Online Advertising Is Flawed And Amazon Could Fix It

Online Advertising Is Flawed And Amazon Could Fix It

You are thinking about buying something, and then ads for that thing in various shapes and sizes keep popping up on your Facebook, Instagram and Google—even after you’ve bought one. But, why are our social networks powerhouses of advertising in the first place? Instead of this “free with ads” model, Google and Facebook might be more user-friendly if they charged either a monthly subscription fee or one-off micropayments for individual services. First of all, because social media sites would have no reason to ferociously consume information about you to sell to advertisers for targeted access, ads would not “follow” you on their platforms. Secondly, Facebook and other social media sites would need to continue to justify the monthly subscription cost to its users; they would need to prove their value over and over again. The fee would have to cover the costs that the platform currently makes per user in advertising. For example, based on an annual revenue of $82, North American Facebook users could be asked to pay a $7 monthly fee for an ad-free profile. Companies like YouTube and Spotify are already using this model, offering users an ad-free option with a monthly subscription fee. However, Spotify had 180 million monthly active users as of July 2018, only 83 million of which were paid subscribers on its ad-free Premium service—proof that people are willing to pay, but “free with ads” still dominates. Amazon has an aggressive strategy in place to grow in the digital ad market, but it is also a natural fit.

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PARIS, FRANCE – AUG 11, 2018: Man holding against white background freshly unboxed Amazon Prime cardboard box

Do you ever get that feeling that a product is following you? You are thinking about buying something, and then ads for that thing in various shapes and sizes keep popping up on your Facebook, Instagram and Google—even after you’ve bought one.

Online advertising can feel like it is becoming too personal—or too accurate. And reporting the problem comes with a catch; Google uses this feedback to establish the accuracy of its information and improve its ad targeting. You are essentially telling them they are getting it right.

But whether you are immune to them or creeped out by them, ads are the reason that sites like Facebook (which also owns and operates Instagram and WhatsApp) and Google are free.

But now, Amazon is set to become the third largest digital ad platform by the end of the year. Though Amazon is still behind Google and Facebook—which together control 58% of the U.S. digital ad market, bringing in a combined $64 billion—its ad business will bring in $4.6 billion in 2018, up 60% from a March projection of $2.89 billion. And, now as a major destination for search, Amazon is well-positioned to grow that market share further.

That could change the shape of online advertising. Here’s why it should.

The model is broken: the flaw of social media being free with ads

In 2016, Pew found that 51% of Americans don’t think it is acceptable for a social media site to offer free access in exchange for a profile that is used to target ads. But, why are our social networks powerhouses of advertising in the first place?

The idea for a free and open internet has brought us to a place where Google and Facebook monetize access to us, the users. In 2017, the average annual revenue per user on Facebook was $20.21, which was mostly generated from ads. Each North American user generated around $82, largely in advertising revenue.

Instead of this “free with ads” model, Google and Facebook might be more user-friendly if they charged either a monthly subscription fee or one-off micropayments for individual services. (For example, sending a Facebook message could cost a few cents.) Think about Netflix and HBO: They are able to provide premium content thanks to a paid subscription model. Despite the proliferation of free streaming content platforms like YouTube, they are posting solid profit growth and a growing subscriber base. Now we are…

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