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July, 2009

More Targeted Equals More Expensive

[Editor's Note: I didn't mean to weigh in on this Gladwell/Anderson Free debate. I swear that this isn't really about their arguments (except the first two paragraphs). But if you're sick of reading people talking about this stuff feel free to skip it, I'll understand.]

I haven't read Chris Anderson's new book Free: The Future of a Radical Price, but I've now read Malcolm Gladwell's New Yorker review and Anderson's rebuttal and have three things to say.

First, Gladwell's argument is nowhere near as strong as I thought it would be. Second, Anderson's chooses what was most obviously the weakest argument in the piece ("If you can afford to pay someone to get other people to write, why can't you pay people to write?"), which seems like a little bit of a cop out. Third (though it's the first interesting point I've made), Gladwell hits on something that I've been puzzling over lately as it relates to the online advertising world: Why everyone is so focused on more cheaper things instead of fewer expensive ones.

As Gladwell puts it:

In the pharmaceutical world, what's more, companies have chosen to use the potential of new technology to do something very different from their counterparts in Silicon Valley. They've been trying to find a way to serve smaller and smaller markets--to create medicines tailored to very specific subpopulations and strains of diseases--and smaller markets often mean higher prices. The biotechnology company Genzyme spent five hundred million dollars developing the drug Myozyme, which is intended for a condition, Pompe disease, that afflicts fewer than ten thousand people worldwide. That's the quintessential modern drug: a high-tech, targeted remedy that took a very long and costly path to market. Myozyme is priced at three hundred thousand dollars a year. Genzyme isn't a mining company: its real assets are intellectual property--information, not stuff. But, in this case, information does not want to be free. It wants to be really, really expensive.

This is a hugely important point and, in my mind, the ultimate promise of the web. We have other media that is excellent at being mass (TV, for instance), yet everyone is obsessed with recreating that. The reasoning is that the advertising market (which, for better or for worse, still supports the web) isn't efficient enough yet to serve up ads to small segments of the population, no matter how desirable that segment may be (that's not entirely true, but close enough that I'll let it slide for now).

It's interesting to imagine what the web would look like if it could manage that efficiency. The laws of advertising work something like this (apologies to all those who are already comfortable with this): The more targeted your audience, the more you pay. Now there is certainly a premium charged for scale (tons of people), but outside that the fundamentals operate roughly according to plan. As I mentioned before, this doesn't work on the web because there are too many players and an outdated system of purchasing that, more or less, carries costs with each additional site. Basically it's incredibly inefficient.

None of this is to dispute Gladwell's point, though, rather to try to understand why Silicon Valley has generally moved against the logic of more targeted and expensive content.

July 6, 2009
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