Some talk about buying/selling advertising in terms of the current industry participants like Fox News. Although Rupert does get it regarding broadband Internet, very few organizations with the size and longevity of any of the existing broadcasting/media companies are ever able to make transformative changes to their business models. See Clayton Christensen, The Innovators Dilemna, for hard proof. The companies that break standard price points will have a different view of the economics/business model, just as Bill Gross (Idealabs) did when he invented the pay-per-click Internet advertising business model that Google has leveraged into a $150 billion market cap. Remember, Google did not even begin to sell search advertising until the 2001-2002 timeframe.

A final point about change in content/advertising markets – the Internet evidences and enables statistical distributions commonly known as the Pareto principle (80/20 rule). Chris Andersen of Wired wrote the signature piece on this phenomenon which he dubbed The Long Tail (link to his website, which links to article, book, Wikipedia, etc.) Andersen’s point is that for digitazable products/services, the changes wrought by the growth in interconnected and ever mor powerful communication/computational processing devices will enable the exploitation of demand that was previously unexploitable due to the lack of sufficient market scope to spread the fixed costs of production and distribution over. The fixed costs are now already incurred, in terms of the infrastructure of the Internet, and the marginal costs of distribution are virtually nonexistent. An Amazon employee described the Long Tail as follows: "We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday."

Excerpt from Andy Kessler’s series of blog posts on Media 2.0 (Kessler is a money manager, investment banker & vc/hedge fund operator who also writes books (latest titled Running Money) and articles published by Forbes, Wired, LA Times, Am Spectator, Weekly Standard & WSJ)

So what is a Media Mogul to do? They control pipes in a world of zero margin costs. It costs virtually zero to sell one more digital song, or run one more digital ad or post one more digital classified. As chips and bandwidth get cheap, digital distribution crumbles the quaint old days.

The time and the tools are ripe for this GO WIDE approach. Especially on the Web, which is nothing but layers and layers of functionality.

Bill Gates

This process will be hastened, he believes, as more and more television content moves online. “Internet TV and the move to the digital approach is quite revolutionary,” he says. “TV has historically has been a broadcast medium with everybody picking from a very finite number of channels. If you want content that is a local sports thing or a hobby that you are interested in, that’s not available to you. The use of the internet to deliver those video signals and the idea of seeing what you are interested in, and having the ads targeted to you, is becoming the standard way that video is delivered. Over the course of this next decade that will be very common.”

Internet advertising, aimed at niche audiences and more creatively ambitious, will provide a way round the increasing problem for advertisers of television viewers fast-forwarding through commercial breaks in shows that they have recorded. “It will be possible to target the ads and it will be important to have ads that the consumer doesn’t skip over, incorporated in the right way.”

Om Malik’s posts – Google… the OS for Advertising and The Web Money Machine – Beyond Adwords (author of Broadbandits: Inside the $750 Billion Telecom Heist, writer for Red Herring, Business 2.0, Forbes, WSJ and now founder/executive editor for GigaOm.com)

excerpts:

Google’s core competency is to use technology in a manner that devalues and deflates4 traditional industries by extracting inefficiencies in existing processes. And the long-term strategic implications of this “Google effect” is much more disruptive than simple market realignment… rather, it’s an issue of rendering old core (human) competencies obsolete and replacing them with new ones reliant on automated, scalable technologies (much like what Wal-Mart did to retailing and what Craigslist is in the process of doing to classifieds). For instance, the only way for traditional media companies to leverage the core competencies they have today in order to compete with Google’s Ad/OS, in the long run, is to start breeding ad salespeople who will have the expertise and capability to sell across all media platforms. Sure, that’s feasible… when pigs can fly.

The media industry is in the middle of a massive change, thanks to the ubiquitous presence of broadband everywhere. Fast pipes are enabling niche networks, venture capitalists are investing in new media properties. The online video market resembles an old fashioned bubble, and companies are sprouting up like mushrooms after a fresh monsoon. All of this is predicated on one business model: advertising. Google bet $1.65 billion in chips on YouTube, betting that it can profit from this shift to online video. Their confidence is understandable: Google now accounts for 25% of all online advertising dollars.

Even if Joshua and company built del.icio.us only for resale, they created real value in aggregating users and creating a folksonomy – a user defined categorization and ranking of web content.  They did a brilliant job of solving the dilemma of all network-value businesses – how do you get to critical mass when there is NO network value for the first users?

Real estate analogy holds, but lots more to it – risk, sub-market knowledge, etc.

Remember Metcalfe’s Law that the value of a network scales with the square of the number of users.  This implies that big networks have huge value but also that small networks have almost no value at all,  Makes it hard to get started.

Del.icio.us had value for user #1 even if it wasn’t “network” value.  Tagging is a good way to remember all the web pages you may want to find again.  That use doesn’t depend on any one else doing any tagging.  So more and more people used del.icio.us to bookmark web pages for later retrieval.

Network value – build it and they will come?

Since the tags are public, anyone can use everyone else’s tags as a way to find information.  So, as soon as enough people tagged for their own selfish purpose, their tags became useful to other people looking for web content.  Moreover, there is information in how many people tagged a particular web site or blog.  Popularity means something although it’s not always clear what.  Soon del.icio.us had real network value and was off to the races.

First to market – ?

Del.icio.us got to a critical mass of users before its competitors.  That’s crucial to a network business because this lead kicks off a virtuous circle. The network service with the most users has the most value to each new user.  Other things being anywhere near equal, the larger network therefore gets more than its share of new users and grows faster than its would-be competitors.  Aggregating users faster than anyone else is why Skype succeeded and it’s why del.icio.us succeeded as well.

Of
course, in all likelihood, none of those big companies like Apple,
MSCT, Yahoo or Real Media will be the winner.  This space, as well as
the same one for videos, will be fun to follow.  See Fred’s site for more info.

Does The Wall Street Journal Risk Becoming Irrelevant?
Predictions Contributed by Mike on Thursday, February 24th, 2005 @ 03:04AM
from the learn-to-play-online dept.
Last year, Adam Penenberg knocked the NY Times for becoming increasingly irrelevant in an online world. By locking up their archives, they made it difficult to be found in Google — and in an online world, if you’re not found on Google, you barely exist. If that was bad, things may be much worse for the Wall Street Journal, according to Penenberg. We’ve covered this issue before. Many people are giving up on the Wall Street Journal, in part because they can’t link to the stories. In an online world where many people feel that sharing the news is as important (if not more important) than reading it, this makes the Wall Street Journal useless. While the Journal has been able to coast by on its (well deserved) reputation, Penenberg points out that the younger generation that’s being raised online has other options. The Wall Street Journal’s strategy works in a world where there aren’t other options, and everyone learns that to get the day’s business news you go to the WSJ. It’s a strategy for the status quo. However, it’s not a strategy for bringing on new readers when those new readers are already overwhelmed by news everywhere they look. So, while the WSJ’s strategy may be able to last for some time, it’s going to increasingly come under pressure — which is why Penenberg suggests they throw up the doors now. Of course, it’s unlikely the Journal will listen. Instead, they’re trying to do things like start a weekend paper edition — because what we all want in our lives these days is more paper.

That was Blogging 1.0.  We knew back then that the web was a great platform for personal expression.  All three businesses still exist.  Two of them exist inside of web portals and About.com apparently is going to get sold soon, apparently to the New York Times Company.

Blogging 1.0 paved the way for Blogging 2.0.  I see four fundamental improvements that differentiate Blogging 1.0 from Blogging 2.0.

The first is the notion of the post as the central piece of content.  About.com had some of this in its DNA, but Geocities and Tripod did not. Posts drive freshness, frequency, and syndication and make Blogging 2.0 much more exciting than Bloggin 1.0 was.

The second is related to the first.  Permalinks have changed the game fundamentally.  Linking to content was not really possible until permalinks came along.  Now each piece of content is a persistent object that has a unique identifier.  This is a huge deal and this concept did not exist in Blogging 1.0.

The third is RSS. Blogging 1.0 was a web experience.  Blogging 2.0 is a everywhere experience. Content was a solid in Blogging 1.0 and its a fluid in Blogging 2.0.

The fourth is CPC and contextual ad networks.  In Blogging 1.0, the only way to monetize the business was with banners.  And brand advertisers were not thrilled with paying high CPMs to advertise on "amateur content".  With the arrival of CPC and contextual ad networks, this is no longer the case.  Wherever advertisers can get clicks, they’ll place their ads. The result is a huge increase in the potential revenues.

"the message is pretty clear to me: eventually, and probably sooner than later, someone is going to pull together all these diverse angles on telecom/internet/media/hardware/applications/chips, incorporate some hard financial and technical analysis, and build a cross-sector investment research platform incorporating realtime tools (I mean blogging, IM, video conferencing and collaboration) rather than .pdfs and spam.

There is a business model here, and whether it’s the financial media who seize upon it (Reuters and Bloomberg have the infrastructure and a lot of data, but are trapped in a walled garden mentality and put their journalists in the same sector-coverage silos that the brokers do), or the brokers (I’m skeptical, because I think they tend to be dismissive of alternative points of view, risk-averse, organized in sector and region silos, and anyway are focused on trying to kill one another), or a newcomer (CNET or something that doesn’t currently exist), I feel certain that it is going to happen."

Makes sense to me.  Furthermore, if true, it would seem to follow that almost any research-intensive business would be open to similar disruption.  Wonder if Gardener, Forrester, Yankee, et al. have thought of that?