OnStartups

The Attention Economy vs. The Wallet Economy

Posted by Dharmesh Shah on May 8, 2009 in strategy 19 Comments

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.