Freenomics is the Great Internet Leveler

May 26th, 2008 | By Steven Hodson | Category: The Social Web

Alexander van Elsas One of the best discoveries I have made in regards to finding other bloggers has to be the day that I came across Alexander van Elsas’s blog - which by the way was via FriendFeed - and I haven’t regretted a day since adding him to my RSS client. He writes some of the best blog posts about social media that I have read and some of the better comments on FriendFeed. In my opinion he is more realistic about the whole social media scene than many of the more evangelical proponents of the movement.

Alexander’s latest couple of posts about advertising and the web is a good example of how he can dissect a problem or idea and walk you through his reasoning as to why it works or doesn’t work. The problem is that while as a content producer I can agree with his premise that at some point we need to look beyond this idea that advertising can pay for everything the user in me knows that if I suddenly had to start paying for any of these supposedly great Web 2.0 social media service I would be left out in the cold.

While I agree with Alexander’s assessment that on-line advertisement is probably the biggest scam going the problem is that it is the only game in town that makes the web open for all comers regardless of financial status.

What I just don’t get is why we keep this dreaded web 2.0 free but ads based business model alive. It’s probably the biggest advertisement scam on-line. Over $ 16 Bln is spent on-line trough advertisement networks and there isn’t a single user interested in them. There have been a few reports of on-line advertisement boosting off-line sales, but I doubt the numbers are that positive across the web. It is pretty amazing that web entrepreneurs and investors have the balls to stuff $16 Bln in harassment down the throats of the user. It is by far the worst business model you can choose. BTW over 75% off all advertisement spent goes to Google! That leave only 25% to be divided across the thousands of web 2.0 services out there.

The problem for content producers is that with Google AdSense being the biggest lion in the advertising pack it gets to set the rules for the game. While Google might be getting over 75% of all the advertisement monies being spent the fact is that unless you are one of the big content producers very little of that percentage trickles down to the rest of us. This also doesn’t take into account the damage created by Google not actively policing splogs or other such ad farms that have created a negative feeling about advertising on the web.

As a content producer I can understand when Alexander says that advertisers are holding the whole Web 2.0 in a death grip

The free but ads based business model holds web 2.0 in a death grip. If you want to be successful, you need lots of users. If you want lots of users, you need to provide a free service. If you provide a free service you need someone else to pay for your server costs. If you don’t have an investor that gets you ready to be bought by another company (that’s a web 2.0 business model too), you need another sucker to pay for your costs. And that would be the advertiser. And he would be harassing your own users, the people you really, really need to become successful in the first place. See the flaws in such a business model?

On the wrong side of the fence But as a internet user I would dread the day that the pay for services model becomes the norm. We have already been down that road to a certain extent with Web 1.0 and all the different subscriptions and other methods of getting paid for your work. It didn’t work then and it wouldn’t work now unless you want to widen the technological divide even further than it is.

The fact is that I and a large percentage of the people who are on the web don’t have credit cards which is the principal method of payment accepted by any service wanting to be paid. Even today we are locked out of services like iTunes store or many other services that do business strictly on the web. Then as a subset of that there are also people who don’t have any money beyond what they need to keep them floating at the poverty line. Should all these people be excluded from being able to use the web to its fullest?

As much as we might want to rail against on-line advertisers and call them all kinds of bad names if it wasn’t for them and the current model of ad supported web services a large; and given current economic conditions a growing percentage of people would be locked out of the web. As it is for many of us it is a struggle to even maintain our connection to the web and now you would want us to return to a point where we would find ourselves once more behind the locked gate.

Sorry Alexander - you might like the idea of paying for services but I like having my access to the web and all the services that it lets me use even if that means I have to see ads and companies like Google get even richer. At least now we all have a level ground to work on rather than staring at each other from across the chasm of the technological divide.

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Viewing 9 Comments

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    Interesting!
    You are wrong about almost everything but at least you are consistent.
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    Coming from you I'll take that as a compliment that is if anything a fake persona can be taken at anything less than the residue in a manure trough.
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    The free but ads based model isn't a web 2.0 thing though. It happened in exactly the same way...and with exactly the same lack of long term success...with web 1.0. That's what constantly amazes me, that both advertisers and site/service developers appear in many ways to be making exactly the same mistakes as happened in the past - basing their long term business success on either ad revenue or selling up to a larger corporate who would then fail themselves to monetise the site.

    And the attempts to monetise largely failed. There's so much competition that people will simply move on, because there's always a free option. Easiest way for Facebook to kill itself in about five minutes would be to introduce a nominal charge. I don't see how you can monetise something effectively when you can't sell the service itself.

    Although that being said, look at the explosion of free newspapers in the last few years (e.g. just in London you have Metro, LondonLite, TheLondonPaper). These are all advertising funded, but I can't remember ever looking at the adverts. So if the business model extends beyond the web, I'm curious as to how exactly it works anywhere!
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    There's a big difference between "social" media and "services," in terms of what people will pay for. The most successful social media in history, so far, is television and that is almost entirely free but ad-based. The recent trend for cable providers to charge a la carte is a break from that, of course.

    I think social networks are most directly replacing television, rather than other services like telephones, in spite of Twitter's attempt to classify themselves as a utility. With a very few exceptions (like PPV on TV), the masses won't pay for individual channels of entertainment.

    Online services, however, are a different matter. Financial services, shopping clubs, etc., have a better chance of building a fee-based business model.

    All that being said, *any* site, social or otherwise, can always make a few bucks on the "premium, ad-free" subscription level; but only those with enough disposable cash-flow will pay for an ad-free experience... and that excludes the masses.
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    Funnily enough when "cable" first started its main selling point was that you were buying subscriptions for the premium stations - the standard TV stations were included as part of your base package fee - and that subscription fee was so that you would be able to enjoy commercial free television ... how long did that idea last? :)
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    Here in the States, at least, the first cable companies were just charging you for a clear signal, because broadcast TV had such a limited range. The premium channels are more analogous to my comment about the ad-free experience that people with above average disposable cash-flow would opt into, as a sort of luxury item.

    Granted, these days, HBO and Showtime aren't thought of as "luxury" purchases, but that's because our mindset is much more consumerist and not because it's actually changed. :)

    Nonetheless, the adoption of premium channels by "the masses" was years (even decades) after the cable industry was well established, and was definitely not an early phenomenon. I believe it would be a mistake to attempt to duplicate that level of success too early in the lifecycle of the "new entertainment media" of social networks.
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    On the web, time is a much more valuable asset than money. There are tons of ways you can both waste time and spend money. At least if it's free, ppl will give it a try and may grow to like it. They won't pay unless they're sure they are going to like it and personally, I think the 30-day trial has lost a lot of it's effectiveness as well.
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    Wow, thank you for such a great response to my post! I'm truly honoured you like the stuff I write. Can't get a better compliment from someone who I have been following myself for quite a while now ;-)

    I think you did a great job dissecting my post and adding your own views on it. You are absolutely right that freenomics has many, many advantages. Ensuring everyone can have access to services is just one of them (an important one).

    "The fact is that I and a large percentage of the people who are on the web don’t have credit cards which is the principal method of payment accepted by any service wanting to be paid. Even today we are locked out of services like iTunes store or many other services that do business strictly on the web. Then as a subset of that there are also people who don’t have any money beyond what they need to keep them floating at the poverty line. Should all these people be excluded from being able to use the web to its fullest?"

    Steven, one of the issues on the web is that there isn't a fully integrated payment system that allows anyone to pay when needed. Credit cards are not the way to go on the web imo. There is some innovation to be done there. Just look at the mobile ecosystem. People are used to paying for calls, SMS, they can upgrade prepaid cards, use SMS to pay for services etc. The billing is integrated, but more importantly, we pay because we get value.

    I definitely agree with you that there shouldn't be a have and have nots split on the web. But lets run some math here. Lets assume that a social site that does really well on advertisement gets anywhere between $5-10 ad revs per user per year. The question is, if the service really provides value, would a user be willing to pay that amount per year instead of being locked into the advertisement business model? The advantages would be obvious, no more walled gardens or data hogging, but the focus of the service provider would be on user value only. His innovation capacity would be spent on creating new user value. There could be a split between light and heavy users, or a free and premium service. A person with a moderate income could maybe have 5-10 or even 20 of such services running a year.

    Another, not so obvious model would be to use the social data as input for the 2 actions where advertisement makes sense. When I'm searching ro buying stuff on the web. Facebook could easily remove ALL advertisement on its site but still monetise the data they have collected from their users. The service would remain free for the users, but Facebook leverages the data in the background as you search or buy things.

    "Sorry Alexander - you might like the idea of paying for services but I like having my access to the web and all the services that it lets me use even if that means I have to see ads and companies like Google get even richer. At least now we all have a level ground to work on rather than staring at each other from across the chasm of the technological divide."

    This is a perfectly OK choice of course. I don't think or want the next evolution f the web be one where everything should be paid for. But the important services, those that provide user value could benefit from other business models than the current advertisement business model. If Tim O'Reilly gets his social operating system then I can't see the current advertisement model remain the mainstream business model, because the walls of all social service would be taken down and destinations wouldn't be as important any more. Good response!!
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    I can agree that a better form of integrated payment systems is needed but in our increasingly cashless society (McDonalds in Japan is testing a system using RFID and cell phones - http://www.crunchgear.com/2008/05/26/mcdonalds-... ) it is all being based around having some form of credit or debit card. While the debit card system might be working for some in the US the reality is that debit cards from other countries don't apply which leads us right back to credit cards. As for the mobile solution unless you are buying a "Pay as you go" type cell phone you need a credit card in Canada to have an account with a provider whether it be Bell or Rogers. Even some cable companies are requiring credit cards now before being able to use one of their HD settop boxes.

    As for the prepaid cards - I've been down this road before with some-one who told me I didn't know what I was talking about. Try opening an account at your iTunes Store with a prepaid iTunes card - as of three or four months ago it wasn't possible as neither was PayPal support. It was credit card or US debit card or nothing. At the basis for any payment type of account there has to be a credit card or a bank account that has an acceptable debit card to the payment gateway being used. Even with my PayPal account which is linked to my Canadian bank I am limited because I don't have a credit card associated to the account.

    So as nice as the idea of an *equitable* payment method might be it ain't happenin' and until it does freenomics is still the only leveler we have when it comes to the web.

    Now as to your points about advertisers et al I think that is where I'm going to have to head off and do another post :)

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