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1 - Why is 'y' necessarily so low? An average Indonesian may be poor, but facebook users are above average income. It may be more a case of an immature ad mark
by netsp 17y ago
1 - Why is 'y' necessarily so low? An average Indonesian may be poor, but facebook users are above average income.
It may be more a case of an immature ad market. IE something that will improve over time. I keep pointing out that advertisers need time to learn about using the tools before they bid up prices. Even Adwords, which is an incredibly effective & wide-application ad system served mostly snake-oil ebook sales letters @ 5c a click in its early days. I would argue that it wasn't until the majority of advertisers' sites were redesigned with adwords in mind that the value and therefore bids for these ads increased.
2 - How often is bandwidth such a big chunk of 'x?'
As knitinblue rightly mentions, this may be an issue for video, but what about mostly text sites? Most online services have a high fixed/marginal costs. Isn't that what created this 'free' dynamic in the first place? IE If serving an additional user breaks the bank, this means you are close to a break-even point for marginal costs. This probably means you don't have a functioning business model because you will not cover fixed costs anyway. Of course, a big enough difference in the relative value of US/Indonesian eyeballs breaks this logic. A low enough fixed/marginal ratio excludes it.
3 - They mostly don't have a choice because of network effect.
What would happen if facebook or crippled itself in poorer countries? This would give an advantage to competitor that does not. Being able to see video from India & interact with people in China is valuable. Valuable enough to prefer facebook global to facebook-US. What percentage of US users have facebook friends from other countries?
Basically, I think the logic of this article can only apply to a small number of online businesses. Network effects are not important to them. They are mostly broadcasters. In other words, the benefit of using them doesn't depend on their popularity and bandwidth makes up a big part of their costs.
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- braindead_in 17y ago"It may be more a case of an immature ad market. IE something that will improve over time." You are assuming that e-commerce works here. That people look at advertisements and a portion of which is actually converted to kind of a sale somewhere. The problem in South Asia, Africa is that this "conversion to action" is very very low. And that's because of a variety of factors, penetration is low, credit system is not mature enough, people dont yet trust businesses online yet, etc. Inept internet advertising is a symptom, not the cause.
- netsp 17y ago- Calling it inept internet advertising is missing the point. Adwords created a market for what is essentially a raw input very quickly. But all of the rest of the ecosystem had to be in place to drive bids up to their current level. I see this in action every day. We build or modify sites specifically to get the most out of adwords. Run the ad campaigns. Tinker with ads. Gather data. Tinker with the sites. Modify campaigns. etc. This drives up the value of a click via higher conversion rates. Because the environment is competitive, this drives up the price of the click. This is an economic cycle with powerful extremely powerful feedback effects. The market matured over time and in some places faster then others. I think that in some places opportunities still exist, adwords bids remaining relatively low. Remember that the adwords system is DIY platform, which got this system hyper-charged. The conventional sell-washing-powder-on-TV system took decades to bid up th price of air time. If you want to build a conventional sell-to-the-CEO channel, then the US, with its existing sales channels is going to grow faster. That doesn't mean South Africa will never get there. - Credit System Issues Adwords in not driven by online shopping. Bids for things like roofing, insurance or loans are higher then bids for phones, laptops or books. No credit or trust necessary, just a capacity to purchase services somehow. Anyway, facebook & youtube do not have 'native' monetisation systems yet, so it's hard to say whether or not they will work some place. - Penetration (of internet access) is beside the point. No access = no cost to internet services.
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