I've grown weary of sponsored links littering the web but I thought that advertising had earned a permanent home on the Internet. Or has it?Wharton Professor Eric Clemons made a controversial claim recently: that Internet advertising will ultimately fail. His article elicited a strong response and even a full rebuttal from Danny Sullivan.
Regardless of where one stands in the debate, Clemons makes three excellent points about advertising in general:
First he realizes that "consumers do not need advertising." Consumers spend time researching products and then making purchasing decisions based on recommendations and reviews. His observation affirms the common assertion that product excellence is the best form of advertising.
Second he argues that "Consumers do not trust advertising". Common sense kicks in: one cannot trust a company as a source of information on its own products and services because a company is inherently biased in favor of its own products! Recommendations from friends or trusted reviewers have more impact. I'm amazed that social networks have not yet found a way to profit from friend to friend recommendations and the resulting commerce.
Third, he notes that "Alternative models for monetization are available". That is a refreshing statement: advertising is a lazy man's revenue stream and a cliched business model. The Internet must not rely on a single revenue stream and I would love to see more variety in how start-ups attain profitability.
1 comment:
But advertising is also a way for firms to signal to buyers that their product is worth buying. This is particularly true if it's for a product that is purchased multiple times, like cereal.
If a company is willing to spend millions advertising cereal, it truly believes that the product will be worth a try. It's their way of saying to the consumer: hey, dont bother researching, we already did all that, come try it and you'll be convinced.
This works better with iterative purchases like cereal than it does with large, infrequent purchases (like a car), but I think it's actually worth considering the merits of advertising as a signal.
Given all that, internet advertising is so cheap that this principle may break down - unless the ad space is as expensive as shelf space in a physical store.
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