Digital advertising as we know it has peaked

The online ad industry could have avoided much of its current turmoil by simply exercising a greater level of restraint and self-policing. It didn’t.

Note from Adam: the following is a version of an op-ed just published on Fast Company from my colleague at AdQuick Chris Gadek I think was well done, and good food for thought for advertisers and the tech sector as a whole. It traces the history of digital ads and how we’ve arrived at the crossroads we currently sit. Note, I am personally bullish ad formats like YouTube pre-roll (supports creators with fair split, can be skipped so user-friendly), CTV (far superior to cable which brands still pour billions into as they don’t know what to do with their spends, savvy companies are going to move majority of TV budgets here sooner rather than later) and of course digital out of home our team at AdQuick built a platform for (the only ad format people consistently and organically share on social, because it’s not intrusive and “lindy” for cities and airports etc).

But due to privacy concerns, banner ad blindness, adblockers and more there are massive headwinds for many online ad formats that have become the bread and butter of marketers who continue to operate like nothing has changed. “We cannot change the wind we can only adjust the sails” is apt here, and your company doesn’t want to be torching precious funds, especially now, on campaigns no one sees just to inflate KPI dashboards. It’s an exciting time to be in advertising, as I stated in my recent post on ad tech trends, but adapting to the times is necessary fast, and not something your team or CMO can sleep on. With that intro stated, on we go…

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image credit: sandy.redding via flickr cc

In 1994, stodgy US telecoms giant AT&T paradoxically launched the first-ever digital banner advertising campaign. Neither AT&T nor Wired (the site that hosted the ad) could have possibly anticipated how ubiquitous digital advertising would become, nor that it would emerge a $700bn market just three short decades later. 

And yet, here we are. Online advertising is the juggernaut that created today’s internet giants, like Meta and Google. It’s the lifeblood of the digital economy. But it also faces an existential crisis. In all likelihood, digital advertising as we understand it — and as we have understood it for the past three decades — is dead. 

If you don’t mind me saying so: good riddance. The digital advertising industry is a Lovecraftian horror story of excess, abuse, and privacy violations. It is a multi-headed monster, with each head more repulsive than the last. Don’t worry, I’ll delve into the industry’s most heinous crimes later in this piece, if only to persuade the unconvinced that the death of online advertising isn’t merely inevitable, but necessary. 

But please: don’t think I’m being incendiary simply for the sake of it. Behind these flecks of spittle and rage, there’s a compelling tapestry of data that points to an eventual terminal decline. Online advertising is dying. And not a dignified death, surrounded by loved ones and kindly nurses. It will be a gruesome death by a thousand cuts. I can’t wait. 

In memorium: digital advertising (1994-2023)

Before we describe the phenomena accelerating digital advertising’s terminal decline, we should first try to understand the underlying causes. 

And to do that, we have to start from the very beginning. In many respects, the first banner ad was strangely prescient. It adopted tactics that we would today describe as “clickbait.” It read: “Have you ever clicked your mouse right HERE? YOU WILL”.

Obvious? Yes. Sophisticated? Hell no. But more than anything, it was stunningly effective. According to a 2017 retrospective published in The Atlantic, 44 percent of those who saw it also clicked on it. That figure is almost unthinkable by today’s standards. According to advertising industry analyst house SmartInsights, the average clickthrough rate for Google Ads is 3.17 percent. 

But more than anything else, it was a harbinger of things to come. Digital advertisers knew that their most effective asset was their audience’s curiosity. And so, others replicated and refined AT&T’s formula. Adobe Flash ads proliferated like fungus in a poorly-ventilated bathroom, with each promising huge cash prizes for their millionth visitor. Spoiler: we were all the millionth visitor, and the check is still (still!) In the mail. 

This tactic remained relevant even into the 2010s and 2020s, with platforms like Taboola and Outbrain appearing prominently on even the most prestigious of websites. These platforms pioneered the concept of the “chumbox” — a grid of “popular content” that largely consisted of salacious gossip, dubious health advice, and blogs that largely boiled down to “wow, this 1990s child actor got old and fat.” 

Of course, online advertising is more — far more — than just clickbait. As the Internet became a ubiquitous fixture in our lives,  it attracted prestigious “blue chip” brands that wanted to tap its ever-growing reach, but didn’t want to compromise their brand safety and image by resorting to underhand tactics. 

And so, we ended up with a sophisticated tracking and profiling apparatus. The adtech industry built large, detailed profiles of individual consumers, their interests, and their preferences. These adtech businesses acted almost like a private intelligence agency. Through their surveillance, they could deliver ads with gravity-defying precision. 

This status quo worked, until it didn’t. The 2010s saw a groundswell of privacy awareness among consumers, driven in part by the Snowden disclosures, which, although largely unrelated to the advertising industry, nonetheless illustrated the incredible targeting potential of our personal data.  

Further scandals followed, most notably Cambridge Analytica and AggregateIQ, which both used the same tactics and approaches as conventional adtech businesses, but rather than promote consumer electronics and perfume brands, instead pushed political change. This created a situation that regulators could no longer ignore. 

The online advertising backlash 

With that scene-setting in place, it’s time to outline my thesis behind the terminal (and welcome) decline of the existing online advertising ecosystem. There’s a lot to discuss here, and I’m going to list them in order of importance. 

The most prominent factor is the backlash against the current data-centric advertising model, both from regulators and tech companies alike. 

On the regulatory side, we’ve seen a flurry of legislation that aims to curtail the excesses of the online advertising sector. GDPR is, naturally, the most prominent example. It’s significant for three main reasons: the restrictiveness of its provisions, the size of the European market, and the fact that it’s served as a blueprint for similar laws in other non-EU territories and states. Examples of the latter include the California Consumer Privacy Act (CCPA) and Canada’s Digital Charter Implementation Act (DCIA). 

GDPR (and similar legislation) broadens the definition of what constitutes private data, creates a consent requirement for any data processing, and imposes stiff fiscal penalties for violations of its provisions. It also formalizes the chain of responsibility, with certain large data-centric businesses required to have a named Data Privacy Officer (DPO), and requires organizations to obtain explicit consent before processing “special categories” of data. This term encompasses both personal biographical information, as well as things that you perhaps wouldn’t ordinarily think of, like political opinions. 

Parallel to this, large tech brands have also steps that limit the advertising industry’s ability to track and target. Apple’s App Tracking Transparency (ATT) is a great example, both because it’s widely-deployed, but also hugely effective. Analysts believe it cost Facebook nearly $13bn in lost revenue in 2022. And that’s just one company. 

Google has similarly taken steps, most notably with its decision to discontinue the tracking cookie from Google Chrome in 2024. The open-source Chromium project, which develops the engine behind the Chrome browser, as well as Brave and Microsoft’s Edge, is working on building anti-fingerprinting technologies. These will further limit the ability of adtech providers to identify individuals with any degree of precision. 

In short, the regulatory and technical environment that allowed the adtech industry to operate unchecked is now over. I can’t overstress how significant these developments are. The closest parallel I can think of is the looming banning of new gasoline vehicle sales in California and other US states. That’s how transformative they will be. 

These actions have a trickle-down effect. It’s not merely that lawmakers and tech brands are making life difficult for the online advertising industry. It’s that, as a consequence, digital channels are increasingly less attractive (or useful) for advertisers. And so, they’re looking to spend their budget elsewhere. A great example is audio advertising, which grew by 57.9 percent in 2021, and continues to expand at a phenomenal rate. 

Long live online advertising 

So I’m not accused of perpetrating the same clickbait tactics I decried earlier in this piece, I think it’s time to inject some nuance. I sincerely believe that the incumbent approach to online advertising is dead. It’s just a matter of time. The regulatory neglect and technological apparatus that contributed to the status quo simply no longer exist. 

Obviously, businesses will continue to market their wares through digital channels. But it’ll look quite unlike what we have now. 

The era of hyper-precise targeting is well and truly over. Moreover, the browser will be of decreasing relevance to advertisers, in part due to the factors I mentioned previously, but also due to the widespread adoption of technological countermeasures that effectively allow consumers to opt out of advertising. Around 42.7 percent of individuals use adblockers, and that figure is only growing. 

With respect to digital channels, we’ll see a greater reliance on walled (read: controlled) platforms, like YouTube. This is a great example of what the future of online advertising looks like, as its users overwhelmingly prefer to access the platform via the mobile app, where advertising is almost impossible to block without paying for a premium subscription. 

By sheer necessity, browser-based advertising will rely on cohort-based or contextual targeting. This will likely translate into lower conversions for advertisers, and so they’ll return to other tried-and-tested advertising channels. Audio, which I mentioned previously, is a great example of this. So too is outdoor advertising. 

In short, this new incarnation of digital advertising will be less intrusive, but also less lucrative. It’ll involve working with large monolithic platforms, like YouTube, which can exert a degree of control through their mobile experiences. Many types of online ads as they exist today will account for an ever-smaller slice of the global ad spend. 

This situation is largely self-inflicted. The digital advertising industry could have avoided much of this turmoil by simply exercising a greater level of restraint and self-policing. But they didn’t. The looming existential crisis is the price it must now pay.