When Pay to Play Doesn’t Pay
Seth Godin just posted about the search tax you’re paying:
“Amazon took in more than $30 billion in ad revenue last year, money spent to elevate some products over others in the hierarchy of attention.”
Amazon, like Google, YouTube, and Apple’s App Store are often referred to as “pay to play.” But even an expert like Seth can be fooled into thinking it’s a simple scheme.
Here’s a real-world example of how the incentives actually work from an ad experiment I ran a few years ago on Amazon.
The first taste is free-ish.
I started by spending a few hundred a month to boost sales for one of my books. The ROI was great at first. This mirrors my experiences with YouTube. I suspect the same would be true at any ad-based platform.
Reality creeps in.
The margin decreased over time. I believe this was Amazon calibrating just how much I’d spend before getting cold feet, or trying to game the system.
Seth Godin adds:
“The thing is: all of that spend is paid for by the consumer.”
If he’s referring to price alone, that’s not how it works.
If a publisher raised prices to cover the ads, why wouldn’t the ads simply re-calibrate around that price increase?
The publisher can’t lower costs either. That’s also controlled by Amazon, because it's prohibitively complex and expensive to not publish using Amazon services (more about that below).
Now, you’re hooked.
By the end, I was spending $1200 a month in ads to receive $1500 in sales. Was the $300 worth it? Maybe — as long as I was willing to front the $1200 and wait on the $1500 to deposit, while spending another $1200.
Effectively, I was loaning them money at 0% interest, and taking their word on the actual amount of revenue they were receiving from my readers. That's a pretty sweet deal for them, right?
Since I was publishing through Amazon services for Kindle and print-on-demand paperbacks, I had no real expenses. Anything over $1200 was a win, as long as I was willing to wait for deposit.
But Amazon knew that too. Things were not going to change in my favor ever again.
Small publishers and authors went to rehab (…or at least Shopify and Gumroad).
Imagine you’re not on Kindle. Imagine you’re not printing on demand through Amazon. Imagine you create the greatest, most beautiful book ever made on a topic.
That $300 margin wouldn’t cover a fraction of the shipping costs to get your books to the Amazon warehouse to even start selling them. Meanwhile, your competition, with lower-quality books, is taking all the search traffic for that topic and enjoying their free-and-clear $300.
This is not a hypothetical. I experienced this with my one, non-print-on-demand book.
This is why smaller publishers began breaking up with Amazon years ago to sell direct on Shopify, Gumroad, or Kickstarter. Many of those same publishers now happily receive less revenue in exchange for:
- Greater margins
- Direct communication (email address for notifications of the next book, updates to current books, and long-term customer relationships)
- Fewer headaches from dealing with a platform they can’t control (including fake reviews, counterfeiting, bad packaging, and so much more)
- A better overall customer and reader experience
So it will be across the ad model.
Amazon, Google, and YouTube all work in similar ways. Apple’s App Store does as well, although with increasing pushback, both internal and external.
Seth Godin concludes:
“Search and discovery would work just fine without the ads. Our satisfaction with what we bought would be at least as good if organic search simply highlighted the best match.”
This is the strength and weakness the ad model. There has been a lot of short-term money in the ad model.
But if consumers (and creators) could reach the same objectives without paying to play, it’s game over for companies who bet the farm on this ever-ratcheting ad model.
Enter DuckDuckGo, countless AI tools, and whatever Apple, Microsoft, and Samsung may soon do with search (they're all threatening something disruptive). All of them enjoy ad revenue, but they don't rely on the ad model to survive.
Big difference. Clear choices. It’s exciting times.
My advice to creators remains the same: Focus on establishing long-term relationships through experiences you control.