Advertising is Obsolete

I’ve been saying this for quite a while, and it’s more recently become painfully obvious: advertising is obsolete.

Advertising is no longer needed for discovery

Advertising originated as a way to spread the word to potential buyers about things for sale. Without a sign with an arrow pointing to that drugstore around the corner, some people with a legitimate need for something sold at that store would not know of its existence. This is economically additive and a good thing.

This evolved into mass-market advertising a way to try to sell more stuff, mostly stuff that wasn’t needed, but might be wanted. This sort of advertising is a big part of the fuel of the consumer economy; it increases GDP but creates nothing, and is not economically additive.

Since the invention of comprehensively useful search engines, we can easily find whatever we might actually need, wherever it happens to be. Advertising is no longer needed to find things that we need. The fact that most search engines happen to be themselves funded by advertising is a historic artifact; there’s no reason that they must be funded by advertising simply because they currently are.

Media does not require advertising

We need to deeply reconsider the broadly-held view that advertising is an intrinsic part of the media business model. It’s not. Just because advertising has been part of most media businesses doesn’t mean that it must be. As Ev Williams outlines in his piece on The Rationalization of Publishing, other forms of media (TV, music, books) do not depend on advertising, and yet we’ve continued to operate under the assumption that for some reason news is different. To his explanation of the (incorrect) assumptions that we have collectively made about why news might be — and isn’t — different, I would call out three fantasies that have led us to believe that advertising is somehow required:

Fantasy #1: Software is magic enough to make people like ads

Big ideas have a long legacy. Riding along with the early meme that “information wants to be free” was the technocratic fantasy that software would make online advertising work so well that it would again become an economic benefit — a way for people to discover things that they need (or really want), and that they would have otherwise not been aware of. While this does happen to some small extent, we have treated the personal data makes this possible as a zero-cost externality. If we factor in the real value (any value, really) of this data, it becomes clear that the net economic value of the discovery of a product by way of highly targeted internet advertising is actually negative. Many companies and countries are now taking steps to take this negative impact into account, making such advertising much more difficult, impossible, or illegal.

Fantasy #2: Advertising is easy

Not only did we fail to value the data being mined from individuals — we also vastly underestimated the cost of processing all of this data. Overall, the complexity and cost of building and operating software to ‘serve’ online advertising has turned out to be at least an order of magnitude greater than we all originally expected, and, unsurprisingly, for most online publishers, the cost is more than the return on that investment. Online advertising has never been that profitable for smaller publishers, and before long, it will prove not to be profitable even for the largest (Facebook, Google).

In addition to the cost of managing the data, adding advertising changes the straight line of the publisher—readers relationship into a triangle of publisher—readers—advertisers. We’ve become so accustomed to the media triangle that it seems normal, but it’s a vastly more complicated business model that buries the publisher’s relationship with its real customers beneath a thick layer of service to an alternate set of customers. We try to maintain a separation of church and state, and believe that we can serve both gods (editorial and sales, content and advertising), and, with great difficultly, it can be possible to do so, but it’s not easy, and it’s certainly not necessary.

Google and Facebook didn’t start out as vehicles for advertising. They were ideas in search of a business. In those early days of the ‘net it wasn’t possible to simply charge people, and using advertising seemed like an easy alternative to asking users to pay. Critically, once we started down that road, we kept at it, even though it turned out to be much harder than we originally thought. And because of our love of software and of problem-solving and our stubbornness and our reluctance to abandon sunk costs, we kept trying to make online advertising work long after we should have simply reallocated all that effort towards finding effective ways of charging readers directly.

As we now know, it’s not at all impossible to charge readers directly, but because we had put so much effort into trying to make online advertising work as the sole form of economic support for online journalism, we back-formed the idea that online advertising is the “only rational model” that can support online journalism. Bullshit. Advertising seemed like an easy way to support online journalism—but it’s not, and it’s time to move on.

Fantasy #3: Some products are supposed to be free

The “free press” is a nice idea but somehow along the way we confused free speech with free, as in beer. Because of how early online media ideas emerged, with no realistic way to charge users, and with advertising as a seemingly easy path to producthood, we became enamored with the idea of something never-before-heard of: the free product.

But: there is no such thing! A product is something for sale. I agree with Tim O'Reilly and many many others that we do pay for these products with our attention, but we do so implicitly, while advertisers pay explicity. And it should be clear to us all now that explicit trumps implicit.

Ev Williams said it well in the same piece I referenced above:

There is — and probably always will be — a surplus of free content. But that’s like saying there’s a surplus of free food in the dumpster behind the alley.

We’ve been dumpster-diving for news for long enough, and, needless to say, the effects are showing. Don’t think that we’ve seen the bottom either — it’s almost certain to get worse before it gets better.

First you pay, then you get the product

We need to discard the misguided assumption that products are somehow better if they’re free. Advertising came to be part of the media business model as an attempt to turn ideas into products. What we’ve learned is that if people aren’t willing to pay explicitly for something, it’s not a product, and it’s not a business. Advertising seemed like a good way to turn these brilliant ideas into products, but, hey, it wasn’t. Real companies make products that people pay for.

Anything one needs to market heavily is necessarily either an inferior product or an evil one. (Nassim Nicholas Taleb, Antifragile)

All of what is spent on advertising, and on trying to make advertising work, could be used to make better things — or not spent at all. Nobody would shed a tear if we turned advertising off, and nor would it harm the economy. I include advertising in my list of things that we’ll look back on as 20th-century ideas whose time came… and went.