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money burned money burned

Emptying Your Wallets: This Free Ride We Enjoy Might End Early

money burned

As the Internet becomes more prominent in people’s lives, they are expecting more things for free, and companies are seemingly happy to oblige. But there is always a price to pay. So does anyone care to take a guess as to who will be paying that massive bill?

You will!

But let’s take a step back for a moment. The idea of giving things away for free online really became Google’s sticking point. It’s a topic covered quite well in Jeff Jarvis’ What Would Google Do. And while Google surely wasn’t the first company to give away their products and services for free, they made this model work better than any other company in existence.

It has become so popular that it has come to the point where many argue that attention (traffic) and reputation (Google PageRank) are the most prominent factors of measuring success in online businesses. This means that business plans are taking a back seat.

Unfortunately, this can’t last forever.

There are several issues that one must take note of to fully grasp why this model isn’t sustainable in the long term. Yet there is one issue that has more impact than all the rest, and it’s the cracks in this foundation that will lead to the demise of businesses’ willingness to it give it all away for free. That foundation is advertising.

A Breakdown In Advertising

We see them everywhere, and we see them all the time. We can’t get away from them. Furthermore, businesses have always been willing to pay to feature their products or services somewhere in the hope of bringing in new customers.

But in no other point time in time has advertising been so prominent. In the past, advertising is something you expected to see on television, hear on the radio, or glance over in a newspaper. But now, with the Internet becoming an increasing part of user’s lives, we are exposed to ads with every new piece of information we take in. It’s everywhere! In fact, when a user visits a typical webpage, it is more rare to not see any display advertisements — particularly those of the Google AdSense variety — than it is to see it loaded up with them.

ad overload

Just think about this for a moment: could you imagine driving down the road and seeing a billboard every tenth of a mile you travel? Eventually, you’d no longer look at billboards. You’d have an excuse to never take your eyes off the road again (which, ironically enough, would be a good thing). All the beauty of nature would be covered and the important information from road signs and such would be drowned out with ads for some new line of underwear from Victoria’s Secret. Scary, right?

Well, that is exactly what the Internet is becoming!

Even worse, the average CPM (cost per thousand ad impressions) per advertisement has been steadily decreasing over the years — this will surely be a continuing trend for the future, no matter how cute advertisers and publishers get. In essence, the amount of attention that these advertisements demand are essentially rendering them ineffective to the masses, as it already has for many of the tech-savvy users browsing the Web today.

Decreased advertising revenue would equate to fewer innovations on the Web, as well as less willingness to give software and content away for free.

The Gatekeepers

But the potentially bigger issue of all this is the fact that Google is the gatekeeper of a majority of business on the Web. Google essentially profits from the desires of other companies to be free — to entice users to visit their sites and applications with the hopes that advertisers will pay for this attention.

Yet this creates a world where you have a majority of the money being distributed by the boss (Google) and the rest of the online world working for their own slice of the advertising pie. It’s not necessarily a good thing.

For example, these AdSense units are everywhere. They are a sickening sight, after awhile. Also, this is part of the reason why most people aren’t making a living from AdSense. There is far too much quantity and a minuscule amount of quality. As a result, people are lucky to make enough to pay for their hosting fees.

In a glimmer of hope, we now have a new platform with the smart phone, and that will likely shake things up quite a bit. Apple has already entered the foray with their new iAd platform. Google has, as expected, prepared to take them on with their recent acquisition of AdMob. So it is nice to see some competition finally, and perhaps that can lead to a new age in internet advertising.
apple vs google

But there is a thin line between optimism and ignorance.

The issue of gatekeepers becomes even more drastic on mobile platforms. Now it isn’t only an issue of their being control in the mobile advertising space, but there is also a gatekeeper for the platform itself. This creates a substantial amount of lock-in with significantly less room to innovate.

This means that, while on the Web, businesses that could previously do things like create their own advertising networks and/or sell their own advertising inventory might not have that privilege any longer. It could become fairly difficult for developers to innovate with their own unique advertising platforms in the future.

That issue alone raises a fairly important question: is mobile advertising going to eventually be detrimental to the overall online advertising industry in the long term?

Unfortunately, no one can answer that. We’ll just have to wait and see.

Regardless, it is only a matter of time before every smart-phone application and website has advertisements being displayed prominently (and annoyingly), so while mobile advertising will, without question, be a hit for the next few years, it will eventually suffer from the same issues that Internet advertising has had in general.

Unfortunately, even if there were no gatekeepers and there were fewer advertisements with a higher effectiveness and quality, things still don’t look too good for online businesses that hope to continue on this trend of giving things away for free. There are an unbelievably amazing amount of dynamics at play here that can’t be sustained indefinitely.

Free Fall

It’s not going to happen next year. It might not even happen within the next five years. But, in the long-term, the current way of doing business online just might become as rare as it is to not see an advertisement on a traditional webpage.

free fall

It is possible that we could go from an Internet where you pay for almost nothing (except the price of an Internet connection and a few select services) to an Internet where you pay for nearly everything you do.

Sure, there will probably be ways to access products for free (aside from piracy), and, even then, users could always be charged for extra features (especially in the freemium model that we all know and love). There will also be trials and demonstrations that will give you ways to evaluate products before you buy. Things like this will not go away.

Yet, eventually, most forms of content, like newspapers, magazines, blogs, videos, and more are likely going to have difficulties being given away for free.

Regardless, new business models will surely be invented: things that we have yet to even think of will come into play. And it is all going to revolve around the idea of getting you to pay for content on the Web.

Regardless, don’t be shocked if you end up opening your wallets to the web. Because it’s not a question of if it will happen. It’s a question of when it will happen. And it might be sooner than you think.

  1. Will this have anything to do with the economy picking up…? And just when I can finally count 3 whole dollars cash in my wallet and a few checks for freelance work coming in. If you could see my look of consternation now….

  2. I think you’re mistaken. One of the basic rules of economics is that in a competitive market, prices are driven towards the marginal cost of production. The content market is hugely competitive, and the marginal cost of producing another web page view is approaches zero. In the pre-web days, the price of a newspaper reflected the cost of paper, ink and delivery. The cost of writers and editors was borne by the advertisers. In the web world, the cost of paper, ink and delivery has been removed, and the cost of

    Any content provider who attempts to raise prices above zero is going to watch everyone go to their competition. Content prices are going to be low so long as there

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