The June issue of Wired has a provocative piece by my colleague Steven Levy on Googlenomics—that is, Google's extraordinary success at transforming the ad business from the martini-fueled ego bash portrayed in Mad Men to the highly automated, algorithmic exercise that is search advertising today. But the story only glancingly addresses the connection between Googlenomics and the overall state of online advertising, which is not healthy. Advertising, virtually all of it search-related, brought Google more than $21 billion in revenue last year, accounting for 97 percent of the company's gross income (and funding, among many other things, the phenomenal money pit that is YouTube). In the US, Google search advertising—almost all of it priced on a cost-per-click basis—accounted for close to 45 percent of the total Internet ad-revenue tally reported by the Interactive Advertising Bureau.
The Google model assumes that if your ad isn’t clicked on, it’s worthless—and in the case of the short text ads Google places next to search results, that's pretty close to true. But what about everything else? Search-related advertising does little or nothing to build a brand, but online video and display ads are devalued because they don't generate comparable click-through rates. Web video accounted for just 3 percent of the money spent last year on online advertising, according to the IAB. There are a number of reasons, but the key one is this: Ad people tend to buy what they can measure. Yet for brand advertising, click-throughs offer a measure of engagement that's as seductive as it is meaningless. And as a result, brand advertising is languishing on the Web.