Could Blockchain Disrupt Facebook and Google’s Business Model?
I’m not revealing anything new when I say Facebook and Google have a stranglehold over digital advertising. According to a recent WSJ article, the two combine for more than 70% of the $73 billion spent each year on digital advertising and nearly 80% of all online referral traffic. And most of the growth in this market is accruing to these two behemoths so there doesn’t seem to be any way for this to be upended. Or is there?
Let’s start with why Google and Facebook are so dominant. These two companies created network effects that enable them to control eyeballs. With Facebook, users sign up and stay on because their friends are on it and as a result, switching costs are extremely high. For Google, every time you do a search the system gets smarter so it constantly provides a better user experience. If you’re getting better search results, why go anywhere else? Because these two aggregate users, advertisers have no choice but to commoditize themselves and are forced to advertise through Facebook and Google’s platform. This is Aggregation Theory at its finest.
In fact, it’s precisely because Facebook and Google can aggregate users and data that makes their user experience better then their competition. We can debate the good and the bad on this all day but that’s for another post. The point is that for most businesses, if you want to advertise digitally, you have to be on these two platforms.
This puts Facebook and Google in extremely powerful positions. Again, not saying whether this is good or bad for consumers, but it’s definitely not ideal if you are an advertiser or publisher.
If advertisers and publishers want to regain control, they will need a way to go around Facebook and Google and directly to consumers. In other words, bypass the middleman. That’s basically what Facebook and Google are, middlemen, albeit very powerful ones, for advertisers and publishers to reach consumers.
Bypassing middlemen is precisely where Blockchain technology excels. Replacing a third party with a distributed, peer to peer network.
So how can advertisers and publishers take advantage of this technology, bypass the Facebooks and Googles of the world, and go directly to consumers? Well there are a couple companies already building some interesting products along these lines.
In time users might even be able to set a “price” at which they are willing to watch an ad and perhaps have different price points depending on the brand that wants to advertise to them. Love Marvel movies? Of course you will watch the trailer to the newest Avengers movie at a lower price then a Romantic Comedy. And advertisers would theoretically get better ROI because not only are they only paying for ads they are sure were seen, but most likely by consumers that have some affinity to their product. Otherwise they wouldn’t waste their time with the ad anyways. And if an advertiser really wants to attract new customers, they might be willing to pay more, thereby increasing the incentive for new customers. Could we get to a point where we have a true marketplace for watching ads? Who knows, but this has the potential to completely flip the advertising model on its head.
The other really interesting company in this space is 21 Inc. 21 has recently released a new product in which users can link their social profile to 21’s search engine and get paid in Bitcoin to reply to messages. The original use case for 21 is to make contacting people easier if you aren’t already connected to them and can’t find their contact info online. But given the fact that the search engine can populate results based on characteristics other than simply your name, you can envision this getting built out to include searches on “Dog Lovers” or “Green Bay Packers Fan.”
This is an advertisers dream. The ability to send a direct message to a target customer and only pay if they respond. The opportunity to sell to anyone that replies is pretty high given they have already shown a willingness to engage. And 21 has taken it a step further allowing you to send mass emails and incentivizing actions with small Bitcoin payments.
Search for a customer. Send a direct, tailored message. Pay only if they reply. I’m not an advertising expert but that sounds far superior to anything that has ever existed. Potentially far more effective than Facebook and Google ads and definitely far superior to TV, print or radio.
Aggregation theory posits that power in the digital ecosystems comes from the ability to aggregate consumers and, by extension, attract the most users with the best user experiences. Google and Facebook ran this playbook to rise to their current dominant positions. However, the distributed nature of the Blockchain provides companies with an opportunity to put the power back in users’ hands, giving them a chance to monetize their attention rather than letting an aggregator do so. The push and pull between aggregation and decentralization will be a fascinating tug-of-war in the coming years.
I have no clue how this will ultimately play out and even if these new approaches do upend these companies, it’s probably going to take a long time. And I’m sure there will be many more experiments and companies started along these lines. But I do know this. Any player in any industry whose business model is dependent on being a middleman is ripe for disruption due to blockchain’s distributed nature. Even behemoths like Facebook and Google.