It costs calories to consume advertising. Whether we’re driving by a billboard or scrolling our Instagram feeds, advertisers are asking us to use some energy to decode the message they’re sending.
In the digital ad economy, Google and Facebook are the winners (+ Amazon). They have become Mega-cap players relying on ads as their primary source of revenue. Google does about $375M in ad revenue per day and Facebook does $200M. To buy the banner on Youtube’s front page for a just single day costs almost $2M. This is incredible.
Unfortunately, there’s a force that’s actively working against these companies. It’s you and me. In fact, it’s all the users on the platform. Every day, we all get *just a little bit* better at ignoring the ads on Google and Facebook assets. Our brains realize that most of the calories spent on ads are not worth the expense (we don’t usually need the product or service). We train ourselves to scroll past advertising over time.
Based on this phenomenon, conversions on ads will decrease. People get better at ignoring and over time, the ad platforms will become less valuable. In order to combat this, Facebook and Google must do two things: find increasingly novel ways to present their ads and find increasingly novel content around which they’ll wrap their ads.
Of course there are other things they can do to increase their value: get more users, get more advertisers, or simply show more ads (to a point). The common network effects theory would suggest the value of these companies can continue to increase exponentially with more users.
But, I'd argue that, at some point, more users is not more valuable than better content. The network effects on some of these platforms are asymptotic. Utility and engagement are different things. I rarely use LinkedIn, but keep it because my professional contacts are there. I engage with Youtube for hours because the content is great. Both are networks, but one produces a much more engaging feed.
Great content means engaged and attentive users. Great content makes me feel like spending a few calories to pause and learn about a new product or service. It’s why I read the sponsored posts on Twitter, but not the promoted nonsense on Facebook.
Everything else is about aggregation. Acquiring more users and advertisers is a necessary game, but the core offering must also increase in quality. For Facebook and Google, ad impressions are the core offering: it's their atomic unit of value.
When content is great it means that ads have a chance of being considered because all the adjacent content has been entertaining or informative. The content earns the trust on behalf of the advertisement. Network effects increases the utility of the services, but not necessarily the willingness to engage.
With this in mind, I ask-- if you were to invest in Google or Facebook, which would you choose?