The Rise and Fall of the Advertising Model – The Adblocker Problem

If I asked you whether you’ve had an adblocker installed on your devices at some point, you’d probably look at me as if I’d asked whether the sky was blue. After all, who wants to be interrupted in the middle of a video with the sixteenth Grammarly ad in a row; it’s as if they somehow know I’m a student… I’m not blaming you for this either; Ethan Zuckerman, the man who invented pop-up ads, actually apologized for the poor quality of ads these days – ‘The secret Wall Street doesn’t want you to know’ but we’re advertising to millions of viewers! Anyway, the point is, everyone (justifiably) has adblocker, but not everyone has considered the economic consequences of their actions.  

Believe it or not, but media hasn’t always been as freely available as today. In the 18th century (ignoring the technological issue), you’d have to pay to watch people play games. It wasn’t until 1836 that news outlets in France suddenly lowered the prices of their magazines and started including advertising. The news was no longer the product – readers were. Soon enough, this advertising model, representing an inversion of the consumer-manufacturer relationship,  took hold in radio, and, of course, the internet (I see you, Adam Hudson).

The funding-shift is old news, though. What’s really interesting is the effect it’s had on consumer behaviour. Before YouTube emerged, people would be perfectly happy to pay for most sources of digital media. Should a YouTuber charge a subscription-fee now, however, there’d be a fit. They’d be accused of being greedy. Sure, there are instances of wildly concerning Paterno contributions (yep, it’s what you’re thinking), but let’s set them aside for now.

Consumers are, for the most part, perfectly happy to be the product. And advertising firms are more than happy to pay for their data. The larger these social networks become, and the more data they gather on individuals, the more utility is derived. That is to say, demand actually increases as the supply of data increases. Let’s consider an example. If you were an advertising company, would you pay $10 per capita for data on five individuals? Probably. What if, instead, they offered you access to one million individuals, but at the steeper price of $20 per capita? I think you’d still take the deal.

Over the last century, industries have become more reliant on the funding of these advertisers and data-collectors. And there’s been no problem on the demand-side – advertising companies know that the more data points they get, the greater the total utility for the collective library of data. This is where adblocker comes in. Suddenly there’s less data points being gathered, because you and I are simply blocking their ads and skipping to the good stuff (yet another permutation of the rational free rider problem). Imagining an upward-sloping demand curve (don’t panic) and a vertical supply of data, we can see that the price per-capita (y-axis) decreases as the supply of data (x-axis) decreases. This makes sense, but what it doesn’t tell you is what happens to all the content providers:  News outlets, YouTubers, bloggers. They no longer have any source of revenue and are simply pumping out content for free, possibly even under social pressure to do so (read: the comments section).

What does this sound like to you? First of all, anyone can access the content (there’s no paywall). Second, no one’s paying for the service anymore, not even the advertisers. In other words, the good is non-excludable and non-rivalrous. Somehow, the initialization of a subordinate market created a sort of public good. And adblocker, well, it removed that subordinate market, leaving the primary market wholly unfunded. 

We see the consequences of this all the time nowadays whenever a news service begs us to contribute just $1. Whilst it’s perfectly rational to ignore this plea, I can’t help but think of the consequences of a feeble and struggling media for our society. What’s more, this struggling media is more likely to resort to the clickbait practices that we thought were isolated to Buzzfeed. I don’t know about you, but I don’t want my morning news treating itself as a Facebook feed. Eventually something will give and we’ll have to re-evaluate our relationship with digital media. In the meantime, keep your adblocker on; Adam Hudson’s funding needs to be cut off.