The Startling Thing the CEO of Restoration Hardware Said about Online Ad Spending

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“We’ve found out that 98% of our business was coming from 22 words.”

By Tyler Durden, Zero Hedge:

Category 1 storm clouds are gathering over what has traditionally been one of the most lucrative, and perhaps only profitable, sectors to come out of Silicon Valley in decades: online advertising.

Two months ago, it was P&G which fired the first shot across the “adtech” bow when not long after it announced it was slashing its digital ad spending because it thought it was not getting the kind of return on investment it desired, it made a striking discovery: “We didn’t see a reduction in the growth rate.” CFO Jon Moeller said “What that tells me is that that spending that we cut was largely ineffective.”

Speaking to the WSJ, P&G CEO David Taylor echoed Moeller when he explained that cuts on digital ads are part of a larger strategy to more quickly halt spending on things – from ad campaigns to product development programs – that aren’t working: “we got some data that said either it was in a bad place or it was not effective,” Taylor said of the digital cuts. “And we shut it down and said, ‘We’re not going to follow a formula of how much you spend or share of voice. We want every dollar to add value for the consumer or add value for our stakeholders.”

Previously P&G’s CFO had said that “the reduction in marketing that occurred was almost all in the digital space. And what it reflected was a choice to cut spending from a digital standpoint where it was ineffective: where either we were serving bots as opposed to human beings, or where the placement of ads was not facilitating the equity of our brands.”

Moeller also touched on the two most common complaints about digital advertising scams: advertisers are paying for ads that are viewed and clicked on by bots, not humans; and ads are placed by thousands of automated “ad exchanges” that are out of control of the advertiser on sites and pages that don’t match the advertiser’s products.

Commenting on this, in late July, Wolf Richter summarized the state of affairs as follows:

Marketing executives of other companies too have long railed against the murkiness of digital advertising, the false promises, the intractability of the Internet, the clicks and views by bots on which advertisers are wasting their money, and the billions of dollars that get blown without results. But getting a grip on what works and what doesn’t is hard.

There’s a larger issue: Retail spending (not adjusted for inflation) has grown on average 2.4% per year in the US over the past five years. Over the same period, digital advertising nearly doubled to $72.5 billion in 2016. Clearly, even digital advertising – despite the lure of Facebook and the like – cannot induce consumers overall to spend more and increase the size of the overall pie for advertisers. It can only, at best, divide up the pie differently.

And when one of the most sophisticated high-tech advertisers in the world decides it is overspending on digital advertising and is able to very carefully remove the rot, thus bringing down its cost without hurting its revenues, other companies will follow, with some consequences for the relentless but often ineffective surge of digital advertising dollars.

Of course, the implications to this admission that online advertising was either being gamed by bots, or generally underperforming were significant, as it jeopardized the future revenue streams of two of the biggest companies in the world, Alphabet (aka Google) and Facebook, both almost entirely reliant on online advertising. How long before other anchor names decided to similarly cut back on their online ad spending?  In short: slowly but surely, chronic buyers online advertising space, are slowly waking up to the fact that “adtech” may be one of the biggest hype (and hope) bubbles in history. Not all of it, but a material, substantial portion: one that may be responsible for a significant chunk of Google’s or Facebook’s cash flow and market cap.




A separate, if just as concerning problem emerged last month, when the WSJ reported that online ad giant, Google, would issue refunds to advertisers for ads bought through its platform that ran on sites with fake traffic, and generated no actionable advertising “clicks.” Just how much of Google’s ad revenue (and thus profits and market cap) had been inflated over the years by said “fake ads”?

So fast forward to last week, when during Thursday’s Global Retailing Conference organized by Goldman Sachs, Restoration Hardware delightfully colorful CEO, Gary Friedman, divulged the following striking anecdote about the company’s online marketing strategy, and the state of online ad spending in general (courtesy of @parsimony16). What Friedman revealed – in brief – was the following:

“[W]e’ve found out that 98% of our business was coming from 22 words. So, wait, we’re buying 3,200 words and 98% of the business is coming from 22 words. What are the 22 words? And they said, well, it’s the word Restoration Hardware and the 21 ways to spell it wrong, okay?

Stated simply, the vast, vast majority of online ad spending is wasted, chasing clicks that simply are not there. Here is the full must read excerpt from the conference (full link here):

I’ll share a little anecdote with you on this point.

We had our marketing meeting in the company several years ago and the online marketing team was pitching to double their budget, right, and at the time, say, look, nobody in the company is doubling their budget. But tell me why you believe that’s the right thing to do. And they said, well, look, our customer acquisition cost and our ad cost is the lowest in the company. And I said, well, tell me about the data, show me how. And they said, well, people who click through the words that we buy on Google, the ad cost was lowest. And I said, how do you know that they’re clicking on the word and going to the website because of the word you bought versus they saw a store or they received a source book? They said, oh, we know.

I said, well, how many words do you buy? They said 3,200. 3,200 words. I said, well, what are the top words? How are they ranked, the ranking of the words? Oh, we don’t have that, right. And I was getting the look at like, oh, Gary is kind of one these old brick-and-mortar guys. He just doesn’t get it.

And I said, well, what are the top 10 words? And they didn’t have the information. I said, why don’t we cancel the meeting and come back next week when you have the data? I’m sure that Google sales representatives who are taking you to the expensive lunches and selling you the 3,200 words have that data. So why don’t we get the data and then let, review the data?

And they came back the next week and we sat in a meeting and all of a sudden, I can tell you there’s a little change in the faces. They had to wear it kind of down. Everybody kind of came in. I said, so what did we find out?

And they said, well, we’ve found out that 98% of our business was coming from 22 words. So, wait, we’re buying 3,200 words and 98% of the business is coming from 22 words. What are the 22 words? And they said, well, it’s the word Restoration Hardware and the 21 ways to spell it wrong, okay?

Immediately the next day, we cancelled all the words, including our own name. By the way, we are paying for the little shaded box above our words and said, oh no, we have to hang on to that because Pottery Barn might squat on top of us. I said, excuse me? I said, if someone goes to a mall or a shopping center and they’re going to Restoration Hardware and there’s a Pottery Bam there, they’re already squatting, okay? It doesn’t mean they’re going to go into their store. If somebody wanted to buy a diamond from Tiffany and just because Zale’s is sitting on top of them in a shaded box doesn’t mean they’re going to go to Zale’s and buy a diamond.

I mean, I can’t believe how many companies buy their own name and they’re paying Google millions of dollars a year for their own name, like maybe if this is webcast, right, a lot of people are going to go, holy crap. They’re going to look at their investments. They’d go, maybe we don’t need to buy our own name. Google’s market cap might go down…

One wonders how long before all retailers – most of whom are notoriously strapped for revenues and profits courtesy of Amazon – and other “power users” of online advertising, do a similar back of the envelope analysis, and find that they, like RH, are getting a bang for only 2% of their buck? What will happen to online ad spending then? And what will happen to the online ad giants, if the vast majority of ad spending that justified their hundreds of billions in market cap is exposed as “bloat”? As Friedman politely, yet sarcastically put it, “Googles market cap might go down”… By Tyler Durden, Zero Hedge

“Knowing that something could be bad for you is not always a barrier when temptation rears its head.” Read…  Logical and Illogical Reasons to Short Tesla




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  76 comments for “The Startling Thing the CEO of Restoration Hardware Said about Online Ad Spending

  1. Sep 11, 2017 at 11:38 pm

    Having bought ads myself from Google (not a lot) I find it hard to believe those dudes didn’t have that info at the tips of their fingers. All that stuff is updated real time on both Google ads and FB ads. Half of the fault lies in the ad dept spending without checking. For example, I can tell you right off the bat that Wolfstreet ranks organically for 12K keywords in U.S. Top few are:

    wolfstreet

    wolf street

    housing bubble (position six)

    the great american credit collapse

    epipen price gouging

    etc.

    My point is the data is there and available, just because some folks don’t know how to use it effectively.

    • Sep 12, 2017 at 12:15 am

      It would be interesting to hear the side of the story that his ad and marketing executives could tell about these meetings and their ad strategies.

      • Sep 12, 2017 at 12:28 am

        I’m a small time guy, so I gotta watch my spend like a hawk. The system (anything related to online business) seems to be bloated by ad guys who only want to increase their budget. My own view is that TONS of these companies are bloated because they are swimming in an ocean of fed notes. (ROI is SO brick and mortar…) Every time I try and hire a freelancer (coding, graphics, etc) anybody with skills is used to be paid gobs of cash by cash (debt) rich startups. Even though I’m not a debt slave the fed is still killing me…

        • sabaj
          Sep 12, 2017 at 10:38 am

          our church did lots of advertising and recently they changed up – why?? because everyone else was and then they realized that electronic ads are worthless because they are there and then gone —- now they put up bench ads and hwy bill boards — why?? because people have to see them as they go by
          maybe these expensive electronic folks will realize how over priced they really are – just as soon as people realize they get $0 bang for big buck$$$

        • alex in san jose
          Sep 12, 2017 at 5:59 pm

          George – Meanwhile I’m smack in the middle of “silicon valley” and I just see CS grads stocking shelves and working at S’bux.

      • alexaisback
        Sep 12, 2017 at 10:53 am

        Quite frankly ads only infuriate me,

        I ignore all ads, and I run my computer with the volume off
        so if there is speaking in the background I never hear it.
        I turn the volume on if I want to listen to something.

        If I look at a consumer product and then an ad pops up
        I know they are tracking me.

        I have said for years, these ads are worthless, or perhaps
        better said, way oversold and over paid for.
        .
        .

    • marty
      Sep 12, 2017 at 1:14 am

      You’re right that those dudes were at fault. Wonder if they were fired. But part of why they didn’t know may be they didn’t care. Maybe it’s sort of the equivalent of choosing IBM equipment no matter what bc you couldn’t lose your job for that decision in decades past. (How things change, huh?) That is, buy ads on goolag and fakebook and you won’t lose your job.

      The prevalence of ad block is another problem for advertisers. I don’t have to ignore ads bc I never see them.

      • Petunia
        Sep 12, 2017 at 8:30 am

        If the head of advertising at P&G had told his boss to slash the online ad buys and lower the prices or improve the quality, he would have been fired. But he would have been right.

  2. Keith
    Sep 11, 2017 at 11:55 pm

    Rarely do ads on any site catch my attention. I believe most people are focused on what they are doing and their attention is not diverted by these ads. When I am out golfing, I am never interested in what ad may be on the bench at each tee box. Because of this, I would never advertise on those benches nor would I advertise on facebook. Waste of ad money.

    • Wally
      Sep 12, 2017 at 7:25 am

      The only reason I could see someone advertising on Facebook is that they are looking at cost vs traditional methods. Since the ads are ‘tailored’, how many are seeing them? Is it more or fewer? Are the people seeing them interested? Are some potential clients not seeing the ads?

      These are questions I think few are asking themselves.

  3. H
    Sep 12, 2017 at 12:26 am

    As a former small business owner I found the power of the internet was just amazing in terms of accessing and then drawing in customers. What used to take a month advertising in the Guardian Newspaper was now pretty instantaneous with customers from all over the world.
    People advertise because as well as driving a business the cost is tax deductible. Could pure GREED be at work here?

  4. raxadian
    Sep 12, 2017 at 12:29 am

    Online ads are most effective when teamed up with search engines, hence Google gets most of the cake.

    People greatly distrustful online ads because they not only can lead to scam and overprices but also to your machine & cellphone being infected with viruses and or Malware.

    Ads in movies, TV radio and magazines are still more effective than online ads, unless Google places your ad amongst the first few results in a search, shocking isn’t it?

    • alex in san jose
      Sep 12, 2017 at 1:34 am

      raxadian – I agree. In the rare circumstance I see an online ad for something that interests me, I *never* click on the ad. I’ll go to Google and look up that item.

      I’ve even found my computer acting weird after watching “streams” on YouTube so I guess if I want my reruns of King Of The Hill or Bob’s Burgers I’ll just have to buy them on DVD.

    • auld kodjer
      Sep 12, 2017 at 1:40 am

      So I get online via google to buy a pair of jeans. Being male, I spend about 2.5 minutes “hunting” at a couple of retailers. Transaction complete in 3 minutes.

      But then I get bombarded with jeans ads for the next three months.

      FFS google, you are as smart as a brick. Not clever, just annoying.

      • Sep 12, 2017 at 8:11 am

        Clean the cache of your browser or browse in “private” setting and then close the browser and reopen it. This will wipe out the browsing history, including tracking cookies (but when you go back to the retailer, or to any site with login, you have to log in again).

        • Emanon
          Sep 12, 2017 at 3:53 pm

          There is a freeware program called CCleaner that allows you to pick and choose the cookies that it will clean.

          https://www.piriform.com/ccleaner/download

          You can save the cookies from sites that you log into frequently and trash all of the random garbage cookies that you dislike.

  5. Flying Monkey
    Sep 12, 2017 at 12:31 am

    I would say most ads are wasted. Jordan Peterson details in his lectures how focused we are and all the filters were implement on information since it is overwhelming.

    He explains the psychology experiment where two teams are passing a basket ball and your job is to focus on how many time the ball changes hands from on color.

    Everybody is so focused on the task that they miss the man in the gorilla suit that walks in to the picture, stops beats his chest and more through the video.

    https://www.youtube.com/watch?v=vJG698U2Mvo

    With this “filter system” in mind I am really surprised nobody made the correlation with the effectiveness of filling a screen full of ads and hopping somebody will click on it.

    Targeted ads resulting from a search is probably the most effective since you are not randomly assaulting people with an ad they will ignore. If find it stupid that the ad show up for things you once searched for or worse yet..already bought….

    It always fascinated me that weekly free papers here in Germany even have advertisers. One few people read them and throw them straight in the trash, and if they even get read, how do you get the eyes focused on an ad? The only ads I look at are the periodic advertising fliers detailing the latest special offers at stores.

    • MC
      Sep 12, 2017 at 4:01 am

      My educated guess, knowing how tax codes in most of Europe go, is those advertisements are there mostly if not exclusively for fiscal reasons: advertisement up to a certain level (according to firm size) can be written off as a cost of doing business and used to lower the amount of taxes paid, if you know what I mean. Nudge nudge, wink wink.

      Amazon is the undisputed sovereign of trying to sell you the stuff you have just bought from them.
      I am not talking about consumables such as razor blades, but about items like books and CD’s.
      I have lost count of the times I bought a book from Amazon and got an email from them in a couple weeks trying to pitch exactly what I had already bought from them.
      The Mechanical Turk really needs a vacation…

    • Paulo
      Sep 12, 2017 at 9:42 am

      The free weekly papers in western Canada exist solely for their advertisers. They have pared down the news to almost nothing. They exist solely for advertising. One conglomerate bought them all, and then proceeded to fire all staff except for just a few. (It shows).

      During winter I grab them by the armful at bulk mailboxes if I am running low on fire-starter for my woodstove heat. The glossy ones we set aside for the recyling bins as they leave too much ash. However, I do check out one grocery store flyer and the Canadian Tire tool section. The grocery flyer is for a canadian chain that is still unionized. we refuse to shop at a Jimmy Pattison store. (JP is a lower-key Trumplike figure, made famous by his policy of firing every month the car salesman with the lowest sales stats at JP Toyota…in Vancouver. Need I say more?)

      Online adds? Addblocker works pretty good.

      • alex in san jose
        Sep 12, 2017 at 6:03 pm

        Paulo – that “too much ash” is actually CLAY. The reason those glossy “coffee table” books are heavy is, actual clay is used in making that glossy paper. Isn’t that interesting?

      • Brian M
        Sep 14, 2017 at 8:33 pm

        Most of the advertising in California weeklies is for marijuana. The miracle herb that cures all diseases and solves all problems. I am not sure how the Sacramento News and Review would survive without the stoners.

    • fajensen
      Sep 13, 2017 at 2:07 pm

      If find it stupid that the ad show up for things you once searched for or worse yet..already bought
      So the Google salespeople can truthfully say: “75% of the people who saw this add bought the item” …

  6. Wilbur58
    Sep 12, 2017 at 12:33 am

    Personally, I’ve often wondered how much advertising works, period, via any outlet.

    I tend to only notice a sale from a company I’m already familiar with and from whom I’ve bought in the past.

  7. raxadian
    Sep 12, 2017 at 12:42 am

    People used to read the yellow pages, ads in newspapers about restaurants and or discounts and the car sales part of the newspaper if they want to buy a new and or used car.

    And people still buy magazines that are nothing but ads and people selling used stuff.

    • d
      Sep 12, 2017 at 2:23 am

      “And people still buy magazines that are nothing but ads and people selling used stuff.”

      Because they want to BUY, used stuff.

      The internet, killed the effectiveness of yellow pages, which was the only advertising, apart from the sign on the building, worth buying.

    • Petunia
      Sep 12, 2017 at 8:19 am

      I subscribe to a fashion magazine and it’s mostly for the ads. I like fashion and like to see what’s new. It’s a form of entertainment for me. I’m letting my subscription expire because the merchandise is awful and overpriced. The lack of quality in the luxury market is so bad it is an embarrassment. It’s not worth the $12 a year I spend to look at it.

      • Brian M
        Sep 14, 2017 at 8:34 pm

        But the models are still worth looking at!

  8. Johnny Reb
    Sep 12, 2017 at 1:11 am

    The only Ads I see are the ones for Ukrainian and Russian chicks. Am I blind to advertising on the internet? Maybe if Google used more chicks in their Ads blokes might buy more junk…… ,but I doubt it. Shopping is for chicks and who with half a brain uses F%$^Book? Unless of cause the Ads are about CARS, MOTORBIKES and work tools, then that is cool. 12 words they may like to use: Sexy, Hot Chicks, Powerful, Endurance, Reliability, Unlimited, Free, New, illegal, Moonshine, Kickass, Confidence, Burning Rubber & GOLD!

  9. BobT
    Sep 12, 2017 at 2:16 am

    I’m proud to say it is now over 20 years since I last clicked an ad online or had any personal financial dealings via the internet.

  10. Saltcreep
    Sep 12, 2017 at 4:48 am

    But how much of the advertising benefit is more subliminal and directed at building awareness of the company/brand and maintaining or expanding market share over competitors?

    If, say, Nike decides to cut back on their advertising in some spaces, but Adidas doesn’t. How much are people affected by constantly being exposed to one name and not so much to the other, even if they don’t react then and there to being confronted with an ad? I’d guess that the effect could possibly be quite significant.

    • fajensen
      Sep 14, 2017 at 1:54 am

      I think it is very hard to measure and untangle “add and effect”.

      The brands Nike and Adidas (especially Adidas because the stripes show up so well on grainy surveillance footage and ISIS videos) are also associated with ghetto culture stupidity and gang-bangers, so, maybe the advertising is subliminally driving right-wing extremism and conservatism rather than purchasing, at least in some part of the population?

  11. Charles Reese
    Sep 12, 2017 at 7:00 am

    Let us all hope the online advertising business does not fail. If it does we are not going to have many web sites to post on.

    • Sep 12, 2017 at 8:21 am

      Indeed. Free websites like this are funded by online advertising.

      • cdr
        Sep 12, 2017 at 8:38 am

        I know. Sorry. If so many ads were not so obnoxious elsewhere, I would not use an ad blocker. I especially hate that Flashblock no longer works because so many sites have go to HTML5.

        It’s not so much the ads but the cookies that tag along.

        Also, I use Sandboxie to sandbox my web browser. All cookies are deleted when I close the browser. Also, I put my sandbox in a Ram Disk, which is deleted when the PC is turned off. CCleaner daily does the rest. An occasional use of a commercial VPN adds to the privacy. They’re cheap if you know where to shop (stacksocial.com) but some are better (faster) than others. Do your research.

      • California Bob
        Sep 12, 2017 at 2:23 pm

        I don’t use an ad blocker because I feel it’s a fair trade to get pages larded up with ads to underwrite people like Wolf who are providing a service. It’s up to users/readers to train themselves to ignore ads–granted, every once in a while a clever one gets a click, or if something pops up that I may be looking for anyway I’ll click through–but if we don’t learn to filter the noise from the signal bad things may happen. Heck, ‘we’ might even elect a failed ‘businessman’ cum reality TV host as President!

  12. Rob
    Sep 12, 2017 at 7:33 am

    its not just google. on youtube my 3-5yrs kids watch videos with sometimes hundreds of millions of views and they start with an ad, often for a new car, or some other adult item which they have to watch a few seconds of before clicking through. there is a 0% chance those ad dollars were spent productively.

    • Harambe
      Sep 12, 2017 at 8:48 am

      Rob, I agree completely. At home I use an ad blocker, but IT won’t let me install one at work, so sometimes I watch Youtube during down times and for some reason I get a ton of ads for hunting paraphernalia. I have never gone hunting, don’t own a hunting rifle, don’t live in a rural area where the odds of being a hunter are high, have never searched for anything hunting related on Google, and the videos I’m watching are usually financial in nature. 100% wasted ad dollars.

      • fajensen
        Sep 14, 2017 at 2:10 am

        The Algorithms have detected from browning pattern and keystrokes that someone are not entirely happy with someones colleagues and workplace, especially the IT department.

        They have decided that someone may soon need some equipment for an Office Shooting Spree and subsequent crazy escape into the forest.

        Try and ask over lunch what other people are getting, maybe there actually is “an atmosphere” to the place that the machine learning is sniffing out. Maybe someone is testing some “nudging” algorithm … for someone like the CIA.

    • Shawn
      Sep 12, 2017 at 1:59 pm

      With kids you shouldn’t be using YouTube, because the adult ads are mixed up with childrens programming. Use DuckDuckGo and search for the program u want, sites like toonnova and kisscartoons. These sites are blocked on google. If u like the cartoon, pay then by buying the stream, blue ray or DVD.

  13. Arizona Slim
    Sep 12, 2017 at 8:16 am

    That CEO needs to brush up on his math skills. 22/3,200 = .007. The 98% figure he keeps mentioning is actually more than 99%.

  14. mvojy
    Sep 12, 2017 at 8:50 am

    Any time I click on a digital ad it’s by accident. Most of us can’t stand the endless ads popping up in our faces. I would agree that companies should put their money into making better products or providing better service since word of mouth is what brings in customers, not annoying ads.

  15. unit472
    Sep 12, 2017 at 9:23 am

    I wasn’t familiar with ‘Restoration Hardware’ so I typed it into my search engine and went to their website. I’m still not certain exactly what they sell!

    There are pictures of handsome buildings and where they are located. They are labeled as ‘galleries’. There is a quote from Muhammed Ali and a artsy picture of the CEO.

    Maybe the problem with their online advertising is they do not mention a PRODUCT.

    • Petunia
      Sep 12, 2017 at 10:01 am

      It’s like Pottery Barn or Crate & Barrel, but more expensive.

    • California Bob
      Sep 12, 2017 at 2:29 pm

      RH–used to be ‘Restoration Hardware’–spends millions every year on thick, glossy, hardcopy, mailed catalogs (there are several, by topic). I’m sure you can get on their mailing list if you want to. Friedman has been, uh, ‘critiqued’ on his preference for old school catalog merchandising, so his criticism of online advertising may be a reflection of that (but makes his point no less valid).

  16. unit472
    Sep 12, 2017 at 9:28 am

    I’m serious. Go to Restoration Hardware’s homepage and I defy anyone to tell me what it is they are!

    Is it something like the ‘Cheesecake Factory’? Just a cute name for a company that has little if anything to do with what it provides?

    • Harambe
      Sep 12, 2017 at 12:19 pm

      It’s where you shop when you’re in the market for a $300 showerhead.

      • Rob
        Sep 15, 2017 at 10:28 am

        just another upper middle class baby boomer mcmasion decorating company. with a dieing out customer base. most people redecorate their houses when the kids move out, in their late 50s and early 60s.
        do these people seriously redecorate their houses again before they die 20 years later?

  17. Gerald
    Sep 12, 2017 at 9:33 am

    I’m going to take a wild guess that Tyler Durden is Wolf Richter.

    This is the first time I’ve seen a ZH article here. ZH can be wildly speculative and factless, although often it is not. It is negativity incarnate.

    Not a good mix with this facts based economics site.

    • Sep 12, 2017 at 11:06 am

      Tyler Durden is an alias that all ZH writers use. I’m not one of them. I’m quoted a lot in the article (a big passage is mine), in my name though. And I have been a contributor on ZH since 2012, also in my name :-)

    • IdahoPotato
      Sep 12, 2017 at 12:33 pm

      Tyler Durden is not Wolf Richter. Thank goodness. Wolf Richter is sane.

      • alex in san jose
        Sep 12, 2017 at 6:07 pm

        Made me laugh!

  18. Lune
    Sep 12, 2017 at 10:15 am

    As long as the hours people spend online grows, online will command a growing share of ad revenue. The only question is whether FB and Google will get that revenue and the answer is no.

    The truth is, online ad revenue is exploding, and can be exceedingly effective, *if* it’s spent directly with online influencers. For example, rather than buying ads with YouTube, it’s far more effective to take that money, go to the creator of a popular youtube channel, and offer to sponsor his video if he’ll talk about your product. Many of these influencers now have bigger followings than traditional celebrities.

    In the process, youtube the company (i.e. Google) gets disintermediated, because the ad dollars go directly to the influencer, and Youtube doesn’t get a cut. Top youtube celebrities generate millions of dollars in sponsorship revenue (in addition to their share of Youtube ad revenue), none of which goes through Google.

    The same is true for many blogs, etc. where random AdWords aren’t nearly as effective as contacting the blog directly and working out a sponsorship deal.

    Influencer marketing is the next frontier of online advertising. The only problem is it doesn’t require funneling your money through Google or Facebook…

    • California Bob
      Sep 12, 2017 at 2:33 pm

      Pretty much the same as Nike, Under Armor, etc. using athletes or other celebrities to endorse your product.

      • Lune
        Sep 12, 2017 at 3:17 pm

        Exactly. It’s not a new concept. Only difference is that this means Google and fb don’t get a cut.

  19. polecat
    Sep 12, 2017 at 10:26 am

    Overpriced furniture ‘accessories’ and architectural/building ‘hardware/findings’ for the discerningly pretentious !

    • BradK
      Sep 12, 2017 at 12:40 pm

      Agree about the overpricing and the pretension factor, though the merchandise is (or at least used to be) of a much higher quality than the garbage you find at Bed & Bath or Home Depot. Even the once-venerated Create & Barrel has joined the race to the bottom.

      Brand names mean little today compared to years past. Perhaps this is related to the lack of impact with online (or any) advertising? While some insecure types will purchase specific labels just for the purpose of strutting around and shoving them under everyone’s noses, I don’t think that counts as true brand loyalty. Saturation marketing may inspire a brief fad but that only lasts until the next one comes along.

  20. Shawn
    Sep 12, 2017 at 10:32 am

    So why now? And why didn’t this realization in on-line ad spending occur 5 or 10 years ago? Perhaps companies profit margins are shrinking and online ad-spending is a quick and easy way to remedy that. Perhaps the borrowing environment is changing, ZIRP is giving away to a more challenging economic environment. In my last company, they were spending 10 million dollars a month to google, bing and facebook, albeit less. This kind of spending was going on at the very time the company’s performance was nose diving. A long story short, executives from the head office came in an shut down the entire on-line marketing operation, everything, 120 million a year, no longer going into the pockets of the three companies above.

    • Petunia
      Sep 12, 2017 at 2:00 pm

      When financial hardship comes, it is hard to give up the little things, like a favorite brand of soap or shampoo. Once you are forced to do it, you get adventurous and try everything. I actually found I could trade up to better products on discount than just buying the same old thing. I shop the sale.

      • California Bob
        Sep 12, 2017 at 2:37 pm

        Pretty much the same as Nike, Under Armor, etc. using athletes or other celebrities to endorse your product.

        • California Bob
          Sep 12, 2017 at 2:39 pm

          Oops … This comment was meant for an earlier post.

          But, Petunia is correct. I don’t think I’ve ever bought a Kirkland (Costco) product that wasn’t at least as good as the comparable ‘name brand,’ and Kirkland is usually 20% or more cheaper.

  21. Maximus Minimus
    Sep 12, 2017 at 10:34 am

    Online ads and QE do not work? Who would have thought? Still, the revenue stream from selling personal data will always make up the lost add revenue. /s

  22. Ambrose Bierce
    Sep 12, 2017 at 11:41 am

    From the McLuhan perspective, The Mechanical Bride, advertising is about more than the product, its a form of social feedback. And like the Hollywood movies of the 1930s which showed fantasy riches, they say more about where we want to be than where we are. The internet offers to end advertising, the user initiates the search, not the other way around. So it’s just that the internet doesn’t get it, they still have the same Madison Ave. playbook.

  23. Rates
    Sep 12, 2017 at 12:16 pm

    From one episode in Mad Men:

    “Well Burt, when times are good, people spend money, …. ”

    Needless to say, the character who said it got fired.

  24. Nick
    Sep 12, 2017 at 1:27 pm

    Well Restoration Hardware has totally changed their brand, look, etc. They cater to such a small segment of American Consumers now. I happen to really like their style and furniture but I could never afford it. I don’t know how any of these high end home furnishing companies are making any profit. Pottery Barn has turned into Macy’s. Everything is always on sale. They are ruining their brand like so many have done. Instead of having sales they should protect their brand by simply lowering their prices.

    Moreover, even shopping at lower end furniture stores like Ashley, where the hell are people getting the money to drop thousands of $$$$ on new furniture??? Oh yeah that’s right like cell phones you can “lease” that new mattress or bedroom set. Things are not just absurd, they are insane.

    • fajensen
      Sep 14, 2017 at 2:44 am

      … like cell phones you can “lease” that new mattress or bedroom set …
      They make more money on the securitisation of the payment plans than they do on the actual product, a LOT more.

      I worked in a big telecoms in the ‘naughties and we did some of the math on ‘flat-rate’ telephony and later ‘flat-rate’ data, which was somewhat new and controversial ideas back then.

      The way it works is, basically, that they converts the flat-rate contracts into high-yield bonds via a holding company. Then sell the bonds, pulling the profits over the lifetime of the contract forward till “today”. Because the interest rates are so low, they can easily sell bonds worth several times the total income from the flat-rate plan.

      They use part of the subscriptions to pay dividends, part for paying the hardware which is nothing, part for capacity costs which is the biggest item, and the final lump for repayments.

      “How to Split & Structure” is done by “Financial Engineering” (here is not actually a department called that, but, they all have actual mathematicians working on “revenue modelling” and “capacity planning”).

      Of course, seeing how easy and lucrative this is, other people gets in on the game and here we are today, where Everything comes with a financing deal and/or a subscription bundled into it.

      It also one of the drivers behind crapification, because producing and selling product is not the profit centre of the operation, that is at best about break even (except for outliers like Apple). The product / service is simply the vehicle used for initiating the securitisation process, which the actual product the business want to sell and indeed makes the profit on.

      Of Course, nobody has the dollars to drop on whatever, THAT is the whole idea, the customer MUST take the financing plan for the sale to “work” :).

      If anyone doubts this, one can look at about any big company like GE, HP and so on and compare the revenue of the “financial …. / finance ” branch with anything else in the financial statements!

  25. Enrique Bermudez
    Sep 12, 2017 at 2:57 pm

    I primarily understand my own character/inclinations/motivations etc, so it astounds me that anyone pays anything for advertising. I ignore all digital ads to a degree of 100% and would consider it a personal “loss” on some deep level if I was ever to spend money on something because of obnoxious crap popping up on my screen.

    Seems like the economic model of the internet has been utterly overwhelmed by the ad industry. Almost no good non-clickbait sites around anymore. Most major search engines so inundated by robot-written SEO-optimized crap results that it is almost utterly useless to try to look up anything – particularly on a mobile.

    • Arizona Slim
      Sep 12, 2017 at 4:15 pm

      Which is why some of us are spending less time on social media and more time in social reality. I’m finding that I’m in a much healthier environment when I’m away from the screens.

  26. Maximus Minimus
    Sep 12, 2017 at 3:31 pm

    I am not sure if you tried:
    Dogpile: http://www.dogpile.com
    DuckDuck: https://duckduckgo.com
    StartPage: https://www.startpage.com (sends query to Google, but formats results, and leaves no Google cookies)

  27. Chris
    Sep 12, 2017 at 8:41 pm

    I use an ad blocker. I know it’s unfair on people like Wolf but what can I do? I hate advertising so much. I think they are destructive to people and society and responsible for consumerism and lots of bad things. Some sites won’t let you in with an ad blocker so I don’t use them; there are plenty more sites. I use the internet all day for research and to my knowledge I have never clicked on or even looked at an online ad in my entire life.

  28. mean chicken
    Sep 12, 2017 at 10:56 pm

    “Googles market cap might go down”

    Hopefully this doesn’t happen b/c I do so need GOOGLE to make all my ethical life decisions for me since I have no idea between right and wrong.

    OBTW, I’m calling my governor now, for more H1B visas for GOOGLE!

  29. Opalchip
    Sep 13, 2017 at 3:42 am

    All I can say is – I’m a boomer with money to spend, I’m on the computer/net about 10 hours a day, and I cannot remember EVER clicking an online ad except by mistake. The exceptions are on sites like TripAdvisor, Hotels.com, Yelp – where I may check out a sponsored “listing” – but I am more likely to intentionally AVOID those. I occasionally use a Search to find something oddball for (like a driver’s side sunvisor for 2014 car, or strange fuses for a vintage vacuum tube power amp) but will still buy it from the most well-known, reputable seller that I see. Likewise, I usually “research” a purchase online (like pcworld, notebookreview, etc.) before buying directly from Dell or Asus or BestBuy, etc.

  30. Slowreload
    Sep 13, 2017 at 5:30 am

    The great flaw with ‘Targeted ads’ is the repeat rate. Same ad on several sites several times a day taking that 5 extra seconds to reload 200 times a week.
    Same ads next week, same next month. If I didn’t click on it after 200 times the ad buyer is wasting money.

  31. ML
    Sep 14, 2017 at 1:10 am

    Some comments here I think miss the point. It’s not the ad but the need by some businesses to spend the excess cash that is generated by high profit margins.

    Whether the ad itself is clicked is irrelevant: the ad aim is to inject the business name into site user psyche. But the reason for the ad itself is to use a legit means to reduce taxable profit.

    Companies begin to question the wisdom of their ad spend when the profit margins are falling as a consequence of their core customers reducing spending.

    As for reducing prices, that is unlikely because of the adverse impact on branding. As for improving quality, that too is unlikely because it increases the cost of production.

    Dig deep and the one thing that businesses that afe reducing and questioning their ad spend have in common is that demand for their products is falling.

  32. Crazy Horse
    Sep 14, 2017 at 4:05 pm

    Kind of amusing—
    I happened to arrive at WolfStreet this time through Google Chrome/Duck Duck Go. Hardly recognized the site because it is full of completely unrelated ads.

    Went back to Firefox where I run Ghostery and CCleaner to scrub cookies and kill pop-up advertising and voila— the same pleasant site completely free of annoying crap. Even with Google as the browser!

    • Sep 14, 2017 at 5:36 pm

      You should never see popups on my site. If you do, there is something in your browser and it’s time to clean the cache.

    • fajensen
      Sep 14, 2017 at 8:39 pm

      Chrome is the spawn of Lucifer! Check your browser extensions, either something funny got silently installed by Chrome “helping” a web page showing some “content” or one of the extensions installed normally was procured by a spamvertiser.

      If on windows, also check for something like “snap.do” – if “snap.anything” is in the browser extensions, a full restore from snapshot is the best / only way because your pc and web browsers will by now be riddled with “tools” from “Resoft LTD”. Miss to kill one, like the install hidden in “scheduled tasks” and all come back in full force. All it takes for getting the “snap.filth” is visiting an infected page – boom, Chrome installs it!!

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