Most people hate digital ads. But they're actually a great thing. Here's why.

First, there are three main players involved in this whole "ad network".

1. The Digital Platform (e.g Google, Instagram, TikTok & soon ChatGPT)
2. You (the user)
3. The [Small to Medium] Business Owner

The Digital Platform

These are usually products that, however you feel about them, are [initially] genuinely compelling. They introduce something entirely new and/or obviously better than anything that's out there. Regardless of your opinion about their product(s), people willingly start using these apps not because of heavy marketing, but because they genuinely want to.

Once millions or billions of people start using these services, the platform introduces advertising. Software products (like any other products) cost resources to invent, build, maintain and improve. Reaching "a billion users" takes significant ongoing investment of time & money. This money typically comes from investors who will lose everything if it doesn't work out–which, by the way, happens far more often than not. Failures vastly outnumber successes.

These large platforms are also free to use. This is quite rare, most things aren't free to use. Even when they have some sort of advertising model. Things like magazines, TV etc often require an ongoing subscription.

This "proliferation" of free large scale platforms is a function of combining the internet, large scale and advertising.

You, the user

Your story is pretty obvious to you – you use these digital products because they fulfil a specific need or desire. It could be entertainment, communication, learning, productivity, or even just a space to be seen and heard. Another big reason, is that they are free.

If something is free [on the internet], it is either funded by advertising or by investors losing money.

The Business Owner

This could also be you, trying to create something out of nothing - to improve the lives of you and yours. So of course, you need to find customers. You have fixed and recurring costs. You must find customers.

These digital ad platforms solve this problem by connecting businesses to billions of potential customers who might be interested in their products.

And here, we have really amazing incentive alignment:

• You (the user) wants the product to remain free.
• The digital platform needs revenue to [continue] to invent, build, maintain and improve the free product.
• The business owner wants to reach as many customers as possible.

Performance based advertising means that the digital platform only makes money when they have genuinely connected the business with a customer. This doesn't happen as often as you might think. For example, Google only makes money on approximately 1% of search queries. Think about how many ads you see and ignore.

Every now and then, an ad matches what you're looking for. You check it out and buy it.

Everybody wins.

The business owner gets a new customer that they would never have been able to reach otherwise. They only need to pay the digital platform one time for this customer, as they can now have permanent direct communication.

You get to keep using that app for free. Free entertainment, communication, learning, work, whatever. You also sometimes get to find stuff that you like or need that you would never have been able to find before.

The Digital platform gets revenue to continue to invent, build, maintain and improve the platform.

This kind of win-win-win is very rare.

The belief that the value in the above system comes from the data used to make the connection between the business and you is partially true.

Your data, however, is not useful in isolation. It needs to be a lot of data, like millions or billions of users. If they don't have that, businesses won't go to them and they cannot make connections about who might like what.

Reaching that many users (and collecting that much data), requires an unimaginable amount of resources - time, hardware, salaries, brain power, offices etc. Building digital products has costs, like any other kind of business.

Digital ads can suck in a couple of ways.

• They're annoying. They can be intrusive and frustrating. Personally, I always opt out of ads if I can afford it. Another solution is to just not use the app. However, a lot of the time, these platforms are useful because everybody else uses them but that only happens because they're free to use (and compelling).
• We also don't want to be deceived. We want to know when something is being shown to us because a business is paying. Even newspapers have this problem. Existing solutions like requiring ads to be explicitly labelled help with this.

So yeah, they're irritating when we don't want to buy what's in them - but their existence is a very cool and rare business model.