Publishing and advertising are undergoing structural transition last seen when Gutenberg’s press was invented. The Internet, and more specifically, the broadband Internet (which has reached critical mass during the last six years), eliminates the cost of distribution as an economic factor in media publishing and advertising. The fact that some businesses, including most of the historical advertising and publishing concerns, have not adjusted their business models has absolutely nothing to do with Bush or politics. For extended treatments of this subject, see Carlota Perez: Technological Revolutions and Financial Capital and Clayton Christensen: The Innovators Dilemna. For more concise observations in point of the facts of structural change in advertising business, I refer you to these:
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.
* Craigslist took the classified ad business away from newspapers by doing it better for zero marginal cost. They charge for job listings in San Francisco and NY because, well because they have some bills that need to be paid. So classifieds were are huge profit center and are now,… , are worth almost nothing.
* Music is must cheaper to distribute in digital form than truck deliveries to record stores. Copyright issues be damned, listeners preferred digital music to be carried around in devices the size of a deck of playing cards or a pack of Wrigleys Chewing gum. Morpheus, Kazaa, BearShare, LimeWire gave customers what they wanted. iTunes barely makes up for the record labels missing the beat. Music may not want to be free, but it sure wants to be distributed for free.
* Voice calls via Skype, PC to PC, are free. They single-handedly yanked down the price umbrella of overseas calls to 7 cents a minute. The telcos had to respond to free.
* Newspaper and TV journalists had a long run as the trust voice of news. Now distributed bloggers can take turns scooping professionals. It’s not only that distributed news gathering is cheaper, its the zero marginal cost of distribution. Post it to a blog, get picked up by other blogs and search engines. Bask in glory. Rinse. Repeat.
In each of these examples, because of marginal costs approaching zero, it is increasingly a better business to provide technology to millions, even billions of folks rather than try to protect the control of a pipe to a few. The right answer is to GO WIDE. It’s time to get horizontal. Newspapers should have licensed Craigslist’s (or eBay’s) technology years ago. Telcos should have embraced or emulated Skype. Drop CDs and distribute all your music (and everyone else’s) online at a price that doesn’t protect retail, but destroys it (which is happening anyway!).
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.
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)
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.