Monetizing the banner ad crisis

The rise and fall of banner ads

The first banner ad was placed in 1994. It was, essentially, an experiment in clickbait, created by AT&T for WIRED magazine’s new website, HotWired.com. With a click-through rate of 44%, the experiment proved to be extremely successful. Companies took note of banner ads’ potential, which led to an explosion of advertising networks during the dotcom boom. All in all, by the time internet access became ubiquitous, so did the banner ads. But not everyone was happy to see them.

That’s how the world’s first successful ad blocking software, PrivNet Internet Fast Forward, was born. It appeared in 1996 and succumbed to legal troubles in just a short couple of years. But its vision of the Web without ads lived on in browser extensions, that took the internet by storm in the mid-2000s. 24 years later, an estimated third of all internet users are browsing the Web with an ad blocker. Why?

First and foremost, banner ads are a waste of screen real estate – most people find them useless. Then, they have a reputation for being obnoxious. Early banner ads tried too hard to get users’ precious clicks, and became widely despised for their over-the-top effort. Lastly, a lot of people simply don’t want to be targeted at all. They find these practices intrusive, and take steps to anonymize their internet presence.

Making the most of the banner ad crisis

One man’s misery is another man’s fortune — and the banner ad crisis proved to be profitable for a number of companies. For one, ad blockers themselves are actually making money: as the arbiters of what gets to be filtered, they often partner with advertisers to let some things through. That’s how AdBlock Plus, a company with less than 50 employees, manages to make an estimated $19 million a year. In addition, some ad blocking services — like AdGuard — actually cost money. However, they rarely charge exuberant prices, and typically throw in extra privacy-enhancing features, for a good measure. Indeed, with a growing number of huge data leaks, privacy paranoia has become an important factor in their popularity.

Banner ads themselves are transforming to fit the world that hates them. Among the biggest names in today’s banner advertising are Taboola and Outbrain — a new breed of ‘semi-native’ ad networks that rack up more than a billion dollars in yearly revenue. The technical term for what they’re doing is ‘content recommendation’, but the reality is a bit less glamorous. In practice, they insert sponsored links into the pages of legitimate news websites. Chances are, at least some of the news sites you frequent integrate this type of content recommendation engine into their platform. For example, HuffPo, CNBC and The Daily Mail all rely on Taboola to make extra money.

On the other hand, the banner ad crisis forced companies to look for new ways to promote their products and services online. We have seen a rise in content marketing and native ads. But the real star of the show now is influencer marketing.

Influencers: a radical new way to advertise

In recent years, the influencer marketing industry has become a force to be reckoned with. It is estimated to reach $15 billion in size by 2022, as people are willing to spend relatively large amounts of money on influencer-endorsed products. The ‘marketing’ here is built on a simple premise — people trust other people more than they trust brands. Influencers are not salespeople — they are role models. Their status as influencers is an indication of people’s willingness to follow in their footsteps. Their power lies in the ability to change people’s minds and rally their audience around a common goal. Our interactions with them are personal, unlike our interactions with ads. And that’s what makes influencers good at promoting things. Simply put, if someone you trust vouches for a product, you are more likely to try it.

The principle is twice as true for nano-influencers, social media users with a modest following. Bigger accounts are one step removed from their audience due to their size. They can’t reply to every comment and pay attention to every like. Regular social media users aren’t affected by this. That’s why their engagement rates are much higher, making them more suitable for product promotion. We created MNFST believing that, going forward, nano-influencers will play an important role in advertising. And we like to think that we got it right. At scale, nano-influencers can provide a wide reach with high engagement — deliver the best of both worlds.

The moral of the story

Sure, banner ads haven’t lost all their relevancy. But the internet is changing, and it’s safe to assume that the days of their glory are long gone. Gen Z, the kids of the Adblock era, have a drastically different relationship with advertisements. They see traditional ads for what they are, and desire something different, something much more personal. On the other hand, brands are just as disillusioned by banner ads. They look for new ways to connect to their customers — ways like native advertising.

Nobody knows what the future holds. What matters is being flexible and willing to listen. You don’t have to abandon everything and rethink your digital strategy from scratch. But it wouldn’t hurt to think ahead and try new things. Today this ‘new thing’ is influencers. Tomorrow — who knows?

Misha Sokolov is co-founder of MNFST