Chris Anderson's recent article "The Economics of Giving It Away" stirred the blogosphere and those of us in the startup world. Some prominent bloggers talked about it here (AVC), here (peHub), and here (OnStartups). I might as well say something about it.
The industry research forecast predicted a stunning growth in online advertising spending, only to chop the forecast when the economy doesn't seem so rosy.
Since Google proved the viability of contextual advertisement business model based on the search keywords, many companies all of a sudden started believing that the advertisement was and would be a viable business model. Internet audience take free content as granted, providers think free content is the way to go because advertisers are willing to pay for the service..... as long as the right advertisement gets displayed at the right moment for the right audience.
"The standard business model for Web companies that don't actually have a business model is advertising. A popular service will have lots of users, and a few ads on the side will pay the bills. Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform. Even if you could figure out what the right ad to serve next to a high-school girl's party pictures might be, she and her friends probably won't click on it. No wonder Facebook applications get less than $1 per 1,000 views (compared to around $20 on big media Web sites)."
Let me take this sliver of the WSJ article and relate it to my own experience to justify the $1 CPM in Facebook is probably the most it can charge.
Whatever the Facebook Grader tells me about my Facebook grade (basically, what they are telling me is that my friends are unimportant, uninfluential, and doesn't add value to my social media presence compared to other obsessed users), I like using Facebook. I love it, and my friends there are all important.
My Twitter, Facebook, Google Reader, Ping.fm, Bit.ly, and several other social tools are interlinked, yet I prefer to go directly to Facebook to reply to messages received inside Facebook. Long story short, I contribute to the Facebook traffic.
BAM! This is the advertisement I see today on my Facebook.
Am I ever going to click the ad? No.
Am I offended by this? Yes, sort of.
Has Jessica Simpson or IQ ever entered my consciousness? No.
What a waste of web property! If I were an advertiser, I'd be saying, "Facebook, you are wasting my money".
I'm sorry, but online advertising is largely broken and it needs to be fixed.
BTW, I'd never take this IQ Challenge out of fear that I fall below 111 even if I can tell tuna apart from chicken and know that buffalo wings actually don't come from baffaloes.