I was in a bit of shock when I saw that the top story on Techmeme was a post on TechCrunch entitled. “Why Advertising Is Failing On The Internet“. After all, TechCrunch is an ad-supported site–something I admittedly had to confirm using a browser without an ad blocker.
But my confusion subsided when I realize that the TechCrunch post was actually a guest post by Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania.
Here’s the outline:
1. There Must Be Something Other Than Advertising
2. Advertising will fail
3. Advertising will fail for three reasons:
- Consumers do not trust advertising.
- Consumers do not want to view advertising.
- Consumers do not need advertising.
4. Alternative models for monetization are available:
- Selling content and information.
- Selling experience and participation in a virtual community.
- Selling accessories for virtual communities.
In my case he’s preaching to the converted, and I don’t see why his arguments should be so controversial. But clearly they are in a world where the ad-supported model dominates to such an extent that most people don’t imagine any other business model is viable. I hope his post helps persuade a few skeptics.
Finally, I love his conclusion:
The internet is about freedom, and I suspect that a truly free population will not be held captive and forced to watch ads. We always knew that freedom comes at a price; perhaps the price of internet freedom and the failure of ads will be paying a fair price for the content and the experience and the recommendations that we value.
The Noisy Channel 
12 replies on “The Internet Is About Freedom”
It’s one of the things about the internet of the last 5 years, users expect free in all manner of online products & services.
While I believe advertising has it’s place online I personally despise its overly wide use.
As an iPhone developer building a “real” product I can’t afford to give it away, nor do I feel I should. It has an intrinsic value that I believe is fair for both users & me as the developer.
Watching the reviews on the iPhone store it’s very sad… People deciding that an application priced at 2.99 is only worth .99 or better yet they feel they are ENTITLED to have it for free as other applications & services are free.
Now I’m way outside the box on pricing or at least where I am currently looking at pricing the application and I will get bombarded with hate reviews but within my demographic I believe they know the value proposition or at least that is my hope.
LikeLike
Thanks for the shortened summary of Eric’s post – the original is looong. 🙂
The three arguments Eric provides do not adequately support his conclusion that advertising will fail – for the following reasons:
1) Consumers do not trust advertising.
Agreed, but this statement is too general and not true for ALL advertising – the trustworthiness of advertising depends upon messenger credibility, brand, etc.
2) Consumers do not want to view advertising.
Agreed, but advertising still influences purchase behavior – regardless of whether most consumers want to view it. And as Dave Winer says, “Advertising will get more and more targeted until it disappears, because perfectly targeted advertising is just information.” And consumers DO want to view relevant information.
3) Consumers do not need advertising.
Agreed, but advertising can be very effective – even if consumers do not need it.
Granted, the classes of internet advertising that are poorly aligned with consumer intent and lack targeting precision are struggling, but advertising is not “failing on the internet”. Search advertising, for example, which delivers a killer combination of relevance and intent, is doing quite well. Value creation from the other classes of internet advertising will grow as providers continue to adopt the terabyte-scale data analysis techniques that increase targeting precision and have made the industry’s top performers (e.g. Google) successful.
LikeLike
Brad, welcome to The Noisy Channel and congrats on starting your own blog!
Arguments 2 and 3 come down to the question of whether coercive advertising models will persist even in the face of consumer resistance. I think that’s possible, but I hope it’s unlikely. We’re already seeing opt-out advertising and of course there’s opt-out through ad blockers: Adblock Plus claims 44M downloads to date. Not all content delivery models make it easy for users to block ads, but my gut feeling is that it’s getting easier for consumers to do so over time, and that advertisers will face increasing pressure not to alienate their target audience.
Argument 1 is the more interesting one. More broadly, it raises the question of why consumers don’t trust advertising. In my view, the answer is simple: consumers are savvy enough to recognize that everyone puts their own spin on information, and that advertisers’ interests aren’t always aligned with their own. That’s why we look for impartial reviews, and why we get so upset when we discover that people are gaming systems that purport to be impartial.
The battle to persuade and sell to consumers is far older than the internet, and I have no doubt it will continue in the near term. But the trend is increasingly towards consumer control, and I think that will ultimately destroy the current model of coercive advertising. But I concede that it will take a while.
LikeLike
Daniel – I’ve read your post, agreed completely, and removed the ads from my blog. I’ve also quoted you in full to explain why (with several links insisting that readers visit the original here). Thanks very much for pushing me over the edge on something I had been close to for a while. I feel so fresh!
LikeLike
Well I can just say about the consumer is that –
Firstly they have limited resources. And from limited resources they select the option for the alternate resource and from that option they select the best resource as per their need and one more thing if they have resources they also think in therms of utility and also it depends whether they want it or not – their ability to pay or willingness to buy that product.
LikeLike
@Agitationist
Wow! It’s gratifying to know that writing has consequences. And I have no qualms about your quoting me in full–readers here certainly know that the real value of this blog is in the comment threads!
LikeLike
[…] will fail, and commented on the flaws in his argument on Daniel Tunkelang’s excellent blog, The Noisy Channel. Advertisers’ huge and growing investment in internet advertising gives technologist ample […]
LikeLike
It’s true that the status quo has shifted and consumers are now in control. It’s also true that media companies have moved from a cartel-like perch atop the ad economy to hyper-fragmentation which is causing an erosion in their power. That’s what’s broken. What isn’t broken is that advertisers spend $300 billion per year to buy consumers’ time, attention and loyalty. Yet that’s what everyone is trying to fix. Is the only solution to reduce how valuable consumers are? Charge us to hide…DVRs, satellite radio, paid Internet experiences. Is the best option to cripple the ad economy and make consumers pay the difference?
The status quo that needs replacing is the flow of money in the ad economy. Media companies have been selling what belongs to others. Our time, attention, personal information. It’s a flawed economic model that has been maintained by the reality that consumers had been fragmented…a sea of powerless individuals. The Internet changes all that. The only value media companies provide to the ad economy is audience aggregation. We can aggregate ourselves now. I address this concept as it relates to Professor Clemons’ on my blog http://www.OurSeatAtTheTable.com. Consumers provide the goods and services that advertisers are buying. Give them a slice of the pie and the question of consumers wanting/needing/trusting advertisers goes away.
LikeLike
An interesting perspective. But I do see things a bit differently as a consumer. It’s nice that advertisers value my attention so much that they’d like to buy it, but I don’t necessarily want to sell my attention at market price. Unfortunately, the attention market isn’t very efficient. Advertisers buy attention in bulk and then pass their costs onto all consumers, whether they obtained my attention or not. Meanwhile, ad-supported services similarly sell attention in bulk, assuming that all consumers value it the same way and are interested in the same attention-for-services barter.
Just because consumers have what advertisers want does not mean that all of us should be expected to sell it to them–especially when the cost is coming right back at us in the form of higher prices. That’s a pretty bad deal for consumers, don’t you think? It’s only a win for consumers if advertising actually *provides* value to consumers, rather than just serving as a tax to subsidize ad-supported services.
LikeLike
One reality that needs to be accepted is that the average consumer sees more than 1 million ads per year and there’s really nothing much they can do about it. Saying I don’t want to see advertising is like saying I don’t want to sit in traffic. There are some options, but they aren’t very realistic.
So my solution is a bit of a “can’t beat em join em” approach. And to support your point, I am not suggesting that consumers should be *expected* to sell access to them. I am suggesting that consumers should be *empowered* to sell access to themselves. If you don’t want to, you don’t. And you don’t get paid. If you do want to, you can. A side benefit of this approach is expected improvements to the effectiveness of advertising.
Consumers win. Advertisers win. The middle man loses.
LikeLike
Actually, you analogy is an interesting one. A lot of the traffic that people experience reflects their priorities–many people choose to arrange their lives in such a way that trades off a longer commute (and more traffic) for other factors. Other than death and taxes, most of our inconveniences are at least partly reflective of our choices.
I personally don’t see many ads, because I find them annoying enough to arrange my content consumption life in a way that avoids them. And I don’t even feel like I make any major sacrifices to do so. A key factor for me is online ad blocking–and I readily concede that mass adoption would trigger an arms race. What I don’t know is who would win, but I believe it’s easier to block ads than to block ad blockers.
I don’t object to empowering people to sell access to themselves. It’s a free country–as in free speech, not free beer. Indeed, I suspect that such a market would attract more attention from both sides if advertising were opt-in. There’s your win-win.
LikeLike
I agree with your post. I think Clemons makes some excellent points in his article.
It’s true, and it’s always been true, that consumers don’t want/trust ads. Ads exist to persuade us, not to provide helpful information.
The difference with the Internet is that we no longer have to stomach ads; we are active users, and we have access to superior information, in the form of user-generated reviews and feedback.
I wrote a longer post about this here:
http://www.whyweworry.com/blog/2009/06/29/why-advertising-will-fail-on-the-internet/
LikeLike