Can “New Silicon Valley” Survive without Ads?

I’ll start by stating something that I thought should be obvious by now, nothing is free, especially when it comes to content and services. I’m not trying to be a Richard when I say things like this; I just feel like most of us are only paying lip service when we talk about valuing people, time, and hard work. We offer euphemisms like, “you can’t get something for nothing,” but when it comes down to it, we’ve all come to expect a lot of things for “free.” About online content and services, a lot of us consider our use of Google Maps, for example, to be free. But it’s not, we pay for the service by turning over our personal information, GPS location data, search history, etc., with all of that data being used to target advertising more accurately.

I want you to stop and think about this for a second, almost every service that’s “free” on a connected device is primarily a tool for selling us more stuff later down the road. I’m not saying this business model is new; I’m merely stating we’re in advertising overdrive since the transition to the digital era, and I’m not sure if it’s sustainable. When I talk to clients about the “New Silicon Valley,” I’m mainly expressing a shift towards the market share first, advertising next, business models that are sweeping through the region, and it’s all based on the perception that we’re getting content and/or services for free.

Over the last decade, a lot of companies have gone public without presenting a legitimate monetization strategy to investors; solely presenting market share numbers for users in the key, but never really profitable, demographic known as Millenials. Each of these businesses ultimately landed on the same business path to profitability – advertising. And with so many companies relying on advertising dollars to keep their metaphorical ships from sinking, I’m not surprised that the emergence of native browser, ad-blockers gave Silicon Valley quite the scare. 

The True Cost of Content

Dollar Bills

The whisper of the idea that companies are going to be forced to live in a world where ads won’t reach the screens of potential consumers sent chills down the spine of Silicon Valley.  If advertising revenue models went away, a lot of your favorite Silicon Valley darlings would plummet back down to earth as if their unicorn wings had been clipped, forcing them to sell their products and services for a hefty fee (Facebook would cost ~$168 year). This situation could be the ultimate demise of the companies, as no one really buys content or services anymore, as a matter of fact, no one really buys anything. I’m not even sure if it’s okay for me to admit that I miss the days when I handed over money and received something tangible in return.

“Between radio, television, print, online, and subscription services, how many advertising dollars are there to go around?”

I’m no Saint when it comes to using advertising as a part of a business model, especially when I’m subsidizing this blog with advertisements (is you see something you like, be sure to click on it), but there is no way there are enough advertising dollars for all of us to survive. It’s not as if producing content can ever be free, regardless of its medium, someone had to pay for it in some way. In the case of this blog, my time was spent writing this; time I could have spent growing other parts of the business, managing employees, or making sales calls.

Not only is my time worth some monetary value (I won’t mention my hourly rate), but not performing other activities in place of this blog also carries its own theoretical loss of value by choosing this activity over another. Unless this blog goes viral, the pennies on the dollar I’ll generate from advertising revenue will never be enough to make up for the cost of creating this content. And it’s for this reason; I would remind all content creators that advertising revenue is supposed to be a subsidy, not a core revenue stream (Google Search being the exception to the rule).

Great Services, Equals Great Profits

Profit Margin

In the midst of the “New Silicon Valley,” we can’t lose sight of the real problem; companies have yet to position their content and services in a manner that validates its monetary value on its merit. A situation that is especially sad when you consider the number of people that helped to create said content and services that go un/underpaid. At some point, the cost of content and services will have to garner enough revenue to sustain the businesses that produce it, leading back to an era when we didn’t consider “software a service.”

“There it is. I don’t believe software is a service –”

I’ve been dancing around calling it out this entire article, but now all the cards are on the table, so I can go hard to close this thing out.

I’m not old enough to call myself “old school” when it comes to service. I wasn’t around for the heydays of personalized service, or have the money to enjoy the convenience of a personal shopper, but one thing I do know is that service usually involves humans. Not software and a touchscreen, but actual human interactions. While software and automation provide vital costs savings to many businesses, they are also diminishing their ability to differentiate themselves from one another. Long term, this is going to be a problem. The only businesses that seem to be flourishing in the digital era, other than a handful of software companies, are those that generate profits through quality service.

In my heart, I believe there only a handful of companies producing content or software that is so unique that you can call them a service, and as the fear of failure looms for the rest of those companies that opted to play the “long game” with profits, they will find their backs against the wall in the coming years. You should start asking yourself, what’s the maximum your willing to pay for Netflix, Spotify, or any other media service? In the next decade, all those companies will have to figure out what that number is if they hope to survive.

 

 

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