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.
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.