FT Technology BlogsMuch more salient and insightful than the scientists’ findings on the evolution of male-female beauty is this video interview with John Malone on how he thinks cable operators may be the consolidators and payment intermediaries for content:
He seems to rarely give interviews (there are hardly any of him on YouTube or other video sites) and the FT one is definitely worth watching.
Mike Volpi, the former CEO of Joost and now Partner at Index Ventures, highlighted what I consider to be the most insightful point about online revenue generation in the current economic climate. Principally that investors will be much more interested in transaction-oriented models than platforms which rely on advertising.
As I mentioned previously, even though Morgan Stanley’s technology analysts recently released a report which upgrades the prospects for the advertising sector, with the exception of Google Adsense few companies will experience the same kind of ad revenue upside they did during the better years.
* http://paidcontent.co.uk/article/419-interview-mike-volpi-broadcasters-own-vod-plans-killed-joost/
Notably, the majority of tech plays I’ve been involved with have had a split broadly like so:
· transaction = 80
· advertising = 10
· subscription / membership = 10
Luckily, the transaction-oriented ones survived — and even flourished — during the vagaries of the tech cycle. One of them we originally invested less than US$5 million in, to build as a consortia play. When it floated it’s valuation was US$1.2+ billion.
Even on a content basis, the information and analysis being provided on a platform, needs to serve some kind of PURPOSE. It should be an intrinsic need-to-know-or-must-have to complete a to-do. That’s what companies and Joe Public consumers alike would be prepared to pay for. It explains how Michael Bloomberg created a US$ billion company: the BBerg terminals facilitate transactions.
The transaction component is a……….UTILITY and people have a lower barrier of resistance about paying for those than paying for advertising, particularly of the push kind.
In any case, the best thing one of my partners on Project ART did was to make me think about how the advertising stream feeds into the transaction ocean rather than vice versa.
That makes strategic sense.
JOOST
For anyone unfamiliar with Joost, here are some YouTube videos which explain its rationale and also how it works on an iPhone:
What the Joost story shows is that we can have top tech veterans (founded by the creators of Skype) and sophisticated tech investors, but some blind spots on consumer market dynamics and how media incumbents will respond — like create their own VOD capabilities, jv with a video streaming provider and/or pure content syndication with a competitor — can lead to a product / service not gaining traction or settling into its USP competitive position.
It also provides us with clues about whether and to what extent people are prepared to pay for content and what caliber of content. People overlook the fact that media giants, particularly the film studios, have decades-worth of content libraries which they own the IP of and can generate income from.
One of the strategies Joost could have deployed to risk manage itself against media giants not signing syndication agreements with them or strengthening the content library would have been to create their own digital content production arm. This doesn’t mean content partnerships but rather financing and developing an in-house team of producers who would shape content strategy and create original content.
That’s a strategic option the investors should have discussed at board meetings within the first 3 months of operations. Instead they seem to have opted for the content alliances and syndication model.
In any case, IPTV will be here. It just isn’t here right now with the likes of Joost. It’s more likely to arrive with an Apple tablet and its content syndication with media giants.
Incidentally, why else is Steve Jobs my personal business hero? Well, he’s created US$ billion businesses in completely different sectors: Apple and Pixar. He gets the technology. He gets the code + consumer + transaction synch. He gets the design. He gets the content. He gets the production. He gets the marketing. He gets the branding. He gets collaborating with people who are brilliant in their own right like Alan Kay, Guy Kawasaki, Jonathan Ives, etc. He gets it all and he can do it all: technical and interpersonal synching. Plus he manages to make it all seem cooler than any other tech geek can.
Now, THAT’s…………GENIUS.
This comment from Barry Diller, the CEO-Chairman of IAC/InterActiveCorp, appeared on Bloomberg yesterday:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZeenjkAYFIE
Last month, he was interviewed in Businessweek on the same topic:
http://www.businessweek.com/innovate/FineOnMedia/archives/2009/06/barry_diller_an.html
Here’s his corporate biography and in interesting business exchange interview with him from Joost:
http://iac.mediaroom.com/index.php?s=20&item=17
What’s interesting is that there is a genuine schism between coders and technologists who — especially when they launch their platforms — believe in the free+open model because they’re aware people don’t want to pay over and above the monthly ISP charges they already have to contend with, and the corporate managers who — charged with the responsibility of making the platform profitable — recognize that “free” is unsustainable and serves to accelerate a platform’s demise. Someone has to pay to keep the platform operational. It can’t keep coming out of investors’ resources because they invest to earn a profit, not to finance users.
So what we have is a situation where a technology starts off being open and free and then it migrates towards closed gate community and charges to continue membership of that community.
The challenge, in terms of strategy, is in pinpointing the timing, the geography and the motivation of when free flips to fee. WHEN and WHERE can the platform’s users bear the costs and what USP would make that content chargeable?
It’s helpful that someone as experienced as Barry Diller refers to free content as a “myth”. The reality is that no content is free. All online content we access incurs a TIME COST. Now since, according to the adage, “Time is money,” it could be argued that just as users should perhaps pay to watch content produced by a third party, so should THEY BE PAID (either in US$ or in-kind) if they write reviews and commentary about that content wherein the reviews and commentary adds to the contextualization, propagation or interest traction of that content.
How do we framework the reciprocity of payment exchange in a paid content model that’s equitable to the company and the users alike? That’s what we need to know!
The fact is that neither free or paid arguments have completely won me over. There are merits in both and areas of improvement needed for both, and I’m informed about some of the considerations involved.
Over three years ago, a leading wi-fi entrepreneur sent me his business plan to sanity check. I turned the document, which he and his managers had taken several years to put together, around in about 8 hours. Within the week, I’d managed to persuade him to stop subsidizing his router and, instead, charging for it at a more appropriate price point. At that staget, they’d been subsidizing it for approx 15 months. I understood their “free is good” philosophy but also had an awareness of how potential investors would view this subsidization if it over-stepped its welcome: unnecessary cash burn and delaying break-even. Neither of these are liked by investors, btw. That’s one example of me advocating that, “Users should pay for the product.”
Now, in 2009, it’s interesting to hear Tom Gruber say that Siri will be a “free” service application. In a sense, it’s become acceptable for a tech giant like Google to release free services and applications (on browser, over wi-fi, via Android etc.) as a means of continuous engagement with core users, over more diverse digital terrains. However, for start-ups, offering the application or service for free with almost no business model to monetize user interest and engagement can be risky.
It also raises some questions about the changing dynamics of what we consider to be capitalism and the roles and rewards systems of participants in the Knowledge Hive.
There are several Semantic plays out there currently operating a “free” model whereby the structured data is being built with bottoms-up methodology. In other words, the content is actually being filtered, tagged and sanity-checked by unpaid users.
When the paid model arrives to the Semantic versions of online content, will this mean that they’ll be paying to access the very content they’re responsible for collating, structuring, contributing and making sense of?
If so, this means they will have paid TWICE OVER:
(1.) time cost of contributing content.
(2.) access cost once the paid model is implemented.
What measures can companies put in place so that ordinary users who’ve contributed substantial and significant content are not subject to access costs? How can they be retrospectively paid for their content? Who is / are the arbiter(s) of the value of their content? Where would they go for arbitration of disputes regarding the payment or otherwise for their content?
See? It’s not simply a case of User X will pay US$A for each ZMB content they access, US$B for content they download, etc. What if the content includes reviews and commentary User X has previously contributed or is continuing to play a significant part in propagating (aka marketing and PR)? Why shouldn’t they be paid for these marketing and PR services?
Answer: they should be paid.
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[I've been figuring this out for Project ART, btw. My potential answer is certainly not derived from the media sector, alone. The time-old media model of subscriptions, advertising and transactions needs a good dose of re-imagining, imo. It needs twaining with the way other sectors generate revenues and rewards participants in the process.]
I just read these comments from Bob Iger, CEO of Walt Disney:
· http://blogs.wsj.com/digits/2009/07/07/sun-valley-paid-content-on-the-agenda/
That’s consistent with Rupert Murdoch’s plans at Newscorp:
· http://www.readwriteweb.com/archives/rupert_murdoch_lets_charge_for_online_content_again.php
Now this may not be obvious but paid CONTENT is different from paid SEARCH LINKS where Google dominates almost 70 percent of the global market. There’s some concern that the public will not pay subscription charges to read articles, view videos or the right to participate on discussion forums.
Personally, I think ordinary consumers would pay if there’s a PURPOSE, CHANNEL FILTER and CONTEXT to that content. As a consumer I wouldn’t pay for content that was simply mindless noise or dross. I’d pay for the content if I needed it to complete a project, though. For example, I’m prepared to pay for substantial quality McKinsey / DataMonitor / Jupiter Media Matrix reports; I’m not prepared to pay for tweets by Ashton Kutcher on Demi Moore’s derrière, although others would pay. That type of content is harmless and purposeless banter. Now contrast this with Demi Moore showing women how to apply make-up in a YouTube video. THAT is content some women would probably pay for if they wanted to look like a Hollywood A-lister (and there’s your context — LOL).
PAID CONTENT = PURPOSE X CHANNEL FILTER X CONTEXT