Market Inefficiencies & The Fuel Of The Internet

While you have to pay for most products or services in real life, most products and services that exist on the internet have continued to stay free. Since all internet companies have to make revenue, alternative options are looked into of which a large portion has been advertising.

As advertising became the main fuel of the internet, mega players jumped into the advertising industry to have power and control over the internet’s oil. To power effective advertising, data became even more valuable asset. But the internet advertising had and continue to have many many inefficiencies and over time, all markets try to remove inefficiencies to move towards higher profitability.

A major chunk of the advertising dollar has been going into the pockets of agencies, networks, exchanges, and other layers over layers of middle-men. I look at that as market inefficiency.

With influencer marketing, we saw the markets tried to get more efficient and remove the middle-men altogether. Everyone who explored this area, including us, saw over a 1000% higher ROAS compared to traditional advertising.

A large part of internet continues to stay free because one way or another commerce happens. Advertising is only the means. Facebook and Youtube videos continue to stay free because these companies make money with advertising and data.

However, advertising and data work because commerce happens. Everything else, including the advertising and data are also middle men. They are the inefficiencies that we need today, but hopefully the market will continue to find more efficient ways for higher profitability or cut-throat competition.

All websites and blogs that relied on advertising for years have been increasingly moving towards affiliate commissions to keep their businesses alive. As Amazon cuts affiliate rates, and others might follow, these content websites will need to find smarter ways to make their businesses work. What you could do before by just selling ads can only be done today by selling a product. Today, you can make it work by making a sale happen for someone else and getting an affiliate commission. Tomorrow, that may be seen as a market inefficiency and you may have to generate a sale for yourself either by selling products, or charging for your own product or service.

Youtubers today make up-to 80% of their income not by Youtube ads but by influencer marketing and brand deals. Youtubers and brands are cutting the very platform as the middleman that they host their content on.

We started Socialoholic with content and blogs. We relied on selling advertising in order monetize our network of websites. We drove traffic from the influencers to our content so we can sell ads and pocket the difference. We became content-arbitragers. So many middle-men while the true value was only created because someone somewhere bought something.

Years later, we found ourselves driving the same influencer traffic but instead of driving that to content we drove it to products. We removed the inefficiencies.

Over time, we have pivoted from content to focus on e-commerce as our core area of business because that is the real fuel of the internet. Everything else is only relevant because it assists e-commerce and when something more efficient pops up, it is replaced.

Why Selling Digital Products Could Be A Good Idea

While e-commerce is a great business and my focal point of attention these days, I’ve also spent a ton of time selling digital products as an affiliate which were mostly ebooks, newsletters, courses and forum memberships.

I have written much about the upsides of e-commerce, but probably not so much about the downsides. The first major downside is that tangible products have repeat costs. In order to fulfil each purchase, you have to source the product as well as pay for the shipping. This can obviously be avoided in a digital product where you spend a one time cost in manufacturing your product and can sell it again and again.

The second major downside is the liability. I’ve never been bothered by the risks of selling advertising on websites and also not too much bothered by the risk of selling digital products. Physical products, however, can go wrong. They can malfunction, cause damage to the consumer and this is a risk worth considering.

As already mentioned, digital products come with higher margins and are more profitable. This is also why you see many marketers resort to selling courses in the end because it is a higher margin business. You create the course, may be also incur a cost in doing so, but on an on-going basis your only cost is marketing. This leaves a much higher budget for you to make a profit.

I do think that most course sellers do it out of desperation and many are not even fully equipped with the knowledge that they try to sell. However, selling courses itself is not necessarily a bad thing as many of them come with a lot of value. The fact, although, remains that you can make more money by telling people how you make money and less by actually trying to do it.