Why are ads the major stream of revenue in any kind of digital media?

Think of every user as having a maximum price that their willing to pay. This is not known to us, but we know there's a distribution. You may be willing to pay $10/mo for Google but your rich cousin would happily pay $100/mo.

The cost for producing the marginal digital media is roughly the same, regardless of willingness to pay.

So,how do we maximize revenue? Ideally we would charge everyone exactly what they are willing to pay. Except, that's often illegal (discriminatory pricing) and infeasible.

But, there's a very good proxy: ads! With ads, the proportion of revenue from a given user correlates with its willingness to pay, especially for entertainment. Why? Because willingness to pay correlates with purchasing power and so does online purchasing. So, if you can serve the right ads to the right eyes, you could approximate that optimal pricing strategy.

And that's where the bonus kicks in: the more users you have the better you get at serving ads. This means that users whose willingness to pay is negligible are actually still valuable to the service because they improve your ability to monetize the richer users!

Contrast this to setups where you have to pay directly: subscriptions by being flat end up being too expensive for a big chunk of potential users and too cheap for the rest, pay per use is too much friction and again ends up leaving money on the table.

Every business that can do effectively, will do them. It's just such an attractive model.

Rightly or wrongly, people (in general) have been conditioned to believe that digital information is free and thus will not actively pay for it. There are some notable subscription based consumer services (mostly entertainment based) that have convinced people to semi-actively pay for content but they are (in general) the exceptions. Even then, many (most) subscription services can't resist leaving money on the floor and will also ultimately run ads in addition to the subscription.

To be honest, a big part of it is likely because every other publication also uses ads for monetisation, and users have been trained to expect content for free with ads.

So you then have an issue; if you charge for your work in some other way, and people can find roughly the same information elsewhere on an ad supported website...

Then most of them will go with the ad supported free option instead. Likely enough of them in fact that your work isn't sustainable.

It's the same issue as with mobile apps and games; because most of those are 'free' and supported by ads and microtransactions, consumers have come to expect all apps to be free and supported by ads and microtransactions. Anyone who tries to actually build a paying audience finds its not enough to make a difference, like Nintendo did with Super Mario Run.

To add to this, it's also likely because the level of competition is so high, and free options are so high quality. For 99% of topics you could originally cover in a paid for magazine or book, there are wikis, volunteer run websites and YouTube channels covering said topic. To justify a paid publication about a topic like this, you'd have to do better than them in a meaningful way, which is not exactly an easy task.

Ads are shitty now, but the idea that they're evil in principle is a bit extremist and misplaced.

The best concert I ever saw was one that I wouldn't have known about until I saw an ad for it. I've seen many good movies I wouldn't have been aware of if there weren't TV commercials for them. And if there's a new restaurant in town that's something I'd like to know because I may want to try it. I don't go out of my way to follow concert, movie, or restaurant news.

And I'm not likely to do so but if I was ever to open my own business, it would be nice if people could become aware of it so that I'd have any chance to survive against incumbents.

The internet has poisoned advertising with surveillance and tackiness and excess, but before ad tech I think we had it pretty good. You could mute TV commercials, there were fewer, longer breaks of several at once. Once there were DVRs, you could skip them. They weren't unskippable like streaming can now make them.

The internet seems to largely followed other media. Newspaper, radio, and TV all have ads. Some things like newspapers and cable also require payment. The internet seems to follow most of these models in one area or another. You'll still have minor players producing stuff without sponsorship/ads, but it's rare (just like the other media).

The engine behind the modern Western economy is consumerism, and ads are both the lubricant and effuse of that engine. They eventually permeate everything they can because they always bring more money on top of whatever other revenue is made.

Escaping ads means escaping consumerism. Individuals can step away from consumerism and those that do can avoid ads, but society as a whole is not going to give up on consumerism until some crisis makes it do so.

Ads are not going anywhere. If you're sick of them, your escape doesn't come by innovation or revolution -- it comes by logging off and focusing on people and nature and community instead of media and markets and goods.

Advertising is not the major form of revenue on every form of content. Not on TV-formats like Netflix, for example, even if it has started there as well.

Why is it so widespread? Because advertising is relatively simple to explain, to add to a website and to sell.

Also, try selling subscriptions to a news website 20 years ago…

Does it make sense to sell ads? Not everywhere. Not on Ebay, for example — they started some 20+ years ago, and it was dumb and painful to see.

I have no idea if Ebay still sell banner ads or not — I really could not use the web without Ublock Origin, sorry.

Do ads actually work? For Google and Facebook, who sell a huge percentage of online advertising, they sure do.

Other companies have had a much harder time — just look at the company formerly named Twitter.

Do they work for companies who buy ads? IMHO they do (sometimes) for startups or small firms that are testing out whatever it is they are trying to do or sell. They usually don’t for large companies, like giants selling mainstream products. These people should stick to teevee, but some of their marketing people want to try something new, or change jobs, or acquire experience in a new field (on company money) and so they unwisely waste tons of money.

If you disagree, please name a few major brands that were created thanks to Internet ads. No, Amazon, Google, Facebook, Netflix etc were not.

Marketing is just dominoes falling. The first domino is reach, then attention, then it hits interest, then research, then desire, then purchase, then onboarding, then retention, then advocacy. Fill in these blanks depending on your biz model.

Ads, sadly, do work. You might live your life never thinking about Brazil nuts. I hit you with an ad for DeezBrazilNuts™. Whether you wanted to store this information in your head rent free or not doesn’t matter. Right now you are indeed familiar with the DeezBrazilNuts brand. If I showed you 10 Brazil Nut brands on a sheet of paper, mine would stand out and be familiar.

Sadly, the ad worked. I don’t need you to go out and buy the nuts right away. But the marketing dominoes are now falling.

With this in mind, it’s all funnels and dominoes. Mass reach wins and gets the dominoes tipping. Media is the perfect way to get that first domino: mass reach. You have people sitting with attention clued in. You have their eyes and ears. It’s too perfect.

I would say the one remedy to this is a substack model. Subscriptions are the antidote. This is obviously already happening with Netflix, Max, and all the ad-free streaming services. Same with Spotify, etc. News is the last industry, and will occur with X, Substack, and the like.

I believe this is because of three underlying truths: 1. These businesses need a lot of money to keep running. 2. Most of their value comes from the volume of other people using the same platform. (They aren't useful if you are the only one using them). 3. The general public does not value their offerings enough to want to pay.

There are examples where products have tried to bypass one or more of these truths. But they didn't do so well.

Paying for something was hard when the internet got started, so things were free and paid for by the website's owner. Ads were a way to offset the cost a bit. People got used to everything on the internet being free, also when paying got a lot simpler. The ads stuck as well though, as paying for a website is still not zero friction.

People have tried to get Micro-transactions off the ground many times - and failed every time (so far) - because Visa/MasterCard aren't interested - and getting people to change payment provider to use your thing is an impossible barrier to entry.

So, no micro payments per page/episode/content chunk - that just leaves subscriptions. You pay a weekly/monthly/whatever fee for access to the thing. Getting people to subscribe to things is _also_ a huge barrier to entry. Getting people to subscribe to _lots_ of individual things is impossible (there's only so many subscriptions people are willing to have), so you get bundling & centralization - i.e. cable/netflix/patreon.

Or you run ads.

There is no “internet”, there are thousands of digital media outlets and digital products, each following their own business model. Ads is not the only model available, but is the most popular one, by far.

So another question can be asked: why advertisement is the most popular business model for digital media?

Personally, I think the reason is simple: because it is the easiest business model to apply. Other models require customer research, market segmentation, solving technology barriers to capture payments, and many other things you need to solve just to start getting any revenue. With ads you can monetise pretty much anything that gets the eye traffic, all using super simple plugins and little to no investments.

According to BLS, the average American consumer spends about $6000 per month. 5-10% of a B2C company's budget goes into advertising, so each person may be generating $300-600/month in ad spend.

Discretionary income left over after spending is a much smaller number. Consumers can't allocate their ad dollars to digital content instead, because they've already given those dollars to the advertisers (by buying food, toiletries, housing, insurance, etc).

This isn't something app developers can change by making microtransactions easier or something. Businesses get their money from the advertisers and not from consumers because the advertisers have much more money to spend.

tl;dr Ad-driven revenue models let you distribute your content to the widest possible audience while still making money.

The marginal cost of digital distribution is (basically) zero. As a result, you have an incentive to chase the widest possible audience. This is going to drive your pricing downward to reach as wide a market as possible. The math is like this: A 1000x audience size is worth it even if you lower prices 99%.

At the same time, advertisers would like to reach as large an audience as possible as well. And, in many cases, you can charge _more_ for selling ads to a larger audience. (Either the ad goes to a huge number of people, as in traditional brand advertising, or you have more niches to target.)

So you simultaneously have incentives to drive your own prices to zero, because it drives up your audience size, and that simultaneously increases the prices you can charge for ads.

From an on-paper business perspective, it's simply the best model. It's why TV, Newspapers, and Magazines all did this before the Internet, and it's why the incentives are bent even more towards ads in a zero-marginal-cost-distribution environment today.

Yes, in the real world there are tradeoffs to all of this, but these are the major incentives at play.

I'd wager it's because most content is not that valuable in itself.

It's always a question of value. I'm supporting two cycling medias because i value their content even if i can (somewhat) find it somewhere else. If I'm not mistaken, in the past, the Economist even saw their subscribers numbers increase even after a price increase.

Also another interesting facts I noticed is that ads actually cause the price of the product to increase! I constantly come across articles that explain how a significant part of the cost of a product is dedicated for ads. I can't help but see this as a treacherous cycle.

I'd rather have ads than pay. Better get money from some inept company marketing budget than from my own pocket.

To each their own - except thanks to the EU we're all forced to choose cookie banner popups and get less ads revenue -> pushing more paid products.

Ads allows for much wider distribution of content and much lower per-user costs. If you had to pay to access the content the number of people who can pay is necessarily much smaller and so those people would have to pay more per person than the ads make per person.

If you want to rely on donations, well, you won't find enough people to donate to support the amount of content we have today.

the problem with ad is that no matter what other revenue stream you have (e.g. if we could get micropayments to work across the web), ads would still make the number go brrrr on the balance sheet and thus affect the CEO's bonus. it's an attractor.

First: do you mean digital media or the Internet? I would argue that most Internet revenue does not run on advertisements when you think about products like e-commerce of physical products or business software that dominate total internet-driven revenue.

Second: regarding digital media, consumers have had the greatest break in advertising since the advent of cable. Well under half of streaming subscribers choose ad-supported plans. Back in the cable days it was impossible to opt out of advertisements.

https://www.emarketer.com/content/peacock-hulu-subscribers-o...

> Do ads actually work? Personally I rarely buy/subscribe to stuff I see on an ad.

Yes, they work. And they even work on people like you who make this statement. Remember that half the battle of a marketing campaign is to make you aware that a product exists at all. For well-established brands like Coca-Cola, their ads are designed to keep their mindshare widespread. It doesn't matter that you hated the ad, that you actively ignored the product, you still saw that ad and if you ever do change your mind on whether you want a soda today you'll have an idea of what to get.

Because people have always paid to know what they really think.

Money.

Why is Netflix offering an ad-supported product when people pay for it? Because it turns out they make more money from advertisers per person than from charging directly.

There’s no such thing as a free internet because everything connected to it costs money: the electricity, the equipment, the wires, the software for routing, the maintenance. And for a real short time we had a system where everyone paid for their own part and occasionally there’d be something so popular that the server would fall apart. Someone’s university IT would knock on the door and say “what on earth are you doing?”

The only way we get to a free internet is to: a) fix global economics b) start a new one and don’t let the capitalists in*

*mostly a joke

Who would pay for it in that case?