Rob Go: 

In search of things new and useful.

Endorsements Needed

Rob Go
October 4, 2007 · 2  min.

About a year ago, I heard about a golfer who was able to play in a PGA tour event by winning a local qualifier. The guy ended up playing the tournament with a shirt with the words “Endorsements Needed” printed on the back.

I searched around for a picture of this guy with no luck, but it made me think about the proliferation of advertising that we are starting to see everywhere (both as a consumer and as an investor).

Ad networks are the big thing these days, with companies selling for multiples of 10x revenue. So it’s no surprise that people are scrambling to find new places to insert ads, with the hopes that they too will make it big. There’s even a company that wants to put ads on the boxes that are delivered to your house when you buy a product online.

There are a couple problems I see with this:

1. There is no good way to really calculate the value of these kinds of display ads. Who knows if seeing a sticker for a Razr on my Amazon package will make me want to buy one? Was the money Motorola paid for my “eyeball” worth it? Was it worth anything?

2. That leads to the second point: the price of an impression fluctuates over time. Many companies live and die by these fluctuations, and because of #1, this is not something that is easy to predict or quantify.

3. However, what we do know from economics is that if supply increases at a greater rate than demand, then you are going to see a decline in prices. Let’s see… people are trying to stick ads on more and more stuff. Consumers are getting more and more used to seeing these ads and are ignoring them more and more. So what we can predict is that prices for display ads will go down, which would spell trouble for many many companies out there.

This is not to say that ad networks are a bad thing across the board. There are some industries where advertising is the right way to capture value from consumers’ attention. But there are a lot where this is definitely not the case.

Rob Go
Rob is a co-founder and Partner at NextView. He tries to spend as much time as possible working with entrepreneurs to develop products that solve important problems for everyday people.