Chocolate and Gold Coins

Tuesday, February 22, 2005

Compulsory Participation Advertising

I had an idea for online advertising that I thought I might share with others (the 20 some odd people who happen upon my blog each day). I do not know much about on-line advertising, but not knowing about something rarely stops me from writing about it. I became interested in the subject while reading Arnold Kling’s blog post on the Death of Newspapers, his Tech Central Station post on The News of My Death, and his article on news “clubs”. I thought that maybe there was another model of on-line advertising that on-line content providers were not pursuing, and I wondered why.

Three methods of paying for content

There are currently three methods that on-line content providers use to provide their revenue: fee for service, passive advertisement, and free registration. The New York Times charges a fee to view their content. People like me who refuse to pay for content miss out even though the marginal cost of another reader is nearly zero. Tech Central Station uses passive advertisements. I never read them. Their advertisers are hoping there are many readers who would like to read Tech Central Station and who, unlike me, might happen by chance to be interested in one of their advertisements. The Washington Post forces readers to register to view their content. This demographic information enables the Washington Post to know a little about who I am and what things I might like to buy. This is a step up from passive advertisement because they force me to reveal something about me to get their content. But the registration model is still very similar to the passive advertisement model because they are not really requiring me to view their advertisements.

There is an important point about trying to raise money for your on-line content through advertisement: it has to cause you to buy something you wouldn’t ordinarily buy to work. If their ad just causes you to buy something at that site that you would have bought anyway, they really haven’t sold you anything. If you are forced to buy something to read the content, and they gave you too many choices of advertisement that you could read, you would simply search for something that you we already interested in buying and buy it via that site. The advertisers would quickly wise up that they would not be adding any sales.

However, there is potentially an interesting game that could be played between advertiser and the reader. Matching buyers and sellers could be more efficient if buyers put forth a little effort. Maybe you did not think that you really needed anything the advertisers were selling, but you might play along with the game for a bit to get the content, if it is really good content.

Compulsory advertisements

Suppose that the on-line content provider monitors your page views of content and page views of advertisements. If the ratio of content to advertisements is too high, the content provider might announce that you will have to click on one of the advertisements. You might think, “Fine, I’ll just pretend to read their ads.” However, you might not click on the ads randomly. You might chose the one that might be the most entertaining, in part because you might be a little interested in the product. Maybe you click on a health club because you need to lose weight. That click brings up a host of other pop-up windows for similar products and services. Maybe one of those actually catches your eye: “Hey there’s a piece of exercise equipment that I could use.” Now they have sold you something you would not ordinarily buy, because you didn’t know it existed, but you helped find it. The point is that compulsory participation in viewing advertisements might make for a better match between the potential customer and the potential seller

The idea behind compulsory participation advertising is that while they would force you to view their advertisements you get some choice. Allowing you a bit of choice in which advertisements you view will help the content provider to match you up with a product that you would like but didn’t know you needed. They will not give you too many choices, however, because they only want to sell you things you did not know you needed and not things you already buy. It is potentially a very interesting game, and one that could be valuable to both consumers and producers.


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