The talk is hilarious and insightful, and poignant precisely for the reasons Carlson’s story is. The internet spies at us at every twist and turn not because Zuckerberg, Brin, and Page are scheming, sinister masterminds, but due to good intentions gone awry. With apologies to Carlson:
What we wanted to do was to build a tool that made it easy for everyone, everywhere to share knowledge, opinions, ideas and photos of cute cats. As everyone knows, we had some problems, primarily business model problems, that prevented us from doing what we wanted to do the way we hoped to do it. What we’re asking for today is a conversation about how we could do this better, since we screwed up pretty badly the first time around.
I use the first personal plural advisedly. From 1994 to 1999, I worked for Tripod.com, helping to architect, design, and implement a website that marketed content and services to recent college graduates. When that business failed to catch on, we became a webpage-hosting provider and proto-social network. Over the course of five years, we tried dozens of revenue models, printing out shiny new business plans to sell each one. We’d run as a subscription service! Take a share of revenue when our users bought mutual funds after reading our investment advice! Get paid to bundle a magazine with textbook publishers! Sell T-shirts and other branded merch!
At the end of the day, the business model that got us funded was advertising. The model that got us acquired was analyzing users’ personal homepages so we could better target ads to them. Along the way, we ended up creating one of the most hated tools in the advertiser’s toolkit: the pop-up ad. It was a way to associate an ad with a user’s page without putting it directly on the page, which advertisers worried would imply an association between their brand and the page’s content. Specifically, we came up with it when a major car company freaked out that they’d bought a banner ad on a page that celebrated anal sex. I wrote the code to launch the window and run an ad in it. I’m sorry. Our intentions were good.
Cegłowski’s speech explains why Tripod’s story sounds familiar. Advertising became the default business model on the web, “the entire economic foundation of our industry,” because it was the easiest model for a web startup to implement, and the easiest to market to investors. Web startups could contract their revenue growth to an ad network and focus on building an audience. If revenues were insufficient to cover the costs of providing the content or service, it didn't matter—what mattered was audience growth, as a site with tens of millions of loyal users would surely find a way to generate revenue.
There are businesses, Cegłowski notes, that make money from advertising, like Yahoo and Gawker. But most businesses use advertising in a different way. Their revenue source is investor storytime:
Investor storytime is when someone pays you to tell them how rich they’ll get when you finally put ads on your site.
Pinterest is a site that runs on investor storytime. Most startups run on investor storytime.
Investor storytime is not exactly advertising, but it is related to advertising. Think of it as an advertising future, or perhaps the world’s most targeted ad.
Both business models involve persuasion. In one of them, you’re asking millions of listeners to hand over a little bit of money. In the other, you’re persuading one or two listeners to hand over millions of money.
The key part of investor storytime is persuading investors that your ads will be worth more than everyone else’s ads. That’s because most online ads aren’t worth very much. As a rule, the ads that are worth the most money are those that appear when you’re ready to make a purchase—the ads that appear on Google when you’re searching for a new car or for someone to repair your roof can be sold for dollars per click because advertisers know you’re already interested in the services they are offering and that you’re likely to make an expensive purchase. But most online advertising doesn’t follow your interest; it competes for your attention. It’s a barrier you have to overcome (minimizing windows, clicking it out of the way, ignoring it) to get to the article or interaction you want.