Internet advertising: this time it’s personal
Advertising buyers have much in common with investors. The opportunities on which they deploy their budgets yield uncertain returns. Occasionally, they are forced to explain embarrassing mishaps to their bosses. In the past week some clients froze spending with YouTube, prompting Google to apologise for placing their content next to extremist videos.
Metrics attract advertising spend, just as quantitative analysis lends legitimacy in the financial world. Both allow managers to justify decisions. But they do not guarantee decisions are good. Where investors beat advertisers is in easy access to data on returns.
Facebook and Google aim to optimise click-through-ratios — the percentage of clicks to viewers of an ad — because each click generates revenues for them. Video, as reflected in Facebook’s recent push, generates lots of clicks. Google’s recent 22 per cent year-on-year revenue increase was in part thanks to subsidiary YouTube.
Audiences targeted according to search history or user profiles can reach several clicks per hundred views, against fewer than one per thousand for generic online ads. Auctions bid up the price paid per click.
Facebook and Google are expected to attract 60 per cent of all digital ad spending this year, says eMarketer. Facebook’s ad revenue per user grew a quarter in each of the five years to 2016, faster than the 17 per cent per year increase in monthly average users.
Fake traffic and extremist videos will do little to deter advertisers. Google’s Europe chief said damage from recent controversies amounted to pennies not pounds. What concerns advertisers more is the age-old difficulty of measuring their return on advertising spend. To calculate this, Silicon Valley would like greater access to consumers’ payment flows. Linking purchase data to ad views could trigger the next quantum leap in tech group profits. Given privacy concerns, the move could also inspire the next outburst of hostility toward Silicon Valley.