The week of September 21, 2014

‘Free’ is the curse of the Internet

By Aaron Sankin

Here’s a little thought experiment: Consider everything you do online. How much of it do you pay for directly?

You paid for your computer. You pay your local cable company a monthly fee for Internet access. You pay Amazon when it ships you products, and Netflix for the privilege of not being able to decide on a movie and then falling asleep to its menu screen.

For almost everything else, there’s no direct cost. You don’t pay Google for your email account or to watch cat videos on YouTube. Social networks like Facebook and Twitter don’t cost anything either. Most music-streaming services like Spotify offer free, ad-supported subscription services.

In fact, of the top 10 most highly trafficked websites in the world, only one is built around a primary business model of having the end users of its product pay for that use directly—the Chinese e-commerce site Taobo. As you look further down the global list, the business model of most popular sites remains largely consistent: Do everything possible to divorce direct monetization from the day-to-day experience of the average user.

This system certainly has its perks. It allows for the Internet to (at least, superficially) adhere to the egalitarian ethos of its early days. Users are able to glide effortlessly from one website to the next, freely seeking out the world’s information without worrying about running into stifling blockades shutting out those who lack the monetary resources to obtain access. It also allows pieces of content—from a video of a hamster eating a burrito to thoughtful essays about race relations—to go viral in a way that gives us a shared set of common cultural touchstones in an increasingly fragmented socio-economic landscape.

At the same time, the conception that content on the Internet wants to be free—no matter what costs were involved in creating it—is deeply pernicious. This system has robbed Internet users of their personal agency, turned Web-based technological achievement into things that almost necessarily shrink the job base rather than grow it, and shaped the Internet into the most efficient and comprehensive surveillance machine ever developed.

Google has the single largest presence on the Internet. Of the top 30 most-viewed sites on the net, five belong to Google. While the company has branched out into everything from wearable computers to mobile operating systems, it still earns over 90 percent of its revenue from advertising.

What this figure means is, for all of Google’s efforts to be an all-encompassing organizer of the world’s information, the company’s actual core function is to sell you-based ads.

Google’s mission, in other words, is to create websites that attract the largest possible number of users, collect all the personal information it can on those users, and then sell advertising space to companies looking to target those users.

As a result, Google does things like scan the content of almost every email sent through its popular Gmail service to better target its advertisements.

Consider everything you do online. How much of it do you pay for directly?

Google isn’t alone here. That’s also Facebook’s business model, Yahoo’s, Amazon’s, Target’s, Zappos’, and unnumbered other companies. If you’re looking to make money on the Web now, this is the go-to business model.

There aren’t a whole lot of alternatives to charging people for services rendered other than by supporting those services through advertising.

There’s a freemium model practiced by companies like business-minded social network LinkedIn—where the basic service is supported through advertising and data collection, but the real goal is to convince users to sign up for a higher tier of service.

The second is that the Internet provides an opportunity for data collection unique in the history of media. The people selling advertisements on a given TV show have a general idea of the demographics of the people tuning in, but only in the aggregate. By giving content providers the ability to track users down to the individual level, the Internet has made the business of market research far more efficient.

Viacom may be able to tell advertisers on its TV channels that someone who matches my demographic profile comprises 23 percent of the viewership for a new episode of South Park on cable. However, if I were to watch that same episode online, the media conglomerate could inform advertisers that not only is Aaron Sankin the person watching this show, but also what type of dog food I typically buy and which brand of bass guitar strings I prefer.

The problem with this whole situation is that the Internet is creating efficiencies that have a tendency to make entire segments of the economy obsolete. Travel sites like Kayak and Priceline (the latter of which actually bought the former for $1.8 billion in 2012) essentially pushed the travel agent industry out of business and replaced it with a business model largely geared around advertisements that have a tendency to sell for far less than had they been printed on dead trees.

I’m not arguing against innovation here—the ability to cut inefficiencies out of a system has its benefits. But when an industry employing hundreds of thousands of people being paid directly for their services is replaced by one where the goal is to chase a portion of the advertising pie, the end result is likely going to be fewer jobs in the overall economy rather than more.

The most obvious example is newspapers. Before the Internet era, most American newspapers survived largely on the subscription model. People in a given community paid to have the daily paper delivered to their front door. While papers had another revenue stream, classified ads, that was decimated by Craigslist, most newspapers succumbed to the logic that if they didn’t release their content for free online, they’d be left in the dust. It was only soon after that they realized the revenue generated by online ads wasn’t remotely large enough to make up for everyone who cancelled their subscriptions because they could get that same content online for free.

As a result, newsrooms downsized, and “death of newspapers” think-pieces flourished.

This trend once led media mogul Rupert Murdoch to muse that that Internet will “destroy more businesses than it creates.” Murdoch isn’t alone. A 2009 survey of media insiders found that nearly two-thirds said the Internet has hurt the journalism industry more than its helped.

Google’s actual core function is to sell you ads.

In Who Owns the Future?, a book-length meditation about reshaping the wired economy, author and computer scientist Jaron Lanier argues that the source of the problem is the very culture of the Internet itself.

‟We, the idealists, insisted that information be demonetized online, which meant that services about information, instead of the information itself, would be the main profit centers,” he writes. ‟That inevitably meant that ‛advertising’ would become the biggest business in the ‛open’ information economy.”

People have been trotting out the old adage, ‟If you’re not paying for it, you’re not the customer, you’re the product being sold,” for a long time before the Internet was created. Radio, for example, has been operating almost entirely on advertising revenue for nearly a century. Not to mention there’s no guarantee that just because customers pay a company directly for services rendered that company isn’t going to treat those customers like they’re disposable. Of 24/7 Wall Street‘s list of the 10 most hated companies in America, which included corporate anti-heroes like Walmart and JPMorgan Chase, not a single one was operated on the ad-supported model.

But in the aggregate, the ad-supported model has trained consumers to assume things should be free, or at least appear to be free, online—effectively creating a large psychic hurdle any company that wants to charge directly for its services has to clear in order to justify doing so.

There are exceptions to this rule; sites that prove people are be willing to pay with money, rather than their personal information, to access content. Over 44 million people pay dues to subscribe to video-streaming service Netflix every month, and 6 million more shell out for full, ad-free access to the digital jukebox Spotify.

The best example of what a different model could look like comes from the messaging service WhatsApp. WhatsApp’s business model is simple and has proven itself attractive to the half a billion active users the service has gained over its relatively brief existence. The program is free to download and use for one year. After that, users are required to pay an annual fee of one dollar. There are no ads.

In a 2012 blog post, the founders of WhatsApp, who had previously spent a combined 20 years working at advertising-focused Yahoo, explained the reasoning behind their decision:

Advertising isn’t just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought. At every company that sells ads, a significant portion of their engineering team spends their day tuning data mining, writing better code to collect all your personal data, upgrading the servers that hold all the data and making sure it’s all being logged and collated and sliced and packaged and shipped out. … And at the end of the day the result of it all is a slightly different advertising banner in your browser or on your mobile screen.

Remember, when advertising is involved you the user are the product.

At WhatsApp, our engineers spend all their time fixing bugs, adding new features and ironing out all the little intricacies in our task of bringing rich, affordable, reliable messaging to every phone in the world. That’s our product and that’s our passion. Your data isn’t even in the picture. We are simply not interested in any of it.

As a result, WhatsApp is able to respect its users privacy in a way that’s meaningful and substantial. WhatsApp doesn’t collect the names, email addresses, or phone numbers of the people who use its service. Facebook, which bought WhatsApp for a staggering $19 billion earlier this year, couldn’t get away with allowing users to retain the same level of anonymity. Collecting absolutely everything that happens on Facebook and then bundling that information for advertisers is the beating heart of the company’s very existence.

Without collecting reams of data about users, the only real option is to start charging them directly. But, when it comes to social networks, there’s the fear that forcing people to pay anything is a guaranteed recipe for failure. That’s why the people behind Ello, an ad-free, small-scale social network that pledges to refrain from tracking its users in any way, have elected to avoid charging for the service and instead rely on unpaid, volunteer labor and monetary donations from users.

The ad-supported model has trained consumers to assume things should be free, or at least appear to be free, online.

Ello’s model isn’t unprecedented. Wikipedia has flourished as a community project for well over a decade, but it seems unlikely that eschewing the traditional capitalist model for something closer to the way a nonprofit functions is scalable across the rest of the Internet. In order for enough people to be inspired to donate support to a site for an indefinite period of time, that site has to be providing an absolutely invaluable service. Wikipedia has quickly become the single most-important repository for knowledge on the planet. WhatsApp was only able get people to pay a single dollar per year because the app allowed users to never have to pay to send a single SMS text message ever again.

Most sites can’t even approach that level of value and probably shouldn’t even try. The world needs companies that fulfill extremely narrow, and even fairly inconsequential, functions. And those companies need to be able to support themselves.

It isn’t just that the advertising-based model necessitates invasive collection of user data—it also puts that data at risk of being compromised if hackers break through the security systems of the services that have collected it. The only way for a piece of data to be truly safe online is for it not to be online in the first place. The more data about someone that’s housed all in one place, the most harmful it is to that person if that data is breached.

Speaking at a panel discussion during this year’s South by Southwest Interactive conference, Christopher Soghoian, principal technologist at the American Civil Liberties Union, insisted that services based on the advertising model are incompatible with security:

“You know if you want a secure online back up service you are going to have to pay for it. If you want a secure voice or video communications product you are going to have to pay for it. That doesn’t mean you have to pay thousands of dollars a year, but you have to pay something so that company has a sustainable business model that doesn’t revolve around collecting and monetizing your data.”

If ‟free” is such a counterproductive business model, what’s the alternative?

In his book, Lanier proposes a complex system of micro-payments flowing across the Internet every time a piece of personal information is monetized. If Google sells an ad based on something it learned from peeking at your email, the company would then send you a fraction of a penny. This system wouldn’t push the Internet away from omnipresent surveillance, but it would expand the scope of those making money from online activity and reverse the contraction of the economic pie triggered by Internet disruption.

The only way for a piece of data to be truly safe online is for it not to be online in the first place.

Another idea would be for websites to simply start charging customers for their services, explaining the advantages of this business model, and then setting prices low enough to encourage mass adoption.

Most Internet users flee at the sight of a paywall on a news site, but that’s largely because paying $10 to get unfettered access to the content of a small-town newspaper in Utah isn’t worth it for people who don’t live in that small town. However, if reading that article only cost a penny, and the act of sending that penny was as easy as a single click, actually spending money directly for content might not seem so unthinkable.

The balancing act involved here would be between making the prices high enough to support the enterprises involved, but low enough to keep the Internet accessible for everyone—not just those with an excess of disposable income.

For a long time, making very small online payments was prohibitively expensive due to the fees charged by credit card companies making charges below a certain amount not economically viable. Maybe taking advantage of the ability of Bitcoin—a virtual currency—to transfer value online securely from one person to another without the need for a third party intermediating the process could go a long way in bringing down transaction costs.

No matter what the ultimate solution, the most important step is getting more people to understand that the Internet’s standard business model wasn’t inevitable. It was a specific choice—one informed by structure of the medium itself, but a choice nonetheless.

Framed as a choice, it’s something that can be reversed if enough people realize it’s harmful, stand up to where they can be heard, and exclaim forcefully, ‟Shut up and take my money!”


Illustration by Max Fleishman