After so much debate about the uncomfortable monetization strategy adopted by certain websites and the subsequent reaction to ad-blockers, I wanted to put together some ideas about why and how we’ve got here from the lens of the evolution of the media space.
The Old Paradigm
Before the internet, at any given region of the earth, certain media formats dominated the space and tended to monopoly because of two things.
- Huge barriers of entry: in order to print and deliver the news, any media group had to own presses and the distribution channels. That made it really difficult for new competitors to enter the space, because of the huge up front costs.
- Advertisers always went to the largest player: in an era where targeting was not possible (at least not in a way we are able to do it today) the ad money was allocated to the medium that had more reach.
That created something really interesting that has become the underlying foundation for journalism so far: the editorial side got decoupled from the responsibility to make money. That made possible investigate journalism and put the focus on the quality of the content leaving financial tensions on the side.
This environment was set up by the nature of the medium and the constrains under which operated. The assumptions were basically three:
- Limited space: the available amount of space was determined by the medium itself. In the case of the newspaper, the limitation was obviously the physical form factor of the product.
- Limited reach: because of its physical nature, the distribution of the content had certain constraints. A newspaper was a low nominal cost item, therefore it didn’t make any sense to carry it by plane to the other end of the world.
- News selection: because of the separation of money and content, journalists became the ones who decided “what is news”. On top of that, editors got to arrange what made it into the cover page, having also the ability to choose “what is important”.
Then the Internet happened. This new medium flipped all these assumptions on their head, making room for a new range of publications built and optimized around this new paradigm.
- Unlimited space: in the Internet there was no limit on the amount of space available for the news. Therefore, the marginal cost for an additional page becomes zero.
- Unlimited reach: newspapers were tied to its geographic region, but with the Internet the addressable market becomes the entire world. But what it’s more important, though, is that everybody had access to this “feature” because there were no barriers of entry.
- Hyperlinks: because of the hyperlink, individual stories could be accessed without visiting the home page, what it meant that front pages didn't matter any more. Link distribution channels, particularly social, were far more important when it came to raising awareness of a story.
In this new environment, newspapers with obsolete print-centric cost structures were not prepared to compete. But new online-only publications, built around these new Internet dynamics, quickly spread across the web.
These online publications tried to inherit the monetization model that newspapers had been using for a while. They placed online ads that where displayed alongside the content in the way newspaper did. But the problem is that online ads are inherently deflationary because of the unlimited amount of space available on the Internet. This results in a tricky dilemma that ends up hurting content quality. Ben Thompson mastered this idea:
This resulted in a bit of a prisoner’s dilemma: the optimal action for any individual publication, particularly in the absence of differentiated ad placements or targeting capability, is to maximize ad placement opportunity (more content) and page views (more eyeballs), even though this action taken collectively only hastens the decline in the value of those ads. Perversely, the resultant cheaper ads only intensify the push to create more content and capture more eyeballs; quality is very quickly a casualty.
In the middle of this transition, another important landmark happened: mobile.
Mobile not only was built upon the aforementioned concepts, but it emphasized areas where media is really important. Mobile means a computer in our pocket all the time. Before mobile we went to a computer with intent, only when we needed something. But mobile changes that. Mobile in a way, is what we do while we are not working.
Mobile not only fulfills intent, but also fills empty moments, boredom: like checking out what our friends are up to, the latest tech news or just texting your significant others. Empty moments means attention, the most precious resource advertisers crave for. But monetizing attention comes at a cost, and if online ads were a deflationary proposition, because of the infinite space, mobile made it even worse:
- Poor ad quality: unlike a PC browser, which has a lot of space to display ads alongside content, content on mobile necessarily takes up the whole screen. This results in mobile ad rates that are a fraction of desktop ad rates and a worse experience for the user.
- Clicks are expensive from a UX perspective: not only do PCs typically have faster broadband connections to download assets and more powerful processors to render pages, they also have multiple windows and tabs.
So, a formula that wasn’t even working on desktop, mobile just worsened the situation. The only way to fix this advertisement mess was through one of this paths:
- Sell / display more ads: which is problematic for the reasons listed above.
- Sell more effective ads that better engage the viewer: this will result in better conversion rates, that somehow will fight against the infinite space problem.
- Sell better targeted ads that reach the advertiser’s target audience: this will also fix the reach problem, because now we can leverage the targeting capabilities to just display the ads to the people that will supposedly be more interested.
The third item was only possible because, alongside with mobile, huge social media platforms emerged, and with them, the idea of online identity. We’ve always had an online identity built up from cookies in our browser, but social platforms were able to fine tune our profiles because of the amount of information we were willing to “share” with them.
The ownership tied to the mobile device (desktop computers were more easily shared among family members) and the better targeting capabilities allowed to set up the stage for a new wave of online advertisement that has proved more effective (and profitable) across all the platforms.
In this scenario, the internet lets you reach people at a more specific level and with great detail. It lets you know people in a more granular way and target them in a way it wasn’t possible before, therefore, it’s easier to reach a particular segment, but it’s more difficult to stand out.
This has a direct implication: the result of having this deeper knowledge is that you end up with a lot more niches. But at the same time, capturing each niche takes more effort, because your message has to be more focused and people expect to be reached in a more specific way.
This idea of niches and the amount of effort required to capture each of them captures the way advertising has evolved alongside the Internet and the challenge it presents to incumbent companies to adapt their structures to compete in this new era.
 Not only the low unitary cost, but the expiration of the product itself (just one day in the case of newspaper) made the distribution a tough call.