Billionaire entrepreneur, businessperson, and philanthropist Jim McKelvey says he is three years and 50 engineers in, yet still only 60% of the way toward replacing the United States’ entire advertising ecosystem to give consumers control — and tangentially save the publishing industry.
That assumes it works, which McKelvey pointedly did not promise his INMA audience Friday in Stockholm.
“This has never worked. I don’t want to oversell this. Micropayments has never worked for some very good reasons,” said the director and co-founder of Square, the mobile payments company. “We have got a working theoretical model that has been vetted by some very smart economists. It should all work.
“But it’s like going to the moon,” he analogised for the 285 executives at INMA Media Subscriptions Week 2.0. “You should be able to get a rocket to go up and not explode and launch a payload and track and do all the other stuff. But it’s very complicated to do. We are not promising it will work. We are promising to give it our best shot.”
The initiative is called Invisibly and is unaffiliated with Square or any of McKelvey’s other ventures.
“I’m not from the media. I’m an economist. I’m a computer scientist. I knew nothing about your industry until three years ago, in 2016, I was called to a secret meeting of publishers,” he explained. “They wanted to talk about a problem in your industry.
“And the problem was an economics problem, which was that demand for their product was up and consumption was up. Supply of the product was relatively stable, so there wasn’t a bunch of new sources of quality content coming in. But somehow, mysteriously, the revenues were down.
“And to an economist, this is an impossible situation. This should not be possible. We can’t explain this in economics. And I’m actually on the Federal Reserve in the United States. And I asked a bunch of Fed economists about what’s going on with the invisible hand, because economists believe there is an invisible hand that takes supply and demand and makes the markets work.
“And somehow in your industry, the invisible hand was doing something it had never done before and we couldn’t understand it.”
McKelvey’s analysis found “a ton of fraud” as well as technical inefficiency and waste in the way advertising works, or doesn’t, in publishing. The result is a loss of as much as 70% of the money. But the problems are so endemic in the system that traditional media advertising is no longer sustainable.
That conclusion was hardly news to the INMA crowd, which after all was here in Sweden specifically to discuss how to increasingly shift their media houses to reader revenues through subscriptions.
According to McKelvey, though, subscription models also are economically unviable.
“If you model out subscriptions at scale, it doesn’t work. You can’t support it,” he said. “I see conferences like this and I think it’s like having a conference on the Titanic about how to get into lifeboats. Like, you know there aren’t enough lifeboats, but here’s here’s a seminar with guys who say, ‘Well, if you train and get really strong, maybe you can push other people out of the lifeboats. Or if you’re really nice, maybe they’ll let you into the lifeboat.’”
A better option, he said, is just one that’s never worked — pay per view. So his publishing hosts asked if he could develop an implementation that does, work, that is.
They also all agreed Invisibly must be very carefully set up so that its publishing sponsors will retain total control over it in perpetuity, with complete flexibility to pull out if any of them ever wants and zero possibility that it can ever be sold or taken over by any third party.
For the moment, the system is being developed for U.S. publishers only, to keep initial development manageable. McKelvey said it won’t launch until enough companies sign on that represent 50% of all “eyeball traffic.” Currently the consortium encompasses 31%.
“In a micropayment system, we actually eliminate the advertisers from the consumption equation and we let users automatically pay for every piece of content,” McKelvey explained. “So no more freemium. They consume anything, they pay for it.
“Now they don’t necessarily know they’re paying for it. They don’t necessarily make a decision to pay for it. But there is an actual transfer of value directly from the wallets of the consumers into the pockets of the creators.”
So where does the money come from?
“We bring the advertising money back in by linking that directly to the people,” McKelvey said. “So in other words, you as a consumer see an ad and what happens behind the scenes is that the advertiser pays you. They don’t pay any publication. They pay you as a consumer. So you as a consumer see an ad, you have a little wallet that just got, you know, a penny or three cents or something like that. And then from those wallets, the creators are paid.”
“The center of the model, if you’re going to build something that is successful, has to be people,” he concluded.
The Invisibly system would also include an education component that responds to any consumer unhappiness or resistence to paying for content. It lets people opt out but also teaches them that opting out decreases their net worth and could eventually lessen both quality and choice in their lives.
“I occasionally run into people who say: ‘Well, I think content should be free!’ And I think, yeah, I think food should be free, too!” McKelvey explained. “I’d like it if food was free. I eat a lot of food. I spend a lot of money on food. But the fact is I really don’t want to live in a world where food is free. Because I want choice.
“Last night we spent about $300 on dinner. I take three people out to dinner, I spend $300 on dinner, I’m making a vote for that type of restaurant. When I spend that kind of money, I’m saying to the economy of Europe: Make more restaurants that can get 300 bucks out of me for dinner. You know, organic whatever, and some guy in a tuxedo, and that’s cool! I’ll pay for that! I should have that choice.”
Back to the topic of subscriptions, McKelvey said Invisibly essential involves what he called instant subscriptions: “An instant subscription is something where a consumer can come in, consume a piece of content, pay for it and not even know that they’re doing so.
“The point is to put the consumer in control of how his identity is bought and sold. That’s really the fundamental issue that we’re trying to solve,” McKelvey said. “I know what we’re trying to do is kind of save the news media and save all these publishing companies. That was sort of a tangential moment. My real focus right now is to give every person in the United States control and information about the trade that they’re making every time they look at something that is supposedly free …
“So expose this to light and let people act as rational agents,” he said. “If you get rationality back, the invisible hand stops flipping us off.”