Raw Thought

by Aaron Swartz

Why are online ads cheaper?

It seems lately, what with the End Times and all, people have been asking why newspapers can’t make money online. Obviously online papers don’t have circulation fees (subscriptions and newsstand prices) but they don’t have circulation costs either (paper, ink, delivery). Circulation fees only make up 20% of newspaper revenue, so all things considered one wouldn’t think this would be an existential threat to the business.

Craigslist has been a bigger deal; classified ads used to be 40% of newspaper revenue, versus just 30% now. But even magazines, which have never run classifieds, are feeling the pinch.

The real issue is that online ad prices per reader are far, far lower than offline prices. But why is that?

I’ve heard lots of theories, but I think the real explanation is simple: supply and demand. If you want to buy an offline ad, there are only a handful of places you can buy it. As a result, supply is constrained and the price goes up. But online, ad networks let just about everybody sell ads on an equal footing. Practically, it doesn’t make that much difference whether your ad appears on nytimes.com or politico.com or eschatonblog.com, as long as it reaches the same person. So supply goes up and the price gets bid down.

Most people don’t seem to like this explanation, so I’ll try phrasing it another way. In the days of paper, to get your ad to people you had to get it on a truck and into their hands on something they would read. Newspapers and magazines could charge a premium for this. Online, you just need to upload an image file.

Anyone see any flaws with this theory?

You should follow me on twitter here.

January 12, 2009


I think this is exactly right. The available inventory is simply much greater online. Sure, it’s accessible to more advertisers, but with geo-targeting newspapers are now not only competing against other local media but also nytimes.com, espn.com, politico.com, etc. etc.

Add this to the fact that they’ve lost the classified revenue and it’s no wonder their screwed!

posted by Ryan Schroeder on January 12, 2009 #

Online, your ad is packed in with more others, so any one ad gets less attention from the reader.

In a magazine you get about 20,000 words of articles and about 50 ads. So figure 400 words per ad.

A mainstream media site that puts 400 words of content on a page will have more than one ad — and some of the ads will be animations of many frames.

posted by Don Marti on January 12, 2009 #

Makes sense to me.

In addition to the increase in supply, there should also be an increase in demand online because it’s much easier to place an ad there. Not enough to make up for the increase in supply though.

Maybe the key is to increase the number and types of people who place ads. AdWords is not necessarily the right context for all potential ad buyers.

posted by Jim Gilliam on January 13, 2009 #

Regrets, this strikes me as too geekily simplistic and “triumphalist”. I suspect you’re mixing in a lot of very subtlely different questions, on top of the problem that there’s no easy way to reject an answer which sounds good but is wrong (which is a killer).

posted by Seth Finkelstein on January 13, 2009 #

Philip Weiss, referring to “captive advertisers”, says the same thing here:


So I don’t think your explanation is new. But I do think it is correct.

The classified ad situation is the same thing: Advertisers were captive there, too, until Craigslist came along.

posted by Seth Roberts on January 14, 2009 #

EwsEww strcjzbeypeg, [url=http://ojcehnmblzwp.com/]ojcehnmblzwp[/url], [link=http://jfeaoaxlbahr.com/]jfeaoaxlbahr[/link], http://jrhytczlmyya.com/

posted by jbvhmhsli on January 15, 2009 #



posted by Seth Finkelstein on January 18, 2009 #

Your explanation imho hits the core of the issue. Still it is more complex and imho even more drastic than you outlined.

Example: The amount of mid-aged readers from 20 - 50 is steadily increasing online. At the same time readers of classical newspapers are slowly decreasing (or for specific papers the increase is less than it should be). This all simply since “online” is more current and offers more than just letters, but also videos, online comments etc.

So it comes down to one target group slowly “shifting to online” with others following sooner or later. Therefor the demand for print ads is decreasing while supply of online ads is close to “unlimited”.

This would also explainthe huge price gap and why this price gap is increasing even between online and print media.

Society is changing.

posted by Martin Sauer on February 1, 2009 #

If online ads allow you to reach more readers at a cheaper price, then why do we even have print ads at all?

Because some people don’t use the Internet and some people don’t look at Internet ads.

posted by Aaron Swartz on February 6, 2009 #

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