Pop go the weasels

So, I was thinking about posting this on OnU, but I decided it doesn't go there since it's mostly speculation.

Ever since Blizzard announced their (now limited) deal with Facebook, I've been thinking about the whole revenue-through-advertising model that is the latest craze on the web. Now, I know a lot of people make a lot of money on this, and that it's helped a lot of groups - especially the early progressive bloggers - stay viable and do a great public service without having to charge their users.

But there's always been this underlying sense of warning. As I've said before, I approach my intuitive/creative side in a way that I can best describe as the sensation you have when you're in a pitch-black room next to a large object: you can "feel" it there, not really physically but in an almost ESP way. Really, what you're "feeling" is awareness of normal sensory perception you don't normally "hear", but in the absense of other stimuli, your brain listens and you notice it.

That's basically how I approach ideas or relationships (conceptual, not romantic): I get this sense that there's something there that I can't quite make out, and then spend a lot of time mentally poking, prodding, and walking around it in my head to get the notion of its true shape. I've had one of the amorphous lumps in my mind about the Google Ads model (to give it flavor), but it hasn't taken full shape yet.

This weekend, something helped to nudge the outline into focus: I went and saw "Wall Stree: Money Never Sleeps". I won't go into the details (it's a pretty good movie; I never saw the first), but many of the financial conversations in it focus on the concept of bubbles - mainly the real estate bubble of 2008, but also past and future bubbles. That was the key concept.

Almost everything has value because of scarcity. Without scarcity, diamonds are just a pretty form of carbon and gold is a mostly-useless metal (outside of electronics). Food and fresh water are about the only things that have native worth, since they're the only things that the body can actually use in any situation. Even without those two, however, the rarity of the item - Maine lobster, Kobe beef, San Pellegrino - affects the pricing far more than the actual usability.

So what does this have to do with advertising?

Advertising is about exposing a message to an audience. A man can stand on a street corner and hawk wares - and generally did for centuries. However, this reaches a very small audience. He could then hire a bunch of other people to stand on other corners, but this has high costs associated. The billboard really started as a stand-in for the guy on the corner - someone shouting, but without the someone. When someone realized that some corners are more trafficked than others, or that some corners are more trafficked by the kinds of people you want to reach than others, the whole business of paid advertising was born.

Historically, paid advertising has been the darling of media outlets: theatres, newspapers, magazines, radio, television. All of these outlets could charge decent rates because of scarcity: there's only so much air time, so many commercial slots, xxx number of full-page ads, etc., and (in general) a large number of people trying to occupy them. Along comes the internet, the new media, and for the most part it's treated the same: there are a limited number of web sites and a larger pool of advertisers seeking placement on them. Meet the new boss, same as the old boss.

Except it's not.

Publishing is obviously limited by physicalitieS: paper requirements, distribution, etc. Radio, there are only certain frequencies. Same with broadcast television. A slightly less limited model is cable since there's theoretically a much larger number of channels, but as anyone who has ever channel-surfed knows, finding anything on cable is pretty difficult.

The internet is not limited, not in any practical sense. Any limitation placed on it can be (and naturally will be, just through demand) overcome by pretty simple technology. What started out as a dozen websites changed to a few hundred, a few thousand, a few million - and if you count all the channels, forums, personal blogs, etc., is probably in the billions by now and still growing.

So what's the relevance? In the beginning, advertisers still had limits in the web, since most of the viable "channels" - forums, blogs, etc. - had no mechanism for contacting the majority of advertisers and there was no real pricing model for such small-time ads. But along comes Google Ads (and various other forms), where almost anyone can start generating revenue based on their volume. Now, almost literally, every page of the web can become an advertising channel.

Obviously, some channels are still preferred because they have more volume or are better "targetted". But, if we have a million pages with ten hits each or one page with ten million hits, we don't care so long as we're just paying by hits. Google's marketting strategy has, in a sense, commoditized advertising, and in doing so spells the doom for their own market.

Because it's all based on scarcity. Today, there may be 1 billion channels. Soon, there's likely to be double that. The more channels that are available, and the more web sites Google Ads signs up, the less valuable each individual click becomes to the advertiser because there are simply so many more potential clicks available. As a channel owner, your survival depends less on your number of clicks (or impressions, or whatever) than on the ratio of your traffic to the total aggregate traffic across all channels. This is why ratings on TV and box office results are important: they define those ratios.

Granted, there's still likely a pool of potential advertisers to sign up, but there is a wall sommewhere out there beyond which the increase in clients cannot compete with the increase in distribution channels. At that point, the model of support-through-advertising on the web disintegrates, because the value-per-click starts dropping. There may be a bottom, but once the wall's hit, it'll be a long drop.

I don't know when it'll come, but there is, from a rational perspective - a bubble in the web-based advertising market that *has* to pop at some point. Either Google needs to proactively limit the number of channels (web sites) they're willing to work with (and pray every other web-based advertisement system does as well) or they're going to simply put themselves out of business (or at least that business) by oversaturation. I'm no advertisement exec; as I said at the beginning, this is speculation on my part. But it seems, to me anyway, to be a logical conclusion.

(And just to lighten the mood a bit: I absolutely love sugar-free Popcicles.)