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 the 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 will be the stuff that migraines are made of.
What Anderson bases his premise on is 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 has now become 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 anymore. Of course electricity hasn’t gotten that cheap, but surfing the internet has.
So what does this mean. It means that 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, online newspapers such as The New York Times or The 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. Because what it does is 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 have a look at Facebook. Although Facebook has a huge membership which is expanding by the thousands every day it’s total revenue generated during the year 2007 was only around the $100 million range. With almost 50 million registered users this works out at about $2 per member for the year. Hardly dynamite!
The revenue for Facebook is almost exclusively from display advertising. When Facebook wanted to introduce more targeted advertising, and probably try and 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 to put up with interruptions.
A further concept which 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 to a different take in that the commodities are time and respect. With 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.Â And the other concept is that reputation equates to PageRank. If Google determines your site to have a PageRank of 7 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. Porsche produces far less vehicles than it could in order to justify its high pricing policy. Now the new scarcities are attention and reputation, or traffic and PageRank rather than number of products, services or experiences available.
The consequences for marketers is huge. The entire advertising industry runs on the concept of interruption. Whether the interruption is the TV commercial break in your favourite soapy, the radio ads, 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 passively sit through the ads.
So now we have an entire enormous global advertising industry where the advertising budgets of companies is being funneled into online advertising. To appreciate the value of the size of this, the UK’s online adspend is predicted to reach Â£3.4bn for the year 2008.
With 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 as to what to do? An entire industry has to rethink its approach.
So far, it’s been a case of playing catch-up. Now CEO’s are advised by their marketers to start blogs. If millions of bloggers can do it, then CEO’s should as well. It will give the company and its products respect. Really?
Another hype is that everybody has to get into social networking. That’s where the consumers hang out, so lets 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 get heard.
Then there are the microsite. 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, lets move onto something new.
Of course search is big and growing and it certainly helps build traffic. A whole industry has grown around Search Engine Optimisation or SEO. And there are certainly businesses such as Amazon and eBay that appear to be thriving. But when one reads that Ford, and 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. Or alternatively, advertising budgets could end up moving to the Mobile platform. After all, mobile phone users are still used to paying for goods and services!