Lately, I have been thinking about advertising - no, not as a business model for Zoho, advertising and work-oriented software don't mix, in my opinion - but from the point of view as an advertiser ourselves, again not primarily related to Zoho. AdventNet, the parent company of Zoho, uses a variety of marketing channels, ranging from trade shows to search advertising, to popularize our software products. What we have noticed is that the ROI of internet advertising, outside of search, has been dismal and getting worse. I was reminded of this when I read the post by Jason Calacanis on falling advertising rates in social networking sites.
But this trend extends far beyond social networking. As a WSJ Online and NY Times online regular (30 minutes a day), I can safely say that I don't recall any of the ad impressions on those sites in months. No doubt they have always been there, but I just can't recall any. In contrast, I have watched CNN perhaps a total of 1 hour in the last 2 weeks and yet, I can recall at least a couple of ads from CNN. What makes TV advertising so effective is that it is so intrusive. In the other end of the spectrum lies search ads on Google, which has access to the most distilled form of user intent available, making it possible for ads on Google to almost become content.
Where in the spectrum do other forms of internet advertising lie? By their nature, intrusive ads on the internet don't work - the user simply clicks away. Even when the prospect of some form of compelling content forces the user to stay (pre-roll ad on internet video, for example), pretty quickly users figure out they can switch to another browser tab until the ad runs itself out and the content becomes available.
Personalization and micro-targeting are thought to be the answer to this problem, but I am not persuaded. Let me give an example: let's say I list reading & economics as my interests in my profile somewhere that is available to advertisers. Let me be even be more specific and list Austrian School economics. So could a publisher micro-target me to try to sell me a book? Here is the problem they would face: there are a number of specialized blogs that offer outstanding content on these subjects, and I am very likely to hear about books from these sites organically. People who post on these sites (both authors and commenters) are likely to be far more relevant than any computer algorithm could ever be in targeting my interests. So a prospective book publisher in these topics is better off providing real content to these sites to seed user interest than to run banner ads all over the place. In fact, in at least one case, the publisher of such books runs a fairly active content site, and I end up buying the books because I like the content offered in the site.
So here is what is going on in a nutshell: targeted advertising is competing for attention with targeted content, and content would win that contest every time, as long as intrusion is not possible. The only way for targeted advertising to win is to actually become content itself. That explains why Google search ads are so effective: they are a form of content.