I think what you’re missing is the picture of a business that is doing pretty well and has extra cash but needs to grow even if it means losing some cash.

In the old world of brand advertising, the idea was to plant an image in people’s minds that would last a long time, earning back the price of the ads by raising customer awareness and loyalty.

In the new world of online ads, it’s more transactional. I can only sell t-shirts on my t-shirt site if I get visitors to it. How do I do that? Oh I can buy ads. And the ad network can target people interested in t-shirts. How does it know they’re interested? They clicked on other t-shirt ads. I spend $5.50 on hundreds of ads just to get one person to the site who buys. But I make $9 profit on each shirt.

If you had a machine that could pump out $9 every time you put $5.50 in, your only question would be how many times you can turn that crank per hour. That’s where all the ads come from. And did you notice the ad company gets $5.50 while the t-shirt maker who actually makes and sells the product only gets $4.50? It’s still a profitable deal for them. But the ad companies make bank.