There has yet to be a point at any time in the past decade where I said, this doesn't work, and shut all of the ad campaigns off. There definitely are issues that exist. There is a problem with mobile app ad quality. There definitely are bot traffic problems. The ad exchanges will be pretty brutal on inexperienced advertisers, but this was the case pre-exchange too. One "bubble" point is I suspect many of the adtech companies involved in exchange inventory may fine themselves on the line for the bot traffic. It will be enough to wipe out the investor equity. This follows based on class actions Google, Yahoo, and others have had to settle in the past and Google especially has always been aggressive about this stuff (although less so in the past two years.)
I read the original blog post and the writer doesn't seem to make a very good case outside of things that happen in normal capitalism. Lots of middle men, tools, and supply chains attempting to add value along with investors dumping in a ton of money in an attempt to gain some return -- possibly more than they will ever get back out. Sounds like a healthy marketplace to me. Some ideas are terrible, some are good, some are amazing but will never return their investment. That is ok.
The bigger problem is for small publishers and likely medium sized ones too. Ad inventory and the users online has ballooned many times over over the past decade. It also is a problem for traditional media companies like radio stations, newspapers, and television channels. I don't need to extrapolate on that one.
Advertisers need to be sophisticated. They had to in the past too but few had access to tools that told them they sucked. I'm not sure that is any more extraordinary than asking a commodity traders purchasing cocoa beans to know what they are looking at and know how to be sure that is really what shows up at port.
You're right that this is part of the normal cycle of capitalism, with all the creative destruction that entails. It's quite normal for a new, growing industry to support a whole forest of new businesses, and then as the industry matures some of those will die off. But I think there's one extraordinary thing here: the advertising industry is growing like a new market, the kind of market you see when the customer base is growing by 100% every year, like the early days of the Internet. But that growth simply isn't there; advertising is by most measures a mature market. So what's fueling all this expansion?
Advertising was a mature market when Google started. Media was a mature market when Facebook started. (And, to make a slightly different point, people believed computers were a mature market when Apple started.)
Is the question the expansion in adtech companies? If that is so, I think a huge part has been the Facebook traffic dumps to publishers like news sites. Basically the available display inventory something like doubled. That isn't sustainable, Facebook fully intends to recapture that external traffic back in to their platform. The drop is already visible to some publishers. Many companies certainly are turning a blind eye to fraud so as to hide the bad news from their clients and investors.
At some point the shift from offline to digital ends and the growth moves more in line with GDP. That will bring down valuations. Google and Facebook probably want to integrate the ad model with every human transaction. One could imagine getting in a Google car and saying "pizza" and be driven to the highest bidding pizza shop.
Certainly ad costs get baked in to some products in a big way: Coca-Cola, Geico, hotel rooms, for profit universities, and so on. Sometimes the costs are so much the profit center moves to another area, such as investing the float from insurance or maybe just straight up stealing money out of a person's bank account (pay day loan lead aggregators selling bank info to criminals, has happened many times, see FTC.)
As a whole, I don't know how this plays out. If the ad competition is brutal enough the costs will be driven up to the point where the parties not spending money on advertising are just far better deals. If it isn't the prices running up, the cost could be offloaded somewhere else like cutting maintenance at a hotel. Eventually the advertiser's reputation tanks.
These are marketplaces. On a micro level there are many perverse distortions because of some condition at a given time. Over time they should re-balance.
Some things like Coca-Cola, which has probably physically harmed and killed people on the scale of cigarettes, just last a really long time. Coca-Cola has a truly perverse combination of trademark law enforcement, addiction (caffeine+sugar), general scientific ignorance by consumers, and a long list of government subsidized cost advantages. All of these strengths save trademark law are being chipped away at right now. Which, at some point it flips and they have the McDonalds problem (toxic brand.)
Most of the time, I've been at the receiving end of advertising as a publisher (web/mobile). And I'm looking at the money stream from a different angle. What I hope (and fear the opposite of) is that for all the money I make with advertising (plus Google's share) there's actually more money earned (profit) by the advertisers. Because only then the system as a whole is sustainable as it is now.
The thing to remember about advertising is that at the end of the day it's really about finding ways to be different than it is about anything else. And so when everyone is doing TV ads, start doing online ads, when everyone is doing online ads, start making centent marketing, when everyone is doing content marketing use email and so on. It's an ever moving target. Thats why it's effective when it works.
Making an ad campaign that has a positive ROI is doable, but if you are that well embedded in the industry then you will quite likely agree with me that it has become quite a bit harder to achieve that today than it was in the past. The solution (performance based advertising) shifts the burden of the effectiveness of a campaign onto the wrong party (the owner of the inventory) which has resulted in a series of start-ups that optimize on behalf of inventory owner.
This is all like watching eb-and-flood erode a beach and just like real life erosion there are turning points at which the situation can go from steady state to dynamic quite rapidly and it is anybody's guess what the new steady configuration will be once all the potential for movement has been exhausted.
The ad industry is imo not exactly in a bubble as much as that they are more than a little bit worried about why the usual bag of tricks no longer works and how they plan on going back to when conversion rates were still something to be proud of. I don't doubt that this will initially be tackled with a wave of even more invasive advertising, or advertising masquerading as content.
The problem is that what was initially an absolute boon for the advertising industry, that you can 'measure' engagement ended up being the exact problem, you can measure engagement, including a steady drop in engagement over time. And so, by making advertising more and more aggressive the industry has made it impossible - or nearly so - to make a non-aggressive campaign because it has to compete with all the aggressive ones for attention (from the users perspective it is a zero sum game, they only have 24 hours in a day and usually something else to do besides watching and engaging with ads, and if they don't then they are not exactly prime material for some demographic to begin with).
So now there is a problem, which is that the ad industry can't suddenly stop reporting all these engagement metrics, nor can they pull more technological rabbits out of the hat that spawned all these new tricks because these too will work for a while and then run out.
It's not a simple problem.