Why Advertising is Failing on the Internet

Posted on September 15, 2009

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Monetizing the intangible? Perhaps, but the pressing question that is shared by both social media executives and users alike is simply this – who is footing the bill?

While I am joined by Blog Talk Radio’s Director of Programming, Philip Recchia to answer this question on tomorrow’s PI Window on Business Show (12:30 to 1:30 PM EDT), I thought that I would share with you an interesting exchange that I just had with a reader.

Here is the exchange in its entirety.  I of course both encourage and welcome your comments.

Jon Hansen:  Referencing the December 2008 article in which Twitter CEO Evan Williams was taking some heat due to the belief by many that the company is taking too long “to turn on its revenue generating engines,” the majority of social media executives are attempting to develop and introduce a sustainable revenue model.

This is an endeavor that is easier said than done, as new media entrepreneurs find themselves straddling the fence between the need to pay the bills, and the indigenous believe on the part of social media’s denizens that the need to justify ongoing existence through a tangible revenue model is the antithesis of their “social” world.

Toby M:  Good morning Jon,

Do you have any more data you can share regarding the title of your post? With regard to laser targeting or casting a wide net, the Internet is a most fantastic delivery vehicle.

Social media has brought the control back to the consumer and I believe here is where the failing happens.  Content and trust are everything and when some companies use a “spam” method rather than something tailored and targeted, they lose.

Great topic!  Look forward to your response – I hope I am on target.

Cheers,
Toby

Jon Hansen:  I think you are right on target in several ways Toby, and I would like to invite you to tune into to tomorrow’s interview with Blog Talk Radio’s Philip Recchia, as we will be continuing the discussion on viable social media revenue models that started last Thursday in my interview with bestselling author Shel Israel (Twitterville).

What is interesting is that traditional forms of advertising and the mediums that rely on them are in trouble. I cite as just one example a July 22nd lecture given by J. William Grimes – a 45 year media veteran.

Referencing industry studies, Grimes indicated that daily newspapers will no longer be published within the next 5 years. Here are the numbers to which Grimes had referred;

In the most recent year newspapers had a 15% share of the total $37 billion spent on advertising in the US – which was down from 25% a decade ago.

Newspapers however only have 5% of the eyes and ears of the public, to which Grimes stated his belief that the decline in advertising stake and declining readership adds up to what is an untenable model.

Combined with the fact that newspapers such as The New York Times are just breaking even today, his prediction of a further decline in the industry’s share of advertising revenue to just 10% within 5 years means that the majority will become insolvent under the traditional model.  (Note: in the Israel interview, Shel relates the experience he had addressing a largely traditional media audience making similar predictions not that long ago.  Afterward he was approached by a senior editor from a Denver paper who chastised him for his lack of understanding and vision. Shel needless to say is still here and considered to be one of the foremost authorities on social media.  The woman’s newspaper . . . it is no longer in business.)

My point regarding the above data is that traditional “broadcast” advertising does not work in the realms of the social media world.  The relational or what I call conversational marketing model which is geared towards a meaningful and personal connection with individuals within a market versus “yelling out” to a market of nameless individuals is the new model.

It is within the context of the latter that “Advertising” fails on the Internet.

Note: Here is the On-Demand Player for tomorrow’s broadcast:

Vodpod videos no longer available.