The Paradox of Tech Thrift

If you’ve been watching the dire economic news, you may have heard of the economic theory called the “Paradox of Thrift.” Wikipedia obviously explains it better than I can in a few words, but basically if everyone saves their money at the same time, that money will be worth less since there is so much more money floating around. That combined with decreasing demand means that job elimination and a lack of raises means the ability to save is threatened.

Like many economic cycles, it is sometimes a difficult one to break out of.

I bring this point up to discuss a comment I saw in TechCrunch about Twitter using its search functionality as a way to monetize their business with advertising.

A commenter “alex” responded to the article saying “No ads, no ads, that’s why it’s so special right now. I know I am wishing into the wind.”

I don’t begrudge Alex the wish that micro-blogging service Twitter no run ads, but it occurs to me that every method of monetization that they might try is going to be odious to somebody. Let’s go through some examples.

1. Twitter would not work if users had to pay for the service, so that clearly isn’t viable.

2. As Alex shows, people would prefer it if Twitter didn’t have ads.

3. Sell out to Google and let them figure out how to monetize it. This leads to monopoly concerns.

There are a few other scenarios that are discussed here, but these all follow these three main criticisms that I outlined above.

Basically, people don’t want to pay for things and they don’t want to see ads. This, of course, isn’t limited to Twitter, but shows a severe problem in this Internet age, a problem that websites like this one make worse. We all want something for nothing, and too frequently we’ve been getting it. On this website, I have tried to discuss how the service that are offered are monetizing their efforts, but my focus has been on decreasing the cash outlay of the user. The point Alex brings up is relevant as well; your attention and time is also a valuable quality that everyone wants to maximize.

So where does that leave Twitter and other websites actually looking to run a business and not a charity? The best solutions that I have seen come across are ad-based revenue generation and “free-mium” service websites.

We’re used to an ad-based system from newspapers, TV and radio, but as people move over to iPods and on-line news consumption, people are getting less tolerant of advertising. Meanwhile, there is so much competition among free services that sometimes “free-mium” models can’t catch on.

What will happen? That’s hard to say, but I point you to the paradox of thrift. I’ll suggest to you that whatever the result. It will not be good.

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