Advertising's Limits

Quickly:  Advertising's limitations will put a lid on the "free" economy.

Chris Anderson's article in the latest issue of Wired claims that Web economics will drive almost all content to be "free," funded by advertising, cross-subsidies, etc. While this is an obvious conclusion given Google's run, advertising has its limits:

Img_34731) The value of time. Advertising wastes time, requiring more clicks, more screens, more waiting. In an ever-wealthier world, consumers will be willing to place a premium for advertising-free content that can be accessed and absorbed quickly.
2) Cognitive pollution. Advertising brings no learning, teaching, or valuable advice. In a future that will highly value sharp IQ, over-exposure to ads will dull the mind.
3) Objectivity. Why don’t top scientific journals, Edgar, and the Congressional Record carry ads? Because their value lies in impartiality.
4) Form follows ads, not function. Yahoo and the Economist are built to deliver advertising, not to deliver value. That's why Yahoo offers value-light sidebars that attract the reader to click away to another page (and another ad-impression). Have you ever read an Economist article that could have been summed up in a short paragraph? Instead you had to read through paragraphs of filler as the writer drags you through pages of ads. Google search hasn't substantively changed or increased in value in years -- because the company is stuck in its ad-driven business model. 

What it means one:  Anderson is half right. Many are willing to sacrifice time and attention to get their content free. But a growing market will pay to get just what they need, when they want it, with few or no ads.

What it means two:  Technology giveth, but it also taketh away. As advertising proliferates, so will ad-killer software, challenging the economics of "free." The guerilla war will be never-ending...

What it means three:  Criticality of information on the Web will push out ads. Why aren’t there ads on Wall Street trading systems? Why aren’t they on first-responder radio links? Because users of those systems have critical jobs to do – ads divert them from those jobs. As more mission-critical systems pervade the Web, think subscription, not ads. See Bloomberg.

What it means four:  Human activity that requires completeness of thought or unimpeded concentration will eschew advertising. That’s why books do not carry ads.

As the Internet moves from its file-based, Web structure (which is well-suited to the ad model), to a more executable architecture (more like a lively, real-time conversation – check out what I’m talking about here) new types of mission-critical content will find its way on-line. And much of that information will be paid for with hard dollars, not advertising.

Comments

re: Advertising's Limits

George - Advertising isn't the only medium of exchange that will keep content free. Another one is reputation. One of the interesting challenges that newspapers are having is that if they don't allow their content to be indexed by Google and read for free by web visitors, their traffic declines. Ask the Washington Post or NY Times what percentage of their traffic comes from Google. If you don't provide the information for free, your brand decays. The question for newspapers to ask is -- what are the externalities that can justify giving content away for free -- without advertising or subscription fees underwriting those production costs.I would also question the broad supposition that advertising necessarily is cognitive pollution. Your blog is an "advertisement" for Forrester in the sense that by writing something intelligent, I as a buyer of analyst services will think of Forrester the next time I need advice. So is the presence of the Forrester brand at the top of your page cognitive pollution? Or an important identifier that allows me to associate the value your ideas are creating with the creator?Are ads on the sides of Google search results cognitive pollution? Or do they often answer the questions of the searchers? I am personally very critical of advertising, but I think you have become too extreme in damning all forms of communication that has commercial content.

re: Advertising's Limits

TShelton:I am thinking of advertising in its traditional quasi-targeted, product-pitching form -- which I would argue still dominates the field -- and which I would argue steals precious cognition. But your point is a good one -- there will be other forms of promotion (like my blog, or your comment) that will bring higher, more targeted value. Perhaps this high-value advertising will be the gateway to non-ad/pay sites.Re: newspapers. They have always, and will always be ad-based. Free has been their past, present, and future.

re: Advertising's Limits

Hi,In looking at the historic impact of the Internet with regards to the advertising model, I do not see to much of a difference between Internet advertising and traditional. It still has to broad of a focus.With the emergence of Web 2.0, 3.0 etc it seems that context specific ,and even more so, profile specific advertising will become the norm. Location based advertising on my phone would not be a problem provided it was relevant.I suspect a value based advertising model will rise to the top. A model based upon interests, hobbies, lifestyle, location etc will prevail as the next generation of advertising that really leverages not only the technology, but the needs of the consumer.Imagine an electronic billboard on a deserted highway that advertised to you personally, that would be awesome and relevant...wouldnt it? It would be about you, your location, your interests.The impact that the Internet has already had on this market is really amazing to observe. I suspect its not over yet, only just beginning.To take your points on one at a time.Point OneA value based model will emerge, focused on the needs of the consumer or client.Point twoIf the advertising you are experiencing is truely relevant, the need for anti-advertising software will diminish.Point threeWeb services certainly will transform the use of the web platform, but subscription services will be a perfect platform for tailored profile based advertising. This will enable systems like Bloomberg, Forrester, etc to create new revenue streams. This is the beauty of Web 2.0.Point four.I agree. As more business critical systems utilize the web architecture, closed systems will emerge that are purely for business and no advertising needs to take place. I suspect a .biz type domain will emerge as a pure business platform, no advertising needed.The real excitment will be to watch how the current advertising model transforms and takes the next logical step.Rich

re: Advertising's Limits

Richard:You're right -- on-line advertising will become much more relevant and targeted. But I would argue that ad-relevancy engines will not be able to keep up with the complexity and wanderings of the human mind. In other words -- ads will continue to interrupt our critical thought patterns regardless of their intelligent targeting. The scene from The Minority Report when Tom Cruise flings the interactive cereal box against the wall to escape the innance advertising jingle comes to mind...George

re: Advertising's Limits

GeorgeInteresting perspective on advertising, but you leave out the role of advertising in supporting the interesting content that an individual can find on the web. Anderson's "Long Tail" is relevant here, in that there are a lot of great sources of information that few would pay for, but are deeply engaging and useful to the Internet audience. In this part of the Internet, advertisers and publishers validate each other: good ads means a good site/good content brings good audience. Without ads (arguably carefully targeted and tastefully laid out) the only content one would see online would be content paid for by some other mechanism (even my paid WSJ.com membership shows me ads).So I think the issue is the definition of free. Content is not free, it is paid for by advertisers. Without them, the Internet would still be very black and white, and many interesting points of view and sources of information would be lost. And consumers (which we all are) would be less aware of a new product that might serve their needs.David

re: Advertising's Limits

Dave:Good point. Long-tail info could and probably should be ad-funded. So that small niche will always be a refuge for time-wasting ads. But it will take hard dollars to get to the short-tail, mission-critical content.George

re: Advertising's Limits

Targeted ads - even hyper, super-duper targeted ads - do not necessarily meet with interested consumers. We have learned how to ignore advertising when we are looking for or doing something else.For example, check out my blog for one example of such a targeting experiment with Facebook ads, and some links to others who have cut through the hype.http://www.challengedividend.com/the_challenge_dividend/2008/04/facebook-ads-do.html

re: Advertising's Limits

I've had a pet theory about what the full effect of the Internet's eventual effect on society will look like. George's blog post touches on one of the main elements of my pet theory -- the design of our economic system.In particular, my belief is that the Internet will drive extensive further changes in how our society assigns economic value to human transactions. Thus far, the cash flow of the Internet has become powerfully structured around advertising over free Web platforms. As George points out, however, there are limits to how far we can take that. Web advertising ultimately will be useful as one of a number of mechanisms for cash flow (i.e., value assignment) over the Internet.It is not at all clear to me what other mechanisms will develop. Nor is it clear how they will develop, or who will develop them. What is clear (in my mind) is that they have not arrived yet. I think there is enormous lurking potential for creative new ways to merge our existing financial system with the Internet -- in much more robust ways than (for instance) online banking or eCommerce. What I'm talking about is a platform for the entire system, not just one particular channel between customers and providers in the existing system.What I would find most interesting is not a discussion about whether online advertising will continue to be the "it" thing into the future. This is a short-sighted discussion that hopefully George (and other commentators here) have helped put to rest. It's a false dichotomy. Yes, online advertising is here to say. And yes, it's also not the be-all and end-all.Concerning the topic of what *other* monetization structures may emerge, I'm worried that we are at a bit of an evolutionary quandary. Currently, the "heat" is all focused on barking up the ad-revenue tree -- trying (probably tragically) to duplicate Google's success. And unless some momentum develops to shift economic resources in other directions as well, we may get "stuck" with the economically sub-optimal "solution" of online ad revenues as the only major financial incentive structure for Internet business viability. And this would be unfortunate, because, as George and others rightly point out, online ads are inefficient. There's a high signal-to-noise ratio, and the problem is getting worse -- both because the signal is increasing and because consumers are getting better at tuning out all the noise. Further, ad revenue is a very distant proxy for actual benefit in the "real economy." There must be better ways to use the Internet to "cut out the middleman," which in this case is massive spend on marketing and on advertising campaigns. Social Computing (as envisioned by Forrester) has significant potential, but it is still just a tactical approach in the marketer's toolkit. It is not yet a "system" like our stock markets, banks, and investor community -- capable of providing a stable and consistent platform upon which we can graft the incentive structures underlying our economy.I think we, as a society, can do better. But what will it take to do that? Given the design of free-enterprise market capitalism, I'm hoping that collective action isn't necessary (i.e., the use of highly leverage "pushing" to shift the equilibrium point onto a new and better evolutionary branch of financial system development). Because true collective action is incredibly difficult to organize with a system that favors open competition.If inertia develops on its own for a better convergence of Silicon Valley and Wall Street, where might it come from? Will it come from the bankers who have just gotten burned with the credit crisis problems? Will it come from VCs and entrepreneurs who have found a great new opportunity? Will it come from a grassroots movement like OpenID? Or will it come from a company like Google, who could use their heavyweight status to leverage change -- for their own benefit and others'?Honestly, I have no idea. But I'd love to know other people's thoughts. Especially people with behind-the-scenes knowledge of these arenas, where new innovations may already be percolating. Or not percolating, but could/should be...