After reportedly being valued at $3 billion by Facebook and then at $10 billion by Alibaba -- neither deal actually happened -- the ephemeral message service Snapchat is finally going to get a revenue stream. After deliberating for more than a year on how to start making money, it fell back the on the most unoriginal scenario imaginable: advertising. Though business founders and customers alike hate it and Web pioneers are sorry they helped it become so dominant and pervasive, the ad-based business model appears to fuel the Internet industry's future as well as its past.
Snapchat founder Evan Spiegel explored the in-app purchase model, like that of the Japanese messenger Line, which makes most of its money selling stickers: Snapchat's main demographic, 13 to 25, might go for it. He thought about "native advertising" -- a nice expression for ads masquerading as content. He talked bout supporting upcoming artists and actors by letting them create ads that would have a value to users. Instead of all that, there will apparently be more or less standard pre-roll ads. According to a Wall Street Journal report, the company is going to launch a service called SnapChat Discovery which will show users news stories preceded by ads. You'd have to hold down your thumb on the prone screen to see the news, so you wouldn't miss the pre-rolls.
To a user, that's an unpleasant bit of manipulation, just like Google's Adwords which 41 percent of searchers perceive as organic search results, or Facebook's infamous mood-programming experiment. The ad model -- with all its implications like massive data collection and various attempts to trick users into clicking on information they never asked for -- is legitimate, but it feels dishonest to most people outside the advertizing industry. Internet users accept it because it gives them access to free stuff, but try to cheat it in return by not clicking on ads, though they are no match for Google. I know people who claim they have never clicked on an ad, but I also know that I've been beaten at this game numerous times by people who are making a bigger effort to win than I am.
People who built some of the first money-making Internet sites are unhappy with the turn things have taken. Web design and programming guru Maciej Ceglowski made a poignant presentation about it in the German city of Duesseldorf in May, which he interspersed with pictures of cute animals to take his listeners' minds off the depressing content. His argument was that founders were selling their investors a storyline -- the promise of ever more targeted ads. "Investor storyline is a cancer on our industry," he said. "To make it work, to keep the edifice of promises from tumbling down, companies have to constantly find ways to make advertising more invasive and ubiquitous."
The question Ceglowski asked was, "How do we build an Internet we are not ashamed of?" Shame was also a central theme of a lengthy essay published in The Atlantic recently by Ethan Zuckerman, director of the Massachusetts Institute of Technology's Center for Civic Media.
Zuckerman was a founder of one of the Internet's first commercial successes, Tripod.com, where he worked in 1994-1999. He wrote:
"Over the course of five years, we tried dozens of revenue models, printing out shiny new business plans to sell each one. We'd run as a subscription service! Take a share of revenue when our users bought mutual funds after reading our investment advice! Get paid to bundle a magazine with textbook publishers! Sell T-shirts and other branded merch! At the end of the day, the business model that got us funded was advertising. The model that got us acquired was analyzing users' personal homepages so we could better target ads to them."
If I had to guess, that's roughly the story of SnapChat, too. There's only so much time investors will give a startup without revenues, so speeches about supporting young artists are our one day and plain old ads are in.
Zuckerman now says advertizing was the Web's "original sin." He hopes models like micropayments to support content creators, subscriptions and even crowdfunding might help undo some of the damage founders' tendency to fall back on ads has done to the Web -- and is now doing to the app industry. He points to the example of Ceglowski's current service, Pinboard.in, a bookmarking site that you pay a small one-time fee to sign up for. Facebook's WhatsApp is also adamant about using that model and not its parent company Facebook's ad-driven one.
I'd like to hope models such as these will eventually win out. The current dominance of the ad model, and the quest for more ad targeting, is at odds with the growing competition for user attention. Perhaps, as people clean up their digital lives, they will someday only use the services they want and need enough to pay for. That goes for news, messaging, live content streaming. Otherwise why is YouTube, which has lately turned into pre-roll hell, planning to roll out a subscription-based, ad-free service? Movement toward healthier models has to start somewhere.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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