| 1. First item first: Gmail is free because the rich consumers using it are worth a few dollars a month in ads. Those free users in Africa who don't have the money can only exist due to cross-subsidy. The ad model helps them only by accident. Until they have money to spend, they can only detract from the value of Google's ad inventory. 2. To address the second question, the cost of traditional media: Adwords made new businesses more feasible because of the intent harvesting. It allowed people to pay to advertise to consumers who specifically wanted something, as opposed to a demographic block. Instead of advertising to every 25-55 man who might want a corvette, they could advertise to men who were thinking about a Corvette right now. Previously, it cost serious bucks to reach those men thinking "right now" because it was dumb luck -- advertise to enough men in the right demographic, hit a few guys who had the intent. To a significant extent, the additional data provided by Twitter and Facebook is no better or more useful than traditional demographic data made available by TV stations. Knowing you're a soccer mom with an SUV in Baltimore is only slightly more useful than inferring that from the market, income bracket, sex, and age group of viewers on a TV block. Worse, a lot of that broad-demographic advertising is branding. It will always be easier to make an impression with a 30 second full audio/video TV segment than with any kind of internet ad. Twitter/Facebook targeting information might be revolutionary in combination with TV ad inventory. Pairing that same data with internet ad inventory is (patently) not nearly as valuable, and it never will be. |