Advertising is the wrong model for the open Web

Some Betanews readers made such excellent comments to yesterday's post, "Can there be a free Web if no one makes money?," I will respond to some of them with another post rather than piecemeal in comments. The current advertising model isn't sufficient to handle all the online content out there -- and there will be more of it.

Yesterday, commenter bigsexy022870 wrote: "Maybe I am missing something. But I thought that ads paid for all this free stuff. I mean Google produces nothing yet it's super rich. Every Website is loaded with ads."

Not every Website is loaded with ads, nor could there be. There is simply too much content on the Web, and the amount increases seemingly exponentially. There is a widespread fallacy that advertisers are fleeing newspapers, TV and radio for the Web, because the same media organizations give away the same content online for free. Advertising is about reach. If advertisers thought they were reaching the right audiences through old media, they wouldn't shift some dollars to new media.

To be clear: Much of the decline in ad spending offline isn't going online. Advertisers' losing confidence in old media hasn't turned into grand confidence in new media. According to Barclays Capital, U.S. Internet ad spending is expected to grow about 2.3 percent in 2009 year over year to $23.98 billion. Advertisers will still spend more on newspapers and TV (broadcast and cable) -- $26 billion and $61 billion, respectively, down from $47.4 billion and $67.9 billion in 2005.

I agree with Betanews commenter lvthunder regarding what pays for what: "Web ads will pay for servers and bandwidth. Currently (and fading fast) revenue from the newspapers paid for the content creators to create those news articles. When the newspapers fail (and they will) the Websites aren't going to be able to make up the difference."

Three Years of Change

The enormous amount of online content is the root cause of shifting ad spending, and who produces it. Before early 2006, massive news organizations collected information, which was printed, posted or broadcast for people to consume. Within these news organizations, a small number of individuals made decisions about what constitutes news and how information was packaged and distributed. That's the business model News Corp. Chairman Rupert Murdoch is trying to preserve when he talks of erecting paywalls for news.

But in the last three years, hugely transforming cloud services have brought the power of content distribution and creation to the masses -- making you the publisher, broadcaster, journalist or editor. Take YouTube as example. Its influence is seemingly everywhere. But YouTube is but a recent construct, going live in November 2005 and being bought by Google in October 2006. Three years ago. Twitter debuted three years ago this month, but it only has reached mass awareness within the last 12 months -- and what influence! Facebook opened to the public in 2006, as well. Three years ago. Most popular or growing popular tools for community and self expression launched within the last three years: Disqus, FriendFeed, Posterous, tumblr, Twine, Qik and USTREAM, among many, many others.

There was no iPhone, Google Chrome or Android Phones three years ago -- the latter two and Apple's App Store debuted in 2008. All these technologies or services have remarkably and rapidly transformed content creation. Anyone can broadcast or publish, and with mobile devices pretty much anytime or anywhere -- unfiltered and outside the control of news conglomerates. You could broadcast live to the Web from your smartphone using Qik during most any major or minor event. No TV camera crew required. Or you could tweet.

The current advertising model isn't suitable to support all this content, and even search engines like Bing or Google can't adequately catalog all of it for easy retrieval. There is too much content, meaning ad space for amount of online ads. There's no way to fill all the content with advertising, or at high enough rate to sustain most personal or professional operations. Additionally, by supply-demand logistics, the more content there is, the less valuable it is to advertisers. The scale that gives the Web huge global reach makes it too big to support the current advertising model, particularly since the social media revolution of 2006.

By comparison, newspapers, radio and television are fixed markets. There are only so many newspapers or radio or TV stations. Today's situation on the Web is kind of like there being a TV station on every block in every city -- or in every home. The difference in scale -- between number of newspapers or radio stations per each market and enormous number of online content producers is major reason why advertising can't sustain Web content, at least the current model.

Who Profits from News?

There's a related problem: A growing number of amateur, semi-professional and professional news sites and blogs scramble for a shrinking individual share of advertising revenue. Their best money comes from increasing the number of pageviews, with Google search and Google News rankings being important.

Betanews commenter ir0nw0lf complains there is "too much must-get-the-exclusive-no-matter-what and too much sensationalistic stories out there." Commenter therealbillybob makes a related point: "Back in the day, journalists earned their money by going out and hunting down the news. Today most journalism seems to be just regurgitating press releases and opinion pieces like this one."

There are two growing and related trends that correlate to both comments:

  • For many reasons -- with news organization layoffs being high among them -- there is increasingly less original reporting and more linking to existing reports without verifying the information. Yesterday's Betanews Black Screen of Death post by Scott Fulton is good commentary on the increasing Web of misinformation and misreporting.
  • Many blogs aggregate news -- again linking to sources without verification -- essentially to drive pageviews and so advertising revenue. These blogs don't produce the content, but profit from those who pay to produce it.

I want to briefly expand on the latter trend. On Tuesday, the Fair Syndication Consortium released a study, indicating that October 15 - November 15, 75,195 Websites published unlicensed content lifted from newspapers. By the way, blogs only accounted for 10 percent of the total. Additionally, 112,000 unlicensed "full copies of U.S. newspaper articles were found on sites across the Internet."

The profit motive: Search-driven revenue, with Google accounting for "53 percent of the total monetization with Yahoo accounting for 19 percent." Interestingly, "38 percent of the sites were ranked in the top 100,000 most trafficked sites."

I consider content created by the masses, through the post-2006 social media revolution of tools and services, to be legitimate. By contrast, I regard content stolen from professional news organizations or individuals to be illegitimate. Still, both sources contribute to the same problem: There is too much content on the Web for the amount of available advertising.

Is there a solution? Does there need to be one? These are questions being hotly debated right now by professional news organization, new media operations and even individuals like you. I pose the questions to you. Please answer in comments.

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