On Monetizing the Internet

me quotes money bitcoin transaction costs advertisements

20 Feb 2014

From an interview with Richard Stallman in the WSJ:

“We need to stop websites from tracking people,” he said. If people can pay for services using digital cash, then the websites don’t need to track people for advertising purposes. The problem, he said, is that most websites simply don’t have any alternative to make money because payment on the Internet is somewhat inconvenient and not anonymous. “If we make it easy for any site to charge for its services directly and anonymously with digital cash…you pay a little bit – it won’t cost much,” he said.

Bitcoin could present a new alternative for monetizing the web. As Stallman points out, the web today is dominated by advertising not by choice but by necessity. A vast majority of websites rely on advertising simply because there are not many viable alternatives to monetizing their services.

It is this necessary reliance that has given rise to the “advertising arms race” that defines much of the identify of the web today. Consider some of the most memorable attributes of the web over the years: pop-up window advertisements; spam e-mail advertisement blasts; targeted advertising through cross domain tacking. Each of these advertising “weapons” results in less desirable experiences for end users. For their part, users have responded with proportional force. We use pop-up blockers to “disarm” pop-up advertisements. We have migrated our e-mail to services with sophisticated spam filters that “disarm” spam e-mail advertisements. We are still in the process of “disarming” cross domain tracking.

Newly viable methods of monetizing the web would introduce a second option that could end this arms race and potentially re-shape the identity of the web as we know it. Bitcoin is one such second option. Although its future viability is far from determined, it has already enabled us to imagine new possibilities for monetizing the web.

The technology underlying Bitcoin could enable new possibilities on three levels:

  • Desirability - First, Bitcoin could offer sites a second way of monetizing their existing services. For instance, users could bypass advertisements by making a small payment. This could make the experience of the web more desirable for some users.
  • Viability - Second, there are still many existing services that have yet to be transitioned to the web. Bitcoin could potentially make the web a viable platform for such services.
  • Feasibility - Third, Bitcoin could make currently un-imagined services feasible, spawning a new wave of web based innovation.

Consider the first possibility. When we watch videos on YouTube, we pay by watching intermittent advertisements. There is a real cost that the user bears for watching these advertisements - they are trading their time and attention spent watching each advertisement for the service of watching each video. The cost may be extremely low, but it is certainly not negligible.

What is this cost? Well, consider the cost per view (CPV) for an advertisement on YouTube? It is estimated that the CPV on YouTube is generally between $.10 to $.30. Let’s say that the user could pay this amount to “disarm” the advertisement and skip right to the requested video. Why isn’t this viable today? It’s the technology. Transaction costs for a digital payment are far too high to make payments of this magnitude viable. I have discussed transaction costs previously.

Bitcoin could potentially reduce transaction costs enough to make a $.10 payment viable. With the click of a button, a user could make a $.10 payment in exchange for skipping a 30 second advertisement. Although this may not be a worthwhile exchange for all users, it might be for some. It would at least enable YouTube to offer their users an alternative way of consuming their content - a way without advertisements.

Next, consider the second possibility. Are there services out there that cannot be supported by advertisements, such as services whose value is below the minimum viable transaction amount for digital payments? Content providers such as Netflix and Hulu appear to have successfully monetized their services in ways that do not rely on advertisements. But this must be because the value of their service is above the minimum viable transaction cost. Could services that cost, say $1 per transaction, become viable on the web with Bitcoin? Services that rely on small tips are one example.

Lastly, consider the third possibility. What is now feasible that wasn’t before? This is the most difficult possibility to consider because it requires us to imagine what has yet to be. Here I am short on examples because if I had thought of something that fits into this category, I would probably already be working on it.

In conclusion, Bitcoin is an interesting technology that has shown us insight into some of the shortcomings of the web as we know it today. One such shortcoming is the web’s strong reliance on advertising as a method of monetizing services. Bitcoin helps us imagine new possibilities for monetizing web based services and creating the future of the web.