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.