Just in case you’ve been on a desert island somewhere and didn’t get the memo, the advertising model is dead.
So, find another business model.
Death of the advertising model
It’s not just in digital. The advertising model is dead all over. Think about it for a minute. A 30-second commercial in the Super Bowl topped $4 million this year — an astounding figure. When you add in the costs of talent and other production costs, that single ad might cost a firm double that amount.
But, you might say, “look at the reach you get for a mere $4 million!”
True. The Super Bowl draws an enormous crowd; many of whom are there just to see the new commercials. But, despite a few high-profile successes, the failures of Super Bowl ads to deliver value to advertisers is a legend. For every Budweiser Clydesdale that wins our hearts, you have many Nationwides, GoDaddys, and other outright losers.
And that’s just the Super Bowl — the grandaddy of advertising.
Look how consumer behavior surrounding other TV programming limits the success of the advertising model. Today, watching live TV is passé. Today’s consumers, especially millennials, record their favorite shows and skip the commercials or watch online with limited or no commercials (using services like Netflix or Hulu). And, since 2010, when the post that started this article was published, people found their remotes, and now 96% skip commercials when they can.
In fact, in researching this post, I found a hack allowing you access to a hidden button that makes commercial skipping easier.
The digital advertising model
Everyone is getting into the game.
The advertising model supports social networks, like Facebook and Twitter, and many websites use advertising to support their content.
The problem is, it’s often hard to find the content for all the advertising and consumers are fed up. Take a look at this screenshot from the Washington Post — which isn’t as bad as some sites for advertising clutter:
According to Jared Spool, CEO of User Interface Engineering, speaking at the Modev UX conference last week, the average user is exposed to 1707 banner ads per year — that doesn’t even include these little ads tucked into and around the Washington Post copy.
Nearly 2000 banner ads!
Why so many ads? Because site owners need to make money and see advertising as a viable means to make it.
But, does advertising make money?
For a company like Facebook that offers sponsored posts, it makes money — whether the advertisers see any lift from this advertising is another question.
And the answer is pretty murky. According to Avinash, arguably one of the smartest people out there when it comes to digital metrics, the value of Facebook advertising lies in its ability to build your Facebook audience and beat EdgeRank (which determines how many followers see your posts — a number that’s declined precipitously to encourage ad spending), not drive your Facebook audience to your website or to convert your audience in some way. Now, I agree with Avinash that there’s value in building a Facebook audience and promoting engagement that goes beyond what’s easily translated into ROI, but that’s gonna be a pretty hard sell to your CFO or board who wants an immediate and clear correlation of advertising spend to ROI.
So, let’s take a look at some stats related to digital advertising — from Jared Spool.
- less than .01% of banner ads get clicked — on average .001%
- the most popular ad size — 468X60 (a typical sidebar ad) garners .04% clicks
- 50% of mobile ads are clicked by accident
- you’re 475.29 times more likely to survive a plane crash than click a banner ad — boy that’s damning
Now, don’t get me wrong. You might have a short-term increase in revenue based on advertising, but, in the long run, you won’t get a sustained ROI from an advertising model. Even viral ads don’t deliver enhanced market performance. Take the new KMart ad.
It was genius — funny, on point, viral. Yet, it did nothing for KMart sales, according to Jared Spool. Epic Fail.
4 business models beyond the advertising model
So, what’s a company to do?
Simple. Choose a different business model.
We’ve all been lulled into the notion that advertising is the only model out there. Not only is the advertising model dead, but there are also other, more successful, and less annoying business models out there.
1. Freemium model
Newcomer Ello hopes to unseat Facebook by providing ad free social networks. Ello founders aren’t altruistic, they just recognize that users are feed up with advertising clutter in their social feed and want something where they can interact with their friends without being sold to.
Instead of advertising, Ello offers an advertising-free stream and encourages users to buy little things like stickers and t-shirts. Freemium.
The New York Times implemented a metered paywall — a sort of freemium model. Users can access their great content, but for users who consume the most product, they’re asked to pay for it. After reading a certain number of free articles each month, users are asked to subscribe to view additional articles. According to Jared Spool, this freemium model generates more revenue for the New York Times than their old advertising model.
2. Re-purpose content
You have lots of great, free content on your site. Think about re-purposing that content in the form of books, prints, CDs, and other collections of your content. Sure, folks could still read, see, or listen to your content for free, but many are willing to pay a little extra for the improved utility provided by re-purposing content.
For instance, the Smithsonian has done this for years. They sell prints from their collections and create copies of priceless treasures that you can own for a small price. News outlets sell prints from historic events individually or in collections.
Of course, repurposing content isn’t limited to such tangible products. Live shows re-purpose content and musicians used this model for generations to promote and supplement album sales (something that should be considered in light of copyright issues involved in music sharing — does giving music away for free allow higher profits from live performances and is this an alternative to the reliance of music sales?).
NPR now makes more money by staging performances than it does through pledge drives.
Another alternative is un-bundling products as a means to re-purpose content. iTunes successfully unbundled music so folks could buy individual cuts without having to buy the entire album. What other products can be unbundled to achieve higher revenue than an advertising model provides?
3. Supporting products
Wanna learn how to fix a broken computer or replace the screen on your smartphone?
These tasks require special tools not available at your local Home Depot. Smart entrepreneurs offer free instructions to fix your problem, then offer a bundle of tools necessary to accomplish the repair.
Of course, this model isn’t novel or limited to tools. You can buy kits to create your own craft projects on Etsy or packages containing all the ingredients for a tasty soup from your local grocery store.
4. In-app purchases
We all have apps on our smartphones. We’re addicted to these apps. And, many of us spending a few bucks ($9.99 seems to be the sweet spot), is the norm. Here’s data from a Distimo study of in-app purchasing:
The average [revenue per download] for free apps that offer in-app purchase came in at $0.93 per app, straight forward paid apps came in at $2.25 but taking the prize, paid apps with in-app purchases with an ARP of around $2.40. The average cost of all apps for the iPhone is just $0.99.
Users are so opposed to an advertising model, they purchased millions of downloads of the popular app, Words with Friends, at $4.99 just to avoid the advertising on the free version.
Insights from the reality that the advertising model is dead
- Stop using advertising or at least limit its use. Particularly annoying in the digital age are popups that eliminate your ability to read content until the popup is clicked or exited and sales pages that precede the content. Both dramatically reduce the performance of the pages and cause potential readers to exit without reading your content.
- Link content and advertising rather than using ad services like Ad Sense (Google). When consumers encounter highly targeted ads they’re both more likely to click (and buy) and less likely to find the advertising annoying. Jared Spool calls these “seductive moments”.
- Think outside the box. Don’t limit your thinking to advertising. What other business models might work well for both you and your audience?
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