Advertising Economics

Advertising spend in the U.S. over the past decade has averaged above $200B annually. This spending is the revenue base for advertising services agencies and ad-based media companies.

This does not make the advertising industry large in terms of the U.S. economy, where the largest sectors, including manufacturing, finance and construction, all count their revenues in the trillions of dollars.

Advertising is meant to generate revenues for the advertising brands, but even there, an average 4X return on ad spend would still yield only around $800B in economic impact from advertising. So the revenue returns created by advertising can be substantial for each advertiser, but the overall economic influence of advertising vs. the $20 trillion U.S. G.D.P. is quite small.

Advertising’s Influence

Despite this relatively small influence on overall G.D.P. in economic terms, observation of social commentary shows that advertising is commonly perceived to have significant influence on the state of the world.

This perception of the cultural influence advertising is likely due to a few factors:

1. First, it is the stated mission of advertising to influence consumers behaviors. Hard to miss.
2. Second, many observers can clearly see an increasing influence on political and partisan passions through the use of paid media placements (primarily through social media platforms).
3. Third, there are positive and negative externalities around the processes of consumption that advertising promotes. A few examples of these include:

• Consumer choice means that sellers must optimize goods and services toward what will best meet consumers’ interests.
• Competition creates employment and wealth. But consumption itself can put people in debt.
• Self-serving consumer interests may not align with collective interests of the commons in terms of emissions in the production and consumption process, and packaging waste.
• And consumption can become emotional, i.e. “retail therapy”. Consumption may be chasing a sense of satisfaction or status that won’t ever actually be fulfilled.

There are plenty of opinions on what these areas of influence mean in terms of culture and society, and this publication will certainly share some of these, and even add to them.

But I also see a need to integrate the cultural, sociological and psychological discussions of advertising’s influence with a more quantified and modeled perspective on the market for attention, so this publication will begin to explore what a cohesive model of “media economics” could look like.