Thursday, November 12, 2009

Is social advertising a house of cards?

Chris Lee, the owner of Heritage Quest and a former colleague of mine at, passed along an interesting read this morning, and article entitled "The Digital Economy's Coming Subprime Crisis (And What You Can Learn From It)," a Harvard Business School article written by Umair Haque.

Interestingly, the article's URL is facebooks_scam_ads_and_the_loo. This is an ongoing issue that Facebook has been addressing with partners but hasn't taken head on itself. Here's a quick example: Facebook suspended dozens of applications a couple months ago because of noncompliance with the company's new advertising terms and conditions. A new application quickly appeared showing where Facebook itself was still serving and profiting from these same ads that they had used as justification for suspending the applications of their "development partners."

As someone who lived through the .com bomb, I see several of the same symptoms today that were prevalent then when advertising rapidly declined. I love this article from an economic perspective, but the evidence is also easy to see when buying and selling advertising:
  1. New ad networks are constantly popping up (how many can be supported by the economy?)
  2. New "models" provide no incremental value but are simply created to get ads in front of consumers. Anyone remember in 2000 or in 1999?
  3. Some ads are pervasive across the internet. Can anyone really be making a profit with ads that are presented millions of times per day to a broad swath of consumers? Maybe for a few weeks . . . but the diminishing returns will certainly turn to losses very quickly.
  4. Finally, there is the problem of an investment-funded economy. Companies that have received investment often use that money to prop up metrics that don't equate to revenue, such as registration or visitor numbers. An economy that is not based on real value exchange will always decline.
Great read. It also ties in nicely with what I wrote about a couple weeks ago on Competing in a Down Economy.

For those who are trying to market your site or products in the current online environment, I'd love to get your thoughts on this.

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