On walkabout in life and technology

Single-pay, Ad-pay or Both-pay?

Author’s note: This article makes no point, takes no stand and argues no single position. I wrote it to see if I could come to come conclusion on which of ‘user-pay’ vs ‘ad-pay’ vs ‘both-pay’ makes sense, and failed. But published it anyway to see if it spurs others smarter than me to explain and solve this conundrum.

It used to be in the old days when news was delivered to your home in paper form that the only way to get coupons or know about a sale at Macy’s was from the advertising in this newspaper. If you wanted to save money, or learn the price of products or see what’s new in fashion, you bought the paper. The value proposition was that the only way to access this information was to pay, and the information itself had value. Both the ads and the news had value, so we happily paid, knowing that the advertisers paid too.

And then the coupon people and Macy’s found that direct mail was cheaper, faster and got a better response from customers. So they started the junk mail barrage we deal with today. And then they put it on the internet for free. And Groupon happened. Since we as consumers now get this information for free, the value proposition of the newspaper has dropped somewhat, to only the value of the news. That’s still a high value proposition. But it still operates on a ‘both-pay’ model.

In my opinion, most newspaper ads are now ignored by consumers. Instead of viewing them as additional information sources, we view the ads as the means for newspapers to fund their news gathering and reporting functions. We put up with the fact that only 40% of the page is news and the rest ads because we know that if the ads went away, so would the news. And we rely on that.

But we have also gotten used to news web sites that run on the ‘ad-pay’ model, where news is free to us. We don’t seem to mind that most of the page is ads and not content, because we perceive that the ads have the right to be there because they have paid for the content to exist and for us to consume.

I think we’re starting to questions this ‘both-pay’ model a little further. If the ad is paying for the news to be gathered and reported, why are we also paying? We’re starting to decry the news organizations as being ‘greedy’ by asking for money on both sides of the equation, ads and us, even though that’s what they have always done. For the record, I do not believe they are ‘greedy’, they are simply maximizing their revenue sources to enable them to stay in business. But the perception that they are getting paid twice is growing. The ‘both-pay’ model is under threat.

My summary of this perception is this:

If we see an ad, we assume the advertiser has paid the full amount needed for that service, so we should not have to pay for that service.

And based on this perception, people are wondering whether a ‘single-pay’ model is better, either we pay or the advertiser pays.

We see this happening in many other areas. We pay for cable TV, yet we now face ads on paid-for channels, we face ads intruding on the actual shows with the new 1/3rd overlays and we observe a lot of product placement and in-show advertising. It’s annoying as anything. We perceive that the ‘ad-pay’ money has gone way up, because there are just so many ads. So why should we also have to pay for these channels if they are getting so much more ad revenue? I think this is partially driving the ‘cord-cutting’ movement.

We buy a DVD, yet it contains ads which we cannot skip. If there are unskippable ads, based on this perception, why should we ‘both-pay’ for the movie? We buy an app, and it contains ads, why did we ‘both-pay’ for an app that is sponsored by ads?

How this perception came to be, or why it did is unclear to me. The fact that it has become quite pervasive is very clear. We no longer buy apps that have ads and a fee. We happily pay to rent movies on iTunes because they are ad free, or watch shows for free on Hulu because they have ads (but no-one subscribes to Hulu). We read the news on news web sites for free, assuming the ads have paid for the news cycle, and get mightily annoyed when they put up paywalls and retain the ads, trying to return to the ‘both-pay’ model.

The move away from ‘both-pay’ is not consistent nor complete, either. There is a class of consumers who do not seem to mind the ads on paid-for items if the ads make these items perceptibly cheaper. Laptops with crapware are a perfect example, consumers seem happy to put up with slow, crapware and ad filled laptop computers because they are cheaper, so ‘both-pay’ seems to work here. People seem happy to save $30 on a Kindle that has ads, again ‘both-pay’ seems to work. We put up with a plethora of ads on seat-back TV’s on our flights perceiving (incorrectly) that these ads help keep the cost of flights down. And lets be fair, can you imagine the cost of the news and TV if it weren’t for the ads!

Maybe it’s this inconsistency that I am seeing between when ‘both-pay’ works and fails that is confusing me, sometimes we want the ads to make things cheaper, and sometimes we defer purchasing because we do not want to buy something that we perceive has already been paid for by advertising.

Or maybe there is no inconsistency at all, just apathy. People feel there is nothing they can do about it, so they either pay and live with the ads or crapware, or stop consuming. I do not know.

As an individual consumer, who values his time quite highly and is not overly financially strapped, I find myself personally moving away from a ‘both-pay’ model wherever possible. If something has ads and a purchase price, I tend not buy it. I will, do, and have done, however, paid more for an item that has no ads. I perceive the value of the ad-free experience to be worth the higher price, and equate that to a better quality experience and use of my time.

But, based on current market trends, I guess I am in the significant minority. When should ‘user-pay’ work? When should ‘ad-pay’ be the model? And when is ‘both-pay’ best? I have no idea.