Umair Haque / Bubblegeneration
umair haque  


Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Saturday, April 02, 2005

Free Culture Problems/Contextual Ad Deathwatch

So by now you've heard about the WordPress spam affair.

This is a case study in one of this year's medium-sized questions: what are the dynamics of ad-funded models for free culture?

I've argued that they depend fundamentally on exclusion (invite-only betas, etc). [email protected]'s approach was the opposite - to use spam to fund the production of a public good.

Assuming that the Internet Archive doesn't start giving us all money for free (which might actually happen, knowing them), these are the two ends of the ad-funded free culture b-model spectrum. This is not an oxymoron - even public goods have to be financed. Traditionally, they're financed through taxes. We can think about advertising as a tax as well - a tax on users, a cost they have to bear in order to consume free goods.

The natural conclusion is that the nastiness of advertising rises in openness. That is, the more open the model is, the nastier the advertising gets. At one end of the spectrum, closed invite-only services monetize a small amount of users very profitably, by being able to offer a great deal of information about those users (which translates into tighter, and thus more valuable, targeting). As hit rates for ads improve, the number and nastiness of ads declines.

But at the other end of the spectrum, totally open models have to monetize a vast amount of users with nasty ads, because, by definition, info about users is more diffused and thus less valuable to advertisers, who will only pay for nastier, more costly ads. As hit rates for ads are relatively lower, the number and nastiness of ads on this side of the spectrum is much more intense.

This is all very straightforward. And I think you've got to see beyond it to really read the tea leaves here. Unfortunately, the www is getting fairly emotional about the WordPress issue, which obscures what's actually happening: the ad-funded model for free culture is going to coalesce in ways that are going to surprise us all a great deal.

That's because the dialectic outlined above leaves an absolutely massive gap for clever entrepreneurs to plug with classic disruptive innovation: funding free culture models with marketing that's less nasty and more effective (just like Google did for the www).

Except, of course, this time, the incumbent getting disrupted is Google and contextual advertising- because contextual ads create big incentives for www spam, which is why WordPress is taking heat. So, if anyone, Google (etc) should be taking the heat - Kottke and the Reg going hysterical on WordPress is first-order thinking, which is surprising from such smart guys, because it ignores what's really going on (and what's really at stake) here.

Don't miss the forest for the trees - if this story is important, it's because the next year is going to see ads that disrupt the contextual model - something I've talked before, as have Battelle and Fred W - what this does is illustrate just how ripe the market is.

-- umair // 4:10 PM // 0 comments

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