Stick a fork in the display ad. It’s done.

Something major is afoot in the web ecosystem.

For one, geeks are falling out of love with twitter. First, a developer named Dalton Caldwell launched app.net (an ad-free twitter replacement) on this promise: “a real-time social service where users and developers come first, not advertisers.” The idea and team have crowdfunded the startup via kickstarter and amassed $500,000. Then twitter tweaked its API and pissed off pretty much its entire developer base (at least those NOT working on enterprise apps).

On to exhibit B: Facebook. The premise behind Facebook’s enormous IPO valuation was a smarter way to target display ads; the stock has since tanked as suspicion that this model isn’t the money-spinner investors were promised. It turns out more and more people are using Facebook (exclusively) on their iPhones, whose small screens make display ads a non-starter. Media columnist Michael Wolff popped the ad-supported Facebook bubble only days after the IPO with an excellent column at MIT Technology Review called “The Facebook Fallacy”, which concluded dourly:
You see where this is going. As Facebook gluts an already glutted market, the fallacy of the Web as a profitable ad medium will become hard to ignore. The crash will come. And Facebook—that putative transformer of worlds, which is, in reality, only an ad-driven site—will fall with everybody else.
Add these two developments to a roiling discussion in the content community about pages versus streams (yes, I know, it sounds scintillating). I’ll sum it up like this: Users have become accustomed to feeds a la twitter and facebook status updates, so page-driven content sites (like most news sites) may need to abandon their current page focus, which disrupts pageview-driven display ad markets somewhat. Two great articles that are at the heart of this discussion: Anil Dash’s argument to stop publishing pages, and ReadWriteWeb’s “5 Reasons Why Web Publishing is Changing (Again)”.

Linked to this, we’re seeing a whole new design aesthetic (svbtle.com, Medium and Branch are good examples) that shuns the chestnut-thinking of how webpages are built – that is, a lot of crap (including display ads) wrapped around the sweet, nutty content core. The new pages are all nut, and little to no wrapping. This mockup illustrates the basic difference between old (left) and new (right):

One vein of thought would have it that all these developments stem from the abysmally low click-through rates of display ads. I mean, to the superdatafreak CMOs of the future, what doesn’t click, doesn’t exist. And users are more likely to click on nothing, than a display ad. It’s true. Many, if not most, brands could actually increase click-through on their ads if they removed their ad, and just kept the real estate.

What you might call the death of the display ad is countered by the rise of what some are calling native advertising – that is, advertising that goes on within the stream of content, within the conversation. John Battelle summarized it neatly in a tweet:

Now, I’ve always hated advertising. I’m a mad man who hates the ad. Driving sales based on annoying interruptions and interference always struck me as a bad model. So it’s with a certain glee that I see websites and content that depend on this business model, suffering and failing.

Does that mean content marketing will also soon be reigning king over consumer marketing and branding as well? The consumer community’s certainly familiar with the concepts of branded content and socially-driven campaigns. But would there ever be a day when a product like Kraft markets itself with an eBook? “Ten Ways to Incorporate Macaroni and Cheese into Any Meal!”

Alas, no. But expect to see businesses and campaigns based on the display ad wane, and businesses and campaigns based on other revenue models and engagement principles wax.

P.S. And for anyone who thinks they can AdWords PPC their way out of this death spiral, note that response rates on those kinds of ads are generally in decline a well (according to numerous sources).

P.P.S. And for anyone who thinks they can game search algorithms with anything other than great, constructive content, I have three words for you: Panda-shaped updates.

P.P.P.S. Soooooo, if you’re already doing great, principled content marketing, don’t worry. If you’re not…