I non-obviously do believe in the capitalist reality underpinning the universe (it's value-add all the way down) but you’re smoking if you think the market doesn't recognize ad-free users are relatively cost-less compared to their positive network externalities.
that doesn't mean that some free-to-choose sites won't experiment with paywalls, etc. in an attempt to enhance cost-covering revenue.
He cites a single example for his entire article as proof that users don't mind paying for things. Not exactly scientific, is it?
Really, we need to get back to purist capitalist principles for the web: if something provides "value", it should cost money. The culture of free has gone on way too long though, and I suspect users are just too spoiled.
This is simply not true in my experience. Most prominent example is Youtube, where there is an option for an ad-free experience which is decently priced. And yet, the adoption is very low and you still see people complaining about ads on Youtube all the time.
I guess a vast majority of people simply don't want to pay if there is a somewhat acceptable free alternative.
Brilliant? Is it brilliant to simply revert to how the free market is supposed to work, where consumers pay producers because they think the product is worth it?
Ad-supported sites fool consumers into thinking they're getting something for free, when in fact they're still paying, just indirectly . And not just the original straight-up price, but a host of additional costs[1]. Don't believe me? Where do you think the advertisers get the money to buy ad space? Of course it's baked into the products consumers buy from them. There is no free lunch.
What does it say about your product if users aren't willing to pay for it? What does it say about your business when you tell users its free but don't tell them you've hidden your charges in the prices of the products that are advertised? That it's actually costing them more?[1]
It isn't free as in speech without ads either. You give up your behavior, profile, data no matter the site showing ads or not. What you wrote sounds like a pro-ad argument when thought about for a second.
Again, that is a non-obvious conclusion. Many people will consider ad-supported to be free for the sole reason that it doesn't affect the amount in their bank account.
I really and truly do wish this wasn't true, but it is. Part of this is because we've built an expectation that the only thing one needs to pay for to use services connected on the Internet is access, and once access is paid for, the problem is solved.
But that's not the case. Products cost money, and we've established a pattern of free to play to freemium for much of the most popular services. This could change, but it would take the major players to flip the script, and they've invested so much into ad systems that they'd be hard pressed to abandon it.
I agree, but it's an absolute fallacy that consumption is free. In fact, it is more much more expensive with ads:
1. The advertisers who pay for it all still get their money from us, but baked into prices of the things we buy from them. There is no free lunch.
2. The overhead cost of advertising is huge and we pay for that too. Ad systems and data collection systems, ad engineers and people like the author. Ad agencies. Creative agencies. Ad tracking. Marketing departments.
3. We pay the opportunity cost of a product that cannot put users first because they live or die by giving advertisers what they want (what we want only indirectly and secondarily, if at all). This includes both the cost of lost privacy as well as well as design that optimizes advertising revenue. As has been said, we are more Google's products than we are their customers.
4. We pay the social costs. Democracy and the free market assume people make voting and purchasing decisions based on facts and reason. Advertising is predominantly about manipulation and deceit. To me this is the most expensive cost of all.
Added together, we are paying a lot more for "free" web content and services than if we could just straight up pay web sites for straight-up ad-free versions. A system to make that convenient is possible, but we're too hooked on ads to even try.
Content littered with ads can not be considered free.
The difference from traditionally paid content is that customers pay with their attention and virtual purchasing power instead of spending money directly.
A willingness to pay signals that you A. have money and B. care about quality, which makes you a ripe target for price discrimination, which is why "ad-free" premiums often exceed the ad revenue by an enormous factor.
Welcome to the economics of ad free websites (for now, at least).
A large percentage of people simply will not pay for website access, no matter how low the price. So you get your money from those who do, who value the service so highly that parting with it would be huge pain point for them, and, so Bloomberg assumes probably after extensive surveys, those who feel that way about their publication, will likely have 35$/month to spare for the privilege.
In essence, people overvalue free goods. This means it is very hard for a paid product to compete against free goods, even when the paid product is itself cheap and better quality. This explains a lot about the state of the Internet, where a large number of eyeballs go to free products maintained by a large companies with other revenue streams or to low quality junk. It also makes me, unfortunately, doubtful that any efforts to directly monetize Firefox will be successful.
The vast majority has bought into the utter bullshit that advertising makes the web free. This delusion buries not only the fact that we have made a deal with the devil, but also that the deal really sucks. What we traded our souls for we don’t even get. The web would be both cheaper and better if we just paid for what we use straight up. And more importantly, society would be better. I'll explain all of these.
IT'S NOT FREE
We’re not Facebook’s customers, advertisers are (more on this below). But we are the advertiser’s customers, and the cost of the "free lunch" is simply shifted to the price of the things we buy from them. In other words we still end up paying for the full cost of Facebook (and even more, as I'll get to next). Costs may even shift regressively, to advertised products predominately consumed by those with lower incomes, in which case the poor are subsidizing the better off.
IT'S MORE EXPENSIVE...
Not only are you still paying for the full cost of the Facebook product you use, you are paying for all the advertising overhead: the costs of its advertising technology and infrastructure (huge, btw), the agency and creative costs (Don Draper and company have to pay for the hookers and scotch somehow, not to mention what’s-his-name who basically just lounges in his office barefoot thinking Japanese), and the advertiser's big marketing departments (that often outnumber and outspend the people making the product!).
The best minds of my generation are thinking about how to make people click ads. That sucks. – Jeff Hammerbacher, fmr. Manager of Facebook Data Team, founder of Cloudera
So in addition to the original product cost and the ad overhead costs, you are also paying the opportunity cost of an inferior product (as Dennis Curtis points out in the OP) as well as the engineering costs of figuring out how to optimize ad revenue, because that’s what happens when websites have to design to please advertisers over pleasing us, the users. Dalton Caldwell makes this point comparing Sourceforge to Github[1]. As ergo says in a comment[2], “If the new news feed is making their advertisers happy (and bringing revenue into Facebook), then that's what they optimize for.” As jfoster says in a comment[3], “Ad-supported models untie the relationship between UX and revenue.”
Furthermore, our identities and privacy are bought and sold to the highest bidders. And where do the bidders get their money? From us of course! A double whammy! We're trading our privacy for free product? Bullshit. We get personalization? Bullshit. Personalization means optimizing something for me, not optimizing for the advertiser. Again, we're not the real customer. We’re certainly not Google’s[4][5].
WAIT. IT'S EVEN WORSE...
Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. – Tyler Durden, Fight Club
Think of the social costs of advertising. The web is infested with misinformation and manipulation. Beside the lying ads themselves, relying on a revenue stream entirely dependent on how many ads are seen severely affects the moral choices of those who decide what gets produced and how its presented. What are the costs of a misinformed and variously manipulated citizenry, of distortions to the free-market?
Knowledge and discourse are the lifeblood of both democracy, free markets, progress. The web, from the little scammy websites to the big brand ones that so many blindly trust, has a huge influence on who we vote for, what we buy, and most importantly, what we believe.
There is no free lunch, and there is no free web. This "free" ad-"supported" web we have is much too expensive.
[4] Lloyd made his pitch, proposing a quantum version of Google’s search engine whereby users could make queries and receive results without Google knowing which questions were asked. The men were intrigued. But after conferring with their business manager the next day, Brin and Page informed Lloyd that his scheme went against their business plan. "They want to know everything about everybody who uses their products and services," he joked. - Wired, http://www.wired.com/2013/10/computers-big-data/all/
Free is NOT the problem. Free is the “business model” of the internet. Just because some people want to monetize it doesn’t mean we need to give up and just let them do what they want. Selling ads is not the purpose of the internet. Content created to sell ads is most of the time garbage. No chicken, no egg no puzzle to resolve.
> The only reason people don’t choose free over paying is if the convenience or cost is worth it.
This is how you make a profitable business even if free alternatives (like piracy) exist. Steam managed to pull that off for videogames (their DRM is unfortunate, but it's only part of the equation here).
> an additional problem is if a vendor provides a service for free or cheaper with ads, people choose that one over one that is paid
That's very true. It's why I argue ad-based models should be made illegal. They're distorting the market, as it's very hard to compete with "free, but monetizes your sanity and/or your data".
I'd have to disagree a little here: I think the "free" aspect of the web is a tendency towards marginal cost. If the marginal cost of a user is a fraction of a cent, it does not make sense to charge every user -- they inherently know that the service should be free, and even if they don't, a competitor can gain an easy advantage by replicating what you do and offering it for free.
Amid all of this "free" bashing, it's also very important to note that not all "free" services are supported by ads. The "freemium" model (free services supported by paying users) works quite well for many services, including those that have a high enough marginal cost that making money off of advertising isn't enough -- these should be the same services people are willing to pay for, since they cost a lot more to support.
If they aren't (ie, the YouTube example), then you're probably just fucked. But it may very well still be early to call the game on YouTube, for example: the internet has a notoriously short time span, even though it might take a long time to "mature" a business. I'm not familiar with YouTube's specific financials, but given the size of the site and audience, I would be very careful to rush to conclusions on the current and future profitability of the site.
that doesn't mean that some free-to-choose sites won't experiment with paywalls, etc. in an attempt to enhance cost-covering revenue.
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