The Original Sin of the Internet
Why AI Tech Should not be Ad Supported
"Get off the internet, I'm on the phone!”
If anyone remembers this sound, you lived through one of the most important phase shifts our our time. Perhaps the most important phase shift since the invention of the printing press.
I was alive, though perhaps not conscious enough to truly appreciate how innocent the internet used to be.
Because in some ways, a lot of ways, it feels like the internet has become a bit perverted. A bit captured. A bit, institutionalized.
And my thesis for why its gone down this dark path is the ad-supported model.
Adam
In the Web's first generation, Tim Berners-Lee launched the Uniform Resource Locator (URL), Hypertext Transfer Protocol (HTTP), and HTML standards with prototype Unix-based servers and browsers.
A few people noticed that the Web might be better than Gopher. In the second generation, Marc Andreessen and Eric Bina developed NCSA Mosaic at the University of Illinois. Several million then suddenly noticed that the Web might be better than sex.
— Bob Metcalfe, InfoWorld, August 21, 1995, Vol. 17, Issue 34.
Mosaic was the browser that changed the game forever.
It was the first widely-used web browser to integrate a graphical user interface, which allowed users to view text and images together on the same page.
This was a revolutionary step away from the text-only browsers that had preceded it, making the web accessible to a broader audience.
This ease of use contributed significantly to the rapid growth of the World Wide Web.
Initially developed for Unix, Mosaic was soon made available for Windows and Mac, broadening its reach and making it accessible to the largest number of users across differing operating systems.
The early days of Mosaic and Netscape could be a post all on their own, so I’ll get to the point I’m trying to make.
There was a moment, just like the moment we are in right now with Artificial Intelligence, when people weren’t sure how to monetize the new technology. They had adoption, they had interest, they had investor capital.
But what they didn’t have was a business model.
The Original Sin of the Internet
The first ad-supported networks emerged when the internet was in its infancy in the mid-1990s. The pivotal moment came on October 27, 1994, when the first banner ad appeared on HotWired, the online version of Wired magazine.
HotWired sold the first banner ad space to AT&T for $30,000. The ad, which featured a simple "Have you ever clicked your mouse right here?" message, achieved an impressive click-through rate of 44% over the 3 month contract.
This success demonstrated the potential of online advertising to generate revenue, leading other companies to adopt similar models.
Following the success of banner ads, the first ad networks began to form. WebConnect, established in 1995, was one of the earliest ad networks, helping advertisers target their ads to specific consumer demographics and prevent ad fatigue by rotating ads.
Ad servers like DoubleClick (founded in 1996) and NetGravity (founded in 1995) played crucial roles in managing and optimizing ad delivery. These technologies allowed for better tracking and targeting of ads, which helped to further entrench the ad-supported model.
In 1997, pop-up ads were introduced by Ethan Zuckerman of Tripod.com. Although initially seen as a way to capture user attention without cluttering web pages, pop-ups quickly became notorious for being intrusive, leading to the development of pop-up blockers.
The early adoption of ad-supported models set the stage for the internet's economic framework.
Websites could offer free content to users while generating revenue through advertisements. This model became the foundation for many internet businesses and continues to be the dominant revenue stream for online platforms today.
So what’s the problem. Ads allow the internet to be free, which allows more people to use it. That’s a good thing, right?
Cain
“Show me the incentive and I'll show you the outcome.”
- Charlie Munger
Nothing is ever “free”.
Whenever I hear politicians saying “we provided free lunch to students”
or investors saying its “free money”
or people saying the internet or social media is “free”, it always makes me cringe.
Nothing is ever free.
Tax payers pay for those lunches.
It’s not “free money”, its an investment arbitrage, which will eventually collapse (see Japan Carry Trade).
And the internet is not free. The internet sells ad space to continue to exist. You are the product. Your time, your attention, that’s the price you pay.
Which isn’t a problem in and of itself. The problem is the incentives this creates.
If websites and social media platforms make money from ad space, they benefit from keeping you on those platforms as long as possible.
The more attention they can get from you, the more money they make.
This has led to cascading effects like:
Click bait headlines and irresponsible journalism, which has led directly to our polarized political environment
Weaponized social media algorithms, which attempt to keep users on their platforms as long as possible, even at the expense of their consumers mental health.
Increasingly hardcore pornography (which is ad supported), and has negatively impacted thousands of people. It’s estimated that 5% to 8% of the world's adult population is affected by porn addiction. In the United States, approximately 11% of men and 3% of women are considered to have a porn addiction.
Another good case study of these practices is Google itself. Its former motto was “don’t be evil”, and it started with a clean homepage with no ads or news stories.
This, combined with its superior PageRank algorithm, allowed it to dominate the search market.
When Google introduced ads, it was just one ad the top of the page, which was very clearly an ad.
Now, at least the top four results are ads, and you have to pay to be listed higher in the search results.
Son of David
Marc Andreessen (Adam, in my extended allegory) has expressed regret over the internet's reliance on advertising.
He believes that the absence of integrated payment mechanisms in the early web led to the dominance of ad-supported models.
Andreessen has suggested that if blockchain technology had been available during the internet's early days, it could have provided alternative economic models based on secure, decentralized transactions and trust mechanisms, potentially reducing the internet's dependence on advertising.
But we don’t have the start with blockchain for AI, we can start with a subscription model to make it easy.
Most of us are happy to pay a subscription if the service is good enough. Amazon Prime, Netflix, Spotify, Audible. The list goes on.
We are happy to pay for these services because these services are time machines.
Amazon gives me time back that would have been spent in the car and at the store.
Netflix gives me time back that would have been spent driving to the video store, and selecting entertainment to watch.
Spotify lets me stream music right to my phone, instead of having to drive to the store to buy a CD and play it from a boom box.
And Audible lets me listen to a book immediately, on trains, planes or automobiles.
AI is also a time machine.
For jobs-to-be-done such as design or research, it can condense a four hour task into one hour.
That’s a 4x increase in productivity, speaking from my own personal, anecdotal experience working a demanding full time job, as well as keeping up this newsletter.
AI tools like ChatGPT, Dalle, and Perplexity are worth the subscription fee already.
But what’s even more important than giving you time and convenience back, is the incentives that drive this new paradigm.
If you pay for an AI service, the incentives are aligned. You are paying for fast, cheap information. Intelligence, if you will.
But if AI services become “free” and “ad supported” the same way the internet is, the incentives become misaligned.
If Google was a search engine, Perplexity and ChatGPT are answer engines.
And do you really want the answer to be based on who bought the most ad space?
Do you really want the truth to be open to the highest bidder?
That’s not a world I want to live on, and for me, any AI product that leverages an Ad model and expects to operate as a source of truth is dead on arrival.
I violently want to agree with you that there is an alternate path. Take substack as a microcosm - no ads! Love it, but I worry they are coming especially with the drive to grow followers ala traditional social media/ad driven models. What happened to Google was perverse, man I loved it at first but now the results are useless - it’s just whoever pays to be at the top of the list. Back to substack, there is a roiling controversy right now with Apples 30% in-app purchase fee hitting creators so we harken back to Andreesen and the need to have a better consumer payment system. The first generation - PayPal, even Venmo - too much friction. I was on a guys blog the other day and its kind of comical how ‘buy me a coffee’ substitutes for a payment system on smaller sites that don’t want ads. As for AI - absolutely I’d pay for AI. But perhaps I’m part of the problem because ChatGPT/copilot suits me just fine right now so I use the free version.
The ad supported model however has lots of history. The earliest newspapers had ads to supplement their publishing and distribution costs. This continued with the new media of the 1920’s, radio. Radio broadcasting was initially free. It was used as a way to sell radios to people. Why buy a radio to listen to nothing? However, once you buy one radio, do you need another? While the market was large, the competition was fierce. Prices were driven down. As a way to supplement the costs of broadcasting, ads became the norm. Many early stations were owned by insurance companies (WSM WTIC), department stores (WPRO), or even newspapers themselves (WTAG). They had programming to listen to, but also tried to sell you insurance, or the latest products in the department stores. It was “free” after you had the initial expense of the radio purchase. This continued to television, and finally the internet. The last few movies I have seen in theaters have 45 mins or so of ads before I can watch a movie that I have paid for. I would like to think that AI will not follow in this model. I fear that not only will you pay for AI access, ads will also be present as competition drives the price to the bottom.