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why web advertising fails
What's missing is true interactivity with users
By Jeremy Schlosberg
Donna Hoffman is a professor of marketing at the Owen School of Business at Vanderbilt University and one of the country’s leading academic experts on electronic commerce and internet marketing. She co-founded a corporate-sponsored e-commerce research center at Vanderbilt in 1994, and co-developed the country’s first electronic commerce MBA program in 1995. Media Life did a Q&A with Hoffman in October 1999. The web has been through so much turmoil since then that it seemed like a good time to track her down for another conversation.
Now that so many internet-related businesses have evaporated, some people seem ready to throw out the entire idea of online advertising in the process. What's your take on the state of online advertising?
I’ve never been a big fan of online advertising in its current incarnation in the first place.
To me, it’s no surprise that people have figured out it’s not very effective given the way most have gone about it. Online advertising has been pretty much borrowed directly from mass media advertising models.
I don’t think this is a good fit in an interactive many-to-many environment.
Many critics point to bad click-through rates as "proof" that online advertising doesn’t work. Does this really have anything to do with click-through rates?
While it’s not a surprise that click-through rates have plummeted, the whole idea of the banner ad was flawed from the start.
The whole metaphor is wrong. Internet advertising has borrowed metaphors from traditional advertising, whether it was the idea of being a billboard or the idea of selling ad space based on exposure to eyeballs.
So even though this was a whole new medium and we really weren’t sure what it was like, we borrowed from mass media advertising models that really can’t apply.
When you treat the web as if it’s going to be this one-to-many mass medium and use advertising appropriate to those media, it doesn’t work.
So even when we said, "Okay, let’s get people to click on the ads," it was missing the point.
Regardless of what many seem to believe, clicking is a passive response to an ad, rather than a true interaction with the customer.
We still aren’t there yet. People are very stuck in mass media, one-way thinking and clogged with derivative ideas involving contests, promotions, and banner ads that shout at online visitors.
Advertisers aren’t having real interactions with people. We’re going to have to rethink advertising and what it means to an online world.
This is a different kind of mass medium--it’s interactive, and many-to-many. Until people start to think about what that really means, we’re going to have advertising that falls short.
So I take it it’s not just a question of making the ads bigger, which appears to be the current trend?
That’s not going to work either. Or it might work for a little while, in some cases with some ads on some sites.
But in general, again, this totally misses the point. And it’s becoming more desperate now. That is, in a desperate effort to demonstrate that online advertising is not a lost cause, web sites are saying to advertisers, "We’ll let you have ads any size you want."
But it ignores the real issue, which is that advertisers need to figure out ways to engage an interactive relationship with their online customers. And no matter what, it’s got to be more innovative than what in effect still amounts to billboards.
Don’t these larger ads give advertisers more space to create some sort of interactive experience?
That’s not what I mean by engaging in an interactive relationship. I’m not suggesting we design ads that people interact with.
You don’t want to make people have an interaction with the ad. Advertisers need to use the web to have interactions with their customers, but this is not going to happen through any way that we currently think of as advertising.
For all its interactive capacities, the web is still also a medium that people spend time with. Shouldn’t some sort of traditional branding be effective here as well?
I do think there’s a place for awareness and branding online. In that case, exposure and branding campaigns can be very useful.
But on the other hand, as the framework for how advertising can proceed online, I think we’re in terrible shape. People have dug a ditch and it’s getting so deep. That's because the whole paradigm is around these banners.
And yet the web has unique characteristics that make it a very distinctive medium for communication, including advertising.
I think if we aren't able to let go of traditional metaphors for communicating with customers, the online medium will not advance commercially.
Can you point to anything that might resemble a new metaphor for this new medium?
Well, affiliate programs are one idea for how to think about advertising in a different context. Now a lot of people don’t think of affiliate programs as advertising per se.
But that’s the point. I think we need to expand our idea of what we think of as advertising.
We need to think of other things like that—things that take advantage of the web and exploit its unique capabilities.
We might even want to take a lesson from TV advertising. I think TV is doing a good job right now from a business perspective of responding to the fact that there are technologies out there that are in a very short time going to mean that consumers are not going to be watching commercials.
They’re getting ready for that and one way they’re doing it is in going back to the idea of ‘50s-style sponsorships. The larger point here is that at least the advertisers and the networks are trying to think creatively.
Can you point to any specific ways you know of that can increase the effectiveness of online advertising in the here and now?
One way is for the advertising to be integrated with the content. People have shown us that these banner ads are not effective. Banner ads are a primitive form of online advertising that we really need to move beyond.
People are not going to web sites to look at banners, and they’re not really interested in clicking on them. We have to think of new ways for advertisers to fully integrate their communications with what people are going online to see.
This may happen in a number of ways. Web sites just need to be sure they clearly inform consumers about what's an ad or what constitutes a paid sponsorship and what's the editorial.
What has your reaction been as you've watched so many dot.com companies fall apart?
My own feeling was that it’s about time. These companies were in no way deserving of the huge valuations they had. Because of gold rush fever and the wide availability of venture capital, lots of companies were launched that had no business launching.
They deserved to fail.
What were the biggest mistakes these sites made?
They didn’t have a business model. And by business model, I don’t mean they didn’t have a way to make money. That’s just part of it.
They also didn’t know what value they were going to offer customers. That was the single biggest mistake.
Their second mistake was they didn’t have a sustainable revenue model. Those together are a business model.
Before April of last year the goal of these internet companies was getting first to market. They all thought, "I need to get big fast and I need to have an idea." Those were the goals. The tactics were "I need to spend big, I need to build my IPO story, I’ll worry about my business model later, and I’ll hope for the best."
Is it any surprise these companies have collapsed?
Wall Street has been continually wrong about the internet, which has really harmed the medium since it hitched its wagon so closely to the stock market. What are your thoughts about this stormy relationship between Wall Street and the web?
Wall Street was just as responsible as anyone else for pumping up the value of these companies.
Now in just the same way web companies were hyped, analysts have cast them aside and say now the entire internet is dirt.
And that’s unfortunate because the fundamentals of the internet haven’t changed. It is obvious that the internet is a phenomenon that’s going to have a profound impact on the economy, on society and on human behavior in general. And that impact is going to be bigger than anyone can imagine.
But humans are funny. You saw a lot of really crazy behavior in the gold rush days. People seemed to check their brains at the door.
Now you’re seeing a correction, and it’s really right now an over-correction. But I believe that the internet is so profound, we will definitely ride through it.
It’s almost like we’re trapped in a manic-depressive culture right now, where everything has to be either 500 percent glorious or a world-ending catastrophe.
Yes, so now we’re in this sort of depressive period.
Obviously we need the meds, so everyone can calm down and we can get back to equilibrium. It may take a strong dose of medicine. People are just crazy right now.
Now you have people who want to look at the internet as just some sort of fad. And that’s just wrong. It’s not a fad.
Companies that may decide that they shouldn’t have done what they did may be right, but that doesn’t mean they should now do nothing. The firms that get it are in a wonderful position to lay low and develop a coherent strategy for the long term.
Because the internet is here and it will continue to change the commerce equation. Think about distributed file sharing, the whole idea of peer-to-peer programs. You couldn’t do that before the internet, and it’s completely amazing. Setting aside for the moment whether Napster will survive and whether firms can make money, these things are so incredible.
Look at eBay, which really takes advantage of the uniqueness of the medium. It’s something you just couldn’t do before the internet came along. And there are e-brokerages, and online sales of airline tickets and there will be more and more. There’s no going back. There’s only going forward.
April 9, 2001 © 2001 Media Life
-Jeremy Schlosberg is the senior editor for new media.
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