There are two main
business models that edge providers, like Google and Netflix, use to enable
consumers to access information online. The first is through use of paywalls or
a subscription-based model. For example, consumers pay a monthly or annual fee
to a media outlet, like a The New York
Times, or a video content provider, like Netflix, and receive unlimited access
to that website’s content. The other more prevalent business model is through
use of advertising. Edge providers will sell advertising space on their
website, allowing consumers to access the content without paying a monetary
fee. Edge providers need to generate revenue in order to have the incentive to
create more content or, for example, report on important current events. Some
people may find online advertising to be annoying, but others may see it as the
only way to access information online.
In an August 2016 Perspectives from FSF Scholars, I discussed the
importance of the advertising business model and showed how it benefits all consumers
because they can access information without having to pay a subscription fee. For
low-income consumers who cannot afford subscriptions, the advertising business
model creates an opportunity for upward mobility by increasing their access to
human capital and entertainment and raising their standard of living. For
middle and high-income consumers who can afford subscriptions, advertising frees
up income that would have been spent on subscriptions but now can be spent on
other goods and services.
However, some
consumers may find advertisements to be inconvenient or just simply annoying. Some
websites have the option where consumers can choose the business model they
prefer. Giving consumers a choice is the ideal scenario because consumers have
different preferences toward advertising and subscriptions. There is nothing
wrong with preferring one option over the other, but to say that consumers
should be forced to use one option over the other ignores the fundamentals of
economics.
Advertising often
has been criticized for attempting to manipulate consumers into buying certain
products, believe certain information, or vote for certain politicians. Vance
Packard made this argument in his 1957 book The
Hidden Persuaders. I might argue that “manipulate” is a harsh word, but I
cannot argue that advertising does not influence consumer behavior. After all,
companies would not advertise if it did not have an impact on consumer behavior
and studies have shown that advertising works. But even though advertising
influences consumers, it also creates an opportunity for consumers to access
information without having to pay a subscription fee, freeing up money that would
have been spent on subscriptions and encouraging additional economic activity.
In October 2016,
Columbia Law School Professor Tim Wu published a book called The Attention Merchants, which discusses
the history of advertising. The book also attempts to influence consumers into
adopting subscription-based models to slow the wave of advertising throughout
the Internet. In an interview entitled “Does Advertising
Ruin Everything?”
Tim Wu said:
We have to get over our
addiction to free stuff. Suck it up and pay. A lot of people say, “I hate ads,
I’m sick of ads, I’m sick of clickbait, I’m sick of this race to the bottom.”
If you say that, you have to put your money where your mouth is. We have to get
over our addiction to free if we’re going to save the web. That’s us, the
users. We can’t expect everything to be free and to be good.
But oftentimes, consumers might think they have their preference
sorted out in their head, but as soon as they are confronted with an economic
choice, their decision does not represent their perceived preference. This too
is not a bad thing; it is just the reality of consumers having imperfect
information. A consumer may not enjoy ads and may complain about ads, but when
confronted with the option to pay $10 a month, for example, advertising might
be the preferred option.
As a consumer, Tim Wu may prefer subscriptions over advertisements,
but his preferences should not dictate the preferences of other consumers. For
example, it will be difficult for low-income consumers to simply “suck it up
and pay” for subscriptions to online content. And while Tim Wu acknowledges
that advertising enables many consumers to access online information who
otherwise would not be able to, that point bears much more emphasis. Many consumers
would not have access to the vast economic benefits of the Internet if not for
the advertising business model. And for the consumers who can afford to use the
subscription-based model but instead choose advertising, this action creates a
consumer surplus that frees up money that can now be spent on other goods and
services.
In other words, the advertising business model has created
access to information for low-income consumers and has created additional economic
activity for middle and high-income consumers who can afford but choose not to
pay for subscriptions. Advertising may be annoying to some, but considering the
vast economic benefits the business model brings to consumers around the globe,
it’s actually life-changing.
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