Web economics 2.0 and paying with data instead of dollars

In a previous post I tried to describe an economic shift that I think is helping to support a new environment less tolerant of the monopoly power inherent in private enterprise platform determination:

The liquidity in the maturing online advertising industry, which allows new applications to monetize utility to users quickly and directly.

In other words, if you can build an application that has enough utility for a decent number of users to start using it, you can turn that utility into dollars by, say, slapping up AdSense, which pays the bills and keeps the app up and running (perhaps competing with a platform aspiring to monopoly power).

The problem with this in the real world is that AdSense, which at the moment is the easiest way to put advertising on a small site, doesn’t really pay the bills all that well. One big reason for this is that the ads are usually pretty badly targeted when the context is a dynamic app, or a constantly changing document like a blog.

This is where the Web is different from other media: as many people have pointed out, the Web is neither one-to-many (broadcast) nor one-to-one (email); it’s many-to-many. That means that everyone can provide data as well as receive it. In particular, users can “pay” for content with more than just their attention; they can pay by supplying data about their interests that lets ads be better targeted. Although smaller sites currently have a hard time monetizing this data, in theory web applications should become economically viable at a much lower user base due to both more valuable targeted ad space and the previously discussed reductions in development and operations costs.

This idea of paying with data isn’t new, we already do it in several ways:

– Supplying search terms is a payment: your interests at that moment are targeting data (e.g. Google AdWords)
– Reading content is a payment: the content itself represents your interests (Google AdSense)
– Frequenting a site is a payment: your history at that site represents your interests (e.g. Amazon)
– Registering at a site is a payment: facts like zip code, age, and gender act as proxies for your probable interests (e.g. NYT)

This trade of data for content is what Matt Blumberg calls the “New Media Deal”, as I just found out by following a link from Fred Wilson. Matt’s description of this deal is really great, but it doesn’t mention what I think is a big problem: most people don’t get what the deal is! I don’t have any handy stats, but I’d bet that if you took a survey, most people wouldn’t know that the reason they’re always being asked to register and fill out forms is to help the site pay its bills by serving up more relevant ads. They probably think it’s to spam them or do market research or something (er, well, both of which might sometimes be the case actually).

It seems to me that asking users for data might work a lot better if users really understood what it was for. Matt addresses this in part with his next deal incarnation involving more user participation, the “We Media Deal”:

The more transparent the value exchange, the more willing you are to share your data.

But the examples he gives, of us being more likely to care about sharing our data if we know we can delete it and that it will be attributed to us, isn’t really what I have in mind here. Instead of trying to get data from users in indirect ways like surveys, registration, and tracking, why not just make the deal explicit? People understand that someone has to get paid to develop apps or write articles, and if we can pay with something other than money, that’s great!

I think it’s true that a lot of people are used to thinking in the “old media” way: as Matt puts it, we pay by “tolerating” a blizzard of ads, most of which are totally irrelevant to us. If the New Media Deal is made more explicit, I think people will see that everyone wins: a less painful type of payment can support a greater diversity of sites, where participation and mutual respect are values that are reinforced by capitalism and self-interest.

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