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Advertising in an Infinite Space and the Problem of Digital Ads as Income

March 12, 2014

When we started I was looking at ads as a possible route to generate income. Big freemium companies were paying good money for installs of thier games. However for us that road didn’t really work out for us. Either the juxtaposition of an ad for some cute Candy Crush type title would jar next to Endgame:Syria or the volumes you needed to make the income worked against the aesthetic of making games with political content. Within our games we swapped to only ads for our own content and moved back towards paid content.

Since then the ebb and flow of advertising has become something of an interest to me. Aligned with our decision to drop ads in our games, I read with interest a post by the What’s App people, in a post entitled ‘Why We Don’t Sell Ads‘:

No one wakes up excited to see more advertising, no one goes to sleep thinking about the ads they’ll see tomorrow. We know people go to sleep excited about who they chatted with that day (and disappointed about who they didn’t). We want WhatsApp to be the product that keeps you awake… and that you reach for in the morning. No one jumps up from a nap and runs to see an advertisement.

(Now they’ve been purchased by Facebook – an ad selling behemoth, it will be interesting to see how this ethos, if it does, changes?)

So it was with great interest that I read this article entitled ‘Profits of Doom‘ looking at the ad income of the Daily Mail group. It is a fascinating read:

In the same report DMGT also reported that their print advertising was down 2%, bringing in only £53million this year. This figure was kind of brushed over in favour of talk of website growth – played down almost – but it’s worth a quick look.

£53 million is £12 million more in ad revenue than the website generates. Yes, the website’s growth has been impressive – it has become the biggest newspaper website in the world – but it’s actually pulling in much less cash [£41 million] than its dead-tree equivalent.

The Daily Mail’s circulation is 1.6 million [online is 160 million unique users a month], about 1% of its apparent online audience. So the ad space they’re selling online is actually, relatively, worthless and it appears to be their only major stream of revenue.

Let me repeat that: 1.6 million newspapers brings them £53 million – £33 per paper sold – yet online brings less at £41 million for many more hits, 160 million but generates only £0.25 per hit. That’s income not profit. Not good numbers at all.

So why do so many digital-eye balls generate so little ad space? There are many reasons but this quote from the article caught my eye:

For every new page impression mailonline gains, the site will spawn roughly five new advertising slots. So the more popular the site becomes, the more available ad space they have to fill. As laws of supply and demand dictate, a surplus of advertising space means that its value drops. Ad agencies have taken advantage of this to drive down the price of the display inventory by trading it through an exchange, so its actual value sits closer to one pound per thousand views. A long, long way off anyone’s ratecard. This problem isn’t exclusively the Mail’s – this is happening all over the internet – but if the page impression isn’t an entirely debased currency as yet, we are wading about in the wheelbarrows-of-cash-for-a-loaf-of-bread stage of hyperinflation. The people who are driving the problem are the link-baiters and page-views chasers (i.e. the Daily Mail). The people who stand to lose the most from it are the people who have built their entire business model on it (i.e. the Daily Mail).

In the digital space, ads are selling into a virtual space where there is almost no limit on the amount of ad space there is. As new digital spaces open up from Twitter, Faceboo, mobile etc – they all do so with swathes of ad space. Making ads in games and apps with over 300 per day released on iOS alone is just compounding the problem.

Add to that the issue that in the digital space, consumers are more empowered to act against ads they don’t like in a way they can’t so easily in the real world. Hence we see a plethora of pop-up and ad blockers.

There is no way ads are going to go away, but there seems little probability they are going to help save the media industry or to make gaming more money that the other business models…

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