What do LinkedIn, Twitter, Google and Yelp have in common with goldfish?
Let me give you a hint.
Goldfish are said to have an attention span of 9 seconds, which is, remarkably, one second longer than that of the typical American consumer today. Worse yet, that’s 10 seconds less than it was a decade ago and dramatically less than it was in the 1960s and 1970s.
Unfortunately for LinkedIn, Twitter, Google and Yelp, those consumers with short attention spans make for lousy business. Particularly, when the business model is dependent entirely on ad revenue in an online sea overrun with ad supply and fewer and fewer fish attracted to that ad bait.
The proof is in the news that each of them made over the last week.
- When LinkedIn reported its Q1 earnings, it beat its revenue estimates but didn’t provide a precise measure of its user base. Rather, it was reported that LinkedIn simply “cut and pasted” boilerplate lingo from its prior report that instead approximated its user ranks at “over 350 million.” That wasn’t good enough for analysts and investors, who peg future advertising revenue sales to a growing user base. LinkedIn shares dropped 27 percent in afterhours trading.
- Yelp’s unique users grew, but not as rapidly as they did last quarter or even a year ago. In a prepared statement, CEO Jeremy Stoppelman emphasized Yelp’s focus to “seek ways to increase engagement and drive awareness while striving to demonstrate the value we can deliver to local businesses in order to capture the large local advertising market opportunity.” That didn’t seem to resonate with investors; Yelp shares dropped 23 percent. It’s now shopping itself around to buyers.
- Twitter has also found it difficult to both engage users and attract new ones. Although it grew revenue by roughly 74 percent last quarter, it was less than analysts expected and below the company’s own forecasts. The shortfall was attributed to its new advertising business model – one that pegs the price of ads to results. Analysts interpreted the revenue shortfall as a sign that Twitter, as a direct response sales channel, is not viable. “Do people want to leave what they are doing on Twitter and do something else like buy something?” said an analyst for eMarketer. “Direct-response advertisers haven’t figured out the best way to use Twitter, and Twitter hasn’t figured out the best way to market to them.” Twitter saw its shares drop 30 percent.
- Google’s search business continues to feel the effect of the consumer’s move to mobile. Google’s cost-per-click declined by 7 percent from this time a year prior. Google’s revenue of $17.26 billion was lower than analyst forecasts. Google’s CFO tried to allay investor’s concerns by suggesting that eyeballs weren’t abandoning Google entirely but moving to YouTube’s TrueView ads which have a lower cost per click. And, although Google’s share price didn’t drop – which some attributed to its Project Fi announcement – Google’s ad revenue from search has been on the decline for the last several years.
LinkedIn, Twitter, Yelp, and Google, are just the most recent examples, but certainly not the only casualties to the attention deficit that consumers exhibit today – and the change in the consumer’s path to purchase that it implies.
And the role of payments in potentially reversing that curse.
Back in the good old days of black and white televisions and rotary landlines, advertisers ruled and the number of channels available to brands to reach those consumers was pretty small. For instance.
In the 1970s – a decade after the “Mad Men” advertising industry exploded, buying an ad on one of the three major network television stations was a surefire way to reach 70 percent of all Americans. If TV was too pricey, a retailer or a brand could buy a print ad in one of the major national newspapers or dailies, or put a coupon in one of the free-standing inserts stuffed into those papers several times a week. Consumers could also browse in the stores in the shopping centers and suburban Malls to discover new brands and buy products – and did. The odds that an advertiser could catch the attention of the consumer were pretty good – there just weren’t that many options for consumers to get information about products and brands.
Fast forward to today.
A USC Marshall School of Business report says that this year, in 2015, Americans will consume more than 1.7 trillion hours of media for an average of 15.5 hours per person per day, not counting what they might consume during work hours. They say that’s equal to about nine DVDs worth of data for each person each day.
And consumers do most of that consuming via their smartphones and tablets – while doing many other things.
Consumers surf the Web while commuting to work. They check Facebook while eating and check posts from their favorite blogger in between meetings. Ninety percent of consumers reach for their phones within 15 minutes of opening their eyes in the morning to check their email. They use their phones to check out product reviews while standing in front of products at a physical store and text their friends while at the movies. Nearly 50 percent of the time that people are watching TV, they’re doing something — texting, shopping online, updating LinkedIn, surfing the Internet, and checking Facebook — on devices connected to the Internet.
These smartphone toting consumers – who are always connected to the Internet – are bombarded by more than 5,000 ads a day. Most of which they ignore. Fifty percent or more of the times that consumers click on ads, they do so by mistake. Advertisers, smart to that, force consumers to endure intrusive ads before getting to the video or webpage they wanted to see. Even television advertisers are hip to the attention deficit disorder of consumers. They’re buying 15 second spots in droves – accounting for 44 percent of all commercials aired – up from 35 percent in 2000.
Advertisers squeeze in ads every chance they get in every single one of the channels, consumers are connected to today, competing vigorously for their 11 second attention span like never before. And diluting their effectiveness.
All this points to the fact that advertising has become a commodity business where advertisers basically allocate advertising dollars across multiple channels, all vying for the attention of a very distracted consumer, with their fingers crossed that they’ll get a decent ROI. The sophisticated ones use software that allocates ads across channels to get the best ROI. That software is brutal and indiscriminate in switching ads between Twitter, CBS, and Facebook depending on where advertisers are getting the most bang for the buck at any moment in time.
Which is totally dependent, of course, on where a distracted consumer’s attention is focused.
But unlike the good old days when advertisers ruled the road because they had a captive audience with access to only a few channels, the consumer is now in charge.
Consumers now have tools, access and the power to decide where and what and how and when they’ll get their information about the products and services that they’d like to buy.
So, what’s an online business that’s dependent on online ads for its revenue source supposed to do?
Well, it all depends.
If they can attract lots and lots of valuable eyeballs and develop creative ways of keeping their attention, they could be OK.
For instance, Tencent, China’s massive mobile messaging platform, blunts its reliance on ad revenue by selling products – premium messaging services, stickers, and games, to its massively engaged and captive audience.
Facebook has managed to buck the bad online ad revenue trend for the moment too because 65 percent of its user base – nearly 1 billion people – check Facebook every single day (up from 63 percent the quarter before), spend time there, see ads and click. Revenue from mobile advertising was 73 percent of Facebook’s total advertising revenue – up from 69 percent the quarter before. In fact, Facebook COO Sheryl Sandberg told investors last quarter that 1 in every 5 minutes spent on a mobile device is spent on Facebook or Instagram.
But even as upward-trending as Facebook’s user engagement story is, Sandberg also told investors that big brands aren’t allocating enough of their ad dollars to their platform.
That’s because big brands still need to be convinced that there are enough engaged consumers on any mobile platform – even Facebook – to make it worth their while. Mobile has only number of places where ads can be placed – the barriers to entry are very low. And a distracted consumer presented with more advertising options doesn’t necessarily translate into a powerful ROI for an advertiser.
For platforms that rely on ad revenue to pay the bills, the situation is more complex. The notion of distracted consumers, the “attention markets” that they represent and the impact on online advertising revenues is addressed in a piece written by MPD Founder David Evans last year. In this piece, Evans makes a pretty compelling case that the situation for sites that make their living solely on the basis of advertising revenues face a pretty dismal — or at least highly competitive — future unless they can find novel ways to break through. On one side of the attention market, no matter how unique their services are, they are ultimately competing for a finite amount of attention and risk losing that attention to the next cool thing. On the other side of the attention market, they are competing to sell access to the attention they’ve collected with every other Larry, Mark and Tom who’s harvested some eyeballs. There aren’t really entry barriers on either side.
So, could understanding the consumer’s new path to purchase and introducing payment into that stream be one way to create a barrier to entry?
Busy and multi-tasking consumers are interested in eliminating as much of the friction as they can from their buying experience. Often, the place that they start their product search is the same place they can actually buy what they need. That means that Google’s biggest competitor for ad revenue and eyeballs isn’t Bing or Yahoo, it’s Amazon where consumers start their search for that new flat screen TV, see a bunch of brands, read product reviews and compare prices and buy, in a single click.
And, why we see Google now embedding payments and commerce experiences inside of its platform. Pony Express will enable bill payment, Google Now will enable commerce via local merchants, Google for Business will enable online order and delivery for local restaurants.
Twitter’s biggest competitor for ad dollars and eyeballs isn’t Facebook but the brands themselves that use email marketing to drive consumers to their sites, where they are presented with offers to load their shopping carts with stuff, pay online and have orders shipped directly to them.
And why Twitter has experimented (not so successfully) with payment via hashtags and “Buy” buttons.
LinkedIn’s biggest competitor for ad dollars isn’t Facebook but content platforms that add value to the professional audience they attract.
And, why LinkedIn paid more than a billion dollars for a training platform a few months ago.
Yelp’s biggest competitor for ad revenue and eyeballs isn’t Google, it’s Open Table where consumers can see a bunch of restaurants and their ratings, make a reservation and in some cities and in some restaurants, even pay using the app. Or OLO or ChowNow that let consumers order pizza online directly from their favorite pizza shops, pay for it and have it delivered – all via the functionality that their apps enable.
And why Yelp is now up for sale. There are now too many competitors that offer businesses on their platform a way to engage consumers by eliminating a step on the path to purchase and monetizing their business through commerce and payment alternatives.
In each of these situations, the business models of the competitors are not driven by ads that feel intrusive, require a distracted eyeball to click through in 11 seconds or less, and an ever-expanding and engaged user base — but by enabling consumers to find and buy things.
A business model that’s based on an actual exchange of value between a brand and a consumer – ending up in a sale and capture of data that reflects both purchase intent and purchase preference.
A business model that leads to a much richer and potentially stickier revenue stream and better ROI for the brand and the commerce platform that enables that exchange of value.
And a business model that reflects how consumers want to buy.
As the consumer’s path to purchase relies more on referrals from social media, targeted promotions from preferred retailers, push notifications based on location and opt in from brands, and direct access via online marketplaces and commerce platforms that are the consumer’s first stop for what they want to buy, ad based business models will be challenged to survive, much less thrive.