The Fallacy of Internet Ad Spending Growth

Posted by: Rob Hof on October 12, 2007

If there’s one thing I hear almost as often among Web companies than “It’s different this time” and “Our product is really viral,” it’s something like what I read once again today in this Reuters story:

Jeff Brooks, Chief Executive of digital and direct marketing agency Euro RSCG 4D, sees a “huge gap” between the amount of time people spend on digital media and the amount of advertising money it attracts.

And I always think: So what? What people do online is different from what they do in the “real” world. Advertising online is different from advertising in other media. Why should there be a one-to-one connection between the amount of time people spend somewhere and the amount of advertising they get pelted with? It seems to me that people online generally are more actively engaged in doing things and probably have less inclination to view ads, even more targeted ones. Advertisers instinctively know this. So I wonder if ad spending will ever catch up to the amount of time spent online.

It kind of reminds me of the oft-cited stat in the mid-’90s that Internet traffic was doubling every 100 days when in fact that was the case only for a brief period of time, prompting a hugely excessive buildout of telecom capacity by Worldcom and others. I don’t think this assumption on ads is nearly as egregious, since there’s clearly enormous opportunity for ad dollars to move online. It just seems like a lot of startups, and others, are making an unrealistic assumption for just how much ad money will move online, at least in any kind of form we recognize today as advertising. Am I missing something here?

(PaidContent.org looks at a different angle in the Reuters story, but Steve Rubel also thinks ad-supported startups face more challenges than they may think.)

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Reader Comments

franck perrier

October 14, 2007 03:17 AM

...or that all these start-ups you're refering to just don't know how to capture these revenues and need to keep the hype going so that the VC's keep financing them.

Steve wildstrom

October 16, 2007 08:53 AM

Andrew Odlyzko, then of AT&T Research now at the Unviersity of Minnesota, debunked the Internet growth story in 1998, long before the crash. No one listened. You can read his original paper (PDF) at http://www.dtc.umn.edu/~odlyzko/doc/internet.size.pdf.

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