The Attention Economy vs. The Wallet Economy

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The Attention Economy vs. The Wallet Economy

 

The attention economy has been all the rage for startups for a while. 

Here’s the general line of reasoning with the attention economy:

1.  Grab user’s attention.

2.  Sell that attention to others.

Like many abstractions, this one is a tad over-simplified, but not so much as to not be useful.  A bunch of modern-day startups fall into the above pattern.  Get a mass of users to your shiny-new website then monetize that attention through things like advertising (basically reselling that attention). 

Why do so many web startups take this approach?  I think it’s for two primary reasons:  1) it’s easier and 2) it’s more fun.  To understand this better, let’s contrast the attention economy to that other economy:  the wallet economy.  In the wallet economy, instead of competing for a share of people’s attention, you’re competing for a share of their wallet.  wallet economy

The wallet economy presents one big problem for many entrepreneurs (including me):  It involes this unpleasant activity known as selling something.  If you’re a software entrepreneur, I’m going to bet that if you had to pick amongst things like writing code, selling stuff and cleaning the office — selling would likely be at the bottom of your list.  So, entrepreneurs will prefer doing (almost) anything other than selling.  Enter AdSense, stage left. “I’ll just put AdSense on my site”.  If the entrepreneur is not completely delusional, she’ll add statements like:  “Yes, it’s only pennies, but you have to start somewhere, and we’ll grow the traffic over time.”

What’s really nice about the whole attention economy is that you can become a revenue-generating company today (revenue-generating is becoming fashionable again).  And, because there are advertising networks out there like AdSense, you’re not dependent on all that selling muckiness.  You get to avoid that whole “convincing customers to pay business”. 

But, I have a few issuese with the attention economy, from a software perspective (I’ve written about this before, but I’m going to be a bit crisper this time):

1.  Attention Is A Scarce Resource:  Attention is a bit limited and fragmented.  I’d ague that it’s getting increasingly harder to get people’s attention.  The level of attention I can devote to stuff has stayed pretty much the same throughout the years.  I might make more money now than I did 10 years ago, but the level of attention I can spend hasn’t gone up much — certainly not proportionally to income.

2.  Battle of User and Advertiser:  There’s a conflict between getting monetizable attention and solving the user’s problem.  Let me explain:  Back in the good old days of software, users had a problem, you wrote software that solved that problem, and they paid you for it.  Nice and simple.  All your incentives were to solve the problem as well as you could for as many people as possible.  Now, contrast this with a web application that is monetizing attention.  Now, not only do you need to make the user happy (so they’ll visit in the first place), you have to make the advertiser happy as well (because they’re buying that user’s attention).  In fact, to make any real money you have to get better and better at interrupting the user well enough so that they pay attention to the ads.  Basically, you have to balance the needs of your users and the needs of your advertisers. That’s hard.

3.  Advertisers Make Lousy Customers:  Even with all the fancy content-matching algorithms that pair up a given ad to a given context, I still don’t like advertising.  I really don’t.  I can see why it’s important in a lot of industries — but I don’t know that software is one of them.  Given the choice between solving a user’s problem (which I understand, and hopefully care about) and an advertiser’s problem — I’d choose solving the user’s problem.  There’s more creativity involved.  It’s more focused.  I can control it better.  There’s only so much multi-variant testing you can do to get that CTR from 1.2% to 1.4%. 

I’ve never had a business that focused on the attention economy (however, I have built tools like twitter grader that generate lots of traffic), so I may be missing something here.  On the other hand, I have built startups that focus on the wallet economy, and I must say, my simple-minded nature likes the notion of solving problems and getting people to pay me to do so.  Call me old-fashioned.

What do you think?  Have you succeeded with the attention economy (succeeded, as in, you have a decent chance of making in your lifetime?)  Has the monetization model changed at all that would make the attention economy more viable?  Would love to read your thoughts in the comments.

Posted by Dharmesh Shah on Fri, May 08, 2009

COMMENTS

Great post, I haven't seen this analysis before. 
 
Perhaps it depends on what kind of advertising we're talking about. A simple ad in a sidebar or at the end of an RSS post seems like a nice balance that doesn't bother the user. 
 
Also, sites that can sell ads often don't sell a product! So they're not balancing what's good for the "user" with ads, they're already providing great content (let's assume) and then trying to monetize. 
 
I agree that sites which are in business JUST for the ads, and which don't put "good content" first, aren't good for the reader. 
 
Boy though, having fewer customers to sell to sure sounds good. If you have metrics to back it up, even better. 
 
Then again, we sell software and we're OK right now because we solve a real pain (http://codecollab.com). All the advertising sites are in the crapper. There you go.

posted on Friday, May 08, 2009 at 10:49 AM by Jason Cohen


Great insight Dharmesh! I'm not too big a fan of the 100% ad attention based model either. Somehow I can't bet on it working all the time time . I can see how a very niche site catering to some well paying advertisers sounds like a plan but the AdSense space is very crowded. Perhaps like you mentioned by selling a product or solution you have more control over how to grow it rather than just growing traffic and saying the revenue will happen. I'm not saying AdSense doesn't work but I think the wallet economy you talk about is more of a sure shot.

posted on Friday, May 08, 2009 at 11:18 AM by Neil Sequeira


May be i am wrong or it is impossible, but i still think there is a lot more scope for improvement in the attention economy itself. I think the balance between interrupting the customer has been skewed till now due to very little or vague models and predictions from cognitive psychology. I still do think there is a lot more scope for work using belief networks. One beginning work i see on those lines is http://beliefnetworks.net/bnws/#java but haven't tried them out so can't comment on their work.

posted on Friday, May 08, 2009 at 12:12 PM by anand


Ah, the kind of advice nobody actually thinks of giving start-ups except those who have done it themselves. Dharmesh, you said it well.

posted on Friday, May 08, 2009 at 12:40 PM by Shefaly


I prefer marketing to the wallet economy because it seems like less luck is involved. If you have a good product, you can probably get a few people to pay you for it. It scales linearly (twice as many visitors probably means twice as many customers). 
 
With most attention economy businesses, they don't really work until they hit some critical mass. Twitter, facebook, etc., don't work if there are only 100 people using the service and the internet hive mind is very hard to predict. It's not just a matter of having a good product, it's a matter of randomly attracting the eye of the fickle online masses.

posted on Friday, May 08, 2009 at 12:55 PM by Tyler


It's called a two-sided market. http://en.wikipedia.org/wiki/Two-sided_market 
 
I wrote an article about it last year: 
http://20bits.com/articles/web-20-and-two-sided-markets/ 

posted on Friday, May 08, 2009 at 1:03 PM by Jesse Farmer


Inspiring thought! 
 
Now while both markets are growing, and both are 'good' options in different circumstances I like to add the notion than every buck payed in attention eventually is payed somewhere at some service for real.  
 
If we assume that all online ad's direct to goods that need to be bought online than the overall attention market cannot grow faster than the wallet market, simply because these wallets pay for the attention.

posted on Friday, May 08, 2009 at 5:17 PM by bibi


What happened to the repackaging of the events themselves -- the behavioral analytics?  
 
That's the one story I love telling. I once interviewed with AOL. I got to see the research their marketing group did using the data from their customers. For goodness sake, at one time they had a strangle-hold on a great cross-section of the population -- the data could tell some phenomenal stories. And they had some great stories -- they could have lead the analysts market and snowed under both Gartner and Forrester, before they woke up. 
 
I was appalled to learn that the development group might have read a piece or two, but they thought nothing about actually driving what they developed from the findings. They were too busy worried about 'figuring out' the next best thing to chase down (at that time it was the music resale market -- about the same time WalMart had already entered the fray). 
 
Don't think that the inability to figure out how to monetize your work is limited to the new-kids-on-the-block.

posted on Friday, May 08, 2009 at 8:23 PM by Rotkapchen


my thoughts exactly dharmesh - i have always believed in "dhanda" first. sell something and get paid - simple. 
 
now i know there is a term for it - wallet economy..  
 
i dont understand the adsense model unless it is coupled with a underlying and strong sales plan -  
 
akshat

posted on Saturday, May 09, 2009 at 12:10 AM by akshat


Dharmesh you really put this in a nice perspective. Also I liked comments of Ted.  
 
I guess gone are the days when you attract bees and then you think if your beehive is at all producing any honey.  
 
Growth has a tremendous cost associated with it no matter if we use cloud or conventional methods. Attention based service can get you only till a certain point - fb is nearly the size of few small countries in the world with revenue of only $200 mill. My company selling conferences makes about a bill a year. 8 out of 10 people havent heard the name of my company. I think as payment models become more robust and simple we will slowly see attention based economies making more and more money.

posted on Saturday, May 09, 2009 at 11:59 AM by Rahul


Great post Dharmesh. The issue #2 is definitely big, especially when you have to sell the ads through advertising agencies, which adds another (lousy) player to the game and a lot more complexity. 
However, I just watched a great interview with Meebo's CEO on Jason Calacanis' new videoblog (http://thisweekinstartups.com/). They (Meebo) seem to be building a great business (not to mention the service itself) by providing advertisers with ad formats that add value not only to their brands, but also to the users.  

posted on Saturday, May 09, 2009 at 1:19 PM by Eric Santos


Haven't we learned anything from the 2000 dot com bust? That you need a business model (i.e. a way to make money) and can't just sell an idea? 
 
I had a conversation with a friend once, asking what the business model for Yelp! was. He said "Business model? What business model? Just draw a lot of hype and hope Google buys you." 
 
Advertising is well and good, but there's one golden rule: someone has to buy SOMETHING at some point, or else the business model will fall apart.

posted on Saturday, May 09, 2009 at 8:35 PM by Dale


All the points you mentioned e.g. battling advertisers vs user are very much important although the so called attention economy might not be bad and clearly there is a need for it. For the wallet economy, the thing that you are selling needs to have sufficiently big value for the transaction to happen. For things like a search query or blog read the value might be tiny fraction of a penny. What the attention economy is doing really is it is helping people to discover such tiny things they can "sell".

posted on Monday, May 11, 2009 at 8:02 PM by Abhijit Kalamkar


My point of view is that all the sites can be classified into 2 categories: 
 
 
 
Category 1: Genuine Content Writers 
 
 
 
They write genuine content that adds real value to the readers. They might want to consider showing adds on their site as a  
 
1. Challenge where in they are sure that their content will make sense and will be read completely against what extras are displayed for comparison. 
 
2. Even if their content is not living up to the value they can cater to the viewer by pointing them to an article of great value (considering that the value of the article advertised is good as there is an investment associated with it) 
 
 
 
Category 2: Just grab attention for selling it 
 
 
 
Modulus operandi: There are several other sites today that have misused and defeated the purpose of the adsense by creating content that makes complete sense only to the search agent and not to the viewer. For live examples you can check-out the job orders for freelancers asking for articles on a specific topic whose terms are highly paid in adsense (not to speak low of the authors, but the strategy of these firms). The advertisement in this case might make more sense to the viewer who would go to the link fetching the webmaster some revenue. 
 
 
 
I have listed down 26 ways of how an IT professional can make money on the web on my blog(link below). 
 
 
 
Regards, 
 
Pavan Pendyala 
 
Business for IT Pros

posted on Friday, May 15, 2009 at 10:36 AM by Pavan Pendyala


I absolutely agree that valuable content and a good product is far more beneficial than ad-friendly websites. The problem with creating a great product is, well, creating a great product. It’s just not as quick and dirty as making "shiny websites" and attracting advertisers.  
 
Creating a half-decent product or service requires months of research, product development, and like you mentioned—the big scary marketing monster.  
 
I came across two videos that describe an innovative way to streamline the nuances that comes with creating a business focused on the "wallet economy."  
 
Since creating a product or service that fills a void is synonymous to creating a sell-able business, these videos will show you how to figure that out: 
 
http://www.youtube.com/watch?v=CMXoXQCYQl4 
 
http://www.youtube.com/watch?v=RG-j1HcyTi0 
 
My point is that yes content is gold, but finding gold isn't as easy as spray painting something shiny. And if you’re going to go looking for gold, make sure you do your research and pick the right mountain.  

posted on Saturday, May 16, 2009 at 1:35 PM by Shirley Wang


More on the "wallet" economy here.... http://www.zmogo.com/web/is-the-attention-economy-the-new-currency/

posted on Thursday, May 21, 2009 at 5:13 PM by Ron Callari


I agree with you that you should build things to sell, not attention. Attention spans are so short these days anyone who wants to leverage them will be gone in a few years anyway. 
 
I call it the difference between built to last, and built to sell. Too many people build things that suck because they plan on selling it to get rich. Doesn't work. Eventually people figure out your product sucks and it goes the way of the dodo bird. Build something to last and make sure you can generate a sustainable income first.  
 

posted on Thursday, May 28, 2009 at 4:23 PM by Jason Short


Great breakdown. I'm more for the wallet model. With the current trend studies continue to show that end users are able to filter out ads which leads to decreased revenue and less quality software. The problem is retraining society to buy what provides net value. Everything has an associated cost. 
 
Now it may be I work in sales and am hardly against the idea of associating value and benefits. To be fair I write software as well and have even worked as a network engineer. What sales has taught me is that most bright ideas come from those who are not interested in understanding the other side of the process. Everyone considers sales a necessary evil but at the end of the day the larger and more complex the process of monetizing solutions the higher need for sales. 
 
What I'd like to see is the bright idea on how to convince the world to believe in "Getting What you Pay For" again.

posted on Thursday, May 28, 2009 at 11:36 PM by Ryan king


Great post Dharmesh. I couldn't agree more. The other big problem I see with the "Attention Economy" is that it doesn't really add value to the economic output of the nation or it's people. Most of the "Attention Economy" entrepreneurs like to take the shortcut to make money.  
 
Building a "Wallet Economy" like you mentioned is a tougher job as you have to really work hard in bringing valued service to your customer. So that when you do turn around and ask money for that service it doesn't sound unpleasant selling.  
 
I think if you have value to offer your customers for there problems, selling is actually very pleasant activity. 
 
Best, 
Monty 
(A happy HubSpot Customer)  
 

posted on Friday, June 12, 2009 at 12:55 PM by Monty Kalsi


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