We here at TLF have long been pointing out the benefits of targeted ads. But recently, we have focused on what I call the “supply-side” benefits – that targeted ads make free content possible by increasing the price advertisers are willing to pay for each pageview and therefore the amount of revenue content providers collect. That is a crucial point, and one that has yet to be absorbed by Congress, the FTC, and even other experts in Internet policy.
But we haven’t talked a lot about what I call the “demand-side” benefits – that targeted advertising is better for the viewer, directly, than non-targeted advertising. We have been too quick, I think, to legitimize the other side’s concerns, which they label under the heading “privacy,” by discussing the situation as one of trade-offs and TINSTAFL.
Our arguments have sounded like those supporting free trade agreements because of the trade barriers the other countries are lifting, implying that we should not remove our own trade barriers unless other countries agree to remove theirs. This is the wrong argument to make, for the simple reason that trade barriers don’t just hurt the economies of other countries; they damage our own. As my economics professor, Jeff Miron, put it, when everyone is shooting themselves in the foot, you don’t wait until you can get everyone else to agree to stop with you; you just let go of the gun.
Similarly, we should be discussing how much better it is to see targeted ads than non-targeted ones. Who feels nostalgic for the dumb, annoying scrolling banner ads of the mid-90s?
Not me! I love targeted ads. I have found them ridiculously useful. I would never have found several of my new favorite bands without those ads on the right side of facebook. Somehow, facebook’s advertisers – using my list of bands I like from my publicly-accessible social networking profile – figured out better than Pandora (into which I’ve inputed even more data, but which hasn’t been giving me many songs I haven’t already heard) what music I should try. I’ve discovered sales on airline tickets, new events, useful law firm research tools, free web tools, and a lot more.
Today’s ads take up less space, chew up fewer system resources (proportionally, at least), and are more relevant – all while generating more money for the content providers. That ads that sell for more per view are also better for the viewer is not an accident. As Berin points out in his neat summary of the arguments against ad regulation, advertisers pay more for ads that viewers are more likely to find useful. Annoying and irrelevant ads generate less in clickthrough and conversion, and therefore revenue, for the advertisers. How do you know if Ad A is better than Ad B? If you’re more likely to use it. If you’re more likely to use it, the advertiser will pay more for it. More revenue per view = better for you.
Does anyone remember what it was like trying to support a website when ads were cheaper? Much more webspace had to be devoted to the ads. They were more prolific and annoying. Websites can minimize the amount of space they devote to ads if each ad pays them more. Conversely, if you think more valuable ads are not necessary to allow content creators – from small-time bloggers to major web innovators – to support themselves, do a little math. If each ad is worth half as much because of privacy regulation, how many more ads would the site need to display to get the same revenue? (It’s probably more than twice, because more ads – especially more irrelevant ads – reduces the value of the site to users and thus the number of views.)
This post has been about the too-often-ignored, direct, demand-side benefits to targeted ads. My next post will discuss why we should not view those ads as having “privacy” costs in the same way as real concerns of privacy from government onlookers.