Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

How Google Killed Online Advertsing For Everyone (Else)

Posted by Tom Foremski - May 27, 2013

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Image by Chris Dichtel.

The more I think about Google's recent introduction of paid channels on Youtube the more significant this event becomes in my mind.

[YouTube launches paid channels starting at $0.99 per month]

The reason is that it is an admission of the failure of its online ads. It's an admission that revenue splits with video producers can't cover their costs of production -- even for shows that have tens of millions of regular viewers.

I subscribe to some great science and math shows on Youtube yet you barely see an ad on these high trafficked shows. It all points to an inescapable conclusion: Google is shockingly bad at monetizing online content (and not just video content).

This is Google's dirty little secret, how bad it is at monetizing online content. It's only bad for everyone else.

When your business model is based on aggregation at massive scale, the small bits of money Google makes on content is multiplied by hundreds of billions, and the results is billions in annual profits.

However, no one else can make money at those rates. Especially any media company that pays salaries to produce content.

The Youtube paid channels announcement is a watershed event. Google is admitting that online ads don't work for other media companies.

Google ads can't produce what it likes to call, a "virtuous revenue cycle" -- self-supporting media business that are able to invest in new content. 

Google advertising does't work for newspaper and magazine sites...

Online advertising, as a major revenue source for nearly all businesses: media, startup, or other  -- is dead. It only works for Google and other large scale Internet platforms such as Yahoo, Microsoft, AOL, Amazon, Ebay, etc. And for media businesses that harvest their content for free, or have immense traffic such as Mirror Online.

It's all about scale and not quality -- despite Google's pleas for quality content. The simple fact is that quality content doesn't earn more money through online ads. A  click is a click, and so is a unique page view -- on any page. It's a currency that constantly devalues original content and discourages new production.

Google paywalls for newspapers?

Google was very much opposed to newspaper paywalls when they were being announced two years ago by major publishers.

Google argued that closing access would lead to large losses of traffic. It could't understand why newspaper publishers would turn down the large amounts of traffic it knew its search engine was sending them.

The newspaper publishers couldn't make Google understand that they weren't able to monetize the traffic because of the low price of online ads -- which is directly set by Google. 

Will Google now  bring in special paywalls for newspapers as it has with video content producers? It would be a good idea to help reputable news sites make money.

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Google et al, the digital Walmarts in the cloud...

But can anything really be done about Internet scale and the relentless downward pressure on all types of digital economies?

It's not Googles fault that it is disrupting huge sectors of the global economy. It's in the nature of the Internet itself that the simple bludgeon of scale is the only business strategy you need.

And this is the gravity that faces our planetary economy. A relentless downward pull on manufacturing costs of products and services - thanks to our hugely powerful technologies of production.

We can create a flood of any product or service, at such low costs that we have to constantly reign back our killer technologies, lest they destroy markets. What happens when we don't hold back those technologies of abundance? Where will it all end?

It'll end in about a decade -- where the common experience of most of our 8 billion plus population will be a world without work.

A hellish society or a golden age?We're good at creating the former but we're hit, and largely miss, on the latter.

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The Holmes Report names Tom Foremski one of the top 25 Innovators of 2013.




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