Adtech is addicted to volume. It is our industry’s little helper, its golden hammer. It is easy to see why we have grown so dependent on it. In the short run, many adtech problems are more easily addressed not by fixing their respective root causes but by adding more volume.
If you are a publisher facing a revenue shortfall, often the easiest thing to do is to add an extra ad unit here and there. Getting new users is hard and deeply engaging users is even harder. Even if you could do it, you couldn’t do it fast enough to meet your goals this month.
If you are a display network that is not delivering the metrics an advertiser expects, it is easy to throw some “bonus” impressions to get the ROI calculation to come out in a way that still keeps you in the game. Figuring out how to deliver relevant ads at scale is hard. Even if you could do it, you couldn’t do it fast enough to help you with the current campaigns you are running.
If you are an advertiser who can’t find the right audience to engage, it is easy to carpet bomb the masses with your message through cheap remnant inventory. It’s worked in the past. Figuring out how to use the blunt tools adtech provides to precisely target an audience is hard, very hard. Even if you could do it, you couldn’t do it fast enough to save the quarter.
If you are an e-commerce provider who loses too many shoppers, it is easy to chase them halfway around the Net with retargeting ads to get more chances to convert them. Improving your conversion funnel is hard. Even if you could do it, you couldn’t do it fast enough to grow the way investors expect you to.
These are not hypothetical situations. These scenarios are played out thousands of times per week, every week in adtech. They share the same pattern: rather than fixing the root cause of a problem and learning how to get more return (ROI, revenue, etc.) with less volume, as an industry we choose time and time again to try to get more return with more volume. Inevitably, the average quality of an ad goes down.
Like most addictions, adtech’s addiction to volume is based on very real short-term benefits. Total return does go up with volume, sometimes substantially. But, like most addictions, this one has nasty long-term side effects.
In most cases, at the margin, there are diminishing returns to additional volume. That, by itself, shouldn’t stop us all from pushing more volume. After all, if total return goes up and we are profitable at the margin, all’s well. Econ 101 teaches us to push volume up just to the point where the marginal benefit equals the marginal cost, right? Right in theory, wrong in practice. This is one of those cases where theory and practice are not the same. The problem is twofold.
First, there is a natural limit on the total amount of attention consumers can devote to advertising, which has to do with how much content they consume at any one point in time. Other things being equal, adding more volume (supply) with a limit on attention (demand) fundamentally affects pricing. The first symptom of our addiction hit publishers first. They have to work harder every year to make money with declining inventory prices. Finally, there is some growing consensus that the problems caused by more volume are unlikely to be solved by adding more volume.
Second, there is the negative externality of additional advertising volume on consumers, i.e., the disutility of advertising. Understandably, this has been a taboo topic in adtech left for economists to study. Alas, this is also the elephant in the room our industry has to acknowledge in order to grow more profitably. The second symptom of our addiction is market growth with declining profitability. Growth is inevitable because of shifting media consumption patterns from print and TV to online and mobile. Growth, however, does not guarantee profits. The problem is those pesky consumers who dare not love the volumes of low-quality, poorly targeted advertising thrown at them every day. Consumers are going ad blind because with ever-increasing ad volume they are finding the average ad less and less relevant/useful/interesting. This leads not just to less engagement per ad impression now but also in the future, regardless of the ad and its relevance, because users have learned to ignore all ads. Alternatively, users express their disinterest and displeasure by taking action, which explains the increased popularity of ad blockers. Talk about shooting ourselves in our collective appendage. (If this argument doesn’t make sense, a behavioral psychology refresher may help.)
The combination of these two factors creates a vicious cycle where substantial increases in advertising volume, without corresponding substantial increases in consumer attention towards ads—a function of media consumption patterns, ad quality, ad targeting, placement, etc.—leave everyone worse off in the long run: publishers, intermediaries, advertisers and consumers. The total size of the market may go up but it will be harder and harder to achieve profitable growth. This is the true cost of the volume addiction.
Do we need to bottom out before we can rehab or can we fight our addiction? Maybe it’s time to stop going for the quick volume fix and start solving some hard problems, for example, creating scalable, programmatic advertising experiences that consumers actually enjoy paying attention to even if it won’t help our metrics this quarter. At Swoop, we’re looking to do that with search. Maybe we can be inspired by the success of the search advertising marketplaces that, by nature of requiring a high-quality keyword match, have always operated in a volume-constrained and quality-conscious manner and are doing enviably well.
Simeon Simeonov is founder of Swoop, which extends search advertising to content, and Ghostery, which provides digital transparency. A lifetime ago he gave up a Stanford PhD fellowship in Economics to join his first startup. Sim tweets @simeons and blogs at blog.simeonov.com.
