January 17, 2022

The Two-sided market Model

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There’s nothing new about the two-sided market model in advertising; newspapers, radio, and TV have been selling eyeballs since they started. However, as new technologies and internet users, platforms, and data collection techniques have grown exponentially, the extent to which this business model has expanded leaves plenty of room for concern.

There’s a long history of advertising. Some date it back to the 1700s, others mention etchings on ancient Egyptian walls. Word of mouth and kickbacks are considered early forms of advertising by some. However, others think it started in the middle of the 20th century, when ad agencies emerged and newspaper, radio and TV advertising spaces were formally purchased.

Whatever metrics you use to date the practice of advertisement, most people agree on what it involves. As far as content producers are concerned, their content needs to appeal to two different markets; audiences who consume the content, either free or by paying for a subscription, and advertisers who pay creators for access to their audiences to fulfill their marketing goals.

It’s what we colloquially call “selling eyeballs”, and despite all the tech advancements, clever strategies, and everyone becoming a content creator, the model itself hasn’t changed much.

Most media cannot financially survive unless they are able to deliver an audience that advertisers want to reach.  As a consequence, advertising-supported media evaluates content success on the basis of audience delivery.  In spite of this dependence on advertisers, and while advertisers do have some influence regarding media content, most media organizations strive to maintain a strict separation between advertisers and journalism content.   Advertising, it can be argued, actually was born of journalism’s need for economic support (Richards et al., 2009.).

Richards, Daugherty & Logan, 2009. Advertising History chapter in the Encyclopedia of Journalism.

Technological advancements have always changed the face of advertisement and the way advertisers use media to connect with their audiences. With the development of radio, advertisers started producing programming, giving rise to the term “soap opera” as a radio drama produced by companies such as Procter & Gamble. With the development of TV and the high costs of television programming production, advertisers shifted from creating full programs to buying small sections or ad spots. The goal during these early days was to create entertaining content to reach the largest possible audience.

It was later in the 20th century that the concept of segmentation was developed. With the expansion and fragmentation of media channels and outlets, it was easier to consider which segments of people were most likely to respond to a given product or message and deliver the ad to them specifically. The early methods were crude and based on assumptions about who would consume a type of media and matching them to a type of product.

Nielsen Media Research was one of the biggest players in data collection, research, and market analysis during the 20th century. They started in the 1920s and developed the key metrics for media in the 1940s and the 1950s with their Radio and Television Index respectively. Using Nielsen ratings, advertisers can analyze consumption, demographics, and other metrics by analyzing statistical data collected from a representative sample of households through machines attached to their appliances, and surveys.

There were a lot of limitations to these early methods of gathering audience data, and they were prone to inaccuracies due to technological and behavioral changes, and they were biased because only a segment of people were willing to participate in the program and answer lengthy surveys about their habits. The idea of collecting audience data was there from the very beginning of the advertisement model, it was necessary to figure out the ROI of media investments by businesses. However, their reach and how much personal data they collected were limited, and only a handful of companies who had access to it.

The popularization of the Internet in the 1990s and the understanding of websites as media platforms gave rise to the era of internet advertisement. This made businesses, website owners and academics optimistic about the new possibilities that the medium would provide in terms of interaction, segmentation and consumer choice. Two-sided markets were revolutionized by online advertising. The structure and nature of the internet differentiated it from traditional advertising in that it allowed content creators, first and large ad networks later, to get a lot more information about their audiences than it used to be possible with print, radio, and TV.

For example, online media or their ad networks typically know for certain whether an individual is viewing their site at a certain time; in contrast, a radio station has limited ability to determine whether a particular individual is listening or ignoring the ads, and a newspaper or magazine can’t tell if or when a reader is looking at pages with advertising

Evans, 2009. The Online Advertising Industry: Economics, Evolution, and Privacy

In the early days of online advertisement, ad networks started to appear in the landscape, charging a fee to deliver advertisements across a series of online media properties for a fee, offering some crude segmentation characteristics and relevant data about the number of “hits” or views a given ad had managed, as well as how many of those views turned into clicks to the advertiser site.

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  • Evans, D. S. (2009). The Online Advertising Industry: Economics, Evolution, and Privacy. The Journal of Economic Perspectives, 23(3), 37–60. https://doi.org/10.1257/jep.23.3.37
  • Milavsky, J. R. (1992). How Good is the A.C. Nielsen People-Meter System? A Review of the Report by the Committee on Nationwide Television Audience Measurement. Public Opinion Quarterly, 56(1), 102–115. https://doi.org/10.1086/269299
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  • Yang, C.-C. (1997). An exploratory study of the effectiveness of interactive advertisements on the Internet. Journal of Marketing Communications, 3(2), 61–85. https://doi.org/10.1080/135272697345970