A few days ago I wrote a post about the economics of online advertising. To summarize, the argument went like this:
- Increasingly, publishers' ability to differentiate themselves in the advertising market is being undermined by the web
- This is mainly because of (i) audiences' promiscuity thanks to the hyperlink, and (ii) ad networks
- This drives advertising costs down towards publishers' marginal costs of inventory
Granted, this picture may not be the full story; among other things it doesn't apply to all advertising categories. But to the extent that it does describe the future, it has an interesting strategic implication, at least for general news:
If editorially targeting a niche audience (local, ideological, etc) no longer leads to a price premium on the advertising side, then profits can only come from (i) a cost advantage or (ii) capturing some of the surplus that audiences get from differentiation. As legacy businesses either die or reconfigure for the new reality, cost disparities will not be as gross as today (e.g. NY Times vs Huffington Post) and (i) will be less of an option. If this happens, and to the extent that it does, then profits could only come from getting audiences to pay for unique stuff.
Sorry for the abbreviated nature of this post. If there are reactions I might write a more expanded version.