Posts tagged with art
andrewmaclean says the “Spotify Model”—which we could also call the "newspaper model"—where "consumers" get something they want for free, but are really the product which media outlets are selling to advertisers—is “inevitable”.
Why would this be a more logical way for the world to run than just paying for movies, music, television, journalism, comics, and T-shirts? I’m going to spitball together a slapdash explanation and ask if you can improve on it. Here’s my model:
- Three car dealerships each have a big marketing budget. (Why? See 4.)
- The only newspaper in town, by charging $2/paper, was accessing 10% of the town—that’s the demand level to just buy the paper.
- 999/1000 newspaper readers are not interested in buying a car. But the 1/1000 who has been thinking about buying one, hasn’t decided which dealership to go to.
- Each car dealership stands to gain $20,000 from making the sale—and furthermore they’re in competition with each other. If the car-purchaser can be swayed to my dealership instead of yours, once they walk on the lot we have a 90% chance of selling them a car that day.
- So it’s worth spending quite a lot of money on ads to win that selling opportunity. At some level the monetary value of influencing 1-in-1000 customers to be more likely to walk onto my lot instead of yours, outweighs the revenue the newspaper was making from $2/pop reader payments.
- But why not take the money from both sides? Surely it’s better to have two revenue streams (
advertisers + readers) than one? But not if by selling the newspaper for $0 or negative, you can double, triple, dectuple the circulation. If you can stuff the ads down people’s throats by slashing the price or equivalently finding people and putting it in their hands, then you can double, triple, dectuple the advertising revenue (so long as the car dealerships are willing to keep paying for more exposure, even if it’s crappier exposure).
- So in this story it all comes down to the fact that people don’t want to pay a lot for newspaper but they will pay a lot for cars. So much more, in fact, that subscription revenue is dwarfed by even 0.1% of the value of influencing the big-ticket purchase decision.
- In other words it’s because the demand for big-ticket items is not just one or two orders of magnitude higher than the demand for comics, movies, television episodes, songs, albums, and so on. It’s many orders of magnitude higher. Enough more orders of magnitude to that demand that it more than makes up for the low fraction of interested buyers and the fact that your ad can only influence the customer, not control them.
That’s my half-baked story. Care to critique or improve on it?