Why online advertising is like a $273 billion-dollar cult

by Nigel Hollis

A recent article on The Correspondent is gaining attention for suggesting that the $273 billion-dollar online advertising industry is the new dot com bubble. The authors are undoubtedly right, much of the money spent on digital is being wasted. But here is the problem, too many advertisers believe their money is well-spent and they do not want to hear otherwise.

The original article by Jesse Frederik and Maurits Martijn is a long read and given I am told people have the attention span of a goldfish these days (another digital-era myth) here is the cheat sheet.

Many advertisers waste the majority of their digital ad spend targeting advertising to people who would have bought the brand or visited the web site anyway.

Why? Because…

“The benchmarks that advertising companies use – intended to measure the number of clicks, sales and downloads that occur after an ad is viewed – are fundamentally misleading. None of these benchmarks distinguish between the selection effect (clicks, purchases and downloads that are happening anyway) and the advertising effect (clicks, purchases and downloads that would not have happened without ads).”

Worse, the article suggests, like followers of a cult, most advertisers will not change their beliefs when faced with the truth. Marketers want to believe their advertising works, even when it does not, and so they just keep spending.

Reading the article, one might be left with the impression that all digital advertising does not work. Except, and this is important, it does. It just does not work on the scale that people want to believe it does.

As Frederik and Martijn state,

“Realistically, advertising does something, but only a small something – and at any rate it does far less than most advertisers believe.”

Once you reconcile yourself to that fact it becomes obvious that digital advertising is just like any other form of advertising, it works by nudging people who do not buy today into buying at some point in the future. It works by cumulatively establishing ideas, feelings and impressions in people’s heads that encourage them to buy a specific brand when the need arises. And what is more, we can predict whether it will do so or not.  Online advertising does not have to be an act of faith and ad spend does not need to be wasted.

But what do you think? Why are so many advertisers happy to ignore the proof their ad budget could be better spent?