Ad-Driven Internet Stocks: Do Not Want.
The recent turmoil in US financial markets has called into question the value of Wall Street’s various paper concoctions. The venerable investment bank Bear Stearns, as of today, is now worth three sticks of bubble gum. While everyone is distracted by the eroding banks, I have completely unrelated financial nonsense to warn you about.
This will be as simple a thesis as I ever had to justify in a blog post. I think that valuations of companies which turn a large part of their revenue through internet ads are much less than people think. The reason is simple and goes by the name Adblock.
Adblock is a tiny Firefox extension which blocks ads. It’s free and it means I do not see ads when I view a page (aside from in-line, text-only ads). If it is so easy to block ads, and companies are not (yet) clever enough to embed ads more craftily, what does my page view give a company? Perhaps I will refer others? This is wishful thinking that will not make its way onto a balance sheet. I am, morality-be-damned, the worst kind of web visitor. Give me content, but do not count on my reciprocity. I may count as a pageview (a pageview which is certainly reported to ad patrons), but that is all I am.
There is a growing mass of internet users who are not using IE6 and care enough about signal/noise to do something about it. People are stingy and click-through rates on advertisements are notoriously bad. Google has shown impressive revenues from online ads, but I wave the red flag of caution for the unproven, ad-based sites. How can I snub an online ad if I cannot even see it?