Always New Mistakes

December 31, 2007

The big problem of advertisement: Us

Filed under: Business — Alex Barrera @ 6:36 pm

Online advertisement is the economical engine of many current startups. Nevertheless, according to Dave Morgan, only 1% of the Internet population click on those ads. I’m not talking about context search ads like the ones displayed by Google, but about the ads and banners displayed in web sites and social networks. The problem with them is that, despite yielding a very low efficiency in terms of Clicks Per Ads vs. Website Users, most sites keep cluttering their space with them. Some time ago I was watching a video clip at Reuter’s site and I had to watch some seconds of ads before I could watch the real content. That got me asking myself, why is everything full of ads? Why is it increasingly rare to find a site with no ads? The answer I got was that the problem was US. Yes, you heard right, the problem is that there is such a big competition in many Internet market sectors, that user loyalty is attached to which services are free AND better (in that order), “Excuse me Mr. CEO, do you want me to pay for your service when I can do the same on this site for free? Hell no!

Internet tech savvy users are so used to surf the web that are reluctant to pay for most web applications. This is specially true if the service a website is offering can be found elsewhere. One example of this are online email readers. If you ask if someone would pay to use Yahoo Mail, I’m sure they’ll say they wont. Why? Because there are other “free” alternatives such as Hotmail or Gmail. Now, if you try to start a website that operates in a market niche where others are giving a similar service for free, you won’t have any option apart from giving yours also for free. This behavior produces a funny paradox. Most startups don’t have a viable business model yet, but they still offer free content so they can compete with other companies in their market. The problem is that, as more companies enter the same niche, competition grows and all services become free of charge. Once the market reaches that point, most startups take one of these two paths: ads driven business model or premium accounts driven model. The first one clutters the website with ads, needing an increasingly high volume of users to transform that 1% click rate into something valuable. The problem is that most of them just alienate their users, risking loosing some of them. That’s because most users just don’t look at the ads. This is what Jakob Nielsen calls, banner blindness. On the other side, premium accounts imply a higher risk. If you don’t offer a service that’s unique, most users won’t bother to pay for it. That means that the startup won’t get any revenue at all.

banner-blindness-examples.jpg

Finally, because we are so used to finding several options for the same service, we force startups to take the ad driven business model as a way to cash in their product. The problem is that, very few of them really make real money with it. Why is that? Paraphrasing Dave Morgan: “ […] while clickers may be valuable audiences, they are by no means representative of the Web at large. Focusing campaigns to optimize on clicks means skewing campaigns to optimize on middle-aged women from the Midwest.“. So if your product doesn’t targets middle-aged women from the Midwest (or enough of them), your chances of survival are skim.

The question then remains, shall we, as Internet consumers, pay for our favorite services, even though we can find similar products elsewhere? I’m afraid that most of you won’t, and it’s natural, it’s one of the consequences of the freedom of markets. So, remember, every time you get bugged by an ad or a banner, it’s ultimately your fault! We shouldn’t pay for free of ads services, but because the service is worth it.

Merry Christmas to everybody and happy New Year 2008!

UPDATE: Seems like the guys at Read/WriteWeb were thinking above the same lines I was.

Image credit: Jakob Nielsen (useit.com)

2 Comments »

  1. If you’re theory is right, many of these free services will disappear, leaving many Web users disappointed. While everyone loves free, I’d pay $5 or $10 for a premium package that includes del.ico.ius, WordPress, GMail, Google Reader, Flickr, Picnik and Google News. The problem is I’m the exception as opposed to the rule.

    Comment by buckpost — January 4, 2008 @ 1:17 pm

  2. Hi Mark,
    I suppose free services don’t have to disappear, they are doing fine now, the problem is that we don’t leave them any choice but to use ads (maybe it’s a lack of imagination of a new business model) if they want to keep running. I talk in general. As you point, I wouldn’t mind paying $5 for some services, but then again, that only works if you don’t have *free* competitors😉

    Comment by alexbarrera — January 4, 2008 @ 7:43 pm


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