Advertising isn't enough to fund on-demand

Advertising isn't enough to fund on-demand

Summary: I am frankly bemused that anyone seriously believes Microsoft or anyone else is going to fund their on-demand applications from advertising revenues. The idea is complete bull.

TOPICS: Google

I am frankly bemused that anyone seriously believes Microsoft or anyone else is going to fund their on-demand applications from advertising revenues. The idea is complete bull, on two counts.

First up, ads in applications don't work. All the evidence from the past ten years of online services is that the more engaged the user is in pursuing an activity, the less likely their attention will be diverted by an ad. The sole exception, which of course is why Google AdWords has been so spectacularly successful, is search, for the simple reason that clicking on relevant ads is a natural extension of the search activity. That's why advertisers pay more for ads in search results than they do for contextual ads in content pages— and it's why the terms of service for partner web sites that carry Google ads explicitly forbid placing the ads on application pages.

What about Gmail — isn't that an application? Well, Google hasn't published any metrics for Gmail, but it's fairly obvious given the amount of storage you get with a Gmail account that Google aims to monetize Gmail from users clicking on ads when they search their archived mail, not when they're writing emails. I mean, it stands to reason doesn't it? Are you going to click on an ad right in the middle of crafting an email? Only if you've hit a patch of writer's block. Whereas monetizing ads in search results is a tried-and-tested model at which Google already excels.

The second factor is that the world does not revolve around advertising, it revolves around trade. Businesses need to be able to make and sell stuff before they have any money left over to spend on advertising. By definition, therefore, there is far more money to be made from directly supporting businesses in the making and selling of products and services  than there is from vying for the small change they have left over for advertising. The majority of on-demand revenues will come not from advertising but either from taking a slice of people's sales revenues (the and eBay model) or by providing services that help them operate more efficiently (the model). Google is not the model to follow, not until it manages to wean itself off its total dependence on advertising and expands into other services (which is why GoogleBase is so interesting, by the way).

Topic: Google

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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  • Advertising will become less useful

    The broader the pipe gets to people (homes, businesses), the more the marketers will try to intrude on your time and space. As they do this more and more, people will either tune out or find channels that do not annoy them.

    Given the choice between an ad-supported set of tools and one where you pay a small annual fee to get the tools without the annoyances, I will bet that 70%+ of companies will opt for the latter. While a majority of consumers will at first opt for the former, they will eventually mature to the point of wanting to be left alone.

    So I agree, advertising as a business model is not going to work forever.
    Paul C.
  • ads ads ads

    I don't know if anyone is seriously considering the ramifications of this, which would be laughable if not for the fact that it'll all probably happen soon. Imagine if Picasso's working canvases had a running billboard advert along the side for low priced paint brushes while he was in the process of creating his masterpieces, or the top three inches of William Faulkner's typewriter pages flashed Walmart advertisements every three seconds while he was writing his novels.