Could digital advertising be replaced by a subscription model?

Discussion
Photo: Getty Images
Dec 01, 2016

Presented here for discussion is an excerpt of a current article published with permission from [email protected], the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

With the popularity of ad blockers just one of the newer hurdles facing digital advertising, internet publishers may have to band together to offer bundles that can justify subscriptions, argue two Wharton professors.

Wharton legal studies and business ethics professor Kevin Werbach likens the potential change to television’s shift from a predominantly advertising-supported model to subscriptions. He said, “It’s ultimately better to have the opportunity to generate revenues from both sides of the market: users and businesses who want to reach those users.”

In the end, large sites such as Facebook and Google, would be aggregators capable of bundling ad-free content from publishers similar to the way cable TV does. Prof. Werbach states, “A fair number of users might be willing to pay for ad-free content on high-quality sites like newspapers, but they don’t want to pay each of them individually.”

Peter Fader, a marketing professor at Wharton and a RetailWire BrainTrust panelist, notes that Facebook could charge for a premium ad-free experience similar to Spotify. “Facebook Premium could charge $6 a month, have an ad-free experience and offer more control. Facebook could make so much more money,” he says.

What remains to be seen is whether consumers will go for an à la carte subscription approach in which every company has relationships based on data.

“Look at the over-the-top [direct internet-delivered content] companies like Netflix, Hulu and Amazon. They’ve managed to go it alone,” says Prof. Fader.

Novel models that revolve around using data and customer relationships may give internet publishers more control over their destinies. One risk is that Google and Facebook would secure massive clout from their control over data.

Meanwhile, Forrester Research recently found that one third of U.S. online adults use an ad blocker and 48 percent actively avoid ads on websites. Prof. Werbach believes the biggest issue with digital advertising is that there are “divergent incentives between users and advertisers.”

“We’ve clearly reached the point where many users feel the proliferation of ads has gone too far,” says Prof. Werbach. “Right now we’re seeing a technological arms race behind the scenes between the advertising-dependent sites and the ad blockers. That’s not a healthy or stable situation.”

DISCUSSION QUESTIONS: Would a subscription model likely work better to support online and mobile services than advertising? Do you share doubts about the long-term effectiveness of digital advertising?

Braintrust
"In principle, this is a potential solution to decreasing ad effectiveness, but it has limited scalability."
"There is another high potential solution that is just starting to be recognized. It’s called individualization in marketing..."
"One of the magical ingredients of Facebook and other social media mainstays is the cost of entry for participation: ZERO."

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16 Comments on "Could digital advertising be replaced by a subscription model?"

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Tom Dougherty
BrainTrust

Getting marketing messages through to the consumer is more difficult by the day. I believe subscriptions for subscription-based ad-free social media are just moments away. Clarity of importance is the new key. Reach will replace frequency in the new dawn of marketing. With limited opportunities to persuade the customer, advertising MUST become less about entertainment and more about the importance to the prospect.

In the end, it is a healthy change. Only the fit will survive and many of the so-called creative advertising agencies will go away (thankfully). Advertising has always been about commerce, not entertainment.

Ken Lonyai
BrainTrust

In principle, this is a potential solution to decreasing ad effectiveness, but it has limited scalability. Facebook, ESPN and some other high-repeat traffic websites can offer an option like this, but most of the web cannot. Newspapers have put up paywalls yet it hasn’t been a true solution to maximize revenue.

I really doubt most Facebook users are the type that will pay for a subscription when they’re already practiced at tuning out ads. And if hundreds of destination websites are adopting this kind of a model, how many people are going to pay for multiple subscriptions? Plus enough implementation of this model will drive a wedge between advertisers and destination websites whereby advertisers might look for alternative marketing avenues.

Max Goldberg
BrainTrust

Consumers want it all — free content with no ads. They don’t consider that content comes with a cost. It’s up to publishers and aggregators to find ways to make ads more relevant while reducing clutter. Bundling packages of content for subscriptions might be the answer for some consumers, but there is a significant downside for content providers, as they would give up independence and valuable data to bundlers. Denying access to visitors using ad blockers is another. More research and experimentation is needed.

Lee Kent
BrainTrust

The thing I question is, how do we find out about new products and services without ads? Yes we can discover them if we walk into a store, however many consumers need a reason to walk into that store.

Subscription services will certainly work for some channels but certainly not for all so it goes back to, how do we make ads not ads? Let’s think about the Super Bowl for a minute. I am football-intolerant but I do watch the ads because they are great. They are entertainment. Also, there is great opportunity for on-air placement advertising.

My Millennial nieces and nephews who stream their favorite shows can still tell me the hottest ads. How is that? It’s all about giving the consumer what they want now, isn’t it?

For my 2 cents.

Susan O'Neal
BrainTrust

Exactly the right questions. What are the NEW models? Is it possible that advertising no longer need be the second fiddle to content?

Ryan Mathews
BrainTrust
Peter’s idea of getting people to pay for the absence of content is an interesting one in theory, but might cause a revolution in practice. Sooner or later consumers are going to wake up to the fact that they are paying significant costs to access and block content. While no individual charge — satellite radio, or cable or online subscriptions — will break the bank, the aggregate media cost for participating households is getting formidable. Will people add to those costs by giving Facebook an extra $75 a year to not see content? Maybe, maybe not. What happens if Instagram, LinkedIn, etc., also begin to charge? If you assume that an average user belongs to between two to five social networks, we could be talking an additional $375 a year to not see content tacked on to the thousands a year, (assuming cable with premium service, satellite radio, etc.) people are already paying to see, hear, stream and access content. Somebody needs to look at the average disposable incomes in “flyover” America. If they do,… Read more »
Doug Garnett
BrainTrust

We should first go back and look more carefully at what motivated the ad blockers. In particular, note that the era of hyper-targeting is exactly when consumers got entirely fed up and started dashing to ad blockers in mass quantities. In other words: when advertisers crossed the line and became creepy in their invasiveness.

That said, I don’t envision any way that a subscription model ends up working. In fact, digital efforts have tried this approach for a couple decades and it never sticks because consumers don’t want it. In 2000 I remember lots of dotcoms (some we created advertising for) shouting loudly about “ad free” or about “free if you’ll just put up with our ads.” Neither worked.

The only solution is for advertisers to get real and stop buying into digital ideas that offend consumers. Create advertising that is valuable, not invasive and speaks to issues consumers generally care about and consumers won’t have a problem with the advertising.

Lyle Bunn (Ph.D. Hon)
BrainTrust

The issue is ad relevance, and proliferation is a symptom of poor data use. These early days of programmatic media planning and placement are giving way to more contextual message placement with the simple and clear objective of higher ROI on communications investment. We all love ads that inform, entertain and hit our brains’ “buy” button because they address our needs and wants. The symbiosis of brands and consumers influencing approaches that enable success through engagement and relationship is the brave new world of this generation. Screen media is here to stay … the task at hand is to use its inherent dynamic messaging capabilities. Function follows form.

Kim Garretson
BrainTrust
There is another high potential solution that is just starting to be recognized. It’s called individualization in marketing and Brendan Witcher at Forrester is one of the leading voices talking about this innovation. Quite simply, it refers to marketers providing easy opt-in tools for individual consumers to choose the specific marketing content of interest to them. While that might sound expensive and not-scalable, actually it is the opposite, especially in the retail category. I’ve written about this before, but this holiday more than 30 top retailers are beginning to let individual shoppers opt in to post-website (or store) visit marketing content alerts on only the products they are considering for future purchases, and only the criteria the set, like price drops or newer model launches. In many cases these consumers then do not have to suffer the unrequested ad retargeting and generic email blasts by the retailer. And with this success in retail now large media companies, who are suffering most from ad-blocking, are beginning to look at offering the same individualization for each reader,… Read more »
Manmit Shrimali
Guest

There’s no doubt about the effectiveness of digital advertising if done right. In our recent analysis, 93 percent of ads shown were irrelevant. If publishers and advertisers can use next-gen models not just to target by demographics but by also by emotives, ads will be more effective in long run.

Additionally, the publisher has to provide solid content so that visitors see value in a give-and-take relationship. For example, I don’t mind seeing ads on Harvard Business Review online because they have rock-solid content. Visitors always make trade-offs, it is up to publisher and advertiser to prove their side is more valuable.

Susan O'Neal
BrainTrust

Up until now, advertising played an important role in making content — particularly news content — available and accessible to the masses. Technology has disrupted the content’s relationship with consumers and there are many implications to consider — new revenue models for publishers are just the tip of the iceberg.

Jasmine Glasheen
Staff
Jasmine Glasheen
Contributing Editor
1 year 17 days ago

No company wants its marketing to be inflicted upon customers as a type of punishment through which the have-nots of the world suffer. Not a lucrative business concept.

Now let’s be clear: Spotify Premium users are paying for more than an ad-free experience. Premium users have the ability to create their own playlists, listen to any song at any time and listen to playlists by Spotify which are curated to their music tastes. I’m a Premium subscriber, as are many of the cheapest people I know. Because when you have Premium, you never have to buy individual albums.

Any type of premium put on an ad-free experience had better come with enough personalized perks and content to make users fall in love with the platform, or it’s going to be a bad deal for platform owners and advertisers alike.

Mark Heckman
BrainTrust

One of the magical ingredients of Facebook and other social media mainstays is the cost of entry for participation:

ZERO.

If gradations of pay-for-view FB appear, I have serious doubt if the masses will continue to bite.

I certainly agree that other media outlets have been successful with subscription models, but they also have compelling entertainment or content to warrant a subscriber’s investment. Most social media, I would argue, does not have that punch for the average participant.

In my view, the future of digital advertising rests in its inherent ability to be targeted and relevant. General “pop up” ads will always be considered an annoyance and will struggle to survive in digital media, but gleaning the right data from an online experience can lead to smartly understanding the consumer and their interests. Certainly there is much evidence that consumer profiling and targeting is already occurring with apparent success for advertisers.

Craig Sundstrom
Guest

Another month, another chance to shill for my favorite idea. Yes, I think it can work — indeed it already IS working as there are numerous pay sites out there, thank you — but the key phrase is “willing to pay for … high-quality.” Of course many sites are marginal and will have to be supported either as charities, promo, or by advertising, but advertising less obtrusive than it is now … which brings me back to my point: that online will increasingly be seen as a utility, not a goldmine for a few gatekeepers.

Ralph Jacobson
BrainTrust

As obstacles arise, advertisers invariably come up with solutions. I don’t see that changing in the immediate future. However, subscription models are definitely showing their advantages and I can definitely see innovative retailers making this work long-term with the right systems in place to manage the consumer data effectively.

Phil Masiello
BrainTrust

The future of how advertising will be done is with both sponsored content and native ads inside content. It is already far down the path if you read sites like Business Insider or Huffington Post. And, as a company that uses this type of advertising, it is highly effective and less intrusive on the consumer. This type of advertising will allow the content to continue to be delivered without subscriptions. Although most content providers will have free and upgraded subscriptions where they provide a premium for the subscription package.

wpDiscuz
Braintrust
"In principle, this is a potential solution to decreasing ad effectiveness, but it has limited scalability."
"There is another high potential solution that is just starting to be recognized. It’s called individualization in marketing..."
"One of the magical ingredients of Facebook and other social media mainstays is the cost of entry for participation: ZERO."

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