3 factors diminishing the value of digital advertising

Advertisers are significantly concerned about the value of digital advertising and that concern is leading them to question whether and the extent to which digital advertising will remain in the marketing and advertising mix of their companies.

3 factors are central to the discontent: suspicions about the effectiveness of digital advertising, large amounts of fake traffic, and concerns about the returns on advertising investments. Media companies, platforms, and others providing digital advertising must address these issues if digital advertising is to remain viable.

Much of the concern about poor effectiveness of digital advertising is due to poor ad formats, lack of audience attention to ads, and high rates of ad blocking—currently about 40% in U.S. on computers and tablets.

Such concerns have forced digital advertising prices downward for the past decade because those factors have reduced demand and because there has been a dramatic increase in advertising inventory that is making individual ad slots less valuable. Today the CPM for Facebook is about $10 and the costs per click average about $2.30 on Google Ad Words and $1.70 on Facebook.

The serious problem of fake traffic continues to inflate audience figures and make advertisers wary of the data given them by those providing advertising space. It is estimated that advertisers lose $6-10 billion annually because of bots increasing visitor, viewing and click data. Although digital firms recognize the issue, no effective remedy has yet been introduced.

Because of the first two factors advertisers are not seeing the return on investments they desire.  ROI is a measure of additional turnover generated by the advertising expenditure. When diminishing returns are seen, advertisers reconsider where they are investing advertising expenditures, how much they are investing, and whether stop additional investments. Digital advertising ROI is concerning because some advertisers are finding it is only about 1/3 that of their ROI for television ad expenditures. ROI issues led Procter & Gamble Co. to cut digital advertising spend in 2017 by $200 million after data showed it was not effectively reaching its target audiences, causing its ROI to decline.

Those providing digital spaces must work together to improve the acceptance and effectiveness of digital advertising or they will never be able to improve prices they can charge and the revenues they receive from advertising sales.