We all pay for brands spending money on marketing, which then pay various platforms allowing these services to be exposed as “free”.
But wouldn’t it be the same if these brands spent less on marketing, and platforms became paid? Is it all a make-believe game? In the end, is it only about brand discoverability?
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That is oversimplified. One brand may want to spend $1000 because they believe that will get them more than $1000 of additional profit. Another brand/product may only want to spend $100 on ads. What you’re advocating is that these are “lumped” together and spread out to all users as a subscription.
Why? In essence, the company that believes it should spend less on ads is being subsidized by the company that believes it is more optimal to spend more. How will the platform decide which company gets more exposure? (just do it “equal”?). This is economically sub-optimal.
If you want to eat $10 ice cream and I want to eat $1 ice cream, it makes no sense for both of us to be forced to eat $5.50 ice cream. Even though the total $ spent is the same – the total satisfaction is NOT.
Brands won’t stop advertising if they can’t do it on websites, they’ll ramp up all the other ways they can get visibility, because products and services need to tell people they exist and advertising works.
And people don’t want to pay for accessing sites. Ads are annoying, but even more annoying would be having to find $100 a month to pay to access all the sites and apps I look at now for free.
Advertising is often a better model because not everyone will pay but most people will accept advertisements. I’ll look at some ads but I’d never pay for quite a few of the sites and services I use. So they make some money off me from ads while they’d make nothing from me with a pay wall. Additionally with a paywall people who would pay might never sign up because they don’t know they like the service without trying it and won’t pay to try.
So with the proper advertisement scheme you can make more than you would with a paywall with less risk too. Both models can be perfectly viable.
If I understand well, your proposal is that:
* facebook is free,
* lipton tea runs a facebook campaign and pays facebook
* by buying lipton tea, you pay for the tea and the ad campaign
Thus, why not paying facebook directly and having cheaper tea.
The answer is complex.
Lipton tea will do ad campaign anyways as did before facebook. Reason is from time to time they want to remind you about their existence and/or offer their new product. If not facebook then street ads, TV ads etc. So tea is not cheaper for you. Especially not because a facebook ad is *efficient*, which means they have to spend less on a facebook ad for the same increase of sale than they would spend on street ads.
Anyways, ad price is usually a tiny fraction of what you pay for a product, most of it is the store profit huge part is transportation.
Also income from ad campaigns that reach you personally is not the only income source of facebook. They made 116 billion USD last year and had about 3 billion active users. That means almost 40 bucks per year everyone needs to pay so facebook has its money.
If we assume that people are rational and they do the math and all, they would choose to pay $40 if they save more than $40 on lipton tea and other products that get cheaper. The problem is that as I mentioned street ads are less efficient so lipton tea would not become cheaper, if anything, it would become more expensive.
However, it’s shown in many research that people are not rational they would not give up a free looking service even if it was proven that they pay invisible prices in linked fees. So paying facebook would not work even if lipton tea would be indeed so much cheaper.
Yet another problem is that the users have different values. Some are poor students or unemployed who would definitely not pay 40 not even 5 per year. These users are still valuable for facebook because they generate content which is kind of a free added value and keeps the rich users using, and also user data that facebook sells. And poor users may become rich users so it’s an investment too. But it would make it really problematic how to price the service.
Of course free services may differ but in general you can replace the word “facebook” to anything else.
Hey, I studied this topic and it was quite interesting to me at that time.
The short answer is : you don’t pay because adds are not meant to generate money. They are supposed to have a negative net return. If you have income from your adds, you are doing something wrong.
So, how does it all work?
Person A has a website that is quite popular, and entirely free. However, he needs money to sustain it, or just wants some money for his work. Yes, he can introduce a fee to users to keep using it, but that means he will lose a big chunk of his users (you saw how that worked out for Twitter/X)
Person B owns a company that wants to run a marketing campaign for their brand. They see that person A wants to make money and offer to pay him to use his webpage as a Billboard. However, he gets paid only if people click on the banner – which is still likely to be quite some money if his site is popular.
You can already see how everyone wins – person A gets his money in exchange for a portion of his website being a billboard, person B company gets their marketing plot, and the users keep using the website for free.
Since person B pays for everything, how do they make a profit from this?
On a countless number of examples and studies, marketing works. It is a tremendous investment, but with great returns.
So, buying through a link costs the company money because they pay for the link. How does this return a profit? By you liking the product and showing it to your friends who will buy it. This is called “organic sales” because the customer (your friends) came to the company by themselves.
So, if we pay for the service, everyone loses.
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