Who says it's about effectiveness of the ad? It might just be effectiveness of getting money from the advertisers. More data means you can do more hand-waving to say that this ad will be the one that really really reaches people this time.
Because in the end if ads are not effective, you won't be getting money from the advertisers anymore. Marketers can't know in advance which marketing channels will work - so they kinda carpet bomb with their campaigns. However once they start getting data, they sure as hell kill of the channels that don't work.
Unethical behavior does not scale in business, no matter how much your calculations rationalize it. In the end people just go away from sleazy businesses. GM and Ford might tell you a story about it and millions of others short term profit oriented businesses also.
Theres only so much bullshit you can pile up before your reputation catches on to you.
The classic statement on advertising is attributed to John Wanamaker (1838 - 1922), a businessman who pioneered department stores in the United States: "Half the money I spend on advertising is wasted; the trouble is I don't know which half." As long as tools to analyze which advertising money works and which doesn't in an overall advertising campaign leave room for hand-waving, merchants will spend too much on the advertising arms race.
As much as I'd like to think you're right, you're probably wrong. The advertising industry is making very real money, which gives people an incentive to keep it going even though it delivers close to nothing.
Why do people buy Coca Cola? Is it because of the tremendously expensive advertisements they put out or is it because the stuff is ubiquitous, tastes fairly good and is usually not surrounded by a lot of competing products at the places where it's sold?
Don't believe me? What about if you're in a restaurant that sells only Pepsi. Do you leave the restaurant in search of another that sells Coca-Cola? Most people probably don't, thereby proving that all the so-called "positive emotions" advertisements instill in consumers do absolutely nothing when the time comes to make purchase. Theoretically, yes, in a situation where you can choose either Pepsi or Coca-Cola for (roughly) the same price, Coca-Cola's advertising campain may have an effect, but such situations are exceedingly rare. In most purchasing decisions there are variables that have much more significance than the advertising history of the products.
So ads are, probably, not effective. And despite this fact, there has been an industry selling them for over a century and that industry has been getting richer and richer, thereby proving that you can perfectly well build a business on scamming people and keeping it up indefinitely. You do, however, have to keep playing around with some superficial parameters of your business model to keep it convincing. Which is exactly what Google is doing here.
(btw, I use - and love - Google's services, but never in my life have I clicked one of their ads or even looked at one for more than a split second)
I was talking of marketing in general. Advertising is only a single branch of marketing.
And its obvious that Coca-Cola's marketing has been waaay better than Pepsi's. And also I believe that Pepsi is quite comfortable in its #2 position. As is Burger King in its own.
Don't forget, that second biggest player in a huge market is usually still a friggin big behemoth. And that for Pepsi and BK being #2 is a core business strategy. Less upside, but also less downside. These companies basically use their bigger competitors as a hedge against market change.
Errr.... you have occasionally been in convenience stores and supermarkets, yes? Restaurants that serve both Coke and Pepsi are rare, yes, but stores where you can buy either are an everyday thing for most of us...
Given how precious space is in supermarkets, and how companies pay for prominent placement, the whole side of the aisle devoted to soda at mine inclines me to disagree.
What I meant was Coca Cola probably sells more soda in places like fast food restaurants, gas stations and pubs than in supermarkets. And probably at higher margins, too.
At one point my college campus was a "Pepsi campus" and you could not buy anything but Pepsi. I think I bought it once, and I drink far more Coke than is probably healthy. That stuff tastes bad. I would bring my own Coke from home or buy water. If I'm at a grocery store and they're out of Coke, I will take the red label no-name cola over Pepsi or blue label cola. While we're at it, if people didn't care that much about the difference, I doubt my grocery store brand would make both kinds of cola.
It sounds like you're not very familiar with the industry.
One of the reasons Google's advertising programs are so successful is that they are measurable. A site can compute return on investment and know that for every $X spent on Google ad clicks they are generating $Y in sales.
I'd love to hear some figures on that, because the ones I've seen from various (large) online retailers were abysmal. Setting up adwords campaigns for these retailers was a fun diversion, in some cases also a good excuse to huff and puff about the future of online marketing, but not at all a significant source of revenue. It was done mostly "to keep an online presence", probably out of fear that if they didn't buy those adwords someone else would.
The retailers I'm talking about may not be representative, however: they already had a strong market presence and strong brand recognition before they went online. Maybe there are businesses that have started from scratch online that did see significant revenue from adwords, but I doubt it.
The more niche you are, the more effective Adwords will be. High volume/low margin rarely makes sense on Adwords, because you'll face death by a thousand cuts by people who can target better, make bigger margins, bid higher and get better QS.
For businesses that can best exploit Adwords targeting, it can be breathtakingly effective. I've dealt with specialist contractors who saw 25000% ROI on their Adwords spend. Search terms like "loan consolidation" and "car insurance" cost tens of dollars per click and are absolutely worth that much.
The question Coke's ads answer is not just Pepsi Or Coke, it is To Coke Or Not To Coke. You always have the option of drinking water. Water dominates Coke as a beverage for health, it (perhaps) loses on taste and texture. Hence a lot of advertising stressing Coke's positives. How do you know that when you say it tastes fairly good that they haven't gotten to you too?
That's why we skip ads in my house, they are just too hot to handle.
Excellent point here. There's a lot of advertising dollars to be spent, in fact too much. Superbowl advertisements certainly didn't help companies like Pets.com during the bubble, but man, did the NFL cash in on that one!
A lot of sales guys sell by telling stories, not necessarily by persuading metrics, and all the contextual data makes for GREAT stories.
