Mike On Ads

Yahoo Research via Geeking with Greg:

In Web advertising it is acceptable, and occasionally even desirable, not to show any [ads] if no “good” [ads] are available. If no ads are relevant to the user’s interests, then showing irrelevant ads should be avoided since they impair the user experience [and] … may drive users away or “train” them to ignore ads.

What a crazy idea — what if one were to actually make more money by not advertising. It makes total sense. We’re inundated with media. Our eyes have been trained to ignore those lovely 160×600 and 300×250 size objects that we see all over our web pages — especially on social networking sites where our users spend so much time.

This fascinating paper on negative externalities further reinforces this idea:

Most models for online advertising assume that an advertiser’s value from winning an ad auction [...] is independent of other advertisements served alongside it in the same session. This ignores an important externality effect: as the advertising audience has a limited attention span, a high-quality ad on a page can detract attention from other ads on the same page.

I’m sure everyone by now is familiar with Pareto’s law — otherwise known as the 80/20 rule. Applied to advertising Pareto’s law states that 20% of impressions generate 80% of the revenue — and yes this is true for most web 2.0 properties that I have worked with. So what if we stopped showing ads on the 80% that were only generating 20% of the revenue?

Instead of showing crappy CPA offers the publisher should show either nothing at all, or some relevant site content. Show a snippet of the friend-feed, or maybe a list of ‘online friends’. Show “interesting related links”, or “new photos posted”… it doesn’t really matter. Show something that is of interest to the user. The point of the exercise is to train the user to start looking at this specific space again.

In the short term this may very well sacrifice 20% of revenue, as users who were previously inundated with ads are learning to trust those slots again. Longer term we get more user engagement which means higher rates on the other 80% of revenue. I wouldn’t be surprised if you saw a 50% increase in engagement just by showing 80% fewer ads — and that increase in engagement translates directly to higher rates and a fatter bottom line.

There are a world of other benefits too. First of all — fewer ads means happier users. It also means fewer creative issues (whether content or malvertising). The publisher can also use this as an opportunity to drive traffic from lower to higher monetized sections of the site. Eg, Myspace could drive users from the low $0.15 CPM User-Generated Content pages over to the very brandable ‘Movies’ section. And last but not least — showing fewer ads will create a sense of scarcity around what today is most certainly considered “bulk” inventory. This scarcity will help justify higher rates on the premium guaranteed buys — further helping to fatten up that bottom line.

If this is obviously so good, why is nobody doing it? Well there’s only one small insignificant problem… Publishers have no way of identifying the top 20% of impressions. You see, especially on social networking sites a huge portion of that 20% are impressions that are sold behaviorally via ad-networks and exchanges. Those ad-networks and exchanges need to see the full 100% to be able to cherry-pick the 10% that are valuable to them thereby making it quite difficult for the publisher to “not show ads” on worthless impressions. In fact, since all reporting is aggregated, most publishers don’t even realize that the majority of their revenue comes from a relatively small # of impressions.

How do we get around this? Well… that’s another blog post =).

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