Key points:

• The marketing super bubble will burst
• Look at Asia for real money
• But we still need advertising for the discovering new products

The advertising industry has developed from a simple promotional industry, to the main business model for some of the biggest Internet companies.

In 2010, spending on advertising was estimated at $142.5 billion in the United States and $467 billion worldwide.

In the first quarter of 2013, Google advertising revenue was $11.9 bn. Advertising revenue was 92% of Google’s revenues for the quarter.

For the fourth quarter 2012, Facebook’s revenue from advertising was $1.33 billion, representing 84% of total revenue.

Google & Facebook earn advertising revenue by selling clicks on adverts, called CPC (Cost Per Click). CPC is a fantastic business model because advertisers bid for the keyword using two variables – the maximum they’re willing to pay for a user to click through to their website, and the maximum budget they’re willing to spend per day.

CPC is a great business model because companies will keep coming along and outbidding their competitors. Industry magazines contain articles asking their members to stop outbidding their competitors because it is out-pricing everyone in their market and increasing advertising costs for them all.

There’s a deeper problem with advertising though. Users don’t go to Facebook or blogs to shop.

I’ll even question whether people go to Google to shop. For instance, I’m writing this post on a Friday afternoon. According to Google, the top searches in the US today are:

• George Jones
• Nfl.com
• Jarvis Jones
• NFL Draft

Here in the UK there’s only one item in the top trend – Sarin. (To provide some context, there’s some evidence Sarin has been used in Syria).

Here’s another interesting fact. If you look at the top searches on Google, try looking for any searches you can actually buy. I’ve tried combinations of time periods and locations, and the majority of the searches are for specific websites – facebook, youtube, hotmail, and so on.

We are beyond the tipping point of advertising products to users.

We’re already inside a huge industry bubble, with too many businesses reliant on pure advertising.

There is a requirement to continue advertising though – for product discovery.

Like thousands of other homes across the country, we do our grocery shopping online. And the typical grocery shopping website is awful. It’s completely single-product focussed, based on Amazon ten years ago. A single page contains a single product for sale, and perhaps some small thumbnails along the side or the bottom of the page for recommendations.

Look at the image opposite, a tin of soup from Tesco supermarket. Compare this with the soup shelf in my local Tesco supermarket. The shelf contains many varieties of soup, so when I go to the shop and I’m looking for a specific flavour of soup, in my peripheral vision I’ll notice a number of other flavours.

This analogy can work in two ways. First, it can help Heinz sell more varieties of soup, and secondly it can help me to discover flavours of soup I might not have previously considered.

Another analogy of discovery is music. I use Spotify, which contains all my favourite music tracks, and listen to the car radio to discover music I might not have discovered on Spotify. If I hadn’t listened to the radio, my playlist on Spotify wouldn’t have changed since I started the service.

We need advertising to help us discover products and services outside of what we search for. The Internet, as great a tool as it may be, is still based on users searching for what they already know.