Marketing

Attention pays online, for now

January 22, 2015

Global

January 22, 2015

Global
Neil McFarland

Director of games at ustwo

Neil McFarland is director of games of ustwogames, part of the London studio of digital product studio ustwo ltd. 

Over the past six years Neil has helped shape most of ustwo's app store launches, ranging from a children's ebook, to an experimental multi-media literature platform and popular games such as Whale Trail and Monument Valley.

A core gamer and illustrator, Neil wants to make games that people play all the way through.

What does the future hold for the ad-funded business model online, when the privacy costs have become more apparent? asks Neil McFarland, director of games at ustwo, a digital product and design studio.

In 1968 the state of Vermont, US, banned the advertising billboards that were spreading unchecked across the state. Fast forward nearly fifty years and its decision at first sight looks unusual, not to say counterproductive for the state’s coffers. Advertising has become the backdrop to the place that we spend much of our time daily, namely online, in addition to the way that businesses are expected to make money from and through virtual real estate.

But could the situation in ad-shy Vermont, which persists to this day, be less an anachronism than a precedent? Could it show how other values could trump advertising in the internet age, thereby challenging the companies that have made the web their own?

The vision of the Internet as a vehicle to get commercials in front of consumers is compelling. Advertising has been described as the Internet’s “native business model” by web pioneer Tim O’Reilly, speaking at Solid 2014, a conference on software and hardware.

Indeed, there are few corners of online space that the ad industry has not penetrated, turning users of ostensibly free online services into a product whose attention is sold to advertisers. Those services are caught in a perpetual struggle to balance designing an enjoyable user experience with optimising ad placement and data harvesting.

Businesses with large user bases that combine being display surfaces and data vacuums effectively, are particularly vaunted. Twitter for example has a current market capitalisation of US$23bn, despite not having been profitable in GAAP (generally accepted accounting principles) terms.

Collectively, companies offering ad-supported internet services have been calculated by McKinsey to contribute a consumer surplus of €32bn and €69bn to US and European GDP respectively, figures which have discounted for the costs of intrusive ads and forgone privacy.

However, such high company valuations and calculations of consumer surplus may be subject to revision.

There are signs that the vision of the Internet as an ad delivery vehicle rests is evaporating, as the manipulation and surveillance brought by ad-reliant businesses becomes more apparent.

One of those signs comes in the shape of Ello, a social network that pledges to remain ad free and not mine data for the benefit of third parties. It garnered huge attention worldwide last year for picking up on the public mood and rejecting the conventional ad-funded model, in favour of one that is based on selling premium services.

Many other companies are differentiating themselves from their peers by eschewing the ad-funded or data-vending route, and not just canny startups. Apple’s CEO Tim Cook committed publicly to resisting the temptation to access its customers’ data whilst even Google, which makes 90% of its revenue from online ads, is trialling ‘Google Contributor’ which for a small subscription fee allows users to opt out of tracking and the ads shown by its network.

The opportunity to earn revenues from users directly will be greatly enhanced when per-use micropayments systems, based on Bitcoin for example, join payments via subscriptions or payments for premium services that support free core services.

Vermont’s decision a half century ago made a virtue of advertising’s absence. Importantly, it was also calculated to make money from an increased flow of visitors attracted by unblemished vistas.

Being ad free is the unconventional business model online today, but one that is attracting consumer interest like never before, because beyond eliminating audio-visual intrusion, it means greater safeguards for personal data.

Advertising online will not disappear entirely of course but it stands to be a less significant feature of the online landscape. I for one will enjoy the view.

 

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.

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