Twilight of Ads and Dawn of a Better Free

Online advertising – the business model that made Big Tech’s fortune – is under attack. Legislators and regulators on various levels take stabs at the incumbent platforms, with competition or privacy motives. Around the corner is new European legislation such as the ePrivacy-regulation and the Digital Services Act that may further restrict Silicon Valley’s profitable trade in our personal data. Yes, it is called advertising, but personalised ads are of course more like selling personal data making sure the ad is seen by the potentially most profitable eyeballs. Surveillance and privacy violation are the foundation of freenomics, not a side effect. However, other problems may be greater still. (And there is an answer, read on!)

Disruptive innovation based on free/ad-based/surveillance economy business models is like the famous cartoon of the man sawing off the branch he sits on. Somebody has to buy the ads the fill the platforms’ bank accounts. As one industry after another is disrupted by those same platforms, other players must arrive to buy the ads. Perhaps new industries can fill the gap but the problem with disruption remains. The advertising model may be time-limited for that reason.

A few years ago, I had the chance to talk to Professor Hal Varian, chief economist at Google and the architect of the AdWords-auction system that provides such a big chunk of Google’s revenue from search ads. He offered a different reason why ads may not live forever: fatigue. Attention is scarce and we want fewer ads rather than more. Then he said “Google may move to paid services” (Netopia has not received enough credit for this scoop, in my humble opinion!)

Regulation, disruption, fatigue… if ads are doomed, must we start paying for e-mail, storage and images sharing? Not so fast, there is a better free. Pioneered by the games industry, the free-to-play or freemium model combines the best of both worlds. Most players play for free, some choose to pay for special features or in-game content. No surveillance, the integrity of the supplier-customer relationship remains intact. Real money from actual consumers. The games industry is hugely successful, expected to grow from 150 Billion dollars in 2019 to more than 250 Billion in 2025 according to forecasts. There is little reason the freemium model could not be applied to other digital offers besides games.

The European policy-makers may take note that the games industry is one of Europe’s few digital champions. Want to find the next digital business model? Look no further.