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Wednesday 18 January 2012
Our Unimaginative Internet Economy

Yes, Google and Facebook make their billions by selling millions of beautifully-targeted ads. How innovative, how ingenious, how high-tech. Oh wait, no it’s not. It’s the most unimaginative way to make money in the media business. It’s really no different than a TV network making money from commercials. As with TV, on the Internet you buy the hardware (a computer/tablet/TV set). You pay for the transmission service (it’s not a coincidence that TV and Internet services are bundled together by the same provider). Then you get the content (TV shows, web sites) for free.

The TV model of media monetization is actually a little worse than the newspaper model. In the paper era, you also paid for the “hardware” (the paper on which the newspaper stories were printed) and you paid for the “transmission service” (the cost of sending the newspaper to your door, from truck to paper boy) through your subscription to a newspaper. However, these subscription fees went back to the media company that created the newspaper. In the Internet era (as in the television era), the media company only collects the fees from advertising. Fees for hardware and transmission services go to hardware manufacturers like Apple and phone and cable companies like AT&T, Verizon, and Comcast.

Internet companies which provide only services, like Facebook and Google, are parasites on the rest of the economy. They make their money by selling ads to actual companies that make and sell actual goods. They don’t try to create or sell digital goods, because they know that content value is a function of content scarcity, which free digital copying has destroyed. They do provide social and information services, but they give these services away for free. They rely on ads, an old and unimaginative monetization model that pre-dates the Internet while creating an expectation in the consumer they they will never have to pay for any digital good. Truly the Internet economy is run by geniuses!

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    So, what’s your point? Advertising performs a legitimate and useful function. Facebook’s particular approach must have...
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