Where the Web Grows Without Profit
nytimes.com
nytimes.com
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?
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.
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.
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.
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.
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.'
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.
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!