Advertising on a Freemium Model : In the long run, we are all advertisers.

Product Management

Advertising on a Freemium Model : In the long run, we are all advertisers.

Once upon a time, we used to get dumb messages from the idiot box. Then the Internet happened!

Advertising has been turned around on its head by the internet. The Internet brought in accountability and trackability into advertising and also made audience targeting more granular. It also brought real-time A/B testing to advertising messages.

Wikipedia defines advertising as “a form of communication for marketing and used to encourage an audience to continue or take some new action”.

Traditionally, the user and the advertiser have been two distinct categories. The couch potato sitting at home was the user, a very distinct entity from the big brand with the formidable marketing team sending messages over mass media. Access to mass media was the privilege of a few. Most advertising based businesses (print, radio, TV) had two distinct segments to address, the users and the advertisers.

This structure was brought onto the web as well. Yahoo still has two distinct divisions, audience and monetization, which build very different products targeted at two different segments with no significant overlap.

However, in recent times, the lines separating these two groups have been blurring. What is more important is the rise of two roles rather than two distinct groups. The user and advertiser are today, often the same person, wearing different hats at different points on a platform.

Phase 1: The user is the new… advertiser

The first steps towards this change were brought in by Google, which brought in two significant changes:

Democratic access to ad-serving infrastructure: AdWords and AdSense democratized advertising and made it accessible to anyone irrespective of a committed budget. Self-serve democratized advertising further as the primary bottleneck in ad-serving (the effectiveness of a salesforce) was removed.

‘Free’ tier to advertising: Google was also the first ‘mass media’ advertising platform that allowed a ‘free tier’. SEO allowed anyone to gain users for free and to get their marketing message out (if they optimized their heading and content well) to users for free. AdWords simply turned the ‘paid tier’ on. The ‘paid tier’ is simply a premium version of the ‘free tier’ and allows the advertiser to gain non-democratic access to the audience by paying a fee. The rest of the message dissemination (Results shown in response to a query) remains the same.

These two changes have led to the rise of the user as the new advertiser. Advertisers and users are no longer distinct groups or segments but are distinct roles played often by the same entity.

Facebook, with its self-serve advertising, has taken a similar direction. Facebook has a ‘free’ tier of putting out a marketing message in the form of Fan Pages or even the ordinary status update. Fan Pages blur the lines between individuals and brands competing for the same piece of audience attention. However, the ‘paid tier’ allows both individuals and brands to grab attention in a non-democratic fashion by showing up as sponsored stories or advertisements on the sidebar.

The user is the new advertiser because the user now has access to the same advertising infrastructure and can perform the same promotional actions that the advertiser did in the past.

Phase 2: The advertiser is the new… user

In the past, the advertiser had a completely distinct set of tools from the user. The user would interact with content and the advertiser would target such content with ads, often irrelevant.

The second phase in blurring the lines between users and advertisers has come up in recent times. The advertiser now participates in the platform as a regular user but can access a ‘paid tier’ which allows her to promote her message with an ‘unfair advantage’. The advertiser is the new user because the advertiser now has access to the same functions that a user has and just augments it with greater paid exposure to an audience.

Content creation platforms: Tumblr is a platform where the advertiser and user use the same tools to create content. There is little difference in the content creation process, the difference kicks in with the ‘paid tier’ in the content promotion process as the featured content gets greater visibility.

Content discovery platforms: StumbleUpon is a content discovery platform where users can share content (for free) while the advertiser works on a model similar to the user but with greater discoverability.

Increasingly, the internet is driving the convergence of content and advertising. Advertising that distracts from the content doesn’t work any more. Advertising that acts as content is showing better results. Moreover, the internet has created user acquisition platforms that allow mass market access for free. This leads in to a model where advertising has added a Freemium role to content. Posting content is free but promoting content is paid. The difference between advertising and content is no longer a difference of message, it’s a difference of the tools for promotion and the enhanced reach that the ‘paid tier’ has access to.

This leads us to some interesting points to ponder upon while opening up advertising on any content platform:

1. Can you go: Content + Paid Promotion = Advertising? Essentially, is there a ‘paid tier’ that you can add to the value proposition of your content platform?

2. Are the advertisers and users distinct segments? If not, do users and brands have different motivations while advertising? How do you factor in these differences while serving them?

3. Do the advertising tools handle only promotion or messaging as well?

Can advertising be an afterthought to pre-created content?

[About the Author: Sangeet Paul Choudary writes regularly on strategies for online two-sided markets: platforms, marketplaces and communities, at “” and works closely with startups in these spaces in India, Singapore and the US. Follow him on Twitter @sanguit]

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