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Comment by thrwaway-adtech | Hacker News Reader

The problem with this model from the advertisers perspective is the people with disposable income who will pay for your ad free experience are the exact people they want to show the ads to. I don’t know if telegram has this problem, but it’s certainly the problem in most ad + premium models because if I am advertising something like a car, I want the guy who can afford $10/month for her texting app to see my ad more than the people who don’t! Those ads are the most profitable and have the best chance of subsidizing the free users, who you need in your network to keep the paid users.

(Throwaway because I work in ad tech and don’t want this sentiment linked to my employer)

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Exactly. FB would never do this, and google would never do it for search. It's adverse selection.

Spotify is a good example. The ad supported version has uses: it's a funnel for paid users, a deterrent to competition, a data farm, etc. Making money is not one of those uses. I suspect that this is because the best advertisers audience subscribes.

Also, opt out ads also harms your upside. EG, fb make more in ad revenue than they could ever make in subs. You don't want to pursue an ad-based strategy that excludes the possibility of a win like that, even if it's a long shot.

As a user, I'm wouldn't want my searches to be ad-free. Companies pay good money to put their ads there, and they may outperform the search algorithms.

Practices I don't like: - Making sponsored searches look like regular searches. - Pay to Play, where your content gets demoted if not a paid subscriber (Thinking of a non-google websites here).

Ignoring the adverse selection problem for a moment, why don't you think FB could make more money on subs? Facebook revenue per user is $30 in the US. As long as the monthly subscription is greater than $2.50 a month, they are making more that way.

Because many people would not spend 2.50 a month for Facebook, and their value prop of “all your friends are here” would collapse for many users.

And then you have adverse selection putting downward pressure on the revenue per free user.

Your argument would be stronger if you used the same one that you used in your initial post.

As you previously stated, revenue is not distributed evenly. For sake of argument, the actual numbers for 5 users could be: 120, 30, 0, 0, 0 . The ad-free subscriber would not pay the average profit, they would need to pay the average profit of a paid subscriber. If we assume only the whales would pay for an ad-free experience, they would need to pay $10/month and not $2.50.

So, two points.

First, I think facebook's global revenue per user is $30. US should be much higher. My back-of the envelope has it @ $225 per year currently ($43bn revenue from 190m users)... I may be wrong. Don't hurt me.

Second, they make $225 (or $30) per user while also maintaining a very high number of users. You can't expect to put up a paywall and not lose users. So, to reach parity, you need to charge enough for subs to replace those.

For FB, it's flat impossible. That's why I picked it as an example. You cannot have 190 million americans as paying users at any price. You definitely can't have that many @ $20 per month.

I think Spotify makes their ads purposely annoying to use it as funnel for paid plans. I have the feeling the ads got worse over time so stopped using the app.

I normally don't mind listening to the news and commercial breaks on the good old radio.

Well... that's part of the premise of freemium. They could probably kill ads entirely and like without that revenue, but then why would people subscribe?

For spotify this is tolerable. Network effects exist, but they aren't everything. For telegram, network effects are the whole thing.

"Freemium" doesn't usually work the way people think it does. "Just let me pay to remove ads" is rarely good business advice. If your business model is ads, you stick with ads. If your business model is subs, you might have an ad-supported version for other reasons.

Even in old media, paid channels/papers/etc. still have ads. They don't make an ad free version.

Yes. Spotify makes very little from the ads. Spotify would like to cripple the payment free version as much as possible. It is only there to move you over to the paid version and possibly as a helpful network effects way.

This just cements my belief that advertisers no longer consider making people feel intruded upon by ads a bad thing - they directly target people who do not want to see their messaging.

The goal is to nonconsensually force their message on people who don't want it.

Fuck these people.

It’s not that people who want ad-free experiences are targeted, it’s that people who have money to spare every month to buy a premium experience (in this case, not be annoyed by an ad), are highly correlated with people who you want to reach because they have money to buy your product, and that’s who they want to advertise to.

Advertisers don’t want to be spending money to reach people who will never buy their product, either because they hate their ad or because they don’t have money, but unfortunately there is no way to know who these people are in advance. Spending $10/month to not look at text ads is a sure fire way to signal you have money so you aren’t in the later camp, and people who hate ads with a passion and won’t respond to them are rare in the wild (hn nonwithstanding :D)

Too many people think they can monetize by just “sprinkle some ads on it” without thinking about why an advertiser would buy those ads.

Just to be pedantic (because I was a bit confused), the emphasis shouldn't really be on "targeted" because

> and that’s who they want to advertise to

is just a fancy way of saying "targeting". What I think you're saying is that it's not people who want ad-free experiences that are being targeted. Rather, those people belong to a broader group -- those with money to spend -- who are being targeted.

Online advertisers are much simpler than that.

They want sales, or signups or whatever acronym they need to force up. Group A converts at 10%. Group B at 1%. The advertiser may have a theory of why these groups are different. Increasingly, we don't. FB, especially, does a lot of automated targeting.

Marketers tend to have good instincts about these things, because patterns are repetitive and simple. That said, I'm pretty confident that advertising to subscribers would be more effective than advertising to non subscribers.

In my mind, "person who subscribed to a thing online" is just a good qualifier. It probably correlates to a lot of other qualities like "shops online often" or whatnot. Those "theories" don't really matter though. They're just a starting point.

Advertisers don't know or care what people think of the ads nor how they make the 98.3% who didn't buy anything feel. All they know is that they didn't click/buy/whatever.

I think people imagine online advertisers like a geekier version of mad men. It isn't like that. There's not the pretensions of understanding or influencing psychology. It's more like stock trading.

> The goal is to nonconsensually force their message on people who don't want it.

What part of the post you replied to indicates nonconsensual?

Why would you think someone who actively pays to not be served ads would be a good fit to be advertised to?

Eg. My personal experience with buying products (food, software, SaaS, etc) based on ads conditioned me to actively distrust products that are heavily advertised compared to stuff that's just mentioned in reddit threads or used by friends. Would I be a good fit for ads?

I think I took an advertising class long time ago (so long ago that I don't remember if it was an actual advertising class, Advertising 101 or some marketing class). But, what stuck to me was, that most people said that they were unaffected by ads, and the data showed otherwise. Ads also help with brand recognition etc. Typically, people are very familiar with some space, say desktop CPUs... and they'll say, "I'll never buy an intel CPU just based on an ad", and that might be true. However, when it comes to a space that's completely far away from their day to day expertise, say... weedkiller in the garden, and they're more likely to trust a branded product that they've seen product placement or other types of ad.

Of course, not everyone is that way, but ads have different objectives, and they are effective.

Disposable income. Demographic is different for people who pay to remove ads than people who don't. I pay to block ads on Hulu and Youtube and buy upcoming brands like Vuori, Away, Peloton, Allbirds etc.

Marketing works. How do you think your friends learned about product that are mentioned in reddit threads? Guarantee it wasn't organic. If the company was launched in the last 10 years, it was built on VC dollars used to spend tens to hundreds millions in marketing.

The goal of an ad is mostly to make potential buyers aware of a specific product/brand. Hence, showing ads to potential buyers is most effective, even if many/most will not become actual buyers (like you, apparently). The conversion rate among the potential buyers (who can afford to pay for an ad-free service) is still much higher than among users who agree to see the ad (by not paying for an ad-free service), but cannot afford to buy the product.

If you are willing to pay for something that is free, it generally means you have more disposable income. It's not that you become more valuable, it's that the remaining cohort becomes less valuable.

Few people making $30,000 a year are going to pay to disable ads. many people making $200,000 or more are going to consider it.

How does Youtube Premium handle this?

Ah this makes total sense. Thanks for the additional info!

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