Jaron LanierComputer scientist and author Jaron Lanier has turned his back on the “information wants to free” meme to which he once subscribed, and he thinks advertising as a business model for media is doomed. It’s not just that Craigslist and other Internet businesses have snatched ads away from traditional media, he reckons; it’s that in this digital era, when Google and Facebook increasingly own most of the inventory, not to mention the ad servers and distribution channels, relying on advertising to prop up your media company just doesn’t make sense. 

Lanier, the guy credited with coming up with the term “virtual reality,” outlines this thesis in his new book “Who Owns the Future?” which examines the effects network technologies have had on our economy. In an interview with Nieman Journalism Lab, Lanier builds on that case, stating flatly that advertising isn’t a viable business plan for media businesses in the long term. He tells the publication:

It forces everybody to ultimately compete for the same small pool of advertisers. How much of the economy can advertising really be? It can’t be the whole market. Why on earth are Google and Facebook competing for the same customers when they actually do totally different things? It’s a peculiar problem. You’re saying that there’s only one business plan, one customer set, and everybody has to dive after that.

While advertising might work to a limited extent on a local level, Lanier says, it’s not an overall solution. He also argues that the ad-supported system is destroying itself, which could ultimately affect Google and Facebook, too. He says:

The problem is that [online publishers are] dependent on the health of the ad servers that place ads. Very few people can handle that directly. And the problem with that is the whole business of using advertising to fund communication on the Internet is inherently self-destructive, because the only stuff that can be advertised on Google or Facebook is stuff that Google hasn’t already forced to be free.

Short message: This ad-supported thing might not be a great longterm plan. Lanier suggests we can blame, in part, the “information wants to be free” mindset, which has cost us jobs.

The only reason automation leads to unemployment is the idea of information being free. It’s a totally artificial problem, but if journalists are counting the Google model to live on, it won’t work. Google is undermining itself, and there will be no one left to buy advertisements.

He might also have added that ads require very expensive sales teams that are supporting increasingly small editorial teams; that they’re becoming ever-cheaper as online inventory increases, and especially as audiences move to mobile, where, anyway, six companies account for 72 percent of all display ads, and none of them produce news; and that they don’t even work that well online.

Lanier’s suggestion for an alternative model for information-businesses is that humans instead come up with a system in which everyone is compensated for sharing information and contributing data in a peer-to-peer model based on micropayments – kind of like how Flattr allows people to pay others through “faves” and “likes” on social media. For the time being, that theory falls into the “well, that would nice” category, but clearly it’s not going to happen overnight, if at all.

In the meantime, news businesses should heed Lanier’s message and find ways to build revenue streams beyond advertising, a point I made recently while arguing that “Snow Fall” isn’t going to save the New York Times. There are several examples of new media companies that are attempting to do just that, although in all cases it’s too early to know how it’s going to pan out.

Skift, for instance, is leading with content but intends to make data services its key source of revenue. Marco Arment’s The Magazine and the titles published by 29th Street Publishing are foregoing ads completely in favor of low-priced subscriptions. This very blog, PandoDaily, carries advertising but is doing better with sponsored series and also sells memberships. PandoDaily contributor Paul Carr’s NSFWCORP relies on subscriptions and a cartoon tower that shows off reader donations. (Read more about it in Paul’s post on how the media industry is doing “freemium” wrong.) Andrew Sullivan is using a metered paywall to fund his ad-free Dish blog. And The Wirecutter makes its coin from affiliate links.

Aside from their beyond-ads business models, these companies share other important characteristics: namely, small editorial teams, and a focus on high-quality, original content and not aggregation (although Skift does some). Perhaps they’ll all fail. Maybe there’ll be some big wins. What’s important, though, is that they’re pushing beyond that “information wants to be free” mindset, and attempting to expand the imaginative scope of the media business to find new ways to make money.

If you believe Lanier’s dire prognostications about the future of advertising, it becomes vital for the media business to pay close attention to these companies.