The Detractors are Wrong, Online Ads Add Value

Alan McQuinn December 8, 2016
December 8, 2016

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Whether it is the recent fight against mobile zero rating or ad-financed online content, various intellectuals wrongfully argue that free or discounted access to ad-supported goods or services is bad. This idea is misguided and threatens the economic cornerstone that enables the free and open Internet to flourish: advertising.

 

In a recent interview discussing his new book, Tim Wu, a law professor at Columbia University widely known for coining the phrase “net neutrality,” argued that free online content paid for by advertising violates people’s privacy and “usually leads to degradation of the product.” Wu’s solution is for people to start paying for online services (e.g., $1 month subscriptions for access to Google search without ads) or even more ideally from his perspective that websites should pay their users. He is not the only one to argue for ad-free services. In a New York Times op-ed, Zeynep Tufekci, an assistant professor at the University of North Carolina, argued that ad-financed business models are “destroying the rich, pluralistic Internet,” and social media websites should offer users privacy-protective subscription plans. These arguments harken back to similar complaints in the 1950s, such as when advertising critic Vance Packard wrote that free TV funded through ads was leading us to be “influenced and manipulated, far more than we realize, in the patterns of our everyday lives.”

 

Today’s digital era complaints assume three things: that consumers can pay for online services, that consumers want to pay for privacy protections, and, more fundamentally, that advertising is inherently bad for the Internet. All three assumptions are wrong.

 

First, this argument assumes that everyone would be able to pay for online services. Advertising has contributed greatly to limiting the digital divide. The change to a subscription business model for many free, online services would adversely affect many low and middle-income individuals who would lose access to beneficial services they could no longer afford. The Internet would become like Netflix or SiriusXM—something only a portion of households are able to pay for.

 

Second, most consumers do not want to pay for additional privacy. Many privacy-focused options for online services already exist. If users want to access a search engine that does not track their searches, they can turn to the search engine DuckDuckGo. If they want a privacy-protective social network, they can turn to MeWe, which makes money by offering optional services. However, most people still overwhelmingly choose Google for their searches and Facebook for their social media because they value the quality over the purported risk to their privacy. Moreover, most consumers are not willing to pay for less advertising. One 2016 survey found that only 11 percent of U.S. and U.K. smartphone owners would pay as much as 8 cents a month to avoid mobile advertisements on all their apps.

 

Third, the underlying assumption behind Wu and Tufekci’s argument that advertising is inherently corrupting misunderstands its importance to the free and open Internet. Indeed, Wu suggests that advertising and free content has led to a fragmented media environment, violated consumers’ online privacy, and devalued online content itself. However, a large share of the websites that millions of Americans depend on for work and play would not be around today without online advertising. Without the ad-funded model most online content, applications, and services simply would not exist. For example, services like YouTube allow independent creators to monetize their content through advertising and have given new economic opportunities to many creative voices.

 

Furthermore, if online services wanted to switch to a pay-for-content model or employ both funding models, they easily could. For example, recent years have seen many online newspapers, such as the New York Times, Washington Post and The Guardian, switch their business models to subscriptions and online paywalls. The simple fact that other online services, such as search engines and social media websites, have chosen an ad-financed model suggests that this form of revenue is more effective than subscription models at enabling them to earn enough revenues to continue to innovate. Because subscription models may not be as efficient at raising revenue, moving away from this preferred funding method may result in less revenue to pay for high quality content and services. Indeed, this move would likely degrade the quality of content—certainly its breadth and variety—rather than improve it.

 

Unfortunately, when companies offer their customers incentives for sharing more information, many advocates switch their stance on the issue, now saying it is wrong for companies to share revenue with their customers. For example, many people raised privacy concerns in 2012 when Google offered a voluntary web tracking extension for its Chrome browser that would pay users $5 a month in return for tracking their online behavior. Similarly, many privacy advocates recently decried the “pay-for-privacy” practice of Internet service providers that offered discounted monthly subscriptions to users to use their data for advertising, including Wu, who participated in a letter that advocated restricting this practice.

 

The online ad-financed business model may not be a perfect funding mechanism, but it has allowed for free online content and services to flourish. Rather than continuing to harangue companies for using ad revenue or waxing apocalyptic about the rich, pluralistic Internet, perhaps it is time to give advertising its due.

 

Thank you for making the Internet what it is, advertising.