Untenable advertising
April 8th, 2008Ads annoy me. Ads annoy everyone.
More importantly, I cannot envision building a serious business which depends on these kinds of banner ads, or even text-link ads. But many websites do: TechCrunch, Project Wedding, Reddit, MightyQuiz, Justin.TV, Scribd, Loopt, and so on.
I use many websites online every week. Many provide a lot of value to me, they help me do my job more quickly or help me live my life more easily. They offer me so much value, I would even pay to use them. Some of these services include Google, Amazon, GitHub, Bank of America, Kayak, Craigslist, and a number of blogs like Slashdot, XKCD, and so on.
Except for Google services and the content creators (the blogs), I pay directly for the value these websites give me, given how little the services cost. The smartest ones all do. Kayak, for example, makes money off of the airline and hotel referral fees, not ads.
Unfortunately, many startups think that Google’s AdWords will be their sole source of revenue for their website.
Weakness
But, advertisements as a business model suffer from a fundamental weakness: advertisements indirectly monetize a website. Sometimes, the indirect monetization means that you make more money. Often, it means you make less.
Imagine you make a technically amazing product on your site. Nothing else exists like it. I sign up, and I notice that you provide an incredible amount of value to me. I would be willing to pay a large monthly fee for that. Instead, though, you monetize the website through advertisements. I never click on the ads. I visit to your site to use your product, not to buy chainsaws. You make no money off of my use. Even if I clicked on a few ads, you still make less money than if I paid a monthly fee.
That doesn’t work. You get none of the pay off from the value you provide me, while simultaneously actively annoying me. Project Wedding offers a good example. I would use Project Wedding to review, for example, photographers and find the perfect photographer for my wedding. The Google Ads at the top for random photographers who happen to pay for the ads do not help me; they only confuse me. A referral fee model makes more sense, or preferably an even more creative never-before-seen model.
The Quintessential Advertising model
Now, for a few kinds of websites, advertising makes sense. When I’m looking for a chainsaw to buy, I google “chainsaw” to find results, but I also see “chainsaw” sponsored ads on the right. That makes perfect sense; it directly provides me value. Google search exemplifies a great use of advertising. As Google’s customer, you watch Google continually provide us a better, more targeted service. It is the Yellow Pages model.
The Common Advertising Model
Advertising does not make sense in most other models. It does not provide value any other way, but it does annoy me. Nevertheless, I would use advertising if I started a company that built one class of product: products that provide little to no value. Examples include most television programs (think “reality” TV) and online games. People spend time watching random television shows to waste time and not think. These provide little (negative?) value. You have absolutely no opportunity to get people to spend money on your silly time-wasting flash game. You can, however, put ads along the side. With this kind of advertising, you transform your customers from the people playing the games into the advertisers. The advertisers pay you to reach out to these game-players, at the expense of the already-void user experience. Advertisers pay more.
Most magazines, newspapers, and blogs also fall into this category. Reddit and Digg as well. Little to no (to negative) real value offered. Newspapers and magazines offer nominal subscription fees, not because they cover the cost of the reporting–it probably does not even cover the cost of the ink– but because advertisers demand that they know real circulation numbers. Advertisers assume that if you pay at least a little, you probably read it and look at the ads. Because content creators cannot extract enough money from you directly into paying for all of the reporting and server overhead, they resort to becoming the servants of advertisers. Digg now displays (or at least recently used to) very annoying flashing ads.
Make something useful
But if I want to create something that depends on this kind of advertising, why do I want to create it in the first place? Why do I want to make something that nobody values, that nobody finds useful? For me, I cannot do that. I want to make something great, not a time-waster.
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