Tuesday, February 26, 2008

Ruminations on the Eyeball Economy

Do you like advertising? When I am asked this question, I usually reflexively answer: "No! I hate advertising."

Yet to be honest, I often enjoy ads quite a bit. They can be incredibly creative, funny, surprising, emotional, and more.

Upon reflection, what that means, really, is that I appreciate the art in the ad.

So let's strip the art, creativity, imagination and so on from the ad. We are then left with an effort to convince us to buy something. OK, and now I will ask myself that same question again: "Do you like advertising (without the art)?"

And now I can answer most definitively: "No!"

I expect you would probably say the same thing, especially when you are forced to sit through a third or fourth repetition of the very same ad in order to get back to that really interesting movie. Don't you just hate that?

Ah, but isn't the art and creativity worth a touch of selling?

Well, it's worth lots more than that. In fact, I often think of advertising as a "pact with the devil." I accept advertisements (in newspapers, magazines, on television, as visual pollution along the highways, and so on) in order to get things for free or (theoretically, that is, according to advertising agencies) at a reduced cost.

If not for ads, we are told, we would have to pay for all the television shows we see.

If not for ads, newspapers would cost $10 an issue.

If not for ads,....well, you get the idea (and had it before you read this).

Why don't I like being urged to buy something? Because it seems to me that the selling part of advertising is fundamentally about coercion, manipulation, and shadings of the truth from omission to outright deception. It is about trumping objective, rational decision-making with irrational choices (more on irrationality below).

Impervious to ads?

I like to say (most emphatically) that advertising does not affect my buying decisions. And that may be true, relatively speaking (for example, I never - or hardly ever - click on a sponsored link on a Google search page. I watch almost no commercial television.). Yet it would be presumptuous of me at best to make the claim that messages beamed into my brain from almost every angle and experience in my urbanized, ad-saturated world have no effect whatsoever.

And even if the impact of ads is fairly minimal on me, it surely must be having the desired effect on hundreds of millions of other people. I may not have lots of positive things to say about the simultaneously brutal and liberating economic system called Capitalism, but it is clear that money is spent where and how it is able to generate more money. Advertising works, which means that people are convinced, compelled, directed, to buy things not according to rational decision-making but on the basis of heavily prejudiced information produced by those with a serious conflict of interest in the matter at hand.

"Oh, stop whining, Steven." I can hear the chorus now. "Just another bleeding heart liberal who hates the Market because it doesn't guarantee a free lunch for every lazy bum on a street corner."

Maybe (but only if that lunch is organic and vegetarian), but what I really want to talk about isn't advertising, it's the Eyeball Economy, whose existence and success is dependent entirely on advertising.

What's the Eyeball Economy?

The Eyeball Economy is that part of our economic system which derives it value from "eyeballs," from the numbers of people who visit, view, experience a particular piece of content. The valuation of companies in the Eyeball Economy is not based so much on the products or services they provide (often given away at no cost to the user) but on how many people stop by to visit (and, so the advertisers desire, "click through").

Prominent members of the Eyeball Economy include Google, eBay, Yahoo, YouTube, Flickr, MySpace, etc. These companies are the newest high-flyers, the get-rich-quick role models of our day,

Now, don't get me wrong. These companies perform valuable services. I use Google to find stuff. I use eBay to buy stuff. I use YouTube to...no, wait. I don't use YouTube. I'm not one for sitting passively and watching. And I haven't yet gotten round to setting up my MySpace page, but when I do it is going to be very hip or very hop, or something. Obviously these companies fill a need. I am happy these websites and services exist. Heck, I'd even be willing to pay for those services. That's how valuable they are to me. Yet it seems that something has gone badly out of whack when you look at their stock value.

Consider Google. For the user, it provides a powerful search engine. For the advertiser, it provides enormous potential revenue via click-throughs. For Google, it makes a gazillion dollars from a gazillion-squared micro-transactions (it receives a tiny payment per click-through).

So everyone wins, correct? Well, it is very hard for me to see it that way. The money that is soaked up by Google and by advertising agencies is coming out of someone's pocket somewhere along the way. It's fine for economists to go on and on about how it is not a zero sum game, but it sure does seem that way to me. That is, to put it simply, you can't have rich people without poor people. And you can't have super-rich people without massive numbers of extremely poor people.

So Google is a great money maker – but what is its inherent value, really?

Google's market capitalization on February 25, 2008 is $152 billion. In contrast, Baxter International's market cap is $38 billion.

For all the complaints one might have about the pharmaceutical industry, it does at least on occasion produce real things of critical value in the world. When I make my monthly aphaeresis donation, which should save a few lives, my blood is extracted, separated, and re-inserted into my body by a machine produced by Baxter.

Even if I never see an ad about Baxter products, even if I never click through to the Baxter website from Google, even if I never directly purchase a Baxter product, those products are worthwhile, have value, and so does Baxter as a company. In other words, remove advertising, remove eyeballs, from the equation and Baxter is still Baxter.

Can we say the same thing about Google?

A vulnerable business model?

Suppose for just a moment that lots of people get really sick of advertising, of being pressured and manipulated to buy things. I know, I know, sounds crazy, but just stick with me for a bit. Suppose that all of a sudden and in a very public manner, we the Internet users of the world simply refuse to "click through." We ignore all sponsored links, pay absolutely no attention to ads on the right hand side, block banner ads and balloon ads and whatever other kinds of nifty "features" they will think of to get in our way, and so on.

Instead, we all join Consumer Reports. Then, whenever we are interested in buying things, we simply go to consumerreports.org and get a dose of completely objective, unbiased, thorough information about the relevant products and services. And because so many more of us join Consumer Reports, it has vastly increased resources to research and evaluate products, and educate their membership about their findings. [In fact, ConsumerReports.org is already one of the most successful subscription websites on the entire Internet!]

What, then, happens to Google? It ability to make money disappears virtually overnight. Companies stop paying for ads, because they aren't getting click-throughs. Instead, those companies concentrate on improving product quality and features so as to achieve better evaluations by Consumer Reports. And the bubble that is Google (a bubble that more accurately resembles a Zeppelin) bursts.

Nah, it won't burst. At least not right away, because Google will respond simply by ending the practice of offering free searches. Instead, we will have to pay small amount of money, say $.001, for each search. Well, I say: "Great!" Let's start paying for searches. We will search less and more selectively. We will consume less bandwidth, making it easier to extend the Internet to more and more people around the world (yes, bandwidth is getting scarce due to the increasing amount of video downloads, thank you, YouTube).

Google's valuation is irrational

Thus, the value of Google to investors and management and employees is based fundamentally on irrationality. Irrationality should be tolerated so long as it is kept private (fine examples of irrationality that should be kept to oneself, to my mind: religious faith and celebrity adoration), but when it is extended to a society as a whole (especially in a coercive manner), irrationality becomes a curse and a cancer.

One could argue that before the Internet, advertising played a crucial role in educating consumers about what was available. Sure, that education was biased in favor of those who could pay for the ads, but still, how else would we know that two-ply, contoured toilet paper existed and would help us oh so much?

And since advertising (aka, Madison Avenue) had established itself as a dominant force, and the manipulative powers of advertising had been proven over and over again, that same business model quickly was extended to the Internet, and then spread like a virus to websites, services and the perception of which of those had value.

Ironically, however, it is precisely the advent of the Internet, in fact, specifically because of websites like Google, that advertisements lose any sort of redeeming value from the standpoint of education and awareness building (except from the sellers' perspective). We don't need companies pushing their products at us. We can use the pull technology of Internet search to find out everything we need about those products. And once we have collected that information, we can make informed, rational decisions about what to buy and do.

And when we do that in increasing numbers, helped by resources like Consumer Reports, the Eyeball Economy becomes endangered, and giants of "industry" will fail.

1 comment:

Michael said...

WOW, what advertiser pissed you off :-) Steven, dont stop blogging because I love the issues you bring up and to light. I wish more people would read your personal blog but that is hteir loss not mine :-) Anyway, I personaly LOVE TV advertisement because I measure Mans Stupidity with it. You may ask yourself how? Well, if the advertisers can make a dumb comercial (like that stupid head ache medicine you rub on your forehead) it must work otherwise they wouldnt make it. The more dumb the comercial the dumber our society is getting. The unfortunate affect is that TOO many of us USA people watch that dumb little square and take things for FACT off it; there is true stupidity. With the advent of the internet you would think more people would do what I do - HOST file in system32. I get enough advertisement in my really world I reallllllllly dont need it in my virtual world. I love Google - hell got a gmail account, I like several IM's they keep me in touch with friends and family BUT I hate the advertisements. I know why they have to do it but I go along with your idea - I would pay a small price for those internet services I like if they would just get rid of the advertisements.... Thanks for the topic and keep bloggin.