Even if it seems like everyone is saying this, it's just statistically not true / in the aggregate, at least in the context of direct online ads. Otherwise the direct ad industry would be totally dead (ad performance is measured to death by companies).

Conversion (getting someone to purchase) at scale with ads is not so simple as person sees ad, clicks, and buys. There are many steps along the funnel and sometimes ads can be used in concert with other channels (influencer content, sponsored news articles, etc). Within direct ads you typically have multiple steps depending on how cold or warm (e.g. have they seen or interacted with your content previously) the lead is when viewing the ad and you tailor the ad content accordingly to try to keep pushing the person down the funnel.

Generally if you know your customer persona well and have good so-called product-market-fit, then (1) you will be able to build a funnel that works at scale. So then (2) the question is does the cost to convert a customer / CAC fit within the profit margin, which is much more difficult to unpack.

However, it's worth keeping in mind that digital ad costs are essentially invented by the ad platform. There is a market-type of force. If digital ads become less effective and the CAC goes too high across an industry/sector, the platform may be forced to reduce the cost to deliver ads if the channel just doesn't make enough financial sense for enough businesses.

All this is to say, the system does/can work. Tends to work better for large established companies or startups with lots of funding. In general, not a suggested approach as a first channel for a small startup/small business. Building up effective funnels is incredibly expensive and takes a lot of time in my depressing personal experience.

Thanks.

Would you say that it indeed means that if ads are banned, the money to support news, tv, youtube, ... will still be there? I would think that in fact, there would be even more money for news, tv, youtube, ... as the ad company will not take their cut of the money.

Edit: Now that I'm thinking about it, ad may also work in directing expenses that would have been done anyway. For example, if I have 10 companies A, B, C, D, ... all selling the same kind of product, then it is possible that 1000 persons that want that kind of product will all spend 100£, shared between the 10 companies. So, company A will receive 10000£. But if company A does some advertisement for a cost of 5000£, maybe people will still spend the same amount, but for their brand in majority, so the 1000 persons will still spend the same 100£, but company A will receive 20000£ because some people will buy A instead of B, C, D, ...

> 1000 persons that want that kind of product

I'd say advertising is in good portion what creates the "want" instead of a "need". If we were to rebalance the amount of purchases driven by needs instead of wants, we'd overall reduce the total amount of purchases. Each of them would also not have the extra cost of advertising included in their price.

We’d also benefit from not having unnecessary “wants” generated within us, which so often comes at the cost of our self esteem. So many ads prey on your fear of being too ugly, too lonely, too poor, and they amplify that fear then stick a car on screen masquerading as the solution to these manufactured problems.

"This is something that I still struggle to wrap my head around: if a company is paying X$ for advertisement, it means that people subjected to this advertisement will give Y$ to this company that they would not have paid otherwise"

You seem to be assuming that, in the absence of advertising, the company will sell as much as it did before -- just with lower overhead costs -- rather than advertising driving more sales and possibly lowering costs because the company has more customers. For some items / things this may be true-ish. I'm going to buy paper towels because I need paper towels, and advertising has little influence on that -- except, maybe, which brand I buy. But I'm going to spill things, and my cats are going to keep barfing on the floor from time to time, so I'm going to need paper towels regardless. And I'm not going to buy a bunch of extra ones just because the ads are so good.

Don't get me started on soda advertising and such because the amount of money those companies spend on ads is mind-boggling and I don't think it moves the needle very much when it comes to Coke vs. Pepsi...

But, would I go see a movie without ads to promote it? Would I buy that t-shirt with a funny design if I didn't see it on a web site? Sign up for a SaaS offering if I don't see an ad for it somewhere?

If a SaaS lands 20% more customers because ads (and other forms of marketing) that's not necessarily going to mean I pay more for the SaaS because ads. It may very well mean that the prices stay lower because many of their costs are fixed and if they have 20% more paying customers, they can charge less to be competitive. If a publication has more subscribers because it advertises, it may not have to raise rates to stay / be profitable.

In some cases you may be correct -- landing customers via ads equals X% of my costs, so my prices reflect that. But it's not necessarily true.

Parent's point about ad being close to propaganda is key: people getting advertised at are often not the ones with the money.

For newspapers for instance, Exxon or Shell could be paying a lot more to have their brand painted in favorable light than the amount the newspaper readership could afford to pay in aggregate.

The same way Coca Cola's budget for advertising greenness is not matched by how many more sales they're expecting to make from these ads in any specific medium, but how much the company's bottling policy has to lose if public opinion changed too much. That's basically lobbying money.