If you sell content, media or applications online, I have good news, and I have bad news.
The good news is that it turns out consumers will pay for it! Woo-hooo!
The bad news is that they won’t pay money, just attention.
The media sages and digerati are all a-Twitter with commentary on the economic, social, and technical implications of Microsoft’s proposed acquisition of Yahoo!, but for those of us in the extended digital ad space, the primary implication couldn’t be more clear: In the share battle among the big three online revenue models – Purchase, Subscription, and Advertising – the advertising model is winning.
Microsoft has accepted – embraced even – what some in the newspaper, magazine, video, music, and software businesses are trying hard to ignore:
Given the choice between paying for something and getting it for free, people prefer free.
Given the above, you either need to a.) make sure your product isn’t available for free, or b.) find an economic model that doesn’t depend on people paying for it. If you choose b.), advertising is something you probably need to explore, understand and master, pronto.
Since it’s hard to argue whether the above is true, we seem intent on arguing whether or not it’s good. Advocates for “liberating” intellectual property of all kinds celebrate the “democratization” of art and commerce online, while detractors point to squandering a whole generation of people with genuine talent and insight who are now unable to make a living in the application of those gifts for the greater good of society.
If you run a software business (in the broadest sense of both terms), this argument is interesting, but largely irrelevant. You can either sit in the corner of your closet and try to go to your happy place – like the music industry has collectively chosen to do – or you can set to work re-shaping your business to the new reality. Love them or hate them, you have to give Mr. Ballmer and company credit for spotting the shovel on its way to their collective face, and for being willing to pour the fruits of their current franchise into an attempt to duck.
With Google hard at work on “free” (a.k.a., “ad supported”) online versions of the Office apps that account for a substantial share of Microsoft’s profits, how could Microsoft not allocate some substantial share of their accumulated treasure to the development of assets and expertise in the online advertising space? Among such assets Yahoo! is like a crown jewel at a yard sale, a little dusty from lack of skilled attention, but no less precious and now a relative bargain.
Setting aside the question of whether this acquisition is a good thing for John Q. Consumer, it certainly seems to be a positive development for the ad business.
First, it aligns two of the stronger players attempting to stave off an emerging Google hegemony, who as anyone who’s dealt with the advertising services team at Google can tell you, could benefit from some humility.
Second, it means a large group of very smart grownups trying to make online advertising more valuable, if only so they can charge more for it. Advertisers have long been willing to pay twice the price for something that reliably delivers twice the result, and in this arithmetic is the foundation of an online ad business that delivers both superior results to its clients and superior returns to its shareholders.
Finally, to the extent that Google and Micro-HOO! are blazing the trail for ad-supported online applications and services, building the infrastructure to support that industry and educating the market as to its possibilities, it’s likely others will be able to draft on their success. The result could be a whole new generation of digital outlets, and an even broader buffet of highly targeted media.
We’ve been here before, of course. In the last Internet Bubble everybodyandthiermother.com talked about the ad model they’d use to “monetize eyeballs” when the money from their $100 million series B venture round ran low. Turns out that was harder than it seemed, and in the end we ended up with a lot of Ferrari’s on eBay and power concentrated in the hands of four or five online ad giants.
Still, things are different now. Broadband access is commonplace, and online’s share of total ad spend has reached critical mass well below its share of users’ media consumption. Most agencies understand the potential of the medium, and CMO’s are arguing about the right way to measure results instead of whether or not they can be achieved.
If the number of online ad giants is now to decline by one, but the competitive balance among those that remain is improved, it’s probably a net positive from the narrow perspective of the online ad business. In the short run, leverage with Google will increase and in the long run, advertisers will have more good options on the table.
Users will get more of the things they want online for “free,” at least in terms of cold hard cash. What the cost to them will be in terms of attention, choice and privacy, it’s much harder to say.