Intelligent Machines

Cutting-Edge Ads Have Enabled Web Businesses to Flourish

Innovations in digital advertising and consumers’ willingness to share their data have made the growth of free and cheap online services possible.

Since the early days of the Web, digital advertising has played a crucial role in its growth and success. Media companies and early online portals were the first to figure it out. They understood that putting up pay walls would limit their appeal to consumers. For the few that reached critical mass, digital advertising worked well enough to build viable, profitable businesses.

Scott Jacobson
Scott Jacobson

Admittedly, digital advertising 1.0 was pretty crude. Banner ads quickly faded into the periphery for most consumers. Targeted advertising, putting the right ads in front of the right people at the right time, was no more sophisticated online than it was in traditional media. Digital ads could support only a handful of large-scale properties, and building sustainable online businesses was a challenge.

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Today, after a decade of improvements to ad technology, many of those shortcomings have been addressed. On desktop and mobile platforms, consumer businesses can integrate advertising in ways that work for both advertisers and consumers. 

Ad targeting may be derided and despised by consumer privacy advocates and members of Congress (see “The Real Privacy Problem”). But it is actually hitting its stride. People willingly share data revealing much about their friends, influences, and demographics, and the things they own or plan to purchase. There is an implicit value exchange in that transaction. The consumer gets free services such as Facebook, Twitter, and Pinterest. The companies offering those services leverage the data to deliver highly targeted, highly relevant marketing messages that pay the bills. Privacy advocates can and will continue to lobby Congress, but I don’t think consumers care. As long as people perceive value in the trade-off, they’ll continue to share their data.

This has made it possible to place advertising not around the periphery of content but “in the stream,” whether that is the Pink Floyd channel on Pandora, an episode of Modern Family on Hulu, or my news feed on Facebook. Less obviously to consumers, these changes have been helped by technology that automates the buying and selling of ad inventory. We are approaching a world where the majority of digital advertising dollars can flow without three-martini lunches, phones, or fax machines in the picture.

All these innovations are good for consumers, who continue to get more content and entertainment free or at significantly subsidized rates. Entrepreneurs and established companies are able to build Web and mobile businesses to provide those services because they can deliver the right messages to the right people at the right time.

Scott Jacobson, a managing director at Madrona Venture Group in Seattle, invests in advertising technology.

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