[michaelpinto]

It's not a bubble, the advertising industry has always followed this cycle:

The post war television boom in America begat many new Madison Avenue ad agencies in the 50s who reached a high point in the 60s and the 70s, but then by the 80s and 90s were consolidated via mergers and acquisitions.

Even the great Ogilvy & Mather was swallowed by up WPP in 1989. In fact one of the David Ogilvy's greatest regrets was taking the company public which allowed the take over years later.

[Apocryphon]

Isn't it a bubble, when a lot of startups provide free services that are supported by online ads? Wouldn't a crash in the online ads market have a resonance cascade through all of those startups?

[michaelpinto]

There already was a crash of ad banner rates in 2008, in fact that killed many small publishers. You'd have a real bubble if there was a ton of moneys still being pumped into AdTech, but that hasn't been the case for a year now. And you're now seeing mergers and acquisitions take place. A good example of this on a bigger level would be Verizon buying up AOL for their ad business.

Although something to realize is that there are winners in that business. Most people don't think of Facebook as an ad company, but they really do get mobile advertising and from the looks of things they'll keep growing. And that's not just Facebook but other properties like Instagram which will snag more and more ad dollars.

[bduerst]

That isn't quite a bubble, in fact, what you're describing happened to broadcast television advertising and online ads. If people shifted their attention from online to something else, advertising (and thus startups) would follow.

[bravo]

A lot of industries follow a cycle. That doesn't mean they're not bubbles.

[mrweasel]

It might not be a bubble, but there's an oversupply of advertising space. TV, radio and print ads have traditionally been expensive due to the limited supply. You can only have so many ads in an hour of television programming.

Now we have a hundred TV channels, a massive amount of online content, all attempting to attract ads buyers. As a result the price has gone down. The oversupply also opens up the marked for targeted ads and companies that works as brokers. They need to get paid to, so they skim of a few percent, leaving even less to the sells of the ad space.

In the end I don't think that selling advertising space is sustainable for all but the very biggest content providers. The rest will have to have to start finding alternative sources of revenue, or simple charge for they content. I also believe this will leave us with better and more diverse content.

[morgante]

How can there be an oversupply?

All increased supply does is drive down prices. At lower prices, there is sufficient demand to meet supply.

You're right that this is driving low-volume suppliers out of the business, but the world doesn't owe you a business model.

[lmm]

There's oversupply if more inventory is available than can be used effectively. If you accept the idea that there could be an oversupply of e.g. lumber then it doesn't seem too much of a stretch to say the same could be true of advertising space.

[bduerst]

This is survivorship bias.

What you don't see are the spots that have disappeared because there wasn't enough demand to be profitable. The examples you've given are being used effectively because the price points have dropped to match demand for those specific service spots.

Advertising follows user attention, and as attention shifts mediums so does the advertising. That doesn't mean there is an oversupply in the advertising industry, it just means that it has liquidity (more so than physical goods like lumber).

[jacquesm]

The oversupply simply translates into 'more space for billboards' to make a real world analogy and all that does is make the ads get cheaper per unit (display, click, conversion) than it would have been otherwise. Though this holds less strongly for conversion based pay-outs because there is an obvious disconnect there between the displaying of the ad and any pay-out to the holder of the inventory.