AdDeflation: why ads aren't worth anything anymore and what it means for your startup

It's every internet entrepreneur's dream: come up with something cool, make it free, and get rich off ads. Problem is, this almost never happens.

I don't like to talk smack without backing it up with some numbers, but even a simple economic thought exercise will lead you to this conclusion. People are flocking to the internet in everyday life way faster than the buying power of those people grows, and on top of that, companies design sites to create more impressions, further exacerbating the effect.

Hence my neologism for today: "Adflation."

Well crap, that word already exists, and for the exact opposite reason I propose today.

"Adflation" was apparently coined by the radio industry in 1975, defined as the "increase in the cost of advertising space" due to the lack of growth in the places to advertise. How far we've come! Interestingly, the history of the term inflation has gone through multiple related usages which are similarly confusing as to what measure grows at the expense of another.

Ok, so my NEW neologism for today is "Addeflation," and I define it to mean the devaluation of an ad impression due to the uncontrolled growth of ad impressions that are created by the post-scarcity digital economy.

In a nutshell, it used to be so hard to reach people that ads were extremely valuable. But now that you can't even go to the bathroom without seeing an ad, we have been trained to ignore them.

I am a serial web entrepreneur. I've never been interested in media plays, though. Probably because I'm such a cynic of advertising. I personally use advertising only to be informed of the existence of something. I over-research everything I purchase, and I don't think I'm alone in that habit anymore.

While I am happy to yield the point that plenty of companies that are media plays make lots of money, I am always very skeptical whenever anyone pitches me an idea where the business model is ads.

There are three main reasons why:

1. It's way harder to get lots of users than most people think.
2. People tend to confuse "stuff millions of people will use for free" with "value of millions of people using free stuff."
3. Failing to factor in addeflation to their future predictions of ad revenues.

I think that we're at a crucial fork in the road for advertising. Unless those creating ads can come up with a way to make ads worth looking at again, addeflation will continue to spiral out of control.

If ads are your startup's key to profitability, think about the three points I make above and see if there isn't a better revenue model for your company than the one used by the underpants gnomes!