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this talking point just doesn't die, and that's not how economics or profit maximising agencies work. It also fails to explain why, over time, advertising e

this talking point just doesn't die, and that's not how economics or profit maximising agencies work. It also fails to explain why, over time, advertising encroached on almost all platforms unless actively resisted and why it's so difficult to find a genuinely ad free service. in short, these platforms work to maximise profit. ads serve to form another income stream, and as long as they don't push sufficient numbers of customers away, it's always in the short term interest of the provider to expand advertising income until the marginal gain equals the marginal loss in marginal revenue from the consumer base. In most mediums and content/ subject matters, this is at a non-zero level of advertising, especially if everyone else is already advertising. while advertising does really result in free services (if you do not account for negatives of advertising or assume all increases in consumption generate positive utility), it is not generally the case for most consumers that advertising results in cheaper products, or that you could pay 5% more and be rid of ads.

clevep 7y ago
Hah, perhaps I was not clear enough in my original comment because I agree with everything you wrote after the first paragraph. I strongly agree with this sentence: "in short, these platforms work to maximise profit. ads serve to form another income stream, and as long as they don't push sufficient numbers of customers away, it's always in the short term interest of the provider to expand advertising income until the marginal gain equals the marginal loss in marginal revenue from the consumer base." That is 100% accurate. However, that doesn't mean that ads do not affect the price of goods and services. Businesses are always looking to find the sweet spot to maximize profits by pulling on different levers. These levers could represent price increases, advertising, lowering production costs, etc. Businesses will always be looking for the most efficient lever to pull. And I guarantee you that if you somehow figure out how to take the advertising lever away, they will pull a different lever. This could result in a higher price, a lower quality product, or something else, but ultimately something has to give. This explains why advertising is likely to encroach on all platforms, because as users become more accustomed to it there is a higher likelihood that it is the most efficient lever to pull. And of course I agree that it is generally not the case that you could pay 5% more to be rid of ads. The Hulu example was just a good illustration of how to think about the relative value of advertising to Hulu / the consumer.

clevep 7y ago

Hah, perhaps I was not clear enough in my original comment because I agree with everything you wrote after the first paragraph. I strongly agree with this sentence: "in short, these platforms work to maximise profit. ads serve to form another income stream, and as long as they don't push sufficient numbers of customers away, it's always in the short term interest of the provider to expand advertising income until the marginal gain equals the marginal loss in marginal revenue from the consumer base." That is 100% accurate. However, that doesn't mean that ads do not affect the price of goods and services. Businesses are always looking to find the sweet spot to maximize profits by pulling on different levers. These levers could represent price increases, advertising, lowering production costs, etc. Businesses will always be looking for the most efficient lever to pull. And I guarantee you that if you somehow figure out how to take the advertising lever away, they will pull a different lever. This could result in a higher price, a lower quality product, or something else, but ultimately something has to give. This explains why advertising is likely to encroach on all platforms, because as users become more accustomed to it there is a higher likelihood that it is the most efficient lever to pull. And of course I agree that it is generally not the case that you could pay 5% more to be rid of ads. The Hulu example was just a good illustration of how to think about the relative value of advertising to Hulu / the consumer.