> If that is true, then per person contributions to ad funded services would be roughly propotional to personal spending. Someone spending 10 times as much as another person would also pay 10 times as much for using Google search or Youtube.
> If these services were subscription based then both would pay the same price in absolute terms, which is very regressive in comparison.
This is the part where you kind of lose me, unless a rich person is also watching 10x as many videos on Youtube. It seems like you're saying a fixed percentage of a person's spending is going to the websites they visit, but why would that be the case?
You will see the same number of ads on a Youtube video regardless of whether you're rich or poor. And the cost of each of those ads -- the amount of money that gets paid out by the business -- is based on the competition for the ad slot, not the price of the product. I wouldn't take it as a given that products like Taco Bell and Pepsi spend less on online advertising than a luxury watch brand. If anything, I would expect products in crowded consumer markets (ie lower-cost, non-specialized, mass-market goods and services) to have more competitive ad slots that cost more money to target.
So I understand that rich people spend more money, I agree with you on that. But I don't see how you're connecting that fact to the idea of more money from those rich people going to the websites who are displaying ads. I don't see the thread of logic that says that a product costing $500 per unit is contributing more ad money to a website than a product that costs $5 per unit.
>It seems like you're saying a fixed percentage of a person's spending is going to the websites they visit, but why would that be the case?
Very roughly yes. Some percentage of a typical company's revenues is spent on ads, and revenues from each customer are obviously proportional to that customer's spending. It's the same thing (leaving aside sales taxes).
Companies try to maximise the effectiveness of their advertising campaigns. The effectiveness depends on how many people actually go ahead and buy the product relative to how much the ads cost. If running ads on Youtube is less effective, then ads prices on Youtube would have to fall and Youtube would earn less.
Let's say only extremely poor people were using Youtube. None of them would ever buy a high-end smartphone. How much would high-end smartphone makers pay to Youtube for the honor of running ads there? The answer is zero.
Now let's say there are two groups of Youtube users. One group never buys a high-end smartphone. The other group buys one every year. Now it makes sense for smartphone makers to fund Youtube through their ads, but only the group actually buying smartphones pays for it. So the rich group effectively subsidises the poor group's Youtube usage.
I have chosen an extreme and unrealistic example to explain the principle. In reality, there will be a mix of products. The cheapest ones will be bought by almost everybody in roughly the same quantities, and some luxury goods are never advertised on Youtube at all. But the relationship between per person spending and that person's contribution to ad funding for the sites they visit still roughly holds.
This is what I think. I'm not an economist though. There are certainly many open questions as to how strong this redistribution effect is and what the effect of ad targeting is. But the claim that there is no such redistribution effect at all seems extremely implausible to me.
> If these services were subscription based then both would pay the same price in absolute terms, which is very regressive in comparison.
This is the part where you kind of lose me, unless a rich person is also watching 10x as many videos on Youtube. It seems like you're saying a fixed percentage of a person's spending is going to the websites they visit, but why would that be the case?
You will see the same number of ads on a Youtube video regardless of whether you're rich or poor. And the cost of each of those ads -- the amount of money that gets paid out by the business -- is based on the competition for the ad slot, not the price of the product. I wouldn't take it as a given that products like Taco Bell and Pepsi spend less on online advertising than a luxury watch brand. If anything, I would expect products in crowded consumer markets (ie lower-cost, non-specialized, mass-market goods and services) to have more competitive ad slots that cost more money to target.
So I understand that rich people spend more money, I agree with you on that. But I don't see how you're connecting that fact to the idea of more money from those rich people going to the websites who are displaying ads. I don't see the thread of logic that says that a product costing $500 per unit is contributing more ad money to a website than a product that costs $5 per unit.