Thursday, May 20, 2010

Why paid-for ads are incompatible with the web

LONDON - FEBRUARY 03: (FILE PHOTO)  In this ph...Facebook - and social networks like it - succeed when they make it easier for people to form communities of purpose - groups. They lower the transaction cost of finding each other.

In the case of Facebook they have removed the heavy-lifting of manual discovery by using profile data and content shared by individuals to 'auto-suggest' friends you should connect with.

LinkedIn has similar functionality.

It makes sense. (image, Getty, via Zemanta).

(This paragraph updated May30, 2010 in the pursuit of clarity - on the suggestion of Jay Rosen)
Lowering the transaction cost of group forming is fundamentally what the internet is for. This becomes ever more evident, even for those who would have you believe the web is one large conduit for content/knowledge sharing, when you add consider the dawning of the ‘web of things’. In the web of things each element of content is another node capable of expressing its meta data to all other things and all other people. Both content and people find each other – forming nodes in a group; a community of purpose.

The problem for the likes of Facebook is that lowering the transaction cost of group forming is incompatible with charging for advertising.

How so? You have to attempt to create an artificial scarcity in our ability to discover each other.
ie An advertiser must pay to connect (via the brutal interruption of an ad) with a person for whom their advert is (at least they believe) relevant. The advertiser is paying a third party, a mediator, for the connection, the ability to form a group with you (he'd obviously like the group to be rather more than just you and he...)

Why can't the advertiser just go searching for people who will find their product relevant?
Ah, that'd be why the artificial scarcity gets deployed. To prevent them from doing precisely that. It is the flipside of the Facebook privacy issue.

Privacy - or who controls who gets to connect with whom - is the artificial scarcity Facebook relies upon to create value for its ads (and it is now the clear and dominant leader in display advertising online).
It's got there through artificial scarcity. But the web - and its driving group-forming purpose - equates to the imperative to go round artificial scarcity; barriers, paywalls, copyright etc

I think Facebook understands that and, in its constant push-back against privacy, is seeking to remove the artificial scarcity it has created to seek new business models ('Like', for example, or even the platform-thinking solution I have previously suggested).

But to return to my original thought, ads are always an example of one party charging another for access to connect. In the group-forming world of the web, mechanisms to limit that access (create scarcity) must always be artificial. So they can only ever enjoy a limited lifespan.

Artificial scarcity has no future on the web. And without that, online advertising has no future either.

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The rate of change is so rapid it's difficult for one person to keep up to speed. Let's pool our thoughts, share our reactions and, who knows, even reach some shared conclusions worth arriving at?