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It's commonly accepted in the online publishing world that internet users don't like ads. While 'hate' might be strong word, it's hard to argue that advertising is an internet user's best friend.

For publishers relying on ads to pay the bills, that usually means one thing: striking an appropriate balance. Enough ads to pay the bills, not so many ads that your users 'hate' you.

According to a study conducted by KPMG in the UK, internet users in the UK actually like ads. Well sort of: they like them when content such as music and videos can be obtained for free by watching ads.

Of the internet users KPMG surveyed, 60% indicated that they'd prefer to watch an ad in exchange for free content than to pay for that content; only 16% preferred to pay for the content with an ad-free experience.

From the perspective of Tudor Aw of KPMG, this is great for advertisers:

This willingness to view adverts in exchange for free content is good news for advertisers and is perhaps a pointer in the ongoing debate over whether advertising or subscription is the right revenue model.

Having been both an online publisher and advertiser myself, I have a different take.

Advertising is great but it's a tough business model to make work. Obviously the ongoing global recession has really put a dent in ad budgets and that's hitting many online businesses hard as CPMs plummet. But this issue goes beyond that and it existed before the economy soured.

Ads for content might work for consumers but much of the time it often doesn't work for publishers and advertisers. For publishers, the cost of producing or acquiring content exceeds the amount that can be earned from ads; for advertisers, ROI fails to provide justification for the type of increased rates that enable the publisher to make a profit.

This isn't anyone's fault. Content isn't cheap for publishers to produce, advertisers can't be expected to spend more money than ROI justifies and consumers won't have access to content if the publishers that provide it go out of business because they can't turn a profit.

It's a vicious circle and the impact of it can be seen today. Take ad-supported streaming music businesses, for example. Some have already folded and others are on the brink because royalty payments tend to cost more than ads bring in. While many people argue that the royalties are too high, I think it's too easy to blame royalty rates instead of basic economics.

The reality of the situation is that there are just some things that ads can't pay for and no matter how many internet users tell you that they prefer ads, not enough of them are engaging in the tangible actions that deliver ROI for advertisers. Advertisers can only subsidize so much; you can't have your cake and eat it too. Everyone has to pay, in some way.

As much as I'd love to be able to watch a bunch of ads in exchange for a new Rolls Royce, the economics don't work. There's no way I can produce enough real value for an advertiser simply by watching ads to subsidize the deal.

No matter what KPMG says about user willingness to consume ads, this isn't about will; it's about economics. In the absence of ROI, everything else is a moot point.

Photo credit: dumbledad via Flickr.

Patricio Robles

Published 6 April, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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