Online Marketing and Advertising
The balance between advertising revenues and subscription fees are puzzling content sellers on the Internet. In the end, the choice between the two is a moot issue because both ad-based and subscription-based selling are viable options. The question is which method is good for what products.
Our experience with broadcast and print media will not help to answer that question because broadcast and print media are fundamentally different from the digital medium. For example, commercial-ridden television came about because there was no sure way of charging audience for what was being broadcast randomly over the air with no one targeted in particular. Printed newspapers and magazines are constrained by the economics of mass production in pricing, in content selection and in distribution. These factors are non-existent on the Internet. Simply abstracting from traditional media will lead to wrong conclusions.
Innovations will make things more complex. For example, commercials and advertising are indeed information goods so that there are some who are willing to pay to receive them. Why not charge for advertisements. That is indeed what CyberGold and other pioneers are attempting to experiment. The electronic marketplace presents a unique opportunity to improve the way we disseminate product information (i.e. advertisements), charge consumers (and ultimately integrating the process into market research, product development and the next stage of marketing in a seamless process). The problem with spams is not only that they are distributed randomly but also that they have no market prices (or ways to transact). If there is a way, some spam receivers may be paid to receive advertisements, others may be willing to pay to receive them.
The legacy of the broadcast and print media has been that of artificially coupling advertisements with contents because of inability to charge or the economics of physical market. An efficient market will allow prices of these two different products to be determined separately.
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On the one end of the information tug-of-war are those who have information and who think others may want it. In an unadulterated push model, content owners and advertisers push information to whomever they think needs it. We call them spammers. On the other end are those who don't have information and are seeking what they need. Without consent, hackers tap into your computers and download your files. Most other forms of information exchange involve some push and a little pull: you ask for subscription to a mailing list or an online news server such as PointCast, and content owners deliver them to your computer. In this middle ground, technologies allow subscribers to personalize contents and content owners to be in touch with their customers.
The information tug-of-war is a sure sign that the Information Age is at its adolescence, pushing and pulling without quite knowing what direction it wants to go. But in this contest for information exchange, neither pull nor push will get us where we need to go. Only a delicate balance between push and pull will establish a middle ground where our networked infrastructure will bear fruits for the 21st century. A cursory look at push technology, targeted advertising, spamming, and network pricing may convince some that new rules and laws are needed before the Internet and electronic commerce truly take off. But, the electronic marketplace is well equipped with technologies to smooth out the kinks, only if the market is allowed to take care of itself.
As in broadcast media, the current Internet lacks a sure mechanism to charge for contents and delivery (or efficiently allocate costs of doing so). Many advertisements are delivered without contents (i.e. payments or values to receivers) and receivers often pay for such messages unlike junk mails.
There are five approaches to deal with spamming. The first is to insist upon netiquettes, accompanied by mild or harsh counter measures. One commonly receives lectures on Internet ethics from some irate receivers of unwanted messages. Such emotional, moral arguments are relics of the old public Internet.
The second approach is to refine targeted audience. Any message including advertisements is in fact an information product. Some will find it useful. The problem is that only some are interested in receiving that information. In electronic commerce, technologies should be used to finely target receivers to minimize the annoyance.
The third approach is to rely on technologies to filter and block unwanted messages. In this approach, the burden of sorting out messages is placed mainly on receivers. While this has the advantage of "protecting the First Amendment right," network resources will be wasted, and will fail to prevent some determined spammers.
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Legislating what messages can be sent is the fourth approach. One particular argument gaining support is to equate emailing with faxing for which legislation already exists. The similarity between the two, however, is economic not technical. That is, in both faxing and emailing, receiving messages cost the receiver something more than getting junk mails.
Unlike with faxes, senders and receivers can negotiate payments on the Internet. If spammers must pay to send messages, they will have incentives to target their audience more carefully; receivers will be compensated by direct payments or indirect benefits (value of the information). Payments or cost shares for network delivery will also be allocated based on supply and demand of that information product being exchanged. Thus, the fifth approach is to recognize that email messages are information products and to develop and encourage pricing mechanisms.
CyberGold offers a model for direct payments. See Chapter 6, Signaling Quality and Product Information, of our book "The Economics of Electronic Commerce."
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