A simple theory of product purchase and the low value of on-line ads

Matt writes (see also Tom Lee):

To those of us on the editorial side of online media this is a very frustrating dynamic. It’s hard to make money writing online because the advertising rates are pathetic compared to what was historically available in print. And the rates are pathetic because the utilization rates are pathetic. But what kind of click-throughs did those glossy magazine ads get? Something here doesn’t add up.

For a lot of products, my model of the purchase decision is fairly simple.  If you hear about it two or three times from relatively "cool" or prestigious sources – which can be ads, friends, institutions, and so on – you will take it seriously and at least think about buying it.  Even then it is often an "impulse" purchase and need not follow directly upon viewing any one of those ads or mentions; you may be in Barnes & Noble and wishing to cheer yourself up and what do you look for?  Something you've heard about a few times.  (This also leads to an equibrium where people are predominantly interested in new books, music, etc. and in turn those are the advertised products.) 

On-line ads, precisely because they are so plentiful, and look so pitiful, do not count in this regard.  Thus their main value comes when a click follows and that isn't so often.  If there were many fewer on-line ads, those that remained would stand a better chance of being focal.  But there is no way to get to that equilibrium, given the expanding supply of ad space and its relatively cheap cost.

Here is an interesting post on on-line ads.


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