Advertising and the free economy

I was watching an interview with Chris Anderson on television where he was talking about the economics of free.  Essentially the economics of free is just an extension of the idea of the service economy, which is a strong part of postmodern ideas about production.  Instead of focusing on selling products our economy is now centered on selling services.  Take bookstores for example.  A bookstore used to be a place you could go, and there would be a bunch of books you could buy.  It was about selling books as a product.  Now with online retailers like Amazon (and soon freely available scanned books), there is no way a bookstore could complete on selling books alone.  So bookstores now have to switch to offering something else, offering an environment.  Cafes have become a standard figure in major bookstores like Barnes and Nobles.  They create a place you want to hang out, a place you can pick up a book and a cup off coffee and sit down for a while.  You go to a bookstore for how good the browsing experience is.

The way this comes back to the free economy is that instead of selling a product, you give it away to entice people to use a service.  This is the model for many open source software companies.  The software itself is free, but what you charge for is technical support, custom extensions, etc.  People use the software because it is free, and they buy your service because they have the software.  However, for many online business (news, software, etc) the product is free, and the only service they provide is advertising.  Google has made their entire fortune this way.

Now of course, I think free software is a great thing and Google is a great thing, but there is an inherint contraction occurring.  Free online services both depend on advertising for revenue and render it obsolete.  Services like craigslist, yelp, and blogs advertise products in a better and more efficient way than traditional advertising could ever dream.  Organized consumer reviews are a way better advertising system than blind (or somethings not so blind) ads.  I go on yelp and ask what is the best chinese restaurant near my current location.  I can find out if something that looks good is actually a disappointment.  I can even get recommendations on what dishes to order.  No billboard could do a better job.  Blogs spread news and info on new products in a much more efficient manner than buying ad space in a magazine could.  Because people now have the ability to express and communicate there opinions so effectively, advertisements are obsolete.  It seems like the only people they are good for are large companies with inferior products.  As more consumers become techno-savvy, and we come up with better ways of organizing and sharing information this will only become more true.

But what happens to these free services we have come to expect.  We will not suddenly start paying for the news again.  There are a few options.  One option is my analysis is wrong.  Adversing remains valuable in some scenarios and can continue to be a source of revenue especially as advertisements become more targeted and effective.  Another thing that could happen is that businesses will have to find another source of revenue.  Just as the open source projects have support to provide, other businesses will have to find services they can provide.  Additionally advertising essentially puts a price tag on attention; however, it is certainly not the value from attention.  Business may find other creative ways to monetize attention.  Finally, traditional businesses that depend on advertising could break down.  In the news, this is already starting to happen.  While investigative journalism will always be an important job, the majority of the news is up to the minute breaking news.  Professional journalists are not required to report this type of information.  Blogs are starting to take the place of newspapers and television in this area.  For breaking news you do not need a trained writer or investigator.  What you need most is someone familiar with the situation.  Why should we pay to send someone to Serbia to report on something they just heard about, when we can just as easily hear from the people who live there?  Bloggers often directly benefit from attention independent of any advertising because what they write about directly effects them (or its simply something they want to do anyway).

I am certain that there will be a depreciation of the value of advertising, but how exactly this will play out and how it will effect the free economy will be interesting.

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  1. Alec Resnick

    Have you read the preview of his book in Wired?

    You mention that this is the logical end of the service economy. I’ve been thinking about this a lot lately. For much of recent history, progress has entailed outsourcing individuals’ needs to the society. Upsourcing might be a better word for it–solving things on a larger scale. We’ve upsourced our personal defense, our national defense, our health care, our education, our communications infrastructure, our transportation infrastructure, etc. The list goes on and on.

    In the past, we’ve hired [soldiers, teachers, doctors, telephone line repairmen] to take care of the infrastructures that take care of us. The scary thing about the service economy is that it moves toward a nebulous dependence that has no particular end in mind. That is, a lot of time and energy is spent to make our lives easier, help us to do things faster, and so on. And all this is done with the assumption that externalities (in particular, time) are what we want more of. Hence, we’re served by countless organizations.

    The exciting thing about the web is that it allows fluid, individual involvement. Whereas the setup of traditional news media is disempowering, the rise of “new media” is empowering. Service is a slippery word; it matters who is doing the service and how it is done.

    So, I guess I’m excited about the progress the web makes insofar as it is moving toward distributed empowerment. It’s not clear to me yet how natural this endpoint is; progress online seems to indicate that it’s the state the web _wants_ to be in, and I certainly hope that’s the case. No matter what, I think we’re aiming for an experience or empowerment economy in postpostmodernity (i.e. after the service economy).

    Push back.

  2. Alec Resnick

    Your styling doesn’t seem to color embedded links in comments; note that I linked to the Wired article

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