Advertising and Web3
Why ads are worth preserving in whatever comes next
Like many others, I’m getting swallowed by the rabbit hole of Web3/crypto, and I’m going to start sharing the obsession with my dear Pull Request readers. This is hopefully the first in a series.
Most of the employees were the hard-boiled, Americanised, go-getting type—the type to whom nothing in the world is sacred, except money. They had their cynical code worked out. The public are swine; advertising is the rattling of a stick inside a swill-bucket. And yet beneath their cynicism there was the final naïveté, the blind worship of the money-god.
George Orwell, Keep the Aspidistra Flying
This ‘hard-boiled, Americanised, go-getting type’ was mystified to discover the almost total dearth of new Web3 projects in the area of either advertising or attribution. That last bit is the term of art for the record-keeping—every click, every buy, every install—required to keep the online advertising and commerce game going (and to which the blockchain might be uniquely suited, but more on that in a future post).
But first, let’s cover some basics around how both commerce and advertising work. In the sweeping pageant of capitalism, most transactions reduce to a consumer buying a good or service from a producer at a certain price. Whatever the good or service, and whatever the actual business model—outright purchase, subscriptions, SaaS, barter, mortgage-funded real estate, whatever—the trade is fundamentally the same: what the user pays is some function of the cost of that good or service, the utility of that product to the user, and/or some market dynamic around demand or supply for said product.
If it feels I’m reviewing rather obvious points about the nature of commerce, it’s to serve as counterpoint to the world of advertising which, as I hope to show, is completely different from regular commerce. Advertising is in fact deeply weird, which is why it’s so hard to reason about.
The ads game is a triangle trade between user, publisher and advertiser, that at its most reductionist looks like this:
A publisher provides a service, website, app or other user experience for free to a user, who pays nothing for that service, while some advertiser pays for a tiny slice of the user’s attention, and pays the publisher an amount $ₐ for it. (To be absolutely clear, $ₐ varies wildly as a function of the user, as well as real-time details like time of day, but more on that in a bit.) Let’s also posit an amount $ᵤ, which is the amount a user would be willing to pay for the same service given the chance (instead of being subject to the indignities of advertising).
Just to highlight the weirdness, imagine that a conventional business were run like ads-driven ones: you go to the Apple store to buy a new iPhone, and the hipster attendant hands you one for free. Before letting you walk off with it though, he asks you pay a few seconds of attention to the guy standing next to him … who pitches you on a Peloton at-home exercise machine. You ignore it and leave with a free phone.
The amount of value Apple extracts from you walking into the store has nothing to do with the value of an iPhone or your desire for one: it’s entirely controlled by this other guy from Peloton, whether he sells any bicycle machines, and how much the Peloton dude feels the time he spent pitching was worthwhile.