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Can today's ad-driven and ad-supported business model last?

April 03, 2009|JOEL STEIN

I am not buying enough stuff. I know this partly because President Obama keeps telling me that. Though, oddly, his method for getting me to shop is to give trillions of dollars to insurance and banking corporations. I'm not an economist, but I'm pretty sure it's more efficient to send us all a bunch of gift cards. If there's one thing I learned from working long hours on a sitcom, it's that no one is angry while drinking a free latte.

But the main reason I know I'm not buying enough stuff is that everything is free. I don't pay for newspapers, TV shows, music, software, video calls, encyclopedias, dictionaries, e-mail, calendars, GPS service, social networking, pornography or cookbooks. The only person who started a business this decade that actually asked people for money was Rod Blagojevich.

The balance between advertising and purchases is way out of whack. I must see 100 times as many ads each day as I did 10 years ago, but I spend half as much time buying stuff. The economy might have sunk because we were buying too much, but it also was because we can get away with buying so little. And because when we did buy stuff, we paid with credit cards. Which are like anti-gift cards.

When I ran my advertising/purchases imbalance theory by Hal Varian, the chief economist at Google and a UC Berkeley economics professor, he agreed with me, noting that new successful companies are not ad-based. "It is interesting to note that the growth in the pay-per-view video model -- DVDs, Home Box Office, premium cable channels, etc. -- has far exceeded the growth in traditional, advertiser-supported networks in the last several years." It is also interesting to note that Varian not only doesn't do things for free, he has two employers.

If anything, there should be less advertising per product than there was 20 years ago, when companies had to use a wide hose to sloppily spray messages on billboards, the three TV networks, bus benches and any other public arena that would sell space. But today, the Internet has gotten so good at targeting that I never see an ad for Depends but I know exactly when Joshua Cooper Ramo's book, "The Age of the Unthinkable," is coming out. This is largely because Josh keeps sending me e-mails, but that only proves how effective the Internet is.

Every bill I get now seems like a mistake. Why can't my burger bun just have an ad for Gold's Gym grill-marked into it? Can my medical marijuana dime bag display a drawing of Cheetos? Do I really need to pay my mortgage, or can I just paint an ad for Ramo's book on my roof so Google Maps sees it?

According to Joshua Gans, an economist at Melbourne Business School in Australia, whom I could call by using free international Internet phone service, there's a social norm against repugnant transactions, such as paying for a kidney. In the last few years, too many transactions have become repugnant. "And if you need to make money to pay for the content ... and you can't get the consumers to pay, what do you do? Sell a related product, advertising," Gans told me. The good news is that at this point, I'm pretty sure The Times' sales staff will sell space on their kidneys.

Eric Hirshberg, president and chief creative officer of the advertising agency Deutsch LA, told me that this age of advertising will not last. "There will undoubtedly be a thinning of the herd of the number of online businesses based solely on advertising revenue," he said. "There can only be so many ESPNs and Huffington Posts. And if history is any guide, the ones that remain will eventually be owned by three different companies." Hirshberg, to my annoyance, did not tell me which three companies.

We'll still need some mass-audience outlets, Hirshberg says. While he can sell the DirecTV NFL "SuperFan" package very surgically with a few TV ads during games or Web buys on football sites, not all products work that way. "The Web is a massive collection of niche audiences. Which is not the same as a mass audience. So if you're Coke or Wal-Mart, there aren't many places that your whole audience gathers together online. Because Wal-Mart's audience is carbon-based life forms," he said.

So we should enjoy this age of ad-supported free stuff while we can. Because soon we're either all going to have to contribute to this giant kibbutz of writing encyclopedia entries, reporting news, shooting videos, writing software, recording podcasts, making amateur porn -- or we're going to have to get over our repugnance and start paying for stuff.

My guess? Let's put it this way: I'm working on my abs and my tan.

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jstein@latimescolumnists.com

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