[HN Gopher] Ask HN: Why are ads the major stream of revenue in a...
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Ask HN: Why are ads the major stream of revenue in any kind of
digital media?
Lately I've come to the realisation that practically all digital
content that's out there depends on ad revenue as a major source of
revenue. I feel like we've absolutely messed up the entire digital
ecosystem with ads. Why aren't there other sustainable revenue
models? What caused this in the first place? What can we do to make
this better? Do ads actually work? Personally I rarely
buy/subscribe to stuff I see on an ad. I keep dreaming of an
internet that doesn't run on ad. I just can't stop thinking about
how exciting that would be. No ads. No sponsorship. What do you
have to say?
Author : astennumero
Score : 14 points
Date : 2024-06-13 18:20 UTC (4 hours ago)
| dflock wrote:
| People have tried to get Micro-transactions off the ground many
| times - and failed every time (so far) - because Visa/MasterCard
| aren't interested - and getting people to change payment provider
| to use your thing is an impossible barrier to entry.
|
| So, no micro payments per page/episode/content chunk - that just
| leaves subscriptions. You pay a weekly/monthly/whatever fee for
| access to the thing. Getting people to subscribe to things is
| _also_ a huge barrier to entry. Getting people to subscribe to
| _lots_ of individual things is impossible (there's only so many
| subscriptions people are willing to have), so you get bundling &
| centralization - i.e. cable/netflix/patreon.
|
| Or you run ads.
| astennumero wrote:
| Yeah, micro transaction just doesn't sound sustainable. There's
| a cost associated for making these transactions (computing for
| gateway, bank servers and everything and everyone in between)
| and that would never make sense for micro transactions.
| uberman wrote:
| Rightly or wrongly, people (in general) have been conditioned to
| believe that digital information is free and thus will not
| actively pay for it. There are some notable subscription based
| consumer services (mostly entertainment based) that have
| convinced people to semi-actively pay for content but they are
| (in general) the exceptions. Even then, many (most) subscription
| services can't resist leaving money on the floor and will also
| ultimately run ads in addition to the subscription.
| astennumero wrote:
| How would have things been different if people never had this
| notion of free digital stuff? I can't help but think that the
| tech giants would have still found a way to mess that up.
| fuzzfactor wrote:
| >people (in general) have been conditioned to believe that
| digital information is free and thus will not actively pay for
| it.
|
| I think this dates back to when the internet was better to
| begin with, and people first had to be conditioned to pay
| monthly to an ISP and that was enough. Everything else on the
| internet was supposed to be there for no additional payments.
| With that foundation it was plain to see this was a medium
| where ads were not necessary, there were so few of them it was
| inconsequential by comparison, things worked great with faster
| page loads even on dial-up.
| astennumero wrote:
| Also another interesting facts I noticed is that ads actually
| cause the price of the product to increase! I constantly come
| across articles that explain how a significant part of the cost
| of a product is dedicated for ads. I can't help but see this as a
| treacherous cycle.
| rahimnathwani wrote:
| Consider the counterfactual - no ads and lower distribution.
| This might make some products unviable (due to high fixed
| costs) or cause others to be viable only at higher prices
| (again, due to fixed costs).
| giantg2 wrote:
| The internet seems to largely followed other media. Newspaper,
| radio, and TV all have ads. Some things like newspapers and cable
| also require payment. The internet seems to follow most of these
| models in one area or another. You'll still have minor players
| producing stuff without sponsorship/ads, but it's rare (just like
| the other media).
| beardyw wrote:
| Who would pay for it in that case?
| exe34 wrote:
| the problem with ad is that no matter what other revenue stream
| you have (e.g. if we could get micropayments to work across the
| web), ads would still make the number go brrrr on the balance
| sheet and thus affect the CEO's bonus. it's an attractor.
| fsmv wrote:
| Ads allows for much wider distribution of content and much lower
| per-user costs. If you had to pay to access the content the
| number of people who can pay is necessarily much smaller and so
| those people would have to pay more per person than the ads make
| per person.
|
| If you want to rely on donations, well, you won't find enough
| people to donate to support the amount of content we have today.
| sparker72678 wrote:
| tl;dr Ad-driven revenue models let you distribute your content to
| the widest possible audience while still making money.
|
| The marginal cost of digital distribution is (basically) zero. As
| a result, you have an incentive to chase the widest possible
| audience. This is going to drive your pricing downward to reach
| as wide a market as possible. The math is like this: A 1000x
| audience size is worth it even if you lower prices 99%.
|
| At the same time, advertisers would like to reach as large an
| audience as possible as well. And, in many cases, you can charge
| _more_ for selling ads to a larger audience. (Either the ad goes
| to a huge number of people, as in traditional brand advertising,
| or you have more niches to target.)
|
| So you simultaneously have incentives to drive your own prices to
| zero, because it drives up your audience size, and that
| simultaneously increases the prices you can charge for ads.
|
| From an on-paper business perspective, it's simply the best
| model. It's why TV, Newspapers, and Magazines all did this before
| the Internet, and it's why the incentives are bent even more
| towards ads in a zero-marginal-cost-distribution environment
| today.
|
| Yes, in the real world there are tradeoffs to all of this, but
| these are the major incentives at play.
| retrocryptid wrote:
| Because people have always paid to know what they really think.
| jokethrowaway wrote:
| I'd rather have ads than pay. Better get money from some inept
| company marketing budget than from my own pocket.
|
| To each their own - except thanks to the EU we're all forced to
| choose cookie banner popups and get less ads revenue -> pushing
| more paid products.
| add-sub-mul-div wrote:
| Ads are shitty now, but the idea that they're evil in principle
| is a bit extremist and misplaced.
|
| The best concert I ever saw was one that I wouldn't have known
| about until I saw an ad for it. I've seen many good movies I
| wouldn't have been aware of if there weren't TV commercials for
| them. And if there's a new restaurant in town that's something
| I'd like to know because I may want to try it. I don't go out of
| my way to follow concert, movie, or restaurant news.
|
| And I'm not likely to do so but if I was ever to open my own
| business, it would be nice if people could become aware of it so
| that I'd have any chance to survive against incumbents.
|
| The internet has poisoned advertising with surveillance and
| tackiness and excess, but before ad tech I think we had it pretty
| good. You could mute TV commercials, there were fewer, longer
| breaks of several at once. Once there were DVRs, you could skip
| them. They weren't unskippable like streaming can now make them.
| smugglerFlynn wrote:
| There is no "internet", there are thousands of digital media
| outlets and digital products, each following their own business
| model. Ads is not the only model available, but is the most
| popular one, by far.
|
| So another question can be asked: why advertisement is the most
| popular business model for digital media?
|
| Personally, I think the reason is simple: because it is the
| easiest business model to apply. Other models require customer
| research, market segmentation, solving technology barriers to
| capture payments, and many other things you need to solve just to
| start getting any revenue. With ads you can monetise pretty much
| anything that gets the eye traffic, all using super simple
| plugins and little to no investments.
| monsieurgaufre wrote:
| I'd wager it's because most content is not that valuable in
| itself.
|
| It's always a question of value. I'm supporting two cycling
| medias because i value their content even if i can (somewhat)
| find it somewhere else. If I'm not mistaken, in the past, the
| Economist even saw their subscribers numbers increase even after
| a price increase.
| dangrossman wrote:
| According to BLS, the average American consumer spends about
| $6000 per month. 5-10% of a B2C company's budget goes into
| advertising, so each person may be generating $300-600/month in
| ad spend.
|
| Discretionary income left over after spending is a much smaller
| number. Consumers can't allocate their ad dollars to digital
| content instead, because they've already given those dollars to
| the advertisers (by buying food, toiletries, housing, insurance,
| etc).
|
| This isn't something app developers can change by making
| microtransactions easier or something. Businesses get their money
| from the advertisers and not from consumers because the
| advertisers have much more money to spend.
| huevosabio wrote:
| Think of every user as having a maximum price that their willing
| to pay. This is not known to us, but we know there's a
| distribution. You may be willing to pay $10/mo for Google but
| your rich cousin would happily pay $100/mo.
|
| The cost for producing the marginal digital media is roughly the
| same, regardless of willingness to pay.
|
| So,how do we maximize revenue? Ideally we would charge everyone
| exactly what they are willing to pay. Except, that's often
| illegal (discriminatory pricing) and infeasible.
|
| But, there's a very good proxy: ads! With ads, the proportion of
| revenue from a given user correlates with its willingness to pay,
| especially for entertainment. Why? Because willingness to pay
| correlates with purchasing power and so does online purchasing.
| So, if you can serve the right ads to the right eyes, you could
| approximate that optimal pricing strategy.
|
| And that's where the bonus kicks in: the more users you have the
| better you get at serving ads. This means that users whose
| willingness to pay is negligible are actually still valuable to
| the service because they improve your ability to monetize the
| richer users!
|
| Contrast this to setups where you have to pay directly:
| subscriptions by being flat end up being too expensive for a big
| chunk of potential users and too cheap for the rest, pay per use
| is too much friction and again ends up leaving money on the
| table.
|
| Every business that can do effectively, will do them. It's just
| such an attractive model.
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