Online content ecosystems, especially social media, have been supported largely by advertisements. The prevailing model, labeled "attention economy", measures our attention directly and sells it by our interests, behavior, and other personal traits. It incentivizes companies to violate our privacy, and selectively present eye-catching content regardless of reliability or quality. The opaque commoditization of attention and the network effect of content ecosystems also prevent fair rewards to creators. On the other hand, direct payment to creators, in the form of subscription and donation, is healthier in theory but remains impractical for most use cases.
The development of blockchain and smart contracts provides an opportunity to create protocols for advertisement that synergies with direct payments. Unbundling the online advertisement industry into permissionless protocols can facilitate greater transparency, competition, and accountability. It also opens the door to mechanism designs that better align the interests of users and advertisers.
Previous attempts at decentralized social protocols have struggled to achieve widespread adoption. One important reason is the lack of business models that reward and sustain value creation, including iterating software, providing infrastructure, and creating content. By providing a source of incentives, decentralized advertisement could make decentralized social media, as well as other forms of content ecosystems, viable and superior successors to their centralized counterparts.
Advertisement spaces on websites are the most common digital assets. Website owners usually rent them to ad networks for revenue, who aggregate placements into attention units such as impressions and clicks. The strong network effect of ad networks makes them natural monopolies, encouraging exploratory behavior in revenue sharing. For example, Google AdSense takes up 90% of the market and only returns 2/3 of the revenue to website owners.
With the maturity and adoption of non-fungible token (NFT) standards, we can now tokenize online ad spaces, reduce the network effect of ad networks, and reintroduce competition. Advertisers in vertical markets can purchase relevant NFTs directly for ad placement, without any intermediaries. Advertisers in horizontal markets might still need intermediaries to aggregate ad spaces, but such intermediaries hold less network effect and face more competition. Without large ad networks as intermediaries, website owners display ad content through a standard protocol, leaving fewer incentives to track the behavior and demographic data of users.
In the prevailing model, advertisers rent ad spaces from website owners for a period of time, often through ad networks. In the words of the Google funders, this creates incentives “inherently biased towards the advertisers and away from the needs of the consumers”. This misalignment of interests is alleviated when advertisers purchase and own ad spaces, as they are incentives to protect the value of the ad spaces, and by extension, the needs of the users. However, website owners cannot receive the continuous revenue created by the attention they sustain.
A form of ownership coined as “partial common ownership”, or referred to as “Harberger tax” for its associated tax scheme, resolves these conflicting needs. With it, an ad space is in a continuous auction, in which the current owner sets the price. The current owner also pays tax in proportion to the price set, creating revenue for the website owner and preventing the current owner from setting the price higher than the value she perceives. Several attempts (e.g. [1][2][3]) have been made to standardize such a form of ownership, and several experimental applications have been implemented, including The Space Game, a pixel canvas where each pixel is traded with Harberger tax.
Crucially, this continuous auction functions as a price discovery mechanism that establishes the fair market price for ad spaces without intermediaries. Ad spaces are also priced independently, instead of using standardized attention units. Those on well-regarded websites might establish prices higher than what the quantity of traffic dictates, and those belonging to online communities can function as a billboard for community members and affiliated organizations, blending motivations from advertisement to donation and factoring in values that cannot be quantified otherwise.
With the additional Harberger tax, such billboards can still be compatible with common standards such as ERC-721 and ERC-1155. This allows them to be indexed, traded, managed and displayed using existing applications. Advertisers who own billboards can set the advertisement content and the landing page through the standard token URI property.
However, they have some special rules that make them behave differently than ERC-721 or ERC-1155 tokens:
Most ad spaces are embedded in applications or networks with user-generated content, whether social media, forums, or BBS. As the user generates the value behind the advertisement spaces, the billboards are also owned by the community of users. Community ownership through which users directly receive the revenue and express preferences on advertisers further aligns the interest between users, application developers, and advertisers. Various on-chain governance mechanisms can be used in such collective ownership and decision-making.
Quadratic funding is a mechanism widely tested by projects such as GitCoin. Compared to traditional funding matching, quadratic funding weighs more on the number of donors and less on the amount of donation, allowing a more democratic result.
For a community-owned billboard, the ad revenue can be used to match user donations to content through quadratic funding. This not only allows community members to determine the content that is worth supporting but also incentivizes direct donations to content creators.