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Online Advertising's $65 Billion Problem

Do-it-yourself web marketing options are cutting into the ad industry's bottom line.
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The fact that there is a huge gap between the percentage of time consumers spend online (it's high) and the amount of money major marketers spend advertising online (it's relatively low) drives executives at Facebook, Yahoo, AOL, the New York Times and every ad-supported startup out there completely nuts.

At conferences and panels, these web execs like to blame the problem on poorly educated advertisers.

We need to do a better job explaining how the internet works, they'll say.

Online ads aren't interruptive or engaging enough, they'll suppose.

In both cases, they're right.

But only partly.

A huge--$65 billion huge--part of the online advertising problem is that web marketers know exactly how the web works and how to engage its users--on their own.

These big companies know that using popular platforms like Facebook, YouTube, MySpace and yes, the internet itself, they can market their products without paying for any advertising at all.

To this point, it's worth reading CEO of Media research and advisory firm Outsell Anthea Stratigos's Q&A with Forbes .

In it, she tells Forbes that over the last eight years, companies have shifted $65 billion in annual spending away from traditional advertising channels and spent it on "page content, Web analytics, search engine optimization and site design."

$65 billion is a huge number. Here's how Anthea put it in context for Forbes:

To scale that, compare the total U.S. TV and cable advertising revenue for 2009, which is about $66 billion. The marketing dollars companies now spend on their own sites is equivalent to all TV ad revenue for the year. Eight years ago we said that the Global 2000 would be the dot-coms of tomorrow. That's what's playing out.

She says the shift is why she agrees with Microsoft CEO Steve Ballmer's assement that global advertising isn't just in a recession but has been "reset" at a lower level.

"Advertising which has left the news industries is not going to come back in its same shape or form."


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