The web model of using advertising revenues to pay those who create content is quickly breaking down and it’s going to drastically change the free web we are all used to. It feels like a lot longer, but the advertising web model has now been operating for only twenty years. Before that people and companies built web sites and posted content they thought was interesting, but nobody got compensated for anything on the web.
But then a few companies like AOL discovered that companies were willing to pay to place advertising on web pages and the web advertising industry was born. Today news articles and other content on the web are plastered with ads of various kinds. And it is these ads that have funded the new industry of web content providers. These are now numerous web magazines and other websites that are largely funded by the revenues from ads. Most of the news articles you read on the web have been funded from the ad revenues.
But ad revenue of this kind are disappearing and this is likely going to mean a major transformation of the web in the near future. Here are some of the main reasons that ad revenues are changing:
- People have changed the way that they find and read content. Twenty years ago we all had a list of our favorite bookmarked sites and we would peruse those web sites from time to time to catch up on their content. But today the majority of people get their content through an intermediate platform like Facebook, Twitter or Google. These platforms learn about your tastes and they direct articles of interest to you. We no longer search for content, but rather content finds us.
- And that means that the big platforms like Facebook control the flow of content. A few years ago Facebook reacted to user complaints that their feeds were too long and busy and the company reacted to this by only flowing a percentage of potential content to users. That meant that a person might not see that an old high school friend bought a new puppy, but it also meant that each user on Facebook saw fewer web articles. The impact from this change was dramatic to web publishers, who on average saw a 50% immediate drop in their revenue from Facebook.
- Meanwhile the big platforms decided that they should keep more advertising revenue and they are now promoting content directly on their platform. For example, Facebook now pays people to create content and Facebook favors this over content created elsewhere – which has further decreased ad revenues.
- Advertisers have also gotten leery about the web advertising environment. This has worked using instantaneous auctions where web sites bid for advertising slots. Web sites willing to pay the most get the best advertising content, but the automated selling platforms strives to place every ad somewhere on the web. This resulted in large companies getting grief after finding their ads on unsavory web sites. Big companies were not enamored in finding that they were advertising on sites promoting racism or radical political views. So the big companies have been redirecting their advertising dollars away from the auction-driven ad system and have instead been placing ads directly on ‘safer’ sites or directly on the big web platforms. Google and Facebook together now collect the majority of web advertising.
- There has also been a huge growth in ad blockers. People use ad blockers in an attempt to block many of the obnoxious ads – those that pop up and interrupt with reading content. But using ad blockers also deprive revenue for those sites that any user most values. While only miniscule amounts of money flow from each ad view, it all adds up and ad blockers are killing huge numbers of views.
- The last straw is that web browsers are starting to block ads automatically. For example, the new version of Chrome will block ads by default. Soon, anybody using these browsers will be free of auction-generated ads, but in doing so will kill even more ad revenues that have been paying those that create the content that people want to read.
We are already seeing what this shift means. We are seeing content providers now asking readers to directly contribute to help keep them in business. More drastically we are seeing a lot of the quality content on the web go behind paywalls. That content is only being made available to those willing to subscribe to the content. And we are seeing a drop in new quality content being created since many content creators have been forced to make a living elsewhere.
But the quiet outcome of this is that a huge chunk of web content is going to disappear. This probably means the death of content like “The ten cutest puppies we found this week”, but it also means that writers and journalists that have been compensated from web advertising will disappear from the web. We’ll then be left with the content sponsored by the big platforms like Facebook or content behind paywalls like the Washington Post. And that means the end of the free web that we all love and have come to expect.
Also worth watching is data mining by ISPs to monitor online activity to develop profiles of customer interests for targeted advertising, charging a lower subscription rate for allowing them to do so. There’s push back against this on privacy concerns.
So with people not wanting web ads or monitoring by ISPs, the business model for online advertising is certainly unsettled. News gathering organizations have paywalled their content. But the challenge there for the past 15 years or so for major print media like the New York Times is reduced revenues vs. traditional ads printed in the newspaper. Hence the adoption paid digital subscriptions. Over the long term, this model might work for the largest print media outlets with national and global audiences. But it’s unclear whether it will for metro newspapers with fewer readers.