Monday, May 17, 2010

Scarcity breeds value


Nikesh Arora, Google's President of Global sales has recently commented to the press as follows "I personally expect in the next 5 to 8 years that 30% to 50% of advertising will be digital". This is not quite as dramatic as it first looks however as digital is already at 20% in the UK so to predict a further 10% growth in 8 years (at the lowest forecast) suggests annual growth of @1.25%

Anyone who operates at the coal face of trying to sell online advertising campaigns will know that there is a supply and demand problem. Basically - there is almost an infinite supply of online ad inventory across the massively fragmented online audience and that this abundance of supply drives down prices.


Adwords and Adsense are fantastic tools but even high traffic sites recover a very small % of operating costs via Adwords and Adsense. From a publishers perspective it is encouraging to hear bullish sounding forecasts but actual digital dollars from advertising are very tough to find at other than commodity prices.


For this reason the paid for content model online has always looked more robust as it is easier to control supply through exclusive content and thus maintain a price point. The internet pirates have had a crack at undermining this approach but the law is beginning to catch up with them through the Digital Economy Act 2010 and the WIPO Copyright Treaty.


Supporters of the free to air online model can point out that to date the paid content model has also failed to shine. However - the App store has changed all that. Apple may have offered the solution to the monetisation of content online. There are many possible explanations for the fantastic sales of the new IPAD but this blogger favours the view that it provides broader access to the content available on the App store and gives the user a better experience of the thousands of apps now available. The technical issues and high price point which are legitimately raised by critics are not the central issue - the IPAD and to a lesser degree the IPOD Touch and Iphone are merely a tool with which to access the App store.