Why Personalized Advertising Means a Free WSJ.com

Esther Dyson has a thought-provoking op-ed in the WSJ today, which really ought to be read by the paper's new owner, Rupert Murdoch. "The Coming Ad Revolution" is the headline, and a close reader of the piece will immediately understand why wsj.com should go free.

Journalists, who naturally tend to be the people who cover this issue, have a habit of thinking that they are the creators of the product that newspapers sell. They're wrong. Newspapers don't sell news to readers; they sell readers to advertisers. More generally, they monetize their readers (rather than their news), mainly through advertising, but also, sometimes, through subscription sales.

Advertising has until now been a very inexact art. Advertisers know in a vague demographic sense which people they want to reach; they also know in a vague demographic sense which people read which newspapers. When there's a substantial overlap, they buy advertising in that newspaper, in an attempt to reach the desired readers.

Dyson, by contrast, paints a picture of a future where advertisers know exactly who they want to reach, down to the level of the individual. And with the rise of social networks, individuals are increasingly willing to share their own personal data. As a result, advertisers in future will be able to buy ads which reach certain individuals, rather than simply hoping that a broadly-defined group of individuals will see their ad on a certain site.

Let's say that I'm a business traveller who flies often to Paris. Many advertisers will be interested in targeting me: airlines, with offers of discounts or extra miles if I fly with them; hotels in Paris; luxury retailers in Paris; and so on. They don't care which websites I visit, so long as their ad gets served to me. So they buy adspace from a company (Google, or Facebook, or maybe even Murdoch's MySpace) which knows who I am. Let's say I'm logged in to my Google, Facebook, and MySpace account, and have elected to share my anonymized information. And let's say I visit wsj.com, which has sold adspace to Google, which in turn has sold customized advertising to the Ritz in Paris.

When I load a page on wsj.com, I'll end up seeing an ad for the Ritz. That ad will be customized for me: a different reader will see a different ad. As a result, the Ritz will be willing to pay an enormous amount for serving that ad to me and people like me: quite possibly many hundreds of dollars per thousand impressions.

At this point, the Ritz doesn't give two hoots whether I'm a wsj.com subscriber or not: it knows exactly who I am, and it wants to reach me. There's no added value to the Ritz if I'm a wsj.com subscriber, which means that wsj.com can't charge premium rates for having such an elite subscriber base. But if the WSJ puts up a subscriber firewall, then it's basically losing the advertising associated with lots of frequent fliers to Paris who live in places like Moscow or Abuja or Sao Paulo. Those people won't subscribe to wsj.com, but they'll visit it if it's free. And Rupert Murdoch really wants them to visit his site, so that he can start monetizing them and selling them to advertisers.

Which is why the WSJ is bound to go free eventually. And if it's going to go free eventually, it makes all the sense in the world to go free now.