Could the Splintered Future of the Internet Save Advertising?

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After Google's historic public offering in 2004, analysts assumed that the company's moneymaker, online advertising, would similarly lift other tech start-ups into the IPO stratosphere. It hasn't worked out (ask any publisher). If anything, Google's success has tantalized entrepreneurs with a false narrative: Start small, grow an audience, wait for ad revenue to come. Starting small is easy, given the Web's low barrier to entry. Growing an audience is possible, given the universal accessibility of URLs. But waiting is the hardest part, especially if the thing you're waiting for is ad revenue to cover significant overhead or investment. Low prices, low click-through rates, short attention spans and millions of pageviews with inflated impressions have helped drive down ad value for online companies.

But as the Internet moves off our laps and into our hands in the form of phones and e-readers, the future of ads might be changing with it. Manisha Verma, in this interesting overview of the promise and problems of Web ads, provides a useful summary of the phenomenon some analysts are calling the Splinternet. This portmanteau suggests a future where people like you and me increasingly access the Internet through the proprietary applications of smart phones and e-readers (like Apple's app store for iPhone, iPad) rather than through universally accessible site URLs on laptop browsers.

The golden age of the Web - a unified aggregation of sites people accessed using standard or similarly formatted PCs and browsers, is being replaced slowly by new-age iPhones, Androids, Kindles, Tablets, and TVs connecting to the Web. The whole framework of the Web (and thus web based marketing) is based on the premise that everything is compatible in format. Now, suddenly, Apps that work on the iphone, don't work on Android. Widgets for FiOS TV don't work anywhere else. Also, more and more of the interesting content on the Web is increasingly hidden behind passwords - such as in Facebook.

The splintering of the Internet provides challenges and opportunities (those fraternal twins of corporate ambiguity) for ad-based companies. The evolution is important because the "golden age of the Web" was golden for free content, but not for paid content. In the Splinternet, users are more willing to pay for content. Consider: one estimate put the Apple app economy at $2.4 billion per year in 2009. If Web advertising is failing to cover overhead on site accessed via laptop, then perhaps paid apps with revenue shared between the proprietary platform and the content-maker could offer a way out of the morass. On the other hand, the splintering incurs additional development costs. Rather than run the same portfolio of banner ads across your Web pages, developers have to build custom applications for each platform.

In short, the good news about the Splinternet is that it scrapes the moss off of companies' tired, old "business plans" (1. Build audience. 2. Wait.) by forcing them to innovate. The bad news is that, well, the new plan might not be any more profitable than the old one.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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