One dollar of online display advertising will buy you approximately $0.03 worth of actual ads seen by real people, according to Bob Hoffman, a partner in media consultancy Type A Group.
Hoffman, who used to run the Hoffman/Lewis Advertising agency, is well known for his skepticism of online ads, a view that has found some support in academic research into digital advertising.
For example, a March 2013 paper by Tom Blake, Chris Nosko, and Steven Tadelis tested eBay's use of online ads and found "that brand-keyword ads have no measurable short-term benefits" and that non-branded keyword ads, apart from enticing a few new customers, resulted in "average returns that are negative."
A paper that same year from Google researcher Randall Lewis and Microsoft researcher Justin Rao concluded that it's basically impossible to measure the value of online advertising and the return on investment.
The difficulty of assessing the value of advertising is a longstanding problem. It is described in an often cited observation attributed to 19th century retailer John Wannamaker: "I know half the money I spend on advertising is wasted, but I can never find out which half."
For Hoffman, it's more or less both halves, at least with regard to online display ads. "My view is that for the most part online display advertising is useful mainly to direct marketers — it is essentially electronic 'junk mail,'" Hoffman said in an email to The Register. "It is the web’s version of 800 number TV spots, newspaper coupon ads, and traditional direct mail marketing. Thus far it has not persuaded me that it is useful to brand marketers."
In a blog post published on Tuesday, Hoffman offers an accounting of how the pennies in an online ad dollar get siphoned away by the ad delivery ecosystem. The media agency takes $0.05, its trading desk takes $0.15, and its demand side platform takes $0.10.
Then ad tech middlemen take $0.25 for targeting, data, and verification, while another $0.05 goes to an ad exchange, Hoffman explains.
The remaining $0.40 gets cut in half because only about 50 per cent of online ads are actually viewable.
So that leaves $0.20, which gets reduced further by ad fraud. How much? No one really knows. Hoffman says that ad fraud estimates range from 2 per cent to 90 per cent.
The World Federation of Advertisers puts the figure at 30 per cent, or maybe more. The recent bot fraud study from the US Association of National Advertisers (ANA) and security firm White Ops put the cost of ad fraud at $7.2bn, which amounts to about 5 per cent of the total global digital media market.
But given Facebook's self-acknowledged problem with ad metric accuracy, it's difficult to accept industry figures about the impact of ad fraud.
Hoffman suggests that advertisers are getting about $0.03 worth of ads for every dollar spent.
"Anyone who believes any 'traffic' or 'click' numbers is a fool," Hoffman said. "Fraud is rampant. No one knows what is real. The fraudsters are way ahead of the 'good guys' and know exactly how to simulate online human behavior through bots. Facebook's metrics have proven to be a cruel joke. They still refuse to abide by the same principles of transparency that other media agree to, i.e., having complete third party access and vetting of their data."
The Register invited both Google and Facebook to respond to Hoffman's claims. Neither responded.
Hoffman believes the ad industry is being consumed by Google and Facebook. "They are a media duopoly that is unprecedented in business history," he said. "Outside of China, they are responsible for over 70 per cent of all online ad revenue worldwide. They have gotten over 90 per cent of all new online ad revenue in the past year. Absent these two, online ad spending has actually dropped 3 per cent in the last year. They have unprecedented power and arrogance. If they were brick and mortar businesses the government would break them up in a heartbeat." ®
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