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Dear Touchy-Feelies: Once Again, A Reminder… Most of the Internet is Free

Posted December 6th, 2011 by Andrew Goodman

Facebook is free, essentially for three reasons:

  • People pay for apps and games, and Facebook’s cut of that subsidizes the platform
  • You view and/or click on ads, and that also subsidizes the platform
  • 9-figure investments have allowed Facebook to “undermonetize” its huge investment in creating and supporting the user experience

A fourth reason: you, the consumer, refuse to pay.

This dynamic applies to most of the rest of the Internet, too. The things you enjoy are monetized primarily with ads. Services like:

  • Google Search
  • GMail
  • Content sites

Some services are virtually entirely firewalled. Don’t pay, don’t see the content. They run little to no advertising. An example is Angie’s List.

Despite some pockets of paid content online, the majority of consumers don’t embrace paid services. They prefer ad-supported apps and services. That’s clear based on behavior — though it might run counter to what people sometimes say they prefer.

Can you imagine paying $100 a year for Twitter? If so, and you can round up 100 million other people who think the same way, I strongly suggest you begin launching companies that charge $100/yr. for social apps, and get on the road for VC funding. Things like this rarely do get funded, since most everything of this nature is free (or “freemium”)… perhaps because there is a powerful logic behind scale and network effects, and $100 is a huge barrier to that.

Consumers have been shelled by untargeted advertising for the past century, and advertisers keep doing it because it works. But it has been an enormously wasteful era. More than that, it’s become annoying to people. It’s surprising consumers mainly rebel against this in behavior, rather than squealing about it in an aggrieved fashion. Perhaps because Old Media is Legitimate and they have Many Friends who Work in News or Sports Marketing or TV Production (etc.).

Much of the more highly-targeted advertising that has cropped up online is supposed to make it more efficient to find targeted customers. That way, companies won’t have to waste money bothering people who aren’t interested in their offers.

What cannot happen is, we cannot shut off all online advertising (which, according to reports, now makes up 16% of global advertising dollars and evidently is very slowly but surely creeping up). We can’t even shut off half of it. And we shouldn’t be overreacting to new targeting methods if — when you regulate them sensibly — they turn out to be preferable to Old Media Ad Bombardment.

Many people seem to squeal about online advertising as if total elimination were a viable option. These are the vocal folks who comment in response to alarmingly vague government crackdowns on behavioral online advertising.

In the sidebar to this story, the news source in question (CBC.ca, which, as one commenter pointed out, uses at least three intrusive user tracking cookies) is conducting a poll as to “whether a targeted ad ever made you feel uneasy.” (No polls on “what level of government subsidy of news organizations would make you feel uneasy as a taxpayer”.) Currently, the poll is running at 83% “yes”… but what does that mean? I answered yes. If you’ve ever been online, the answer should be yes. It should be at 100%. What is this supposed to prove? Are policy-makers supposed to worry every time someone feels “uneasy” about something?

If consumer protection is what governments do, do something useful and ban outrageous bank fees. I feel “uneasy” every time I have to pay $2.00 when I stumble into the wrong ATM.

The more interesting question is, when was the last time you answered a poll about whether an apparel ad in a glossy magazine made you feel uneasy, or whether a silly ad for diapers made you feel uneasy. There is a constant barrage from old media insidiously pointing the finger at “creepy” (online) targeted advertising without a peep of protest about the sad (much worse) excesses of legacy advertising in general.

Decade in, decade out, people have put up with a flood of unwanted messages at their doorsteps, on TV, on the roads, and pretty much anywhere they turn. But many are dead certain they’re against all this creepy stuff that is happening to them online.

Fine. Sure. Go ahead. Shut off the ads. Avoid them. Whether you Tivo or join a monastery, that’s your right. That’s everyone’s right!

But don’t handcuff the industry as a whole with draconian legislation.

Not unless you’re fine paying for Google Search.

For GMail.

While we’re at it, for the other Google apps you use that are also subsidized by the ads.

And for reading the content on pretty much every website you visit.

For the most part, the people designing systems for more targeted advertising online have been well-meaning. They’ve also been greedy, in the good sense of greed-is-good… searching for efficiencies because they’d stand to benefit from discovering them.

It would have been easy enough to be less scrupulous about targeting, be less concerned with relevance, to sit back and allow cheaper, run-of-site ads to rule the day. Or to simply charge fixed rates to advertise on search engines.

That would have been lose-lose for everyone. Without the improved ad rates that come with better targeting, many services would simply shut down. Those that continued would bombard you with spammy, mass market ads for Pampers, Bud, and curly fries… just like good ol’ TV.

So, those are the trade-offs. Those are the choices. Consumers want to walk around in an ad-free world, until they actually talk to a single business owner — maybe a member of their family — who has built a business around it. Both publishers and advertisers rely on innovations in online advertising. They’re vital to the economy and employ millions of people.

Firm, but fair, privacy policies should be in place to protect consumers from abuses. But it’s misguided to believe that online advertising should be crippled by legislation based on some fantasy world where investors fund content providers and services forever so that consumers can continue to enjoy those services for free while attacking those businesses’ right to maximize their ability to monetize them through targeted advertising.



One Response to “Dear Touchy-Feelies: Once Again, A Reminder… Most of the Internet is Free”

  1. jason walker says:

    The thing is that people will always offer FREE services similar to the most popular, and if those popular sites started charging then consumers will look to the free sites.

    In the words of Shakespeare “Aye, there’s the rub.”


 


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