Sunday, April 02, 2006

Internet and Distributing Wealth

CSMonitor has an interesting report on Google Adsense in the third world. It is possible for people in the third world to make a decent living from internet ad revenue. Adsense is spawning a great deal of entrepreneurship as people build web sites and try to find ways to tap into international markets. I see this as positive as it is helping improve technology and living conditions in remote locations. The internet isn't just helping internet geeks, it sounds like Google checks help encourages modernization of banking in the third world, etc..

I am happy to hear that the Internet is spreading wealth.

The reason that I started creating Community Directories was an interest in the possibility that the Internet might serve as a medium for distributing wealth. I believed strongly that the Internet could serve as a mechanism for creating and distributing wealth. My stab at business was a failure. It took three years for ad revenues to equal costs. The sites could never generate enough cash to pay a minimum wage worker to update the sites.

There was, and still is, big questions about the long term viability and independence of the net. Will the net include millions of viable companies and distributing wealth to the masses, or will it be dominated by a few giants who further concentrate wealth among the few?

Unfortunately, the early years of the Internet was dominated by rogue players whose business model was to dominate the industry through tricks. The reason we had the dot com boom and bust was a belief that there would be only a few internet firms that dominate the market. To gain this precious dominance, marketers did stupid things like selling goods at below cost.

The dual effect of the dot com idiocy was to drive out good companies. The bad companies floundered under their own weight. This very instability prevented the net from being a wealth producing engine.

Even worse, the bubble headed marketers in charge cultivated a climate of dishonesty that still affects the net today. There are very few players that you can trust in the game of buying and selling internet advertisements.

In the first years of internet advertising, I only received about 70% of the money that marketers promised for advertising on my site. The big advertisers were inundated with people pushing scams.

The affiliate marketing industry was the first industry to promise widespread wealth redistribution though the net. In mass affiliate marketing, merchants simply give a portion of sales to web sites that send customers.

This market has been undermined by big ad agencies that keep trying to take short cuts to market dominance. The big companies splattered the world with popups, and funded the emergency parasite (spyware) industry.

To make matters worse, most affiliate programs work on a regressive model. They pay small sites at a significantly lower rate than big sites.

The combination of parasites and low rates for small sites pretty much destroys affiliate marketing as a wealth distribution mechanism.

The story of Google is a little bit different. Google's approach has been to take the high road and to concentrate on supporting good netiquette. Despite the promose of quick riches, Google avoided crawling in bed with parasite. Google's pricing model does not favor big companies over small. Most important, you can do business with Google without feeling that Google would try to pull the wool over your eyes.

This is an interesting situation. In the early dot com days, you couldn't make money because you couldn't trust the people you did business with. Simply by creating an open system that people can trust, Google has been able to gain the dominance that the tricksters dreamed about.

With just a little bit of honesty at the root of things, I think we could realize the dream where the net becomes the equitable wealth producing engine people wanted.

Of course, there is always the chance that the market will undermine itself. Prices on the net or often set by the lowest common denominator. If the traffic produced by Google's third world publishers is not prime, then the payment that American publishers will fall to the third world level.

Speaking of internet riches: In March 2006, my collection of sites had 900,000 page views in 170,000 sessions. I sent 7500 hits to advertisers for a promised payout of $527.00. To make a middle class American wage, I would need about 10 times the amount of current web traffic. I would need about 1.7 million user sessions and 10 million page views a month .... which I don't see happening.

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