Commentary
Why The Ad-Supported Model Will Destroy Online Publishing
- by Paolo Gaudiano , Op-Ed Contributor, April 22, 2016
In most industries, you have two common business models: Business-to-business or business-to-consumer. A third model, the marketplace, involves three parties, one of which (the marketplace) brings together the other two (consumers and producers). In the real world, stock markets and auction houses are examples of marketplaces. The marketplace model has been successful online, with examples like Etsy, AirBnB, Shutterstock and many more.
Ad-supported publishing is also a three-party model, but different from marketplaces: In this case, readers want content, advertisers want access to readers, and publishers want money to support
their operations. But unlike a marketplace, this model creates a misalignment of incentives that is the cause of the problems we are seeing. Let me explain.
The ad-supported model
erodes the quality of online publishing. Publishers are supposed to create content, but in an ad-supported world, their number-one goal is to attract readers. This misalignment of
incentives means that the primary function of content is to serve as bait, which lowers quality. In the print world, many publishers rely at least in part on subscriptions, which means they still have
to generate good content. But when all of your revenues come from advertising, content quality becomes even less important.
The ad-supported model has led to an explosion in the
number of publishers. When it became apparent that you could make money online by generating traffic, wannabe publishers rushed to the Internet in droves. And because the barrier to entry is
virtually nonexistent, this led to an explosion in the number of publishers, which meant increased competition, which led to increased pressure to generate traffic, which further lowers quality.
There is a misalignment in the skills needed to succeed. Because of the ad-supported model, the skills required to succeed in online publishing have virtually nothing to do
with publishing. You will be way more successful if you know how to manipulate social media and leverage ad technology, than if you know how to do research, write, or edit content. This, again,
decreases quality.
Advertisers are not affected by crappy content or bad user experience. An additional misalignment of incentives is that advertisers don’t care
about the quality of the inventory where they serve their ads. Sure, most advertisers don’t want their goods promoted next to porn or racist content, but beyond that, if a site drives a lot of
traffic with crap content, they don’t care. And if advertising ruins the reader experience by cluttering a page and increasing load times, the publisher suffers, but not the advertiser.
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Advertisers do not care about publisher success. If a publisher fails, advertisers have plenty more to choose from. Hence advertisers have no incentive to promote publisher success. In fact, I would argue that they have negative incentive, because the closer publishers become to a commodity, the cheaper the inventory becomes.
The ad-supported model does not care about readers. The final misalignment of incentives is evident in the way publishers and advertisers treat readers. Readers have to suffer through annoying, intrusive ads, and when they rebel by installing ad blockers, they are accused of thievery and unfairness. They have to put up with increasingly crappy content. At the same time, the proliferation of publishers is creating an overwhelming amount of both content and sources of content, which makes it difficult for readers to find what they want.
When you take all of these factors into account, I hope you will see that the outlook is bleak: As long as the ad-supported model persists, online publishing as we know it is doomed to extinction.
Since I am not optimistic that the industry will learn to restrain itself, I look forward to the day the entire system blows up, and someone clever finds a new business model that will replace the current flawed system.
An excellent piece Paolo. However, I doubt that the system will totally self-destruct. More likely will be the evolution of alternate business models probably based on a combination of user subscription plus limited ads, coupled with better quality content. This is what works in TV to separate the commodity programmers from the quality ones---the latter going in for major sports events, news and documentaries, serious dramas, etc, while the former chunk out talk shows, game shows, low budget reality fare, etc.
One problem that I see that mitigates against change in the digital media ecosystem is programmatic buying, which appears to be mainly CPM driven---even when targeting is attained. Hence, so long as the targeted user is "reached" the computers wont draw a distinction between quality and commodity content, thereby penalizing and, perhaps, stifling, those seeking to provide superior content via a different business model. At present, there is virtually no chance of that happening in TV, despite all of the propaganda about TV "embracing" programmatic time buying. It isn't----not yet.
This has been the case online for twenty years now. Nothing changes really, it sinks a tad more into the quagmire every year - BUT consumers do not want to pay for the content they consume, so the ad model will continue to survive. Bandwidth is not free.
@Ed - thanks. And yes, you are probably right that the destruction is probably likely to be gradual, and more evolutionary.
One thing I find comforting is the shift toward performance advertising - CPA, CPI and the like. The CPM model further hides the quality issue, in this case even the quality of the impression. But that's a story for a different column...
@Kim - I don't agree that consumers don't want to pay for content. There is growing evidence that this is not the case. Consumers don't like having things stuffed down their throats. And what most publishers are offering today is like going back to buying CDs: take the whole thing even if all you want is a single track. Consumers don't want to pay to be tied down to a single publisher, and they can't afford to subscribe to every publication that has content that interests them. Disaggregation and micropayments are a clear alternative, which is already getting some traction (as I mentioned my story on Blendle a couple weeks ago).
Another guest writer complains about banners on a site supported by revenue from banners. Someone passionately writes this article every six months. It never gets old.
...and another reader making sweeping generalizations without really reading or understanding the content they are criticizing :-)
To be fair Paolo, you make a few grand generalizations here as well, which is allowed since it's your opinion. However, I do agree with Matt Cooper that this topic has been talked about many times and what would really be nice is to see someone who writes about this give a solution.
The one thing that everyone of you missed on is trust. Consumers to go to any website on a regular basis must trust the publisher. This trust goes beyond just contents, but security of their information. The consumer is also looking for new and fresh contents on a daily basis. Last we offer a comment section about each sweepstakes which allows the members to share ideas but also develop casual relationships with other members. What many websites have given up on are on-site Forums and become dependent on Facebook and Twitter. This is the biggest change in the consumer-website relationship.
What I do see development of target specific ad networks and marketing companies. This means that their will be a whole new ad competitor in ad distribution who specializes in specific markets of consumer contents. I see this happening in entertainment, news, sports and other markets. The one size ad distribution system determined by a algorithm program is not working to the best interest of the advertisers. As a publisher why should totally non-related ads show up on my webiste? The big answer is the distibution is short on quality ads and junk shows up. This hurts the publishers more than anything I can put up in contents.
So if you think my comments are not actuate, spend a day on my website. I will promise you that you will see a different internet.
@Matt_J - yes, point well taken. I should have resisted the temptation to make my snarky reply :-). But aside from the fact that I did not complain about banners (I did not even mention banners), I wrote this piece because I feel there is a larger discourse that is not taking place, looking at the overall forces that are shaping our industry. Dismissing it out of hand as "yet another complaint" was neither constructive nor accurate in my opinion.
You are correct that much of what is written on these topics is negative. I have tried to balance this with a few articles in which I discuss specific solutions. E.g., I wrote about Blendle a couple of weeks ago, and I have given specific suggestions in older posts.
You don't know what you don't know comes into play as well. Others choosing what they think in algorythms what you will or will not read shrinks minds and narrowscapes thinking. The relationship people had - some people still do - with print are stronger than on line and diversifies interests. You may not be attracted to reading or learning about a topic until it is in front of you written well.
It's great analysis. But also raises a core question: Was there ever an economically feasible model for high quality exclusively online publishing? Or for the online/offline combination most newspapers are trying to use for their future?
Many digital endeavors are essentially parasitic. And that's where online publishing started. It was able to pull content from well funded off-line sources in order to create the appearance of a valid business model. But parasitic business models are highly dangerous. Just like a parasite can kill its host in nature, parasitic digital businesses can kill the industry without ever replacing it with a viable long term model.
This article suggests to me we need to also worry whether the online puiblishing parasite can survive outside it's host...
I agree with your underlying premise, Paolo. I've been arguing that the ad-supported content model is an antiquated holdover from a period when technology (both financial and audience tech) did not support individual relationships with readers at a scalable level. First newspapers, then radio, then television - they all aggregated audiences and sold them off because that's what was economically possible at those moments in history. And when the Internet evolved, the advertising ecosystem was so ingrained around "mass" and "push" that we put the same-old same-old model to work then, but now it's a round peg in the Internet's square hole. Especially when viewed in light of the 99.9% inefficiencies of mass display ads, and the concept of "Peak Content" fighting for the fracked attention of impression-weary audiences.
But now, we have blockchain technologies that support microtransactions, and a pull-minded audience that rejects push-based ads & media. At the end of the day, advertisers don't want relationships with CNN - they want relationships with their purchasers. And publishers should not be focused on pleasing their advertisers - they should be focused on pleasing their readers. (And I'd argue not even trying to balance readers with advertisers - they should be focused squarely on readers.) If you've heard anything about the VRM movement (vendor relationship management), then we should also understand that users need to be in charge of how they are presented out to the Internet. And hopefully, done scalably.
Our project Adocracy is combining blockchain technologies, scalable browser technologies, and user-permissioned ad auctions to hopefully realign the exact economic forces you outline above - to right the economic arrows of activity and align the incentives - in an attempt to create a new marketplace based on ad scarcity and a much better 3-way exchange of value. Happy to discuss more with anyone interested.
Great piece, but you don't mention an alternative? Giving up? Maybe that's it. Subscriptions are out, that's obvious.
Well, it's good to see that this post has generated some good discussions.
@Matt C, and @FF 22 - I appreciate your detailed response. My opinion diverges a bit on some of the points you make, but thank you for taking the time.
Thank you also to @Chris, Adocracy sounds like an interesting initiative. Ultimately I do think that a micropayment model is the only likely candidate to be sustainable for the majority of publishers, and blockchain should be a key element.
Hell to the yes! I loved this article and I have been musing on the dangers of the advertising/attention model as it relates to the current situation in USA. I will be looking into Adocracy and would love to connect with anyone willing to shoot this breeze.
Thanks for the great post Paolo!