The Advertising Dilemma for Web 2.0

Re-read this quote from a seminal Web 1.0 paper, Speculative Microeconomics for Tomorrow's Economy in 1997

Broadcasters couldn't charge for what they were truly producing, but broadcasters worked out that they could charge for something else: the attention of the program-watching consumers during commercials. Rather than paying money directly, the customers of the broadcast industry merely had to endure the commercials (or get up and leave the room, or channel-surf) if they wanted to see the show.

This "attention economy" solution prevented the market for broadcast programs from collapsing: It allowed broadcasters to charge someone for something, to charge advertisers for eyeballs rather than viewers for programs. But it left its imprint on the industry. Charging for advertising does not lead to the same invisible hand guarantee of productive optimum as does charging for product. In the case of network television, audience attention to advertisements was more or less unconnected with audience involvement in the program.

This created a bias toward lowest-common-denominator programming. Consider two programs, one of which will fascinate 500,000 people, and the other of which 30 million people will watch as slightly preferable to watching their ceilings. The first might well be better for social welfare: The 500,000 with a high willingness to pay might well, if there were a way to charge them, collectively outbid the 30 million apathetic couch potatoes for the use of scarce bandwidth to broadcast their preferred program. Thus, a network able to collect revenues from interested viewers would broadcast the first program, seeking the applause (and the money) of the dedicated and forgoing the eye-glazed semiattention of the larger audience.

So the attention Economy, that great invention of 2007, was in print 10 years ago - but here's the kicker:

But the process breaks down when the network obtains revenue by selling commercials to advertisers. The network can offer advertisers either 500,000 or 30 million viewers. How influenced the viewers will be by the commercials depends relatively little on how much they like the program. As a result, charging-for-advertising gives every incentive to broadcast what a mass audience would tolerate. It gives no incentive to broadcast what a niche audience would love.

This is about broadcasting, but it will be interesting to see how similar dynamics pan out in "broadbanding". Will Joost, YouTube et al really be able to serve specific Ads to niches, or will the rush to the lowest common denominator re-assert itself?

Similarly, Ads are a slight of hand for content...what happens to these sites as they (inevitably) start to focus on Ads, not content.

The economics of the long tail are great for the long tail content...less great for serving Ads, as they have to be configured to all those little niches.

(To illustrate....a music site who shall not be named continues to try to flog me teen mobile PAYG deals even though my playlist at the time was 70's glam.....or have they been rediscovered by the boppers? )