It’s a known fact in advertising circles that only idiots click on ads — and yet advertisers still think that click-through rates mean something, and that a higher click-through rate means a better ad.

The first is that there’s something necessary and inevitable about ad-driven models dominating the online media industry. That’s certainly how things have worked out to date, but there was nothing inevitable about it. From the very early days of the World Wide Web, many extremely smart people pushed very hard to develop a workable micropayments architecture online. Ads looked like a non-starter: as Gary Wolf put it in his history of Wired, “the computer screen was low resolution; the ads themselves were tiny, and they disappeared as soon as the user scrolled down.” A few sponsors would buy ads in order to understand the new medium, but there was never anything particularly promising in online banners.

Meanwhile, people were happily paying small sums for newspapers, for magazines, for coffee, for any number of fast-moving consumer goods. And websites were about as fast-moving a consumer good as the world had. A simple and painless online payments system was clearly the way that the web was going to make money. The only problem was — and is — that the payments world is old, and slow, and very resistant to change; rumor has it that MasterCard actually twisted Marc Andreessen’s arm so that he would remove his <payments> tag from the early versions of the Mozilla browser.

With the U.S. payments system being stuck on ACH for the foreseeable future, payments online have been clunky and unwieldy, based around expensive and cartelized credit-card transactions; the only real competitor, PayPal, is a for-profit company, a wholly-owned subsidiary of eBay which doesn’t clear at par and which has many other obstacles to being adopted as a broad-based payments architecture.

So one of the big reasons why online advertising has done so well is simply the negative one: online micropayments were a disaster, and never took off. But they’re much more compelling as a business model, and there’s a decent chance that at some point in the future the financial system as a whole is going to get its act together and put together something which actually works and which people are happy to adopt. At which point, the online ad industry will face a major threat.

My second point was that black-hat SEO advertisers, like the ones who got in touch with Hamilton Nolan last month, do at least serve one purpose: they show just how valuable simple links — as opposed to expensive branded ad campaigns — can be. Hamilton was being asked to insert links into blog posts he was writing; more recently, I got an e-mail from someone named “Whitney Meyer” offering me $50 every time I added a link to an old post of mine. Google’s PageRank algorithm is a lot more sophisticated than it used to be, but the fact is that it still gives enormous weight to who’s linking to whom, for very good reason. Links are what the web is built on, and a large part of why it’s so incredibly powerful and popular.

Finally, after the obligatory plug for Counterparties, I laid out my vision of what online advertising could be. Check out the front page of Reuters.com: we have what is basically an ad unit at the bottom of the right-hand column which acts as an ad for Counterparties. It’s got Counterparties branding, but the meat of it is four links to four different external sites. (As I write this, they’re the New York Times, the Guardian, the Economist, and the Huffington Post.)

We want you to click on those links; when you do, you leave Reuters.com, and you don’t go to Counterparties.com. Instead, you go directly to HuffPo, or wherever. Reuters gets no traffic when you click on that link: indeed, we’re sending you away. That’s a good thing: we’re providing a valuable service for our readers, pointing them to great content. If you believe in putting the audience’s needs first, this kind of thing is a no-brainer.

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