Crowdfunding Is More Likely to Replace Ads Than Micropayments

The rollout of iOS 9 and along with it adblocking plugins for mobile Safari has re-ignited the debate over the ethics of removing ads from pages. Marco Arment who released the paid Peace adblocker previously wrote a piece laying out his views arguing that publishers have crossed a line with ads and trackers that are too intrusive and disruptive. In response there are now pieces bemoaning the end of independent publishers and the web altogether. And inevitably micropayments are proposed as an alternative to ads.

I continue to be skeptical though that micropayments are the right way to finance content. The reason can be found in Kenneth Arrow’s work on the “information paradox” from 1962! I don’t know how much a piece of content will be worth to me, so I am not willing to pay for it until I have read it. But then of course I have already consumed the content and now my willingness to pay for it drops radically.

This insight explains why it is so difficult to charge for small pieces of content. Their value will vary widely across readers and ex ante any one reader doesn’t know the value. It also explains why it is a lot easier to charge for say a blockbuster movie or a big production value video game – there are enough potential customers who anticipate enjoying the content enough that they are wiling to pay the price *before* experiencing the content. Finally, this also explains why charging for a subscription bundle is a superior strategy for some types of content, such as Netflix and HBO – for some math see this paper by Yannis Bakos and Erik Brynjolfsson.

All the talk about how the actual costs of making a payments are the reason why micropayments haven’t taken off is therefore likely a red herring. Even newfangled super low transaction cost blockchain based systems do not get around Arrow’s Information Paradox.

How then is journalism to be financed? As I wrote in 2014, I continue to believe that crowdfunding is the answer. Since then great progress has been made by Beaconreader, Kickstarter’s Journalism category, and also Patreon. Together the amounts are still small but it is early days. Apple’s decision to support these adblockers may well help accelerate the growth of crowdfunding and that would be a good thing – I don’t like slow page loads and distracting ads but I will happily support content creation directly (just highly unlikely to do so through micropayments while reading). All of this provides one more reason to support Universal Basic Income – a floor for every content creator and also more people who can participate in crowdfunding.

Update: Follow-up post on subscriptions and micropayments