Products succumbed to advertising
Many of the products we love are introducing ad-supported formats. That’s awful
Hello, I’m Tiago Ferreira, Sr. Product Manager in Brazil with +6 years of experience crafting products. With The Next Movement, I want to share part of my product management experience with the whole world, but also talk about career more broadly, technology, good books, and - why not? - philosophy, music, culture, gossip, just like an open diary. If you enjoy reading my article, subscribe and share it with your friends 🤓
If the product is really good, they’ll sell by themselves, right?
When I began the Journalism course in 2006, I was surprised by how dependent Brazilian newspapers are on advertisers.
With digitization, the sector has suffered a decline: the budget destined for news sites has significantly decreased. From 2007 until 2021, the advertising revenue for Brazilian newspapers was reduced by R$106 million, according to an Accenture study.
At that time, I remember thinking that the advertisement model was outdated. If the news industry wants to monetize, they need to be attractive enough to invest in subscriptions.
But surviving with this model is almost impossible, because internet users often access the content they want, surpassing any paywall. And the subscription value is far from covering all the operational costs. A napkin math helps to explain: if the news company charges $10 monthly to every subscriber, it could earn $2 million, considering the number of 200.000 print runs from the biggest ones.
So, at least for the news industry, the advertising model must exist. But that’s not enough to save a decadent industry. One of the worst things is that even huge brands, like The New York Times or O Globo (from Brazil), cannot evolve a different format without advertising.
But, with digital products, the logic is different.
A few years later, Netflix shocked the entertainment sector with its product-based model, only dependent on subscribers. The product was (and still is) really good, and more and more users feel attracted by the catalog, the low latency, and its recommendation algorithm.
Even though the subscription-based model worked really well, Netflix had to adapt, especially after the Covid-19 pandemic.
In 2022, the company launched its ad-supported plan to raise its subscription base, adding more revenue coming from brands interested in announcing their products on the streaming platform.
This isn’t new. With its freemium premise, Spotify could be used for free on an ad-supported model. With more than 500 million users, 40% of them became premium subscribers. Still, the company also monetizes from free users, with ~10% of revenue coming from the ad-supported format.
You probably feel irritated when navigating through YouTube to see a lot of ads before, during, and after watching the video you clicked on, but the streaming platform grew 15,5% ad revenue year over year, according to Q4 2023 report from Alphabet.
Amazon will introduce the ad-supported format to Prime in 2024: if the users want to skip commercials, they’ll have to pay more for the subscription.
As a regular user, I feel trapped by this pernicious business model. Even if we try to escape, all we see around us is propaganda: on outdoors, on the television, or social media. (Because of that, I can only presume that soon, we’ll absorb propaganda through Vision Pros.)
Sadly, most of the products we love depend on ad-supported formats. If you don’t like it, you will be penalized and obligated to pay more.
That’s just the opposite of good user experience and is becoming the pattern to sustain a bunch of products financially.
Is it possible to follow a different path?
Few companies have tried the Product Led-Growth model, but can it really pay off?