Dalton Caldwell kicked up a fair bit of discussion with his post on paid-for services including a defense of free by my partner Fred.  Here is a slightly different take on the issue at hand when looking at “media” style services (Facebook, Twitter, Tumblr, etc). 

Let’s start off by looking at advertising.  At its core it is the routing of attention.  You are looking at a newspaper, magazine, TV show, web site, web service (giving your attention to it) and one or more ads are trying to capture your attention and route it elsewhere.  Attention is the key point of scarcity on the Internet, as it is limited by the aggregate available human time, whereas we are producing content at an exponentially growing rate.  With attention scarce, paid attention routing – someone paying a price for attention – aka advertising, is here to stay.

But the type of advertising or attention routing will likely change.  Why? Because at the moment most routing is still of the disrupting and annoying kind that tries to take your attention and move it somewhere else altogether, such as a different web site altogether.  The primary reason behind the need to disrupt and really move you elsewhere is that most web services have not yet found or deployed their native way of making money, which is largely due to the inability to transact within the services themselves.

What do I mean by that?  Let’s say that I am following Louis C.K. on Twitter.  If he announces tickets to a new show, at present I have no way of purchasing those right within Twitter.  It is still great for Louis CK to announce the new show to his nearly 1.4 million followers but the friction involved in clicking out of Twitter and buying the tickets on his site is still significant.  Now imagine if I were able to buy the ticket just by responding to or interacting with the tweet.  Now if Louis CK were to pay Twitter to highlight that tweet or keep it pinned in some fashion it doesn’t really seem at all like an annoying ad anymore.  But what if I am not following him?  Well then I should probably only see this ad if I am following some other comedians or have otherwise made it pretty clear that I am really interested in comedy.

Why transactions?  Because transactions represent high value moments for both sides!  And if services can make money of high value moments they will need very few such moments to become self sustaining.  That is very different from most advertising which tries to route attention into the top of some poorly converting funnel.  The worse the conversion, the lower the price to try to route the attention and hence the more ads the service has to show.

Now that brings us to mobile.  On mobile we have significantly smaller screens and disruptive advertising becomes even more annoying.  But there is also the potential for transactions to become much easier because the mobile device (at least the smartphone but not necessarily the tablet) is designed as a single user device.  With proper payments integration that means transacting should become easier in the mobile context. Mobile services that integrate the ability to transact will have a huge opportunity.

I am very bullish about this future and have been surprised how much Google Wallet has been focused on paying in the real world instead of using that to power payments inside of mobile apps.  Facebook, Apple and Amazon are also theoretically incredibly well positioned here as they already have large numbers of connected credit cards.  I expect that we will see integrated transactions from one or more of these and potentially other companies (e.g. Twitter and Tumblr).  The future of “media” web services will support a more interesting and more diverse set of revenue streams than either traditional disruptive advertising or paid-for features.