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Thursday, February 21, 2008

The Neverending Lameness of the Venturescape, Pt 28881

Ashkan has a long and interesting post about why most ad-supported startups will fail, but venture guys don't get it.

I think there's a simpler way to put it. Most ad-supported startups will fail simply because 1) ads suck, and destroy value, but 2) they're not creating new value by making said ads any better.

In fact, the less they all focus on making ads better, the worse each of these players is, because the mediascape just gets more polluted.

It's a classic example of a negative equilibrium.

How did we get here? Most venture guys, unfortunately, being almost as myopic as analysts, are more interested in revenue (yeah!! high-five!!!) than on creating real, durable, sustainable value by making ads that don't suck.

There's a universe of difference between the two. Think Facebook vs Google.

So: 1) lots of lame startups serving tons of crappy ads, soon to be followed by 2) lots of dead startups no longer polluting the mediascape with tons of crappy ads.

-- umair // 12:09 AM //


I completely agree with you with point 2 about the publisher needing to create value for the advertiser (and the publisher's customers). Most make no effort of the sort.

I also think another reason so many people try and fail ad models is that they think getting advertisers is as easy as sticking your hand out and start bringing them in. I will state I believe advertising is easy, but I suspect most entrepreneurs and VCs think it's ridiculously easy and by the time they figure out it isn't, they are out of money.

Thanks for linking to this one and sharing your thoughts. It's been on my mind a lot lately as I've been hearing so many people think that because they know what blogs someone goes to or what they had for lunch that advertisers would line up to target their 10k users.

I sympathisde, but advertising is much more of a two way street that most engineers and capitalists can't see.
// Blogger Ted // 1:00 AM

I agree completely that technologists need to actually create "value" for advertisers.

Full disclosure: this is what (at least we think) our startup (www.jacksonfish.com) is dedicated to.

From my perspective, advertisers are slowly learning the value of software... not just interactivity, but full blown web apps. They went from display banners, to text links, to interactive banners, to advergames, to widgets, and beyond. All of these are halting steps up the ladder of engagement via interactivity. Today I'd say that even those advertisers (most not all) who want to invest in full blown apps end up producing expensive distractions or over-focusing on expensive content creation (gettheglass.com and bud.tv come to mind as examples).

Great web apps however have the power to engage audiences and retain them (and even grow them) by being entertaining, informative, enhancing productivity, enhancing communication, or some combination of the above.

Rather than having advertisers roll their own, our company focuses on building brandable sites that are destinations, not distractions. The sponsorships on our sites are exclusive to the advertiser. The pricing is significantly cheaper than rolling their own (and as with the RYO option, our sites do NOT include distribution). Think of our sites as great venues for a party. You still have to provide the guests. But we are investing to create venues where your guests will have a better time and stay longer and bring additional folks to the party on their own.

Our first two examples are: They're Beautiful (www.theyrebeautiful.com) a virtual flower site where your flowers need to be watered every few days or they wilt and eventually die, and Invitastic (www.invitastic.com) a very simple online invitation service. We're hard at work on our third.

My question to you and the audience is this: I hear you that you think ad-funded software startups should be creating value. We agree completely. We think that making sites that end up engaging an audience, possibly multiplying it, and carving out space for the brand to come along for the ride without detracting from the value of the site, is EXACTLY the kind of value you're talking about. Love to know if you agree or disagree. And if you disagree, what you would consider an alternative example of providing said value.

As always... great site. Thanks for the insights!
// Anonymous Hillel // 1:32 AM

hey ted,

i think you make exactly the right point - advertising is a two way street.

hey hillel,

i think you guys rock, because your argument is right on. we're talking about a very different kind of startup here, the numerous ad net/social net/pseudocommunity/behavioural targeting/blah blah targeting/etc players.

you guys are actually a great example of beginning to make ads and brands not suck - and apologies, i think i owe you an email (coming tomo :)
// Blogger umair // 1:44 AM

Yes, ad-supported start-ups destroy value they create. Other revenue models can do that too -- think LinkedIn -- you click to contact someone and it asks you to pay $X/mo. You click to see who's been viewing your profile; it shows you the first four people and asks you to pay to see the rest.

Business models should be designed to improve the user experience, not limit it. If you're going to offer premium services, do it in such a way that:

1. The (nuisance, monetary, etc) costs are invisible to the common user
2. The benefits are visible to the common user

But back to ad-models...

Branded sites, "branded software/interactive/online experiences", sponsorships.. is this really what we want? Yes, it's passive, indirect, but people have been slapping on the "sponsored by _______" for ages. It's a step in the right direction, but I think next-gen ads go a lot further than this. As far as I'm concerned, this is lighter advertising 1.0
// Anonymous CG // 6:02 AM

hillel, i agree that piggybacking a sponsorship on a site is not really detracting from the value the site creates for its users, but how does that add more value?

why does tomorrow's ad still have to resemble an ad? why can't it look like the response from my friend when i solicit his/her recommendation?
// Anonymous michael // 7:54 AM

advertising has to change so much as to disappear... hard to imagine...

i don't own a television because of ads

i despise anybody who steals my attention or time, and if your ads do that i may well beat you if i ever meet you in public

in an attention economy, taking my attention is stealing my money

the essential vibe of almost all ads is selfishness, greed, and distortion... qualities we all avoid in people ... not sustainable in an edge economy

the value ratio of my preference for my attention over your desire to make money off of me is a very large number

i suggest you do something else with your life, think about giving instead of taking
// Blogger gregory // 4:41 PM

@cg: Good point. In a sense, what we're doing isn't different than any "sponsored by" efforts of the past. But we think it's not identical either. Specifically, software is a unique medium that has an ability to connect very deeply with an audience and become part of their life in a relatively cost-effective fashion (relative to other mediums that can connect deeply). If you combine the right brand and the right experience you really can end up reinforcing for an audience that the sponsor gets them. The sponsor gets that connection with the audience, and the audience gets the value of the software. At least this is our thinking...

@Michael: You got it that the value we create is primarily for the end user. It's certainly our goal that the presence of the advertiser won't detract but I agree with you that at times it won't necessarily add value for the end user (other than informing them of the brand's purported identity/values (which customers will either find authentic or not). I think though there may be times when in fact the sponsor's presence could add value. Imagine a sponsor with a large library of content that could be incorporated into the app for the user's use and enjoyment.

I'll add that in terms of the future of ads, I'm really only addressing the brand side. There is an enormous business of direct response advertising that requires a completely different approach. Google is of course making a mint in this area.

Thanks so much for the comments. Super helpful.
// Anonymous hillel // 8:11 PM
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