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Tuesday, May 10, 2011

Facebook Paying People to Watch Ads Won't Work

Posted By on Tue, May 10, 2011 at 11:48 AM

click to enlarge CAITLINATOR/FLICKR


I'm amazed that in all the coverage of Facebook's plan to pay users to watch ads, nobody -- as far as I can tell -- has mentioned the companies that tried to do something similar during the (original) dot-com boom, and failed spectacularly.

The most famous of these, CyberGold, actually did okay as a company. It launched in 1994 and was purchased at a small premium by online marketer MyPoints.com in 2000. But the "get paid to watch ads" part of the business never went anywhere -- MyPoints bought CyberGold mainly for its traditional rewards and loyalty programs, which had been around in the offline world for decades. Lots of other companies -- some of them basically fraud operations -- simply went out of business.

So what's changed? Not much.

The reason that paying people to watch ads doesn't work on any kind of scale was nicely summed up 14 years ago in a Wired News story about CyberGold. An industry analyst said it "brings into question the value of the viewer." In other words, if someone is viewing an advertisement in return for a paltry sum (or, as in Facebook's case, Credits for online games) they are almost, by definition, not interested in the product or service being advertised.

That basic truth hasn't changed.

None of which is to say it's a bad idea for Facebook. The company doesn't much care how effective the ads are. The advantage for Facebook is that it gets users to collect and use Credits, which makes them want more Credits, which they will then purchase for actual legal tender.

There probably won't be all that many users interested in watching ads for Credits. The scheme relies on the idea that users want to spend their time on Facebook doing stuff they wouldn't otherwise do in return for tiny compensation. But if, at the margins, it boosts the popularity and use of Credits, it's worth it to Facebook.

Facebook says it expects its partnerships with outfits such as TrialPay, SocialVibe, and Sharethrough to boost the number of users with Facebook Credits in their accounts by 3 to 5 percent. That's not much, but ideally, network effects will then kick in: When people see that their friends are using Credits (worth 10 cents each), they will want their own. They won't watch ads, though; rather, they'll whip out their credit cards.

For now, Credits are used mainly in Facebook games like Farmville, where they are spent on "virtual goods." If spending Credits on video rentals within Facebook becomes popular, we might be talking about real money.

The use of virtual cash "can make you part with more dollars than you mean to," warns Lindsay Dunsmuir, a personal finance blogger for Reuters. Noting that companies such as Groupon and Google are also dabbling in virtual currencies, Dunsmuir asked expert Vili Lehdonvirta what's going on.

"The benefit to the company is in the psychology of consumption," he told her. "When you replace national currency with credits, it makes it more difficult for consumers to understand prices and the value of goods."

In the end, then, we will have a situation where Facebook users are watching ads they aren't interested in return for virtual money that they will then spend on virtual goods. This isn't precisely what writer Moe Tkacik means by the "Nothing-Based Economy," but the moniker surely fits. The only parties getting something out of this Nothing are Facebook and its partners.

Dan Mitchell has done work for nearly every media organization in the world. That's an exaggeration, but he has written for Fortune, The New York Times, Slate, Wired, National Public Radio, The Chicago Tribune, and many others.

Follow us on Twitter at @TheSnitchSF and @SFWeekly.

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Dan Mitchell

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