January 28 2008: 5:52 AM EST
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Advertising everywhere

Is there any LCD screen that hasn't been turned into a revenue-generating billboard?

By Brent Schlender, editor-at-large

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(Fortune) -- It wasn't long ago that it dawned on media experts that information technology - and in particular the Internet - would profoundly transform the business of advertising. Here was a new medium that could not only tell you when someone was looking at your ad but also indicate what that someone was interested in. How could old media's gray columns of classifieds compete with that?

Now it's dawning on me that advertising is in turn profoundly transforming IT. Google was the first company to really cash in on so-called targeted advertising. And thanks to Google's breathtaking revenue growth and market valuation, the rest of the IT industry - especially the venture capital machinery that creates new companies in Silicon Valley - now sees advertising as the key to "monetizing" IT innovations.

Today any service or digital technology that presents itself on an LCD screen can be a revenue-generating billboard. So far, targeted ads appear mostly on Web sites displayed on PCs. But you're starting to see them on cellphones and ATMs and gas pumps, and hear them as you walk past Coke machines and store displays. Google (GOOG, Fortune 500) is looking for ways to apply its ad-placement technology to radio, newspapers, TV, and even roadside displays.

Only a few years ago advertisers were worrying that the tech wizards who gave us TiVo's ad-zapping video recorders would conjure up even more powerful technologies to help us avoid seeing the ads for which they've paid so dearly. Now, thanks to IT, we're exposed to more ads in more places than ever before.

Full disclosure here: I have no philosophical issue with advertising. It pays my salary. It has footed the bill for me to travel around the world. It has subsidized many of my favorite diversions, unleashing the creativity of writers, artists, actors, filmmakers, and musicians and facilitating the nearly universal dissemination of their work. In fact, it's one of the great enablers of our modern economy.

Saturation point

As with everything we consume, however, from calories to reality TV, there's a point at which you can have too much of a good thing. I wonder how many Web sites can survive on advertising alone or when the cacophony of ads will become so loud that consumers start shouting, "Enough already!"

But when I ask my friends in the venture capital community whether they think online shilling has reached the saturation point or might be warping the way companies are formed and valued, they look at me as though I'm crazy. Here, after all, is the revenue model for all kinds of online services and publications. The Web, they say, was made for this.

I've been brooding on this for several months, still thinking that there's something wrong with this picture. It seems that there's no escaping a sales pitch unless you're asleep. So one day I asked the wisest man I know in Silicon Valley what he thought about the transformation of IT into just another way to sell soap.

Andy Grove, the legendary CEO of Intel Corp. (INTC, Fortune 500), looked at me and chuckled. "Business opportunities always come from the clever application of technology, not technology for its own sake," he said. "Targeted advertising, just like the Internet itself, is one of the big applications today. Tomorrow someone will find other new applications that will drive the IT business in other new directions. It always happens."

He's right, of course. Just because Internet advertising works doesn't mean that the Web can't support other business models - smart subscription services, for example, that charge only for the content you consume, or royalty systems in which code for the creator's cut is embedded in every byte. And Grove himself believes the Web and IT have the potential to radically transform medical care - an enormous piece of the economy - without having to be subsidized by advertising.

Meanwhile, there are signs the land rush may be slackening. A stingy venture capitalist I know says he will no longer consider funding any Web service based solely on advertising unless it can prove it attracts a million visitors a day. And he's probably not alone.

All this may be true. But I still think there are too many ads out there. To top of page