Gadgetopia

Internet Users in Developing Countries Drag on Sites’ Profits: Interesting article about how it costs Web sites money to service users from developing countries, but they reduce the effectiveness of advertising, since ad impressions rarely convert them into customers — the odds that some guy from rural China is going to be interested in a a mortgage refinance is pretty slim, after all.

Web companies that rely on advertising are enjoying some of their most vibrant growth in developing countries. But those are also the same places where it can be the most expensive to operate, since Web companies often need more servers to make content available to parts of the world with limited bandwidth. And in those countries, online display advertising is least likely to translate into results.

This intractable contradiction has become a serious drag on the bottom lines of photo-sharing sites, social networks and video distributors like YouTube. It is also threatening the fervent idealism of Internet entrepreneurs, who hoped to unite the world in a single online village but are increasingly finding that the economics of that vision just do not work.

In practical terms, here’s what that looks like:

Last year, Veoh, a video-sharing site operated from San Diego, decided to block its service from users in Africa, Asia, Latin America and Eastern Europe, citing the dim prospects of making money and the high cost of delivering video there.

“I believe in free, open communications,” Dmitry Shapiro, the company’s chief executive, said. “But these people are so hungry for this content. They sit and they watch and watch and watch. The problem is they are eating up bandwidth, and it’s very difficult to derive revenue from it.”

Interestingly, this is now a selling point for Veoh when they’re courting advertisers. To be able to tell them that no ad impressions will be burned on prospects who could never convert is something they can use to their advantage in the ad market. They can point out their competitors, and what percentage of their advertising is “wasted.”

This has me wondering if my buying power is intangible currency with which I “buy” services. I “pay” for YouTube with capital comprised of general disposable income and propensity to purchase. Our guy in rural China has none of this currency, so he can’t “afford” some Web sites.

Sad reality, but reality all the same.

Via the always interesting David Gammel.