Online advertising

Online advertising is famously ineffective.  Studies show that the "click through" rates, or how many people actually click on an advertisement out of those that see it, are minuscule.  On the other hand, this is a kind of study that was simply impossible before the advent of the internet.  Yglesias: 

To those of us on the editorial side of online media this is a very frustrating dynamic. It’s hard to make money writing online because the advertising rates are pathetic compared to what was historically available in print. And the rates are pathetic because the utilization rates are pathetic. But what kind of click-throughs did those glossy magazine ads get? Something here doesn’t add up.

Ezra Klein chimes in:

At the beginning of Ken Auletta's "Googled," Auletta talks with Mel Karmazin, then the CEO of Viacom. Karmazin is aghast at Google's campaign to measure the effectiveness of advertising by tallying clicks. "I want a sales person in the process, taking that buyer out for drinks, getting an order they shouldn't have gotten," he frets. And if that's too subtle, Karmazin continued: "You don't want to have people know what works. When you know what works or not, you tend to charge less money than when you have this aura and you're selling mystique."

It's more evidence that the greatest advertising campaign of all time was for...advertising. Another way to phrase Karmazin's comment is, "the thing you need to know about the advertising business is that the people we're selling advertisements to are basically idiots and we routinely fleece them." And he said it to a reporter, knowing it would go into a book. It's straight gangster. The brand is so strong that the people behind it can freely admit the con at its heart.

He goes on to defend advertising, but to my mind this understates its power, which is more subtle than can be revealed by click-through studies. The amount of people who would see and advertisement and immediately drop what they're doing to go and buy what they saw has to be vanishingly small. But when people are considering to buy something, perhaps something (like a pair of shoes) that they would have needed anyway, the choice of which product to buy can be profoundly influenced by advertising one has seen in the past, and that's setting aside other social effects.  The success of Coke throughout the world should give pause to this kind of glib dismissal of advertising's effectiveness.  Here in South Africa, Coke has so thoroughly permeated the collective psyche that it serves as a kind of general indicator of business operation.  Small village shop owners will often hand-paint a Coca-Cola logo on their sign.

I'm no fan of the advertising industry, but I must say I agree with Ezra's later comments:

The advertising industry was benevolently inefficient. It enabled pretty much every mass information medium we've ever had. Newspapers and radio and television and the Internet (Google, Facebook, etc.) are all brought to you by the advertising industry. There's perhaps no single sector that has done as much to advance human knowledge as the people who sell you soap and cars and soda. They overcharged businesses for ads in order to subsidize producers and distributors of information (and, of course, make themselves rich). The problem with Google, Karmazin once told the company's founders, is that they're messing with "the magic." And they are.

Madison Avenue has done unknowable damage to world culture, but at its very most basic (i.e., Craigslist), advertising is fundamentally legitimate—bringing together buyers and sellers.

For more, see here, here, and here.