Have you ever wondered why are there things we can enjoy for free? Everything comes at a price. So if we are not paying for the product, we are the product. Instead of selling a product or service for revenue, there are other ways of monetizing a business like microtransactions and advertising. In this article, we will look at the different things we can enjoy for free that are paid for by ads.
How Do Businesses Make Money From Ads?
If businesses do not make money from sales, they need to make their business model viable and one way they can do it is through ads. These businesses can be both offline and online. Digital marketing spending has since overtaken traditional marketing so most of the examples listed later would be online businesses.
| Businesses advertising their own BPS | Businesses displaying ads for money |
| Looking to advertise to consumers | Looking to monetize their free product and service |
| Willing to pay to show their ads to an audience | Have audience and users as asset |
| Pay to show ads | Get paid to show ads |
We need to first look at the other side of the formula, the businesses placing the ads. Ads are used to inform, persuade and remind about a brand, product or service (BPS). The ultimate goal of ads has a commercial purpose, which would be to get the consumer to consume their brand, product or service. They want to get their BPS in front of as many relevant users as possible. Now, we will need a place to place these ads.
These businesses providing a free product or service have a useful asset, which is their users and audiences on their platform. By providing a platform to show ads to their users and audience, these businesses will be compensated by the businesses placing the ads. The number of audiences and viewership on the platform is directly related to how much the ad will cost.
Take note that advertising does not have to be their sole source of income, it can be used in a combination of different monetization techniques like microtransactions or donations. Some companies even make use of ad revenue to “subsidize” the cost of their paid product.
What Kind Of Ads Are There?
Ads used to be straightforward and in your face. However, advertisers have found ways that make it more subliminal and less obvious. This makes their intended effect to inform, persuade or remind to be more powerful.
If an ad is obvious, we will be more “defensive” against any efforts to try to sell to us. However, when we don’t think of ads as ads, we tend to lower our defences and let them affect our future purchase decisions.
You can see the following ads on various physical and digital platforms.
Cold Calls
This is a common source of advertising for insurance or banking products. This is one of the most obvious and disruptive pieces of advertising a consumer can receive. It has a low success rate as we usually do not have the patience to listen to them and “switch off” once we know they are trying to sell to us.
Email Marketing
We will sometimes receive emails from services we sign up for. These emails can tell us about new products or promotions that are occurring.
They are usually very obvious that they are ads. Although not directly advertising a product or service, a newsletter can also act as a reminder for the brand and a cue to visit their website, which then provides them with ad revenue.
If you use Gmail, they will usually appear under the promotions tab, so those more important emails will not get mixed up with ads.
Video Ads
These ads are typically placed around content. You can see them before a movie starts, between YouTube videos or television programs. Also, how can we forget about video ads that unlock rewards when we play mobile games?
Before the days of streaming where we can pause, we make use of ads between shows to grab food or as a toilet break. Now, we get ads that we can skip after 5 seconds.
When I see ads from investment or passive income gurus, I like to take the time to go for a break and let the ad run for full instead of skipping them. This way, these gurus will need to pay for the ads while having zero chance of converting me into a customer.
We know that we are not missing out on anything when we avoid or skip these video ads. However, if you pay attention, we are getting more and more consecutive AND unskippable ads.
Display Ads
We have physical display ads like posters or banners on buses or MRT. For online display ads, we will see these banners scattered between articles or at the top/bottom/side of websites.
A good example would be a recipe blog where you can see a lot of display ads scattered around.
Sponsorships
An event can receive sponsorships and these sponsors are usually looking for brand exposure. Their brands will be plastered all around the event so that they will appear almost everywhere you turn. If you watch the Olympics, you will see that a watch brand will be the official timekeeper. And if you watch sports, jerseys and the perimeter is filled with the logos of sponsors.
Product Placement
The ad types mentioned above are pretty obvious as ads but now we will look at ad types that look less like ads.
Product placements are brands or products that appear in video content like movies and video programmes although they are part of the background. However, their placement is usually carefully planned to give the brand or product exposure to the audience.
An example would be the recent Ah Girls Go Army movie which is filled with product placements from paint products to facial care to food delivery.
If you have been watching MediaCorp drama, you should also notice the product placement of an air conditioner brand where they can switch on and control their aircon using their phones.
Of course, sometimes the brand or product is truly being used by the influencer or celebrity and they bought it themselves. They truly enjoy that product and it acts as a natural endorsement of the product.
Sponsored Content
A company will pay a media company or individual to create a piece of sponsored content that showcases its brand or product. These sponsored posts usually blend together with the normal content and you will get ambushed by them.
Sponsored content can appear as an article, video or social media post.
For example, the tourism board can sponsor a sponsored video that introduces various places of attraction or a mattress brand can sponsor a sponsored article that teaches you how to pick the perfect mattress.
When done properly, if the content is entertaining enough, it will mask the commercial side of it. Once you don’t treat it as an ad, it will have a higher chance of influencing your future purchases.
Affiliate Marketing
Affiliate marketing is where you share a link or promo code that is tied to you and if someone buys an item using your link or code, you will be paid a commission.
This can also be used in conjunction with sponsored content where an affiliate link or promo code is inserted in the content so that the audience can directly go to the brand’s page to make a purchase.
An example of affiliate marketing is where a YouTuber links their equipment (gaming chair, camera, microphone, cooking equipment etc) in the description box. Another example would be an article stating the top tablets that cost under S$500 and it will link to the various tablets on eCommerce sites.
Content that review stuff also has affiliate links so there can sometimes be a conflict of interest where they sell the product with the most commissions or exaggerate the pros. A good tip would be to visit multiple sites and look for bad points and not only look at the positive.
Free Things That Are Paid For By Ads
By providing a free product or service, they are gathering us, the consumer, onto their platform. Once they amass an audience, this is their asset where they can feed ads to them and indirectly make money by earning ad revenue. Here are some of the things that we have been enjoying for free because they are paid for by ads.
TV Shows
Before the internet was prevalent, we grew up watching tv. We only had to pay for the television set and will have access to free entertainment. The ads during commercial breaks pay for the drama and variety shows we enjoy. Besides commercials, ads also appear in the form of sponsorship (e.g. Sheng Siong show) and product placements (e.g air-con).
If you are at home nowadays and switch on the tv during the afternoon, you will see that Mediacorp has now ventured into TV shopping. These segments are purely commercial and the entire segment is an ad with entertainment being the second focus.
Radio
Instead of visual ads, radio focuses more on auditory ads. They also frequently hold contests and give out prizes or vouchers which are paid for by the companies. Although radio is mainly accessed non-visually, they are now slowly but surely using more social media to provide more visual formats of content.
News
Journalism has little to no commercial value so they can’t directly get sponsorship or ads during their segments. Most people do not want to pay for them as there are now so many free sources out there. So similar to TV shows, they get paid to be produced via ads. People receive information from the news so they will attract an audience. Online news is also paid for via banner ads inserted in between articles.
Besides ads, they also receive grants from the government to pay for the production of the news segments. If fully dependent on ads, it can lead to clickbait and sensationalised news to attract eyeballs. This is dangerous to the stability of our country.
TV news has drama and variety to bring additional audiences to the platform while online news platforms have lifestyle content that does the same thing.
Events And Competitions
We can see brands plastered on many surfaces in events and competitions. The backboard behind the opening ceremony, jerseys, free merch gave out during events and competitions are all filled with brand logos by sponsors. The advertising effect will even extend after the event as people will use the free merch outside, providing free advertising for the sponsors.
I would say if you can access this article, you would have a free email account. An email account is essential in accessing many of the digital services that are online. With many of us checking our emails daily, it is a prime location for ads. They can appear as a banner on the side or as a “fake email” that looks exactly the same as a real email except there is an ad icon on it.
Don’t confuse these “fake emails” with marketing emails companies send out. These “fake emails” are native to the platform and are placed there by the email service.
Search Engine
Most of us won’t be able to imagine a life without using a search engine. Without using a search engine, how many of us are confident that we can still get our degree or diploma? With a search engine, we can look for things that we need or answer questions that we have from an AI-curated list. We don’t have to memorize specific websites to go to for our specific needs and just rely on the search engine to provide us with a result it deems best.
When we search with high intent keywords, the top results have a higher chance of getting clicked and turned into a sale. Companies pay to have their ads appear as the top few results. Examples of high intent keywords are “where to buy dark chocolate” and “gyms near town”.
Personally, I always skip the ads and choose from the true top results.
Maps
If you have not realized it yet, ads have started appearing on Google Maps recently. We have been relying on Google Maps for navigation without paying. With Google Maps being the go-to option when we require directions, it is a great place to insert ads. The difference between places that place ads and those that do not are quite subtle. Those that have ads have square icons while those that are organic have a pin icon. If companies pay for an ad, their companies will look more prominent on the map.
Also, similar to the search engine, if you search for a high intent keyword like “orchard fried chicken”, an ad will appear as the top result.
Next time when you use Google Maps, check it out.
Social Media
Social media used to be a place where we share photos and connect with our friends. Once a social media platform gets a big enough audience, it can start to monetize its platform. They typically use the same techniques as a search engine and display ads between posts to look organic. Social media has an edge as they profile you and feed you ads that fit your profile. For example, if they know that you are into cooking, they can feed you ads on cooking equipment or grocery platforms. If you want to see what Google and Facebook know about you, you can check it out here.
Influencers on social media are also paid a sum to promote a BPS or make money via affiliate marketing. Depending on the company’s budget and strategy, they can choose who to promote their BPS, from nano-influencers (1,000 – 10,000 followers) to full-blown celebrities (millions of followers).
Games
When we play free games, we will either see banner ads at the bottom or the top of the screen. We can also get rewards that boost our progress from watching ads if we do not want to pay for in-game currency.
There is also a convoluted system where you can get in-game currency by installing other games and playing up to a certain progress level. This is to allow these games to have an artificially high daily-active-user count, which will boost their ranking in the app store.
Content Streaming
Content on streaming platforms (YouTube, Twitch, Spotify) has a similar business model to traditional TV where we can have commercial breaks, product placement and sponsored segments. On top of that, we have affiliate marketing where the content creator will push out their promo code or affiliate link which gives their audience a discount or just simply a link to buy the product. They will then make a cut out of every sale made.
Content creators are also very good at creating content to package an ad, which makes it more like entertainment than an ad. Their audiences are also willing to support their favourite content creator by buying using their links. They get something they need (hopefully) while their content creator gets paid to keep creating content that they like.
Blogs are also like content streaming but on a static page via text and pictures instead of videos. They can insert a code into their website to place ads that are automatically generated and they can either earn a sum based on the number of views or clicks. They can also monetize their content by writing content for a corporation or sharing their affiliate link.
Paid Things That Are Subsidized For By Ads
Not only free things can be supported by ad revenue. Even some things that we pay for use ad revenue as an additional source of income.
Movies
Commercial movies can take millions of dollars to produce. To raise funds, they get sponsors that want to get their BPS as product placement in their movies. Some extremely commercial movies look more like a 2-hour ad than entertainment. These movies are usually in theatres during holidays like Christmas, New Year or Lunar New Year where it is a custom for some people to go watch movies with their families. We call it “贺岁片” in mandarin.
As for the movie theatre, they make most of their money from snacks and drinks. They play trailers and ads before the movie to the audience to make additional income.
Public Transport
The public transport that we take is also subsidized by ads. An average of 5 million Singaporeans take public transport every day, so it is a prime location to place ads.
We can see ads at both train and bus stations and on trains and buses.
Smartphone
For phones like Xiaomi that costs only a small margin over their cost price, they got to make money from elsewhere. They place ads inside the phone itself.
Also, companies like Facebook partner with phone companies to pre-install their apps on phones. With a pre-installed app, there is a higher chance of usage and once you log in, they can start tracking your actions between apps and on websites. These phone companies are paid to pre-install apps in exchange for a sum of money.
How To Avoid Ads
We are unable to avoid ads that are embedded directly into the content. These include sponsored content and product placement.
For the rest, download an adblocker and you can avoid a lot of these online ads. If you want to support a certain creator, you can also add them to a whitelist so ads still appear on their content.
Also, during sign-ups, remember to uncheck the boxes that ask for permission to send you marketing notifications or emails. If you are unable to opt out at the beginning, remember to unsubscribe from them once you receive the first piece of marketing. The unsubscribe option is usually located in small font at the bottom of the marketing message.
Remember to make a rational purchase decision based on needs and try not to let ads influence you.
TL, DR
To have a viable business that provides free things, it will place ads on its platform to make ad revenue. There are various types of ads that these platforms can make use of. Even paid products sometimes place ads to make an additional source of income. Remember to install an ad-blocker and unsubscribe from marketing messages if you do not want to see ads.
Let me know if there are other things that we enjoy for free that are paid for by ads.
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