InnovationInspiration

Subsidizing The Internet

I’ve been thinking a lot about whether or not there will be a shift in the way consumer content companies will make money on the Internet in the future. What services are a large number of consumers actually paying for on the Internet - Netflix, Pandora, Evernote, Rental Listings, maybe some task management tools, games? What else is there really? It seems most people are unwilling to pay for ‘content’ alone on the Internet. However, now there are new challenges to the idea of not paying for content such as the New York Times pay wall, The Daily, Arc 90’s Readability and more. The question is, given the ruling paradigm of monetizing consumer content companies through advertising - will this paradigm be uprooted?

Most of the web content that we enjoy on a daily basis is supported entirely through ad-based revenues. Just to give you an idea, click through rates on the Internet average around 0.2 to 0.3 % (Wikipedia factuals) - i.e. about 1 person clicking an add for every 499 who aren’t. Now, when I first started thinking about this, my initial thought was that I get to browse the web for free, and it has all this amazing content, all because some other group of people are clicking on ads to subsidize it for me.

But, thinking about it a bit more - clicking on ads may not be all that important. That’s in part why often people pay for ads based on CPM ( Cost Per Mille is advertising you buy based on 1000s of ad impressions shown, rather than per click). The issue is that advertising has a profound effect on people that can not be captured in click-through-rates, and actions after clicks.  After all, television ads don’t receive my click feedback - but the advertisers do have the knowledge that the people watching the ads are less likely to ignore them than internet banners on the sides of pages. Television is a good tool for advertisers, because it forces us to watch the ads, whereas on the Internet many of us have visual-blinders for ads, automatically removing them from our conscious interaction with a page. But, even if the ads are only on the side of the page, and I don’t explicitly click on them, I’m guessing that doesn’t matter too much; the effects of advertising are almost always of a second order. For example, I know lots of brand names that I wouldn’t know otherwise, simply because I briefly glanced at their name on some page’s sidebar. An advertisement or endorsement on the page of a person for whom I have considerable respect is likely to impact me more than that same ad on some random page I stumbled on - even though I may not click on the ad in either case. Another example is the Old Spice viral video campaign on Youtube which I saw a while back. Now, I was already using Old Spice - granted. And, I did not buy anything immediately after seeing the advertisements. But, that video did substantially strengthen my brand loyalty (I enjoyed the brand even more, which made the product even better). The issue is that the impact of that ad is difficult, if not impossible to measure. It is so directly related to perception, that nothing can really gauge the true scope of the effect that it made on me.

Advertising’s effects are often immesurable just because they are so pervading - it has the potential to sway me from not buying something, to buying it continously for several years of my life. Advertising is the most powerful instrument any company has in its arsenal, at least when the term advertising is broadly understood. I can think of no other thing that can take something that has some market value X, and then double it’s value, or multiply it’s value by orders of magnitude, without making any ‘physical’, ‘objective’ changes to the actual product. From the perspective of amount of ‘effort’ put in, I suspect the returns from good advertising make it the best investment possible. It’s true that some things, e.g. an IPad, are obviously simpler to advertise than other things, e.g. a bag of pebbles - but examples like bottled water, and the wonders advertising has done there, suggest that even a bag of pebbles could be worth a considerable amount soon.  Image is everything in the world of products. Knockoffs are the perfect example of this. While they are lower quality, even if they were of comprable quality, the issue would still be that the image attached to being an original is lost with knockoffs. Value, and the economy, like all things, are virtual. 

So what’s the point of all this? Well, I guess the point is that natively human preference, demand and advertising are absurdly murky domains. Like Hume said:

‘Tis not contrary to reason to prefer the destruction of the whole world to the scratching of my finger.’

Though at times it may seem like the people who are clicking on ads are supporting the monetization of most of the ‘content’ on the Internet - they’re actually not doing this alone. I too am playing my part by partaking in the subconscious manipulation of preferences (my own). And, all that’s happening, is that whoever is making the decisions to invest in further advertising, is just admitting their blindness, and naieveity, and taking a leap of faith on that unknowable value of changing perceptions. That leap of faith however - is one I would take as well, and I do believe it is well warranted. The things that are most worth measuring, can’t be measured. Maybe if we could develop better methodologies for quantifying all the second order effects of advertising, we wouldn’t be so eager to pursue more clearly measurable, and hence more clearly monetizable approches such as pay walls.