The Economic Problem for Digital Advertising

The digital advertising world is entering a period of existential crisis. Click rates are tumbling, regulators around the world are turning a baleful eye to the major platforms of Facebook, Google, Twitter and others. News media giants are seeking alternative models, grouping together to pressure the platforms or make changes. And the economic model of digital advertising is crippled and needs to change. Things are getting complicated.
The Economic Problem
Digital advertising has held the allure of tighter audience targeting, greater analytics and measurability and low cost for multi-channel reach. Now there are so many channels that the return for the channels that serve up the ads is decreasing, driving down profitability. Consumers aren’t clicking as much.
This type of economic model is simply not sustainable. The major platforms are profitable and a few brokers. But pushback from publishers and advertisers has started. It will get louder.
The Law of Diminishing Returns & Diminishing Margins
This is leading to the point where the level of profits and/or benefits gained is lower than the amount of time, money and energy put into it. The law of diminishing margins comes into play as the cost of creating the content to support the ads, when factored in, decreases the margin of the ad and content production.
The Baleful Eye and The Consumer
Platforms are constantly having to change how they promote ads as consumers get savvy at avoidance. Issues like Fake News, link bait and so on don’t help. Regulators are taking steps to impose new rules and there are anti-trust rumblings in America.
The cost of selling ads into the digital realm is also growing increasingly higher for publishers. It’s harder to justify a digital ad sales person than it was. When both the publisher and the sales mechanism become too expensive, publishers will stop selling cheap ads.
The laws of diminishing returns and margins, consumer pushback, an inability by major platforms to deal with issues like fake news, link-bait and click farms among many other issues, presents are serious challenge.
But there are solutions and opportunities. For publishers there is a new path to profitability, but platforms will have to make significant changes.
Categories Advertising

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close