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Randall Rothenberg, IAB President & CEO, Sets Record Straight on Digital Banner Ads

Randall Rothenberg

Banner ads are the Mark Twain of the Internet: reports of their death are greatly exaggerated. So it is with Farhad Manjoo’s historically jejune and financially illiterate November 6 article, Fall of the Banner: The Monster That Swallowed the Web.

Curiously, Mr. Manjoo cites not a single statistic to support his thesis that “finally, the banner ad is in decline.” Perhaps that’s not so curious, for the facts tell a very different story. Since the 2002 introduction of the Interactive Advertising Bureau’s Universal Ad Package—the basic codification of banner ad formats—display advertising revenues have grown 460 percent, accounting for nearly $8 billion of the $43 billion spent on digital advertising in the United States in 2013.

In this entire period, during which the Internet grew to become the largest advertising medium in the U.S., display advertising  (of which banners are by far the dominant component) remained the single largest form of digital advertising other than search. When search advertising is deducted from marketer expenditures on digital advertising, banner-based display ads accounted for 32 percent of  Internet ad spending in 2013; in 2002, banners accounted for 33 percent of Internet ad spend.

Mr. Manjoo is doubly wrong when he says banner-based display advertising is “so ineffective,” and that’s why “banner ads are sold for low prices.” The pricing of display advertising, like the pricing of airline seats and coal, is a function of supply and demand. Average ad prices have declined in most media because the Internet’s low barriers to entry have generated an avalanche of new advertising inventory, in an economy where demand for advertising (measured as a percentage of Gross Domestic Product) has largely been stable since the 1920s, accounting for 1 percent to 1.4 percent of GDP, according to the Department of Commerce.  For this reason among others, banner ads are remarkably effective, providing five to six times the yield of direct mail—a major reason advertisers have transferred so much of their budgets to this supposed “declining” format.

Mr. Manjoo also, oddly, attributes unique privacy concerns to banner advertising. Yet as a technology reporter, surely he knows that all Internet communications—banner ads, social media posts, links in online newspaper articles—throw off data about user interests and interactions. So, for that matter, do telephone calls and cable television boxes. Yet only the digital advertising industry has developed a self-regulatory program, praised by the White House, the Commerce Department, and the Federal Trade Commission, that gives users control over the way their data is collected and used. The development of this self-regulatory program, the protections it offers, and the operating standards it provides industry have helped fuel the rise of “programmatic advertising”—the automated trading of Internet banner ads—in which 85 percent of advertisers currently are engaging, according to a study for the IAB by the Winterberry Group. So much for a declining ad format.

There’s a larger flaw in Mr. Manjoo’s analysis, however: his assumption that banner advertising is utterly distinct from all other forms of advertising, on the Internet or elsewhere. Banners are simply a format standard, no different than the advertising format standards that undergird other forms of media, such as the 30-second television commercial and the double truck magazine ad. Such standards exist to take complexity and cost out of an industry supply chain, allowing businesses to achieve scale efficiently. Some of the “native advertising” Mr. Manjoo lauds—known in the industry as “in-stream ads”—is simply a scalable banner format moved from the margins of a PC or mobile screen into its center, where it interrupts the content flow, exactly as television spots and magazine ads quite effectively do. Other forms of native advertising, such as the “content ads” for which Mr. Manjoo reserves special praise, are difficult to scale, because they are designed to mimic the design and conventions of a specific site. As anyone who has studied microeconomics knows, such customization passes costs up and down industry supply chains, and has the potential to limit companies’ profits.

The fact is, the digital advertising landscape is far more nuanced and sophisticated than Mr. Manjoo describes. Marketers today are using digital advertising to drive results across the entire purchase funnel, from creating new desire and demand with beautiful concept ads much as they have done with television for years; to deepening engagement via content-rich advertising;  and, finally, driving transactions with highly targeted “commerce ads,” of which banners are likely to remain the standard for a long while.

Farhad Manjoo has built a lengthy piece on a ridiculous premise: that banner advertising has facilitated “the web’s decline.” Since 2010, digital and mobile devices have increased their share of U.S. consumers’ media consumption to 47 percent from 29.6 percent, as television’s share has fallen to 36.5 percent from 41 percent, and print’s share of consumer attention has declined to 11 percent from 15 percent. Interactive media’s rise has been facilitated by one thing: the remarkable diversity of content available to satisfy any interest and every curiosity. For much of that content, advertising—including the still-resilient banner ad—foots the bill.

Authors

Author
Randall Rothenberg
Executive Chair
at IAB