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Most things which seem
to be free are actually funded by advertising, along side the service
we want there will be adverts and the payment for those covers the
cost of us getting the product without ourselves paying. The
advertisers in turn believe that the sales they will get from the
adverts will be sufficient to make a profit on their payment for the
advert in the first place. Great in principle and something Google
have successfully built an empire on.
Facebook claim to have
a similar model, they provide the service entirely for free (the end
users don't have to pay anything) and then display adverts along side
the content. Similar to Google, but with one crucial difference; when
was the last time you clicked on an advert on Facebook? I thought
about this for a while and concluded never, I have Facebook open for
a fair part of the day, every day and yet not once have I clicked on
an advert.
The same is true of
Youtube (owned by Google), I use youtube all the time, it's probably
my biggest time waster after Facebook, yet I've never clicked on one
of their adverts. Hardly surprising then that by some estimates
(http://news.slashdot.org/article.pl?sid=09/04/14/1630239)
every person who visits youtube loses them approximately $2, giving a
massive potential loss per day of around $1.5 million. There are
plenty of questionable assumptions behind those figures but the
underlying problem – that it's costing more to provide the service
than can be brought in by advertising – seems almost undeniable.
The general response to
advertising on social network based sites has been similar, people
just “don't want to shop”
(http://abcnews.go.com/Technology/AheadoftheCurve/story?id=5498194&page=1),
they don't click on ads and aren't particular interested in any
element of the site they have to pay for. It doesn't matter whether adverts are being sold "per click" or "per impression," if the numers show that peoples response rates to such adverts are low, the value of the advert - by either metric - will fall and so will the potential revenue which can be generated.
Part of the problem
seems to be that although companies like facebook and youtube provide
– at great expense – the infrastructure behind the sites, the
actual content is provided by the communities. The content of
facebook consists of interactions between webs of friends and
YouTubes vast content base comes from user submitted video's. Users
therefore are quite protective of what they may see as community
creations being exploited for profit by the companies providing the
infrastructure.
Recently Twitter, the
latest social networking craze, has said adamantly that they will not
be basing their business model on traditional advertising(http://news.cnet.com/8301-13577_3-10244449-36.html?tag=mncol;txt ), instead
charging companies and professionals to have specialised pages and
profiles whilst keeping the standard user elements free. Ultimately
this is still advertising; companies and professionals only want
pages so they can reach the rest of us with out standard pages, but
it is certainly a more original way of doing it and it will be
interesting to see how they get on.
Whether innovative takes on advertising can provide the necessary revenue is a topic for another day, the question remains
though, if the revenue cannot be generated, why should they provide us with the infrastructure? There are numerous
“we won't pay for facebook” groups and petitions around the
internet, my question is why not?
We seem to have
forgotten that there really is no such thing as a free lunch, in a
capitalist society we have to pay for everything we use – although
that payment may be indirect – or the rules of supply and demand
say that the supply will decrease until providing “it” becomes
profitable. If people continue refusing to pay then supply will
eventually drop to zero, and then what will you do instead of
revising?
Click here for Scotts Response to this article
Click here for Alex C's response to this article
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