MIT Study Deflates Online Ad Advantages

Digital/Online

January 2010 -- As reported by Marketing Charts, online advertising can prove better at targeting certain demographics than traditional media, but the increased competition of today's landscape means that these advantages do not automatically translate into greater profits -- this from a study from the MIT Sloan School of Management.
 

MIT Sloan Assistant Professor Alessandro Bonatti is reported as noting that "Marketers who think they can get better results at a lower cost by advertising on the Internet instead of through more traditional media should consider all of the avenues available to them before making a decision. The same search and other technology that enabled advertisers to target particular audiences is also creating greater online competition for the same audience, thus reducing the profitability of advertising on any targeted website."
 

“We know that newspapers have a very limited ability to target audiences,” said Bonatti, who worked with Yale University economics professor Dirk Bergemann on his research into the issue. “Specialized magazines can do better, while Google has a very good ability to target who’s browsing each page. So while online advertising certainly has the potential to drive out traditional advertising, it does not necessarily follow that online advertisers will make more money."
 

The bottom line, as reported by Marketing Charts:  “Instead of competing for one large pool, one big market, you will have price war in each targeted segment as the slice gets more and more narrow.”
 

“The paradoxical result,” Bonatti concludes, “is that the better the technology, the lower the profits for advertisers. You can make a lot of money through super-powerful targeting if you are a monopolist, but not in a competitive market.”
 

Source: Marketing Charts. MIT Study Debunks Online Ad Advantages, January 4, 2010.