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The click economy

January 04, 2006

Last April, in one of my first posts on this blog, I wrote that "the eyeball strategy is back - with a vengeance." I was responding to an announcement from Google that its revenues and profits had continued to skyrocket in last year's first quarter. Now, the brokerage firm Piper Jaffray is predicting that Google's stock will jump another 50 percent during 2006, surpassing $600 a share, and that it will be all blue skies for the company through the end of the decade. Writes analyst Safa Rashtchy: "In 2005, we estimate the paid search industry generated $10B globally, with Google capturing as much as 64% of that. In 2006, we expect the market to grow 41% with Google growing by more than 58% on a net revenue basis as the company capitalizes on its globally - strong brand and its high revenue-per-search. Over the next five years, we estimate the paid search industry will grow at a 37% CAGR to more than $33B in 2010, and we expect Google to capture the lion's share of that revenue and grow faster than the market as a whole."

Laissez les bons temps rouler! Still, though, I think I was wrong to use Google to illustrate the return of "eyeball monetization" as an attractive internet strategy. Google's business isn't really about monetizing eyeballs; it's about monetizing clicks. That may seem like a small distinction - you have to attract the eyeball, after all, before you can spur the click - but I think there's actually a very big difference. Eyeball monetization is the traditional media strategy: publish or broadcast content that attracts readers or viewers, and then intersperse ads among that content. The content, in this case, serves not to prompt action directly, but merely to draw an audience that's attractive to companies looking to promote their products and services. There's a natural distance, in other words, between the content and the ads - a distance that's good for the content producer but often frustrating to the advertiser.

The click monetization strategy removes that distance. In Google's AdSense program, for instance, a media company, or other content producer, earns nothing by simply attracting eyeballs. It only brings in cash by getting viewers to click on an ad link. The value of those clicks, moreover, varies enormously. Not all clicks are created equal. The economic incentive for the content producer therefore is not to produce content that simply engages a large or demographically attractive audience, but to produce content that (a) attracts an audience likely to click on a valuable advertising link and (b) increases the odds that such lucrative clicks will actually happen. Google talks a lot about the "relevance" of its ads, but relevance is a byproduct. Google is building an extraordinarily sophisticated machine for manipulating consumers - for increasing the odds that you or I will not just view or read but click. The most economically successful online content producers will be those that work within that system.

We're still in the early stages of the growth of online media, and it's not yet clear how the economics of click monetization will influence the production and distribution of content. Many content producers haven't yet moved from the "eyeball" world to the "click" world. There are optimists who believe the web, and particularly the content-production technologies of Web 2.0, will erase the idea of "consumers" entirely; we'll all become "producers," and advertisers and marketers will serve us rather than manipulate us. But that looks increasingly like wishful thinking. Economics is destiny, and the economics of online media is all about manipulating consumers - in ways that couldn't even have been dreamed of in the past.

Comments

Can you expound on these two items?

"Economics is destiny..."

"...manipulating consumers..."

Posted by: ordaj at January 4, 2006 04:30 PM

Ordaj:

Economics is destiny: Suppliers in general position themselves to make as much money as possible; what they do - and what they sell - is ultimately governed by the economics of the market in which they compete.

Manipulating consumers: The overriding goal of a pay-per-click advertising system is to get people to click on the most lucrative ads as often as possible. Because it processes billions of clicks, a company like Google can learn, through pattern recognition, artificial intelligence, etc., with extraordinary precision which particular ad links will have the highest likelihood to elicit the most lucrative click under any given circumstance - and then will serve those links up. The web is the maze; Google and its competitors are the lever suppliers; content providers decorate the corridors; and we're the mice. That's a crass way to put it, but you get the picture.

Posted by: Nick at January 4, 2006 04:53 PM

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