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Comment by immad | Hacker News Reader

Ads over time extract profit margins from all other industries. For example at least 50% of all profits from mobile games are spent on acquiring users from ads.

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Do you have a source on that? I'm not challenging, I believe it, I just wanna see some proof

What's your standard of proof?

Do a thought experiment and you'll find a nugget of truth to the idea. Imagine two competitors who are otherwise identical. What would their AdWords buying strategy be?

Maybe this will do it for you: https://www.bloomberg.com/news/articles/2014-03-03/advertisi.... Ad spend as a % of U.S. GDP remains relatively constant since the 1920s.

Hmm, not sure if "extracts profit margins" is the right terminology. In mobile games, you could have a lifetime value of a user that is higher than their acquisition cost. This generates a model where you can spend money to make money.

In this instance, advertising is fuelling user acquisition which fuels profit.

The question is whether the whole mobile game industry makes more money by advertising, or whether those games that advertise just make more money at the expense of others.

Imagine that in a world without ads, game revenue is: Game A: 600, Game B: 600, Game C: 600

But then A spends 300 on ads: Game A: 1200 (-300), Game B: 300, Game C: 300

In this case, game A "spent money to make money", but the overall industry's revenue was the same, and part of the profits now went to ads.

And it makes sense: advertising doesn't give consumers more money to spend, so the size of the pie is fixed, all they can do it redistribute it, extracting a slice in the process.

You're assuming perfect market saturation: every consumer has a max spending budget for this good that they're constantly up against and it's just how they distribute it that matters. This seems unlikely to me based on personal experience (if there's no game I like I play no games) but if you have better data than I do then I suppose you're right.

For instance, my younger brother is a fan of the Darksiders game series. I saw an advertisement for the new instance of the game. I told him about it. When it reaches a price he wants he'll buy it. But until it does, he's not going to sit around buying other games just to fill up the budget.

Maybe not other games, but surely he spends the money somewhere. Hence the claim that ads extract profit margins from all other industries.

Do you, really? For most of the people I know, our entertainment budget is fairly flexible. If I'd spend £100 on something and if I wanted it, I'm probably not going to spend £100 on my second choice thing. In fact, I may not spend anything at all and just choose to spend my time on things I've already spent money on like going out to skate or something.

Mostly the cash budget is substantially higher than the time budget so people aren't going to buy a thing they don't like just to fill the time.

If ads help with allocation closer to people's real preferences, they're a good thing.

This is not restricted to the entertainment budget, the claim was that ads extract from all other industries. Unless you're burning the £100 you're not spending, that's still true.

If ads help with allocation closer to people's real preferences, they're a good thing.

Maybe, but is there any evidence that they actually do?

Ah. Clearly I misunderstood. If you take everything (including the savings account industry) then yes, advertisements just lead to reallocation. But that's just what money is for: it's to allocate to things you want. If that's the claim, then I'm going to bow out of this discussion because I think it's unproductive since the purpose of practically all things one does is the allocation of resources.

Since it's not a distinguishing feature of advertisements, I think it's a pointless discussion.

> If ads help with allocation closer to people's real preferences, they're a good thing.

Except that's not what ads are about. Ads are about selling stuff. People smoked cigarettes to be sexy, and then got cancer. Maybe they did get some extra sex, but I doubt it.

Advertising in the real world is unquestionably negative. Almost all advertising works by creating a sense of lack where none previously existed, or co-opting your decision making process by creating gratuitous associations. Advertising that accurately reflects the merits of a product in an unbiased way doesn't "work".

I am not opposed to the idea of advertising, but what we have now is really a form of manipulation rather than information.

Exactly. To quote grandparent:

> If ads help with allocation closer to people's real preferences, they're a good thing.

I can name a lot of things fulfilling this role, but none of them are ads. When I built a PC, do you honestly think I looked at advertisements for components? Hell no. My primary source were subreddits like /r/BuildAPC that have guides on what to watch out for when shopping for PC components, and price comparison sites, particularly those that have a ton of filters. Those resources are either run by a devoted community, or they earn a commission when directing me to an online shop where I can buy the product of my choosing. But they're not manipulating my choice in the way that ads are designed to do.

Hmm it is entirely possible to attract new users and access more disposable income (bigger pie). This is backed up with empirical data; aggregate mobile game and app store revenues are growing every year.

So while advertising doesn't give consumers more money to spend, it can persuade them to spend higher portions of their entertainment budget on games.

Yes, but that only changes the "gaming industry" to the "entertainment industry". The overall point remains.

I don't understand what that "overall" point is anymore. I thought the point was "whether the whole mobile game industry makes more money by advertising, or whether those games that advertise just make more money at the expense of others."

The claim made above was "Ads over time extract profit margins from all other industries."

The mobile gaming industry was used as an example, but even if they grow their pie by reducing some other industry's, the claim is still true.

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