In a rather illuminating article in the latest Trendwatching brief, the discussion is about free love. It’s about businesses offering goods, services or experiences to consumers for free and making their money from other things. Prime examples that come to mind are the home printers that are dirt cheap but where you have to take out a second bond on your property to pay for the ink cartridges.
Although the Trendwatching brief works through various examples such as free-sheet newspapers, magazines, free landline, VoIP or mobile calls, free airline travel, free car rental and much more, the one most interesting to me was the free world of the internet.
Trendwatching directed me to an article on Wired.com by one of my favourite modern marketers, Chris Anderson, he of “long tail” fame. His new book, due in 2009, deals with gratis stuff and is appropriately called Free. For marketers, this is bound to be a must-read. For digital marketers, Free will talk about the future of marketing and be the stuff of which migraines are made.
Anderson bases his premise on the fact that the internet has become free to use. That is, because of the numbers of users, computing technology has become more cost effective and is now so cheap per person that it is not worth metering any more.
The expression “to meter” refers back to a concept thought up by a professor called Mead who predicted that eventually electricity would become so cheap that it wouldn’t pay to meter it any more. Of course electricity hasn’t gotten that cheap, but surfing the internet has.
So what does this mean? Consumers have been getting access to various parts of the internet for free. Whether it’s signing up to Facebook, Digg or online dating sites, or online newspapers such as the New York Times or Wall Street Journal, huge amounts of value — whether information, education or entertainment — are being dished out for free.
There is nothing new in this, of course. Hotmail has been around for a fair number of years. However, if one looks at this without the normal rosy spectacles that the world of commerce wears when looking at the business opportunities on the web, it is actually quite terrifying news. What it does is to turn business upside down. It’s just not that easy to make money online if the attitude of the user is that what you are offering should be free.
As a quick example, let’s look at Facebook. Although it has a huge membership that is expanding by the thousands every day, its total revenue generated during the year 2007 was only around $100-million. With almost 50-million registered users, this works out to about $2 per member for the year. Hardly dynamite!
The revenue for Facebook is almost exclusively from display advertising. When it wanted to introduce more targeted advertising and probably tried to make some money with a system called Beacon, there was such a huge outcry that Facebook had to back down. Remember, the members feel they are entitled to “free”. They do not think they owe Facebook the duty of taking note of ads or even putting up with interruptions.
A further concept that I found fascinating was Anderson’s take on what drives economies. In the past, scarcity of goods or services determined economies. Now it has moved on, and the commodities are time and respect. In other words: How much time does the consumer have to view your offer and make a purchase decision? And how much respect have you earned to help the consumer make a decision in your favour?
Of course Google has identified these two concepts and built them into a huge business already. Attention may be translated to refer to traffic, or how many people come to visit. And the other concept is that reputation equates to page rank. If Google determines your site to have a page rank of seven out of a possible 10, you know that the web considers your site to be important and respectable.
An easy example of the past concept of scarcity is the car manufacturer Porsche. It produces far fewer vehicles than it can in order to justify its high pricing policy. Now the new scarcities are attention and reputation, or traffic and page rank rather than number of products, services or experiences available.
The consequences for marketers are huge. The entire advertising industry runs on the concept of interruption. Whether the interruption is the TV commercial break in your favourite soap opera, radio ads, or the ads in magazines and newspapers, the consumer is interrupted without being asked permission. Sure you can switch your TV off, or go into the kitchen to fetch another beer. But mostly we don’t as we sit passively through the ads.
So now we have an entire enormous global advertising industry where the advertising budgets of companies are being funnelled into online advertising. To appreciate the value of the size of this, the UK’s online ad spend is predicted to reach £3,4-billion for 2008.
In other words, traditional advertising agencies, used to interrupting the consumer to push a message, now have to fight for the scarcity of attention and respect. Is it surprising, then, that traditional marketers have no clue what to do? An entire industry has to rethink its approach.
So far, it’s been a case of playing catch-up. Now CEOs are advised by their marketers to start blogs. If millions of bloggers can do it, then CEOs should as well. It will give the company and its products respect. Really?
More hype is that everybody has to get into social networking. That’s where the consumers hang out, so let’s interrupt them there. They want to hear from us, don’t they? They have been such faithful watchers before. But how do you market to the consumers there? Not with display advertising, which follows old advertising traditions of interrupting to be heard.
Then there are the microsites. Thrown together, copy written badly, awful design and forgotten as soon as the product launch is over. There are many of these sites still populating the web. Their offers are often out of date, product lines no longer available, special pricing outdated … who cares, let’s move on to something new.
Of course, search is big and growing and it certainly helps build traffic. A whole industry has grown around search-engine optimisation. And there are certainly businesses such as Amazon and eBay that appear to be thriving. But when one reads that Ford, Proctor & Gamble and Sony are going to spend X-million dollars on online advertising, you think to yourself: Where?
It will be very interesting to see how this whole scenario plays out. I will certainly look forward to Chris Anderson’s new book to see whether he has a solution and a strategy for marketers to follow when tackling the free love of the internet. Alternatively, advertising budgets could end up moving to the mobile platform. After all, cellphone users are still used to paying for goods and services!
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