You may be familiar with the concept of peak oil, but Tim Hwang and Adi Kamdar (both former affiliates of the Berkman Center here at Harvard) are pushing the idea of peak advertising. (Tim is best known for cofounding ROFLcon; Adi is now an activist at the Electronic Frontier Foundation.) The highlights of their working paper:
Key indicators for online advertising effectiveness have declined since the launch of the first banner advertisement in 1994. These declines are increasingly placing pressure on even the most established businesses in the space.
These developments suggest important (and potentially painful) implications for market structure, privacy, and authenticity online.
Existing alternatives appear at present to be insufficient to replace lost revenue from near-future declines in the value of display, search, and mobile advertising.
Ultimately, the economics of the web will necessitate pivotal decisions about the financial underpinnings of the Internet in the decades to come.
Here’s the full PDF. Tim and Adi have made up some fanciful titles for themselves — they’re at the “Advertising Subduction Observatory” and “Cyber Tectonics Research Initiative” of the “Nesson Center for Internet Geophysics,” respectively — but the facts they’re writing up are very real. So are some of the implications:
To that end, Peak Advertising will drive the formation of highly monopolistic or oligopolistic market structures for advertising, since only the largest companies will have the scale of advertising inventory necessary to remain profitable. Smaller companies that are especially reliant on advertising will have difficulty remaining profitable and will face incentives to sell to companies with larger aggregate volume to sell…
We may very well reach and pass the point of Peak Advertising without any significant innovation emerging to maintain and grow the flow of revenue supporting the Internet. What will be left with is a stagnant and ever eroding flow of revenue from the primary sources of advertising, and the inadequate substitution of new forms of advertising in its place. Of the few players that remain, they will produce a web experience that engineers the erosion of user privacy and the blurring of the line between real content and advertising.
The future we end up with is partially a matter of technological innovation, but also a matter of human choice. To those designing platforms and using those platforms, the issue is: what kind of Internet do we want to have?