Will the Internet and increasingly intelligent users mean the end of advertising?

Frederic Filloux has a very interesting post in the Washington Post that posits the theory that advertisers have become proud and pompous and are failing to innovate.

Here’s a snippet which captures part of what he’s saying –

Is advertising the next casualty of the ongoing digital tsunami? 

… excessive confidence in one’s body’s past performance, mixed with a state of permanent denial and a deep sense of superiority, all aided by a complacent environment.

The digital graveyard is filled with the carcasses of utterly confident people who all shared this sense of invincibility. The music industry and, to some extent, the news business built large mausoleums for themselves. Today, the advertising industry is working on its own funeral monument.

Advertising needs to innovate?

Not sure whether Mr. Filloux means that advertising needs to get more persuasive and manipulative or whether he misses that part of the equation completely.

It’s a beautiful post – However, it puts too much faith in the ability of advertisers to continue to innovate and too little faith in the ability of customers to get smarter at a rate faster than advertisers.

Most importantly, Mr. Filloux is discounting some very smart and deceptive companies that are becoming the new advertisers and are replacing advertising with manipulation of a higher order. Perhaps the industry has already innovated and the stragglers just don’t realize it.

This post will look at three trends –

  1. The fall of traditional advertising. 
  2. The rise of customer intelligence and awareness.
  3. The rise of what will attempt to replace advertising. 

A little on advertising and it’s ongoing decline

Advertising is communication intended to persuade. You could argue that all communication intends to persuade – However, for now let’s focus on advertising.

Advertisers are basically talking to you and me and putting the notion into our heads that purchasing their product or service will improve our lives in some way. It’s gotten to the point that they aren’t just advertising the benefits of their product – they’re creating a void in our minds and filling that void with their product.

Advertising is based on advertisers being smarter than customers

At a fundamental level advertising requires that the user be one of two things –

  1. Really in need of the product and not have realized it. 
  2. Not in need of the product and open to suggestion. The latter being an opening advertisers can wiggle into and use to convince users they fall into the first category.

As advertising became stronger and stronger more and more people fell into the second category. This was really helped by the rise of TV – in fact the growth of the ‘consumer’ mindset can be linked directly to the rise of TV.

Video not only killed the radio star it killed the intelligent customer. TV was such a huge leap in advertising’s influence and impact that for decades users were simply overwhelmed. Plus they had no idea of the type of psychological manipulation that was being done to them.  

The Internet and How it killed the power of Advertising

The first reason the Internet began to kill Advertising is that there was just too much of it and it was shown to be weak and annoying –

  1. As opposed to TV where the user was mostly captive (unless they changed channels) on the Internet you couldn’t really take up the whole screen or all of the users’ attention. 
  2. Advertising was very poor and weak compared to the high quality and highly influential advertising on TV.
  3. To make things worse these was too much of it and most of it in annoying forms. With the complete lack of supervision there came an unregulated stream of advertising – flashing ads, banner ads, low quality ads that were hardly convincing, obviously unethical ads, and so forth.
  4. The other thing weakening advertising was that we had people unhindered by the need to make profits putting up pages and forgoing advertising. Not only could users see that ads were annoying they could also see that ads were unnecessary.
  5. Finally, ads were rarely entertaining or powerful – which meant it became very easy for users to disregard them completely.

Basically, advertising went from ‘something that is necessary to pay for content’ to ‘something that is optional and something annoying, evil people tend to indulge in’. In parallel adverts went from the polished, powerful influencers on TV to the annoying, appallingly bad banner ads on the Internet.

Hand in hand with this came about a far more important change.

The Internet makes customers more intelligent and better informed

The first part of Advertising is very effective advertising – which the Internet’s paradoxical duality of ‘sites with too many ads, sites with no ads’ began to kill. The second part is naive users who believe most of what they see and are easily convinced.

Well, the Internet totally blew away the ignorance that most users used to live in. Consider buying a car –

  1. You can go on a forum and find out what prices people paid – the best and the worst.
  2. You can go to a site like Edmunds.com and figure out MSRP, the dealer’s price, the bonuses dealers get for hitting sales targets, the total cost of ownership, and exactly how much profit the dealer stands to make.  
  3. You can search and find out what the market is really like, what the prices are in different states, and the price as a function of the time of year.

Suddenly you know a lot more about the dealer and their profit margins than the dealer knows about you and your finances and desires. It evens up the playing field a little bit given that the car dealer does this negotiating for a living (10-30 times a day) and you do it 3-10 times in your entire life.

The rise of infinite competition and the resultant penalty for dishonesty

Hand in hand with the rise of customer intelligence is the rise of infinite competition. The dealer in your home town now suddenly has to compete with –

  1. The dealers in the neighbouring towns. 
  2. National chains and online sites selling cars. 
  3. Users like you who are selling their used cars.

The competition is dangerous and constantly increasing.

Not only is it harder to fool customers they also have other options – some of which (other users, etc.) are not in the business of misleading customers.

Misleading Advertising (you could argue it always is) has gone from being a benefit to a liability. If a company advertises a false claim not only will users be smart enough to figure it out they will probably also be told about it by competitors and other users.

Suddenly, false advertising goes from being an asset to being a major liability.

The Two Strategies that companies will use to replace Advertising

Fundamentally, you can make money in two ways –

  1. Give people what they desire and get what you desire – a win-win strategy. 
  2. Fool people into giving you their money for nothing (or more money than is fair).

Well, we are going to see the same thing –

  1. We will have super-ethical companies that always work for customers. Companies that create win-win situations.  
  2. We will have super-unethical companies that use things more advanced than advertising to trick customers.

Let’s consider a few examples.

Companies that are creating win-win situations

Here are a few examples –

  1. Walmart and Amazon. They are constantly cutting prices and making things better for customers.  
  2. Companies like Zappos that focus on customer experience.
  3. The whole microfinance revolution is another good example.  

You could argue that even they are doing it only for profits. That’s fine though – As long as the customer also wins.

In some ways it is the smartest strategy – they are building strengths that are not illusory. They are ensuring that the user wins by choosing them and in a world with smart, informed customers that’s a winning strategy.

Companies that are using very advanced forms of manipulation

The fundamental thing here is the creation of debt which customers are unaware they will have to pay back later. Two easy examples stem from Facebook’s ecosystem –

  1. Facebook is promising a service that’s free and also promising to preserve privacy. What they are actually doing is trying to covertly sell user information and also build up databases of user intent. These databases of user intent can be used to advertise to users more effectively i.e. manipulate them into buying things they don’t really need or want.
  2. Zynga are using advanced psychological tricks to get users hooked on to their games and are then getting them to buy virtual goods.

At one level this is pretty impressive –

  1. Advertising has moved from selling people on goods they might or might not need to selling them virtual goods they almost certainly don’t need.  
  2. Facebook is getting all this user information and routing it to customers without customers even realizing (until now).
  3. It’s done very gradually and discretely. Most people don’t even realize that something is happening.

At the same time this goes a level beyond advertising in terms of evil. At least with ads and TV supported by Ads you knew what you were getting into. Now we have the promise of ‘free’ to customers while in reality databases of customer information and customer intent are being built that will eventually allow advertisers ridiculous levels of insight into users’ desires and psyches.

The Four Types of evolved advertising/manipulation that might work

There are basically four types of advertising that are going to work very well in the future (there may be others) –

  1. The ‘very smart and also very stupid’ advertising strategy i.e. Facebook and Zynga. Here users are promised ‘free’ and trapped into spending in ways they don’t fully understand – their data being sold, them being psychologically trapped. It is, however, a free market and users willing to be exploited in this manner will continue to be exploited. There is also a very strong ‘we can get things for free without paying for them’ attitude prevalent on the Internet so perhaps it’s not as manipulative as we fear.  
  2. The indoctrination strategy i.e. associate the brand with the person’s identity or something they really, really want as part of their identity. In a way you could say this is the top 5% of advertising where everything goes right – You identify a need, perfectly fit the need to your product, and constantly maintain the illusion that your product is fulfilling the need. If done right then in the customer’s mind there is literally no difference – if you look carefully you’ll notice the holes. However, to the user and to people who don’t look carefully it will literally seem as if the product does everything it promises.
  3. The ‘build up a store of reciprocation’ strategy. This is where you do things for users – offer them benefits, offer them free services, and do lots of other things. This first part is what a lot of Internet start-ups are doing. If the intent is to create a win-win situation then this is fine. However, for some companies the aim is to get the user hooked and ‘grateful’ to the company and thus make it easier to exploit the user down the line.
  4. The ‘Get users invested’ strategy. This is where you get the users involved so deeply into the product (or the creation of the product) that they almost don’t have a choice. By investment we don’t mean passive participation like watching a banner ad or even clicking on something. We mean active participation – helping create the product or some aspect of it.  

We will gradually see these replace traditional advertising and then we will see users become smarter and understand the dangers and perhaps a new set of advertising/manipulation strategies will rise. It’s a never-ending cycle – advertising/manipulation Vs customer intelligence/awareness.

Note that at every level we do leave behind some users. For example, some users are always going to be susceptible to TV ads and other users are always going to be susceptible to promises of free. There will also be users who don’t care or are OK with what advertising is. 

However, the great thing is that the Internet lets users who want to free themselves of manipulation free themselves. It’s a combination of actually ethical companies and other users that combine to make this happen. This is the real reason that traditional advertising is dying – customers are just too intelligent now.

It’s amazing to see newer and newer unethical strategies emerge and it’s quite amusing that most of the really effective new forms of manipulation consciously put so much effort into seeming altruistic and benevolent.

On the efficacy of online advertising, or lack thereof

Ars Technica got all sentimental today and started talking about having families to feed. They were basically complaining about how some readers were using ad blockers and blocking out all Ars Technica advertisements thereby causing Ars Technica to lose revenue.

A lot of people have a lot of opinions on this – not surprising since a lot of people are still under the illusion that online advertising works. What was actually surprising is that a decent number of people have figured out that advertising doesn’t really work and they laid out their arguments.

Advertising is Broken

Inforift at Posterous wrote a good post and pointed this out –

But here’s the problem with the discussion: advertising is broken anyway!  It’s a mechanism that provides no value to anybody, be it Ars, the reader or the advertisers.  What if Brian and everyone like him capitulated and turned off the ad blocker?  He’d just turn on the same ad-blocker that I use – the one between my eyes and my brain.  I never click on ads.  Ever.  Ever.  Ever.

The intermediate result is that Ars would get paid – but not for long.  The end result is that advertisers will find ads not worth the cost and either take them away or ask for a reduced price …

The key part here is that users are getting trained to block out all advertising, are starting to really dislike it, and are becoming aware of how manipulative and evil it is.

Why do companies think users are still the naive users of half a century ago?

When TV first came out people had no idea of the impact advertising could have and it was a massacre – Advertising turned people into consumption machines. The Internet is rolling all of that back.

  1. With TV and print a 15 year old kid sees Marlboro Man smoking a cigarette and decides he wants to be cool like him – So he starts smoking cigarettes.
  2. Now, with the Internet, someone leaves a comment that Marlboro Man died of lung cancer and someone else adds a comment talking about how painful throat cancer is. Suddenly smoking isn’t as appealing to that 15 year old kid.

The Internet makes a lot of users smart and smart users can’t be fooled easily. That means advertising isn’t as effective. As people get smarter they realize that it’s best to completely ignore ads – tune them out, use ad-blockers, go to sites that don’t have ads.

Companies don’t want a world of thinking, intelligent people – they just want mindless consumers and that might be why it’s hard for companies to accept that advertising is less effective now. They desperately want to be in the heydays of advertising when you could pay a few stars to smoke and run a few ads and get 15 to 19 year olds hooked.

Advertising can’t be fixed

At its core Advertising revolves around two concepts –

  1. Create a need or highlight an existing need. 
  2. Link your product with the fulfillment of the need.

Most of the time the need isn’t good for the user and the product that’s supposed to fulfill the need doesn’t really help at all. That means advertising is fundamentally dishonest.

As awareness of the impact and nature of advertising spreads people are beginning to realize what advertising is really about.

Users are beginning to see through advertising

Wikipedia says $150 billion was spent on advertising in the US in 2007. It also has a good definition –

Advertising is a form of communication intended to persuade its viewers, readers or listeners to take some action. It usually includes the name of a product or service and how that product or service could benefit the consumer, to persuade potential customers to purchase or to consume that particular brand …

Commercial advertisers often seek to generate increased consumption of their products or services through branding, which involves the repetition of an image or product name in an effort to associate related qualities with the brand in the minds of consumers.

With the Internet and the spread of advanced communication technologies like Skype you have people getting smarter and making each other smarter. It’s easy for people to tell when someone is ethical and when someone is just trying to manipulate them and they don’t take kindly to the latter.

Advertising works best with naive and stupid people. Smart people shun advertising – they loathe the companies that are trying to manipulate them. People want ad blockers because they don’t want to be manipulated. Any website asking their readers to not use ad blockers is doing them a disservice.

The straightforward thing to do would be to ask users to pay for content – if you think your work is good enough (and Ars Technica articles are good enough) then charge for it upfront.

Why not let people buy what they already intend to buy?

There are lots of things Ars Technica’s users would pay for. First, see how many users will pay for the content (the thing that users go to Ars for). After that look at other options – Why not add a price comparison feature or a coupon request service or a tech deals section and make money off of that?

Whether or not the other revenue streams work Ars Technica need to let their users block out ads if that’s what users want. In fact they should remove all advertising if most of their users dislike it. It’s sad to see a top-notch blog like Ars Technica get so confused on something so simple.

Isn’t making users happy the whole point? Shouldn’t Ars Technica be glad their readers are smart enough to bypass annoying, manipulative ads?

Reading Devices, Content and Poor Carpenters blaming their tools

It’s rare to find anyone taking newspapers to task over the fact that they always blame extrinsic factors, their tools, and never admit any responsibility for the ongoing struggles of the newspaper business.

This post will do exactly that – with a focus on how newspapers are mistreating eReaders and Content.

Newspapers tend to blame their tools

For a long time newspapers (and magazines) grumbled about eReaders –

  1. They had no color and no video.
  2. The business model was terrible as part of revenue went to bandwidth and Amazon – allegedly leaving only 40-50% for newspapers.
  3. People weren’t paying as much for high quality content as they should.

Then we got the iPad with color, video, and a 70% cut for newspapers.

Guess What? Newspapers still aren’t happy and still think the arrangement and prices aren’t good enough.

Newspapers always find a way to blame extrinsic factors

Newspapers seem to live by the creed of ‘It’s not me, it’s you’.

They are creating top-notch content, they are serving customers excellently, they’re running the most efficient businesses around, and they’re perfect.

It’s the fault of the Internet and Amazon and Apple and readers and blogs and other sites that newspapers are struggling.

Consider an example –

Newspapers got greedy and tried to entice people in via free content and then sell them to advertisers.

Keep in mind that it wasn’t about making things easier or better for customers since they didn’t focus on additional services for paying subscribers.

Unfortunately, newspapers got taken to the cleaners by aggregators and other Internet companies that understood how to really work with the Internet.

How did newspapers react – Did they work on figuring out the Internet better? Did they try intelligent new models?

No. They are still blaming others and the New York Times keeps drumming up their paid content plan in 2011. One year on the Internet is the shift from MySpace to Facebook and NY Times thinks it’s doing a huge step by implementing a paid content wall one year in the future.

No matter what happens newspapers find something external to blame.

Newspapers don’t see content as their calling card and eReaders as their allies

In addition to blaming extrinsic factors newspapers are making two additional critical mistakes –

  1. They are viewing customers as their product instead of content. They want to sell readers to advertisers instead of selling content to readers. 
  2. They see channels of good intent (iPad, iPhone, Kindle) as their enemies and not as allies.

Newspapers produce content, not cattle for advertisers

Consider the focus newspapers have had –

  1. We want to get lots of readers in the door and then sell them advertising.
  2. We want to get customer information so we can develop marketing plans and sell that information to advertisers.
  3. We want to give away content free and entice readers who we then monetize.

Were newspapers producing high quality content for readers to buy or were they providing trusting subscribers to advertisers?

Not only was newspapers’ approach morally dubious it was also strategically myopic –

  1. They had no expertise with the Internet.
  2. The real money-making point is before reaching the content – not after getting to the content page. 
  3. Newspapers had little expertise in advertising online.
  4. Their brand and trust was gradually transferred to aggregators and other sites.
  5. They didn’t invest enough in quality content.

Newspapers thought they could fool people into clicking on advertisements and instead they got fooled into devaluing their content and making other companies rich.

Newspapers are attacking their only allies – channels of good intent

On the Internet readers expect free and almost never pay for subscriptions. Yet, newspapers continue to give away their content for free online – searching for an El Dorado of advertising revenue that hasn’t materialized in 10 years.

On the Kindle and iPhone (and soon on the iPad) readers are willing to pay $10 to $15 a month. Yet newspapers want to exploit those good customers by pushing for higher prices, lesser features, and poor service.

What would a smart company do when choosing between a $10 a month channel with little piracy and a free channel with loads of piracy?

Pick the former and close out the latter.

What are newspapers doing?

They are sabotaging the good channels – Instead of turning the Kindle and iPhone into channels will millions of paying subscribers they want to limit them and strengthen the Internet which is a channels of tens of millions of non-paying non-customers.

Newspapers ought to be written for users, read by users, and bought by users

Advertising based newspapers cannot work

We’re no longer in a world where people are gullible and you can sell them to advertisers.

The only companies succeeding with ads are search engines and they don’t really run ads. ‘Well targeted, relevant ads’ are code for ‘Taking users where they already wanted to go’.

That’s why you never have ads for tractors when someone searches for shoes. That would be advertising and that would not work.

The only people actually clicking on ads are the ones that don’t realize they’re clicking ads. Everyone else is clicking text ads that don’t look like ads and aren’t really ads – they’re shortcuts to where users already want to go.

Newspapers need to go back to their original purpose

Newspapers started off as news and analysis written for, read by, and bought by users.

Somewhere along the way they turned into elaborate, hidden advertisement machines. Instead of trying to find great content for readers they started focusing on creating great consumers for advertisers and companies.

All we hear from newspapers is how they would like things to be, how bad things are for them, and what helps them.

Customers have become a secondary concern. Is it any wonder that customers are turning away from newspapers?

Newspapers should consider selling content

Newspapers are all excited about Skiff because it allows for ads.

Think about the ridiculousness of that –

  1. Advertisement supported newspaper sites haven’t worked online.
  2. The Kindle and iPhone have customers gladly paying for content.

Yet, newspapers want to focus on eReader devices that allow ‘rich advertising’.

No user wants ‘rich advertising’ – newspapers have become so delusional that they’ve forgotten users want quality content and nothing else.

Newspapers’ core competency is supposed to be content. Yet they want to try everything possible to devalue it and give it away while they try to sell ads – something that they quite frankly suck at. Most importantly – it’s something that doesn’t help their customers.

Why don’t newspapers just focus on creating and selling high quality content?