Why advertising is a risky business model

Written by on November 26, 2015 in Opinion with 0 Comments

advertising - house with no foundations

When your business is a data business, it is risky – and probably based on advertising. Facebook, as an example, is a business valued at $250 or so billion and its revenues depend on advertising. And it would be a brave person who said out loud that Facebook’s business model is flawed (or that what goes up must come down). As our grandfathers would say, with a tut, you should never put all your eggs in one basket.

At the moment, advertising on Facebook is highly popular, and a success for small and medium businesses particularly. But people would really rather not watch adverts unless they are really great. On TV, most people are now watching programmes on catch up. So, no advertising.

Ad blocking is increasingly popular. Over 200 million people block adverts. 16 percent of the US block adverts. $22 billion in revenue has been lost because of ad blocking already this year. Companies like Yahoo are now coming under fire for ‘making’ users watch ads if they want to get their own email.

There is the extra wonder of programmatic advertising. This, essentially, is an automated ad serving platform, built on the flawed notion that machines know what we want to watch better than humans.

Add to all this risk, the extra risk of bad people wanting to do bad things. There is a new botnet called Xindi, for example, that makes money by serving real ads to fake people. It has hijacked up to eight million computers in 5,000 networks, including 10 percent of Fortune 500 companies.In some cases you can get $200 or more per thousand impressions. That is big business, and set to grow.

And, just when you thought the bad news was over, remember that adverts can also conceal malware. And of course, chew up battery life, slow down operating systems and generally have become bad news.

Would you – would anyone – try and build a business in that kind of environment? Any financial advisor worth his salt would laugh and call you mad. Except they don’t, they continue to invest in, and advise their clients to invest in companies whose entire fortune depends on a robust and growing advertising market.

James Murdoch is right that the digital advertising world needs to come out of the dark ages and make adverts that are not annoying. The only problem is that it might already be too late.

Built on a foundation of quicksand, many companies who have risen to extraordinary heights must find other business models – and quickly – otherwise, as early as next year we might begin to see markets seriously question the valuations of various companies (Oh, wait, they already are) and, as we know, valuations can go down as well as up.

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About the Author

About the Author: Alex was Founder and CEO of the Global Billing Association (GBA), a trade body focused on the communications sector. He is a sought after speaker and chairman at leading industry conferences, and is widely published in communications magazines around the world. Until it closed, he was Contributing Editor, OSS/BSS for Connected Planet. He is publisher of DisruptiveViews and previously BillingViews. .


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