
Where the Web Grows Without Profit - mqt
http://www.nytimes.com/2009/04/27/technology/start-ups/27global.htm
======
knightinblue
A US user costs Vimeo 'x' amount of dollars in terms of bandwidth and Vimeo
makes 'y' dollars off that user, where x < y. In developing countries, x > y
for 2 reasons - they're eating up more bandwidth ('x' goes up) and are much
harder to monetize ('y' goes down).

What about a text-based site that doesn't host multimedia? The idea is the
same - to cater to a global audience and monetize accordingly. In a developing
nation, the 'y' doesn't change, but can the 'x' be pushed lower than 'y' for a
text-based site?

~~~
netsp
1 - Why is 'y' necessarily so low? An average Indonesian may be poor, but
facebook users are above average income.

It may be more a case of an immature ad market. IE something that will improve
over time. I keep pointing out that advertisers need time to learn about using
the tools before they bid up prices. Even Adwords, which is an incredibly
effective & wide-application ad system served mostly snake-oil ebook sales
letters @ 5c a click in its early days. I would argue that it wasn't until the
majority of advertisers' sites were redesigned with adwords in mind that the
value and therefore bids for these ads increased.

2 - How often is bandwidth such a big chunk of 'x?'

As knitinblue rightly mentions, this may be an issue for video, but what about
mostly text sites? Most online services have a high fixed/marginal costs.
Isn't that what created this 'free' dynamic in the first place? IE If serving
an additional user breaks the bank, this means you are close to a break-even
point for marginal costs. This probably means you don't have a functioning
business model because you will not cover fixed costs anyway. Of course, a big
enough difference in the relative value of US/Indonesian eyeballs breaks this
logic. A low enough fixed/marginal ratio excludes it.

3 - They mostly don't have a choice because of network effect.

What would happen if facebook or crippled itself in poorer countries? This
would give an advantage to competitor that does not. Being able to see video
from India & interact with people in China is valuable. Valuable enough to
prefer facebook global to facebook-US. What percentage of US users have
facebook friends from other countries?

Basically, I think the logic of this article can only apply to a small number
of online businesses. Network effects are not important to them. They are
mostly broadcasters. In other words, the benefit of using them doesn't depend
on their popularity and bandwidth makes up a big part of their costs.

~~~
braindead_in
"It may be more a case of an immature ad market. IE something that will
improve over time."

You are assuming that e-commerce works here. That people look at
advertisements and a portion of which is actually converted to kind of a sale
somewhere. The problem in South Asia, Africa is that this "conversion to
action" is very very low. And that's because of a variety of factors,
penetration is low, credit system is not mature enough, people dont yet trust
businesses online yet, etc. Inept internet advertising is a symptom, not the
cause.

~~~
netsp
\- Calling it inept internet advertising is missing the point. Adwords created
a market for what is essentially a raw input very quickly. But all of the rest
of the ecosystem had to be in place to drive bids up to their current level. I
see this in action every day. We build or modify sites specifically to get the
most out of adwords. Run the ad campaigns. Tinker with ads. Gather data.
Tinker with the sites. Modify campaigns. etc. This drives up the value of a
click via higher conversion rates. Because the environment is competitive,
this drives up the price of the click. This is an economic cycle with powerful
extremely powerful feedback effects.

The market matured over time and in some places faster then others. I think
that in some places opportunities still exist, adwords bids remaining
relatively low.

Remember that the adwords system is DIY platform, which got this system hyper-
charged. The conventional sell-washing-powder-on-TV system took decades to bid
up th price of air time. If you want to build a conventional sell-to-the-CEO
channel, then the US, with its existing sales channels is going to grow
faster. That doesn't mean South Africa will never get there.

\- Credit System Issues

Adwords in not driven by online shopping. Bids for things like roofing,
insurance or loans are higher then bids for phones, laptops or books. No
credit or trust necessary, just a capacity to purchase services somehow.

Anyway, facebook & youtube do not have 'native' monetisation systems yet, so
it's hard to say whether or not they will work some place.

\- Penetration (of internet access) is beside the point. No access = no cost
to internet services.

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frossie
Isn't this a way of saying you can only monetise a site off the backs of users
who have money?

There are two ways out of this. One, as described, to block off users who
can't pay. I can't tell you how sad that makes me - the net, divided into
haves and have nots. Progress, not.

The second one is to take the long view. Many of the places mentioned are
emerging economies. Subsidise them now and that will pay off in the long run.
I like this one better, but then I am not the Facebook CFO.

~~~
HSO
Agree. OTOH, a business is not a charity, by definition. I guess that as a
businessman, you'd have to calculate whether your expectation of future
revenue justifies the added expense, in which case you are really "investing"
in a future market, not "subsidising" it. Still, something feels wrong about
cutting data/information flow on this basis on the net...

~~~
harpastum
Business: "The practice of making one's living by engaging in commerce."

Charity: "Generosity and helpfulness especially toward the needy or
suffering."

I don't see how business precludes charity 'by definition'.

"Google's mission is to organize the world's information and make it
universally accessible and useful."[1] They don't qualify that with 'only if
it makes us money.'

[1]<http://www.google.com/intl/en/corporate/>

------
jalammar
I think this says something to Facebook, Google, MySpace, and web giants
facing this problem in general. It's time they gave some attention to these
countries and started pushing to raise awareness about online ads over there.
These companies have the reach and brand name recognition to at least start
the ball rolling.

I am from Saudi Arabia, which I'm pretty sure has these same issue. The
relevance of Arabic online ads over here (even Google's) is far from where it
is in the west and in English. That could have something to do with the low
number of online ads, which I attribute to: 1) Most advertisers still do not
appreciate the benefits of online ads 2) The advertising industry in general
is a lot less mature than in the west. A friend of mine is an editor of an
tech magazine in Arabic (which are rare) and also maintains a popular Arabic
blog on entrepreneurship and marketing. It's his assessment that most
marketing people in the regional offices of global tech companies don't really
care about how effective a campaign is as much as which of their friends in
other companies it benefits. As a consumer, I would say that isn't far from
reality. Granted not all companies are like that, but your Googles, Apples,
and Sonys just don't pay a lot of attention to their representatives in these
countries no matter the purchasing power of its people or the potential for
gain is.

The disparity between the cost and income generated per user in developing
countries will continue to be this way for sometime to come. The big companies
can start paying more attention to their user, partners, and potential
customers in those regions if they wanted to reach the break-even point
earlier. But even if they don't do anything, it will still get better
eventually as people catch up to technology, but it will be a lot slower rate.
Denying or limiting service to these countries however will be a great
opportunity for competitors and for local startups.

------
madair
There are technical paths that contain solutions, but you gotta give a little,
take a little. This is not a technical nor bandwidth problem as much as it's a
intellectual property problem, mainly the fact that it's still stuck in the
pre-Internet age. Technically the solutions are already on track, mainly P2P
technologies such as bittorrent used for content delivery.

So don't weep for these companies too much. They and big content still just
hasn't brought their ranching up to date. This NY Times article is very
incomplete regarding the full scope of the issue, and way too quickly jumps to
lamenting that the Internet is a failure after all (all that global village
talk).

Don't bring me problems, bring me solutions!

~~~
madair
That said, I personally like that these stupid and outdated IP controls help
spur diversity. Every time a copyright lawyer farts, a new indie band is born.

~~~
madair
And I seriously think I should get some karma love for that saying. Damn
that's good.

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ruslan
Posting links to a site that requires registration to read is not only a bad
habit, but also an expression of impoliteness to the overall community and
chauvinism. I'm not going to read HN if it makes me register on myriads of
other web sites I find useless and pointless for me, which also do not support
OpenID.

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danielh
The companies who cried foul when the attack on net neutrality endangered
their bottom line now block out user that can't be monetized.

------
paul7986
The slow deterioration of the free web as we know it.

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Shamiq
Is there a registration-free version out there?

~~~
knightinblue
Registration is free. And they don't spam you.

~~~
andyking
Sorry to veer off the topic, but I've never registered for the NYTimes and
have always been able to read it online. Perhaps it's different for overseas
users...?

~~~
knightinblue
I'm in New York. And I have to register/sign in if I want to read it.

