Simple Question With Complex Implications

On Monday after the “markets” closed Alphabet™ (aka Google™) reported earnings that were impressive for any company in this current environment, beating both on the top, as well as the bottom line.

And yet there was that fly-in-the-ointment as they say, that seemed to make the report not as “terrific” as one would think at first blush. The “fly” is the current: cost per click.

For those not that familiar with the term, this is basically how the “eyeballs for ad” model gets paid. Or said differently – this is what advertisers pay to the company when you click on their link. Pretty simple model, but it is the model of the entire internet as most now know it. Without it, the internet, as well as the companies that serve it up as it is currently known collapses. Yes, it’s that important, and with that importance comes a very simple question…

If there’s demand for something, and it’s effectual: Why are prices falling?

Advertising is not something that follows the “commodity” pricing model. Worthless advertising does, but not effectual.

If you can provide hard numbers that are both empirical and guaranteed, with some form of accuracy? Advertisers will pay up. Period. No advertiser or sector group is going to allow effectual ads to be had by their competitor if it’s proven to be effective. Sorry, it just doesn’t work that way.

So here’s why this is important: It is currently an accepted meme that both Google, as well as Facebook, are garnering most of the mobile ad dollars via the game of attrition. In other words, as advertisers pull their ads or campaigns from differing venues that have shown to be ineffectual, they are either moving some of those dollars there, or back to older venues such as TV or radio. And in some cases neither, in an effort to stop the hemorrhaging of throwing anything everywhere with little to nothing to show for it – except big ad bills.

Looking at the reported results for Google ad clicks they surged 52% in Q2, but yet, the cost (or what Google charges advertisers) dropped 23%. To put that into perspective: That is more than triple, or a 300% increase in value lost compared to the exact same time frame one year ago. (e.g., -7% to now -23%) To wit:

(Source noted above)

And yet – “clicking” surged 52% this last quarter. This just doesn’t make any sense with what is currently revolving within the economy, and especially when large-scale advertisers are not only threatening to pull ads because of their ineffective results, but are also doing it based on lack of transparency for how and why their ads (which they are the ones paying for) are being clicked on to begin with.

(Just as a reminder: the raison d’être for this entire complex was their knowing every data point with near, if not empirical, certainty. Just don’t ask, or expect, to see those details, especially if you’re the one paying. But I digress.)

I’ve made my opinion quite clear of this entire complex far too many times than needs to be listed. But just to be clear to those who may be reading for the first time: I am of the opinion we have now entered the latter stage before this whole “ads for eyeballs” complex comes crashing down in similar fashion to the dot-com era.

Yes, I am stating that a 52% INCREASE in “clicks” should be taken as a warning sign when put into proper context or reasoning, not what is now being touted by the cadre of next-in-rotation fund managers or “Valley” aficionados as “Great news! They’re killing it!! Buy, and buy more!!!”

Personally, I believe just the opposite, and the way I’m interpreting the numbers (along with my prior acumen in advertising) hardens my resolve for that stance, not weaken it.

Again, the entire complex of “ads for eyeballs” is already falling apart and the signs are everywhere. Hint: Remember when unicorns were the mythical beast to riches via the “ads for eyeballs” model? So what does it say when a once touted unicorn (Rocket Fuel™) that sells those very ads falls from the sky so hard it’s about to be acquired by another in hopes this deal might itself return it to profitability? e.g., Sizemek™ acquires it for $145 million. in 2013 Rocket Fuel IPO’d at $29 – it’s being acquired for $2.60. And I didn’t mention that the acquirer itself was just purchased a year ago for a little less than half its prior year value. (e.g., $74 million down from $150 million) Oh, and hows Snapchat™, Blue Apron™, and others doing? Too soon?

Just a thought (because thinking is precisely what seems absent when it comes to anything tech) the reason for all these “increases” that result in needing to “decrease” the asking price might have to do with something like the following. To wit:

“A Russian Went Inside A Chinese Click-Farm: This Is What He Found”

That’s a story that involves a Russian that should really be making headlines everywhere. But then again, that would be bad for the “clicking for profits” business, wouldn’t it? Let alone – the next-in-rotation fund-manger business.

An entire complex revolves around the answer to that simple question. But I feel the answer is already known – just no one yet will dare admit it.

© 2017 Mark St.Cyr