The Bottom Of The Food Chain: Analyzing the Ad-Based Internet Business Model

Understanding the Ad-Based Business Model

The ad-based model is straightforward: provide free services to users and sell their attention to advertisers. This model has three primary components:

1. The Company: Entities like Yahoo that sell advertising space.
2. The Advertisers: The real customers who pay to display their ads.
3. The Users: Individuals who use the free services and view the ads.

However, platforms like GeoCities and Egroups introduce a fourth element: the content providers. Unlike network television, where content is produced and paid for by the networks, these internet platforms rely on user-generated content. This content is then monetized through embedded advertisements.

The Role of Content Providers

Content providers in the ad-based model are typically undervalued. They create websites or manage mailing lists, inadvertently fueling the platform's advertising revenue by integrating ads into their content. Despite their crucial role, these providers often receive minimal support or compensation from the platform. This is primarily because there is an abundance of users willing to exchange their content for free hosting or services, making individual providers easily replaceable.

Impact on Service Quality

The quality of service on these platforms is notoriously poor. For instance, if a website hosted on a free platform is flagged for questionable content, it might be shut down immediately without investigation or the possibility of appeal. This swift action contrasts sharply with paid hosting services, where webmasters are more likely to be heard and treated fairly.

The Shift in Advertiser Sentiment and Strategy

As advertisers become savvier, their spending on internet ads has become more strategic, leading to reduced revenues for ad-based platforms. This shift has forced some platforms to take desperate measures. For example, Egroups moved their ads from the bottom to the top of emails and switched from text links to graphic banners, despite user dissatisfaction.

User Reaction and Platform Adjustments

The reaction from users has been predominantly negative, particularly when platforms make changes that increase ad visibility or intrusiveness without improving the user experience. An example of this is Yahoo's decision to set the default option to 'YES' for receiving promotional emails, assuming that most users will not opt-out.

Alternatives to the Ad-Based Model

For consumers tired of being the product, the alternative is to seek services where they are the direct customers. This often leads to better customer service and surprisingly competitive pricing. Direct customer-business relationships tend to prioritize user satisfaction and service quality, as the revenue depends directly on user payments rather than third-party advertisers.

Conclusion

The ad-based internet business model, while successful in the past, faces increasing challenges today. Users and content creators often find themselves at the bottom of the priority list, with their needs and rights overshadowed by the drive for advertising revenue. As the digital landscape evolves, both users and companies may need to reconsider their roles and choices within these business models.

For further reading on the evolution of advertising models, consider visiting Harvard Business Review and The Economist. These sources provide in-depth analyses and discussions on current business trends and strategies.