The economics of the ad-funded webMarch 28, 2009
Why should we have to pay for information and services we receive over the internet? I have never had to pay before now for things like Facebook, Gmail or Twitter. I can use Spotify for free. I have not bought a newspaper for years, but can still read The Times and The Guardian every day.
Well, I am quickly coming round to the view that this is not nearly as simple an argument as people make it sound. I think we may have this one wrong.
Here is a confession: I would rather pay £10 a month to use Spotify without adverts. Why? Partly this is aesthetic – I just don’t want my playlists interrupted by sponsors’ messages. But there is also an economic angle – since I am unlikely to buy many CDs ever again, Spotify will save me much more than £10 a month. So why on earth would I complain about paying for such a brilliant service?
Yet people feel very strongly about this – why should we pay for something when we got it for free before now? The truth is, there is no such thing as a free service. We pay for the services we value, one way or another. In the main, these services are ad-funded, meaning that some brand is actually paying for its delivery. They are not doing this for free. Every time you buy that brand, you just paid for the so-called “free” service too.
What’s wrong with this? Two things. If I am a consumer of the brand in question, but not the net service, why should I fund both? Better I pay for what I use.
Secondly, this approach is inefficient. The way to ensure consumers get the best deal is to have price transparency and competition. If a net service is ad-funded, we have no way of knowing whether the brand is striking a good deal or not. The problem for consumers here is that, if the brand pays more than it needed to advertise, the only losers are that brand’s consumers, who end up paying more. And the only winners from this are the owners of the “free” service. The money is flowing from my wallet into their bank account.
I’d rather just pay for what I use, thanks.
(Hat tip to my friend @masoke who got me thinking about this via a 140-chars argument on Twitter!)
Update: Someone pointed out this all-encompassing “how to” on getting paid for online content, and it cited an excerpt from the brilliant Time magazine article on micropayments for newspapers that got me started in the first place: “One of history’s ironies is that hypertext — an embedded Web link that refers you to another page or site — had been invented by Ted Nelson in the early 1960s with the goal of enabling micropayments for content. He wanted to make sure that the people who created good stuff got rewarded for it. In his vision, all links on a page would facilitate the accrual of small, automatic payments for whatever content was accessed.” He got it!