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The Implosion of Free: Time for Big Tech to Rethink Advertising


It’s at a point now in Silicon Valley where everyone knows someone who’s recently lost their job in Big Tech. I’ve been predicting this for the last few months. See my recent posts Big Tech Jumps the Shark, and Lighting Thunders in a Down Market as two examples.


This week Meta (aka Facebook) announced a 13% cut in staff, resulting in 11,000 layoffs. Not quite on par with Twitter’s numbers from a total percentage, but the most significant in its nearly twenty year history. This news follows the past week's deep double digit staff layoffs at Lyft (13%), Stripe (14%), Amazon’s hiring freeze, and of course, Twitter’s see-sawing “fire then try to rehire” strategy when you realize you need some people with basic institutional knowledge.


This fall feels very much like fall 2008, when I last worked in advertising for a gaming company that had 40 million worldwide customers. Even though such a big customer base used our products daily and monthly, we couldn’t make the economics work with a free model, subsidized mostly by advertising. Our paid model was $20 a game and if we got an uptake of 1%-3% paying customers, we had a hit game. Needless to say this wasn’t a good long term, sustainable business model.


Today, we’re at a similar crossroads, and it heralds an end to what we consumers have taken for granted for over two decades: free and if not entirely free, cheap to participate. We’ve gotten used to the idea that content and services should be free or extraordinarily inexpensive, especially when advertising is footing the bill. And, now we’re finding out that businesses such as Twitter can’t sustain a free service.


To my mind the controversy around Twitter's $8 a month plan for a blue check mark is more about paying the bills than anything else. Software developers are expensive, servers are expensive, running a business is hard and costly. The pure advertising model doesn't cut it, especially when advertisers are abandoning the platform in droves–and there are better options. (TikTok is more fun and brands don’t have to get down in the cesspool that Twitter under Musk is becoming.)


Analysts might refer to this resizing among Big Tech as an overdue, necessary correction and reexamination of their business strategy in terms of bloated staffs and outsized dependence on advertising. (Obviously, their executive teams misread the impact of the pandemic on their businesses, envisioning the surge in ecommerce and outsized revenue growth would be permanent, and ramped up accordingly.)


Also, it turns out that consumers are onto the social media and search giants who are using their attractive demographics and online behavior to attract advertising, and not getting “reimbursed” for using them. Apple and others have implemented privacy changes to protect consumer’s personal data, making it tougher for brands to target their customers.


Fortunately there’s hope, with a return to business basics that makes more sense. Bitcoin addresses this, more specifically the Lighting Network and micropayments in bitcoin as a way of having a well diversified business model for selling products, goods and services. In other words, it may not be free or cheap like we're used to, but it’s a more sustainable model. I’m optimistic that we have the opportunity for true value discovery where we’re more inclined to pay $1-$5 in bitcoin for a product or service, and there’s a balanced mix of advertising to subsidize business’ operational costs..


Advertisers can be assured that they’re targeting certain market demographics to sell their products and promote their brands. For example, if I subscribe in bitcoin to some sort of snow sports NFT type of digital magazine, I’m paying for expert writers who have a deep understanding of snow sports who provide me with useful content. Advertisers know I am interested in skiing and boarding and all things related to the sport, so I’m a valuable target..


Could this be the end of clickbait to drive views and ad inventory? What will Google do to provide true useful information and discovery again? I recently ran across a post on Twitter that encapsulated my thoughts “Google search is becoming one of those dying malls.”




So even if things look bleak now, I am incredibly hopeful that something much better built on bitcoin and blockchain is on the horizon. I have always been on the leading edge of sometimes bleeding edge technology, and can tell you even when things may look bleak, do not despair. A renaissance is coming of well balanced business models that lead to better economic prosperity for goods and services. It may seem very challenging for the next year or so, but out of the disruption of the old surveillance and ad subsidy model a better one of true value and discovery will arise, and ultimately prevail.


All the best


Jim


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