A few weeks ago, while having breakfast with well-known Silicon Valley author, Emanuel Rosen, in Palo Alto (more on that later), I said that I was very concerned that all the companies chasing after advertising dollars, from blogs carrying AdSense to startups, all the way to the mighty Google, will be dramatically impacted by what I see as an obvious crunch in the online ad market. The more I think about it, the more obvious it becomes to me that the ad-driven economy, both offline and on, could soon be in dire straights, and companies hoping to cash in need to think of new revenue targets - quick.I can't remember the last time I clicked on an online ad. Whenever possible, I am running ad blocking software on my browsers. I've learned to ignore AdSense blurbs that sneak through, and any time I'm forced to see an interstitial ad before reading a story, I'm clicking "Skip this Ad", or right-clicking it and adding to my ad blocker's memory.
Meanwhile, I find it painful to watch television without my TiVo. If watching something live, we mute the commercials, and either get something elsewhere in the house, go back to the Web, or pick up a magazine. I just do not want to be sold to.
To me, the most effective way to reach me as a consumer is through buzz, to hear genuine excitement from others who are trying a product early. If they like it, I'll see it in their blogs, in their Del.icio.us links, Google Reader shared items and FriendFeed. I'll see it on Digg or TechMeme. I'll see people using it and showing it off at the office. But I'm not more likely to purchase a product because they purchased some run of site banner ad space.
As I'm doing my very best to avoid advertising, I have to believe a significant number of others like me are doing the same thing. If you (safely) assume that the more educated, more technologically-savvy among us will be the first to block Web ads, then one of the most prized demographics for marketers will be unavailable. Then, as others latch on, the click through rates on ads will dry up. Total revenue from pay per click ads, from Google and elsewhere, will go soft and then crater. Advertisers will decrease their rates per click, and decrease their total ad budgets, moving money somewhere else, to more viral, buzz-driven, targeted campaigns. And while the Web has done a fantastic job about turning a per impression model to a per action model, proactively shunning the medium altogether makes you a deaf audience.
I'm waiting for a major browser manufacturer, like Firefox, or a smaller one, like Flock, to come bundled with ad blocking software, making it even easier for the non-tech savvy customers to start blocking banners from day one, not just stuffing the pop-up variety. It might not ever happen. It might be that there's too much pressure from advertisers and marketers to keep things status quo. I certainly don't expect Microsoft to be the first to adopt it with IE, for example. But can you imagine what would happen if they did, and the unwashed masses found their default browsers blocked ads out of the box? Euphoria.
Think I'm nuts? Look at what's happening out there. While many Web 2.0 companies are making ads their sole revenue target, eschewing subscriptions or chargeable paywalls, see all the news about how the ad-driven economy is showing cracks.
Center Networks: I Want My Slice of the Pie: A Look at Startups and Ad Spending
"We have thousands of sites competing for a piece of the advertising pie today… the problem is, innovation is outpacing ad spending at this point".
Read/Write Web: There's No Money In The Long Tail of the Blogosphere
"Whatever monetization means the blogger in the long tail settled on, be it Google AdSense or Amazon affiliate codes, it can only work on large volumes of traffic. AdSense works for Google because the odds are in its favor - it is aggregating small amounts of traffic across the entire web. The math works for them because it is based on the massive scale of the web. It similarly works reasonably well for the sites with large amounts of traffic, but it fails for smaller publishers who have low visitor counts."
Mashable: 15 Reasons Facebook Isn’t Worth $15 Billion
"Research firm eMarketer projects that by 2011, ad spending in the United States on social networks will reach only $2.5 billion. While I personally believe that most projections from research firms are BS, it’s worth noting that most of the time, these projections actually exceed the numbers that are realized."
Silicon Valley Watcher: Reasons Why Media and Bloggers Should Not Run Google AdSense
"Running Google AdSense will return pennies per click, you cannot make a living off of AdSense. But by running AdSense you are undermining your own efforts to charge a meaningful amount for online advertising. By running Google AdSense you have to accept the pricing of the advertising as determined by Google's AdWords advertising network."
eMarketer: Online Ad Spend to Hit $42 Billion by 2011
"While the current total media ad spending forecasts reflect economic anxiety, a downturn will affect online ad spending... (and) because of the credit crunch and related economic fallout, Internet ad spending will not increase as much in 2007 and 2008 as analysts previously expected"
As a consumer, I recognize Web properties and media need revenue. I'm willing to pay for access in many cases. I don't always assume things are free. But if you're running ads, it's very likely I'm not seeing them, and neither are a lot of people I know. The question is, will there be enough of us and enough innovative tools built to avoid ads that the big giants like Google, who to date has lived almost exclusively through ads, without monetizing its other products, start to have serious revenue trouble? And if they do, how far does that domino effect go? If I were running an ad-driven startup or media company, that question would be keeping me up at night.