Helmsley Media

A recent post I read over at Techdirt has gotten me thinking a lot about the “free vs paid content” debate online. Apparently Rupert Murdoch is looking to stop Google from indexing a lot of News Corp’s websites in favour of putting up paywalls that require users to pay a subscription fee from access to his content.

Mark Cuban thinks this is a genius move on Murdoch’s part. The game changer in his opinion is Twitter, Facebook and similar social media sharing tools because they allow a more organic dissemination of news content than search. I agree, that for real time news content receiving something from your friends via Twitter or Facebook is more likely to pull your interest towards reading that content. However, I don’t think Twitter and Facebook are going to be of much value when the site has a paywall. You are less likely to share content that is behind a paywall, and your friends/contacts are less likely to view it once they realize they have to pay for it. Their first instinct is going to be “is this an affiliate link?” and with all the Twitter and Facebook spam that’s getting passed around now I wouldn’t blame them.

More and more I’m starting to think that online media is starting to merge media with direct response marketing concepts. Advertising revenue is hardly enough if you can only generate a CPM of $2-3! There has to be other ways of monetizing, and paid content could be worth looking at. I think paid content is better suited to niche audiences, but it could be done for a larger audience, especially something like the Wall Street Journal which is targeting a more affluent, business oriented audience who need this information quickly. The challenge is protecting that content. What is to stop a blogger or other publication from paraphrasing your content? You can’t copyright news or ideas, just the specific words that you wrote. I know GigaOM for example recently launched GigaOM Pro with an annual price of $79 for access to their content

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Google doesn’t have to be everything online. Of course they are the dominant company for the time being, but keep in mind they are barely 11 years old and things change very rapidly online. I often think about the internet marketing community and how they manage to thrive oftentimes paying for all of their traffic, and not depending on search traffic at all. If you know your conversion rates and other metrics, buying visitors is a valid option if your customer acquisition costs are lower than your prices. There are all sorts of ways to build your own lists of prospects, and all sorts of ways to make money of of them. The idea of not depending so heavily on Google is potentially a good move on Murdoch’s part, and an even better move if he can get other major media companies to follow suit. It is also of course a very risky move, but as they say fortune favours the bold.

I recently came across an article on Bloomberg.com about the possible demise of the National Post.

“The National Post Company has never generated a profit and it continues to suffer significant operating losses,” Canwest, which is in bankruptcy protection, said in a court filing. Canwest plans to seek a judge’s permission to transfer the paper to Canwest Ltd. Partnership, which holds Canwest’s other newspaper businesses and isn’t in bankruptcy.

I know that a lot of people talk about the death of the newspaper industry and how much trouble their in etc etc, but let’s be honest here, the business model is not sustainable anymore. It isn’t necessary for news to be communicated through ink and paper, the news industry isn’t dying, just the newsPAPER industry. To complain about it would be like complaining about the demise of the buggy whip industry when the automobile became widely affordable. The business models aren’t quite so clear yet, but that doesn’t mean that the world is going to fall into never ending anarchy. Companies like Canwest rested on their laurels for a long time, content with their position and their fat profits for years. The current times require innovation and adaptation to survive, so get with the times or die.

It’s tough with news content because it’s incredibly easy to paraphrase news content, so protecting your work is more or less impossible, but that shows them they have to differentiate elsewhere. Yes, you need good reporting and storytelling, but you need to focus on community and building a following more than ever. With tools like Twitter available news travels at the speed of thought now. Someone sees something significant happen and as quickly as they can update their Twitter on their iPhone everyone following them knows what they witnessed. The established media (I won’t call them traditional for the time being) need to tap into the power of the zeitgeist, what’s happening now on the minds of their audience, and they need to harness that information. I think provided editorial, and fact checking layers to that stream of consciousness from the masses is valuable for sure, and there will always be a place for that too, but don’t think you can just talk at your audience anymore.

Google is a fantastic tool for organizing the world’s information, and Twitter is a fantastic tool for extracting what is on the minds of the masses. I could definitely see some synergies there, especially from a news perspective since news is all about relevance and timeliness. Twitter could help Google to speed up the pace at which they gather information from the zeitgeist. Anyway, that’s something another post on another day.

Google’s business centers around the flow of information, which is a pretty good business to be in on the internet. Most people are coming online because they are looking for information. Google’s search service is a fantastic, albeit not perfect, tool to do this. For those of you who aren’t familiar with how Google makes money, they place advertisements next to these search results from advertisers that are targeting people interested in those keywords. So if I am selling video games, I will target people searching for “video games” in Google, and I know that my advertising will be very precise. What Google also did is they provided a tool for online publishers like myself to monetize our content by placing their ads on our websites. Anyway, chances are if you’re on this website you already understand all this. Google makes the lions share of their revenue this way, and with a market cap of more than $150 billion, it seems to be a good business model.

Facebook currently generates advertising not by targeting people searching for a particular keyword, but rather based on their demographics and interests. This is a great tool to target people within the Facebook network. At 300 million strong as of September 2009, Facebook can get you exposure to the demographics you want. There has been questions surrounding the effectiveness of ads on social networks, but I can tell from my experience that I have had more success with Facebook ads than Google. That may have more to do with the niche I was promoting, and my skills in developing ad campaigns on Google, but nevertheless Facebook ads have been effective for me.

So how do I propose Facebook is going to dominate Google? Well the company has started providing search results from outside the network, that isn’t likely to hurt Google anytime soon, but it’s definitely a good move. When you use their search feature now they also provide web results, powered by Bing. That could provide some interesting things in the future, but the real killer application I see coming from Facebook is Facebook Connect, and if/when they all online publishers to paste a Google Adsense like advertisement on their website, integrated with Facebook Connect, and therefore serving ads from the Facebook platform. Suddenly Facebook would have the ability to serve ads to billions upon billions more pages, using their demographic data, and they could also integrate contextual ads as well to target the ads even further. I could target viewers within certain demographics, regions, interests and on pages with certain keywords.

Google has their service Orkut, which is apparently still widely popular in places like India and Brazil, but it’s unlikely to be able to unseat Facebook as the North American champion. Although, some would have said the same about MySpace a couple years ago. Google has their Friend Connect which enables publishers to provide some social networking type tools to their users, but it doesn’t currently have the same punch that Facebook Connect can provide. This type of demographic targeting is the type of thing that the traditional media companies would kill for, but would never have the sense to create services that empower their users, instead they restrict them.

As I have studied email newsletter marketing further, and have learned about the concept of taking your time to develop a relationship with your readers, I have also begun to better understand the business models of several new media companies. Yesterday on the Facebook blog, Mark Zuckerberg announced that they have surpassed the 300 million user mark, and that they are now cash flow positive. In this story from Yahoo News, this cash flow positive metric does not include any cash from private investments, which means they are now proving their viability as a business model. For a long time there were criticisms that their business model would never reach this point, and that eventually it would all come crashing down around them. So what is their business model exactly? Are people really buying this many “gifts” for their friends?

A Look At The Facebook Layout

Taking a look at the Facebook home screen (I’ve removed personal information pertaining to my friends) you’ll notice that they actually do nothing that immediately makes them any money here. No advertisements whatsoever. Everything on this page is about making your connections within the site deeper. They want your online social life as it were, to be dominated by your Facebook interactions. The whole page is designed to get you clicking on links pertaining to your friends’ activities, the pictures and videos they post, and their status updates.

Advertising Placements

Further into the site we start seeing ads on the right hand side of the content. The same ad placement applies across most of the site, whether it is on profile pages, or photos/videos that you or your friends have posted on the site. You’ll notice in the image below that some of the ads are not in English, this is because I am currently in Denmark, and as a result I am being targeted as though I were living in Denmark.

Advertising Targeting

Advertising in a newspaper, or on a billboard we can get broad exposure, which is great for branding purposes (I suppose), but it’s not very effective at driving sales immediately. With Facebook and other social networking sites we have the ability to do some very specific targeting that traditional forms of media cannot. Let’s say for example that we ran an ecommerce store selling camping equipment and we wanted to drive more sales to our website. Using Facebook we can target people based on their geographic location, age, gender, and many more characteristics. In the picture below we have made a sample advertisement targeting people living in the United States, over the age of 21, who have listed “camping” as one of their interests. The result of this targeting is a pool of 1,725,280 Facebook users for us to target.

Advertising Pricing

After targeting our prospective customers, and receiving numbers as to how many there are on the network, we can get some approximate price quotes from Facebook. This is automated, and only an approximate. You will never pay more than your max bid, or max daily budget, but if people are clicking on your add more often then your per click cost will go down. You can also target based on number of exposures which is apparently a great way to keep your costs down if you know how to get your click thru rates up.

This model is quite similar to Google’s Adwords advertising service, but instead of targeting based on people’s search terms, you are targeting based on very specific demographics (including interests). In fact if you read up on Google’s development and their history it is strikingly similar to Facebook’s. They took quite some time to build up their Adwords service, and to get to the point where they are now. They are making money through long tail economics. Because it is so simple for them to make money on the narrowest of niche’s at essentially no extra cost, they can become a viable advertising tool for almost any business regardless of scale. What makes Google and Facebook so valuable is that they make other businesses lots of money, even though they don’t directly charge 99.99% of people who use their website and services. Give your users increasingly more reasons to stay on your site, and interact with the different elements within it, and you increase the lifetime value of each visitor/user/customer.

I was thinking about the tech pioneer days of the 1980s when guys like Steve Jobs and Bill Gates were starting their businesses. These guys were extremely successful at a very young age, and few people older than them were catching this wave. I recently read Malcom Gladwell’s book “Outliers” and he actually pointed out that most of these tech guys were born within a year or two of each other:

Steve Jobs – February 24, 1955
Bill Gates – October 28, 1955
Eric Schmidt – April 27, 1955

Why does this matter? Timing. These guys were at just the right age, and had just the right amount of experience in their respective fields to prosper, and being young they were much more open to how things could be, instead of how they were. As a result they hit the jackpot. Remember, luck is when opportunity meets preparation.

So where am I going with all of this? How does this apply to new media? Well if we look at what is happening with media right now, and how new media is encroaching into traditional media’s business, we see some serious disruption. I’m sure that companies like IBM looked down at Apple and even Microsoft at first. Why else would they suggest licensing DOS instead of buying it? Big mistake of course. So the traditional media companies looked down on the new media companies, or even ignored them all together because they viewed them as being more tech than media. But I hardly expect that Viacom is ignoring Google now. Suddenly the media industry is on it’s heels.

This is a particularly interesting time for people involved with media, and I think it’s going to follow a similar path as we saw with tech. The barriers to entry are incredibly low, and in fact in some ways they are lower for the younger generations as they actually have far more experience with new media. I’m doubtful you’re going to see many new companies within new media that have people over 40 years old running them (unless they’re from the tech industry). I’m willing to bet we’re still going to see a few more interesting new media companies sprouting up over the next few years, and the big guys are not going to be the ones launching them, but they may start acquiring them.