The Price of Free

The changes we are seeing with social media platforms reflect the economics of the push-ad-driven model to monetize data networks. If we want free content, we pay for it in other ways; just like with broadcast tv. (And who watches broadcast tv anymore?)

The truth is that the conversion rates for digital ads on social network sites are abysmal, so neither advertisers nor consumers are very happy with push ads. Will I sit through 10 unwanted ads? No. Now I will merely click to different applications until the ads run out = more ad money wasted.

The issue is that with social networks, creators creating content and users sharing it produces much of the value of the data network. “Free” is actually not adequate compensation for social network value, much less worth paying for. But the platforms don’t want users to realize that and hope they have turned their free members into addicts who will now pay with subscription-based models. Perhaps. But there are better ways to create and realize the value of creative content. Word of mouth and trust among like-minded friends is the best advertisement that money can’t buy.

Below we reprint a blog post by Ted Gioia that explains the progressive intrusion of push ads and the Internet “tax.”

The important takeaway is this: The result of all this is that the Internet is turning into the epicenter of crap.”

YouTube May Force You to Watch 10 (or More) Unskippable Ads in a Row
The biggest trick the Devil ever played was convincing people that online stuff is free

Ted Gioia

The biggest trick the Devil ever played was convincing people that online stuff is free. But the Devil always collects, sooner or later—and we are starting to learn the actual terms of this cursed deal.

Consider some recent news stories:

YouTube has been testing users’ willingness to watch 10 unskippable ads on a video. And the ads aren’t spaced out. They come at you, one right after the other, at the outset—because Google wants to be paid first, even if the video sucks.

Nobody wants ads on iPhone, but they’re coming. Executives at Apple are allegedly planning to triple the ad revenue from phones.

“For some Google searches literally the whole screen on Google is ads.”

TikTok can track a user’s every keystroke, and Beijing has “access to everything.”

“Scams are showing up at the top of online searches.”

Snapchat has been forced to pay $35 million for storing and selling users’ biometric information without permission.

Even if you pay for ad-free streaming, Spotify inserts ads in podcasts.

Ads are coming to Netflix too.

Etc. etc. etc.

This is what happens when ‘free’ really isn’t free—but consumers prefer to stay in denial. Go ahead and rob me, just make sure I’m not looking when it happens.

It’s even worse than that. Web users are now hooked on free—and like all addictions, this one is far costlier than you realize at the outset.

You have more leverage when you negotiate an actual price. When I cancel a paid subscription, the corporate provider always comes back with a special offer to get me to reconsider. But how much bargaining power do I have if I refuse to click on those “terms and conditions” that always come with the free stuff?

I’ll answer that for you—none at all.

How bad will it get? YouTube described its ten unskippable ads as a “test”—but this wasn’t done in a laboratory or with volunteers. They just forced it on users, and watched them squirm. And squirm they did.

In fact, one person reported a 12-ad blitz.

This wouldn’t be so bad if it was just one business or sector of the economy that played these games. But this is the de facto business model for the entire digital economy. To maintain the illusion of free, all our online activities are sinking into spam, scam, and sham. Everything from sending an email to sharing a photo gets monitored and monetized by big tech companies—and often you’re the last person to find out what the real price is.

I’ve written elsewhere of how much we would have suffered if AT&T had run the phone network with a Google strategy. You wouldn’t be able to talk on the phone until you first heard a bunch of advertisements first. The restaurant you call for a dinner reservation would have to kickback a share of your meal tab to the phone company. Everything you did on your phone would be more cumbersome and less efficient.

Guess what? That still may happen. The only reason Apple hasn’t already started force-feeding ads on your iPhone is a fear that competitors may not do the same—and they might lose a few market share points. But all it takes is one backroom meeting of dubious legality between smartphone providers, and you will soon start hearing a pitch from the GEICO gecko before you even say hello.

Let me add some comments about advertising—which is one of the most poorly understood phenomena in modern society.

I know more about this than I care to—if only because I spent a lot of time with advertising and marketing people during my lost years, and I learned how they view the world. I even was hired, many years ago, to analyze the financial payback of an expensive TV advertising campaign—a project that took months to complete. I’m probably still tied up in some non-disclosure agreement on that, so all I will say is that I’m not surprised that some of the more powerful brands of the last 30 years (Starbucks, Amazon, etc.) managed to rise to dominance while spending almost nothing on TV commercials.

I would urge you to consider the especially revealing case of the company that sells the most ads (Google). This marketing behemoth waited more than a decade before launching even a single TV ad campaign for its own services.

The bosses at Google are no fools—they understand the value of advertising better than anyone. That’s why they prefer to sell it than buy it.

And then ask yourself: When was the last time you saw an ad agency buy a TV ad for its own business? They have the money to do it, but won’t. Maybe they know something we don’t.

You probably have heard all the familiar critiques and ‘debunkings’ of advertising. I just read another one yesterday by a famous French public intellectual, who almost wept over how marketing deceives and manipulates us. It hypnotizes people with bright colors and broken promises. It enflames our desires for things we don’t need, which we chase after like zombies pursuing a sorority sister in a slasher film—mindlessly grasping for products and services we barely understand.

You’ve probably heard criticisms like this too. But it’s total bunk.

Advertising in the year 2022 doesn’t hypnotize us. It doesn’t stir up our desires. What it actually does is. . . . bore us.

Endlessly. Shamelessly. It annoys us. It irritates us. We would skip it if we could.

That’s why advertisers have to force-feed us these ads—by making me watch the same insurance commercial over and over on YouTube, or clogging up the screen of a webpage with annoying pitches, or (worst of all) spamming my email box with garbage until I’m swimming in spam.

If advertising was really hypnotic and controlling, they wouldn’t need to resort to these tedious tricks.

(By the way, what really enflames our consumer libido isn’t an advertisement, it’s our mimetic desire for what friends and neighbors already own. My buddy at the office has more influence on me than any advertising campaign, and vice versa. This is, once again, a mark of René Girard’s brilliance—he wrote the book on mimetic desire. It’s amazing that some ad agency on Madison Avenue didn’t hire him. He would have risen to name partner faster than Don Draper in a tailored suit, and have earned a lot more than Stanford ever paid him.)

The result of all this is that the Internet is turning into the epicenter of crap. It’s the detention center where force-feeding of marketing messages takes place daily. And when we build up a degree of immunity—learning how to control our irritation while sitting through two or three idiotic YouTube ads—they increase it to five or ten ads before the video even begins.

Here’s another thing the Devil—or the leading web platforms, in this instance—won’t tell you. They want you to be annoyed. That’s right—even if they could make those ads hypnotic, they wouldn’t. Google would love to sell you a premium YouTube subscription in order to avoid all those irritating ads. Spotify wants you to be a paid member. The more boring the ads, the more those technocrats smile.

This brings us to the next misconception about advertising. You are told that rich people with high status pay attention to the advertisements—and run out to buy all that stuff. But the real scoop here is that rich people pay for the premium subscription so they don’t have to watch all that garbage.

That’s real status nowadays—when you don’t watch the ads anymore. Advertising is for the masses, not the elites.

Finally, this explains why so much advertising is for things you’re going to buy anyway—auto insurance, prescription medicine, a beer. This is because even the companies themselves realize they have lost the ability to stir up new demand. All they can really do with ads is reinforce existing behavior patterns.

So if I drank a Budweiser while watching the NFL game last Sunday, maybe I’ll do the same this Sunday. But they could advertise V8 juice at every time out, and I’m still not bringing home a six-pack of that swill to my Super Bowl party.

The bottom line: Advertising in the year 2022 is more Pavlovian than utopian. More a punishment for the masses than a guide to the elites. More an annoyance than a compass for our desires.

This, my friends, is the web we asked for. We wanted everything for free—but what we really got was a swamp where all the costs are still there, just hidden. And the experience we have gained from other industries where prices are mostly hidden from view—healthcare is the most obvious example, but of course, there are others—is that this usually turns out to be the most expensive transaction of them all.

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