McLuhan Redux: Is Content King or Commodity?

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The Profitability Problem
So, while it may be difficult to find a pure content play surviving solely on ad revenue, it's nearly impossible to find a sustainable subscription model. The expectation that online content should be free fostered an ad revenue- centric model that has proven very difficult to make profitable. Other than adult, gaming, and selected financial data and research sites, almost no one has been successful in getting customers to pay for content.

The ability to generate any revenue from content, through ads or otherwise, is impacted by the quality, scarcity, and nature of the content, the size and demographics of the audience, the method of content delivery, and peripheral services such as email alerting to content changes, UI personalization, and other bells and whistles.

The ability to generate any revenue from content, through ads or otherwise, is impacted by the quality, scarcity, and nature of the content, the size and demographics of the audience, the method of content delivery, and peripheral services such as email alerting to content changes, UI personalization, and other bells and whistles.

The profitability problem, however, is several-fold. Electronic content is expected to be updated more frequently than printed content. This turnover of content is expensive to the publisher. Furthermore, there is the problem of unbundling content sets. As others have pointed out, print publications would quickly go broke if consumers paid only for the sections they are most interested in. Traditional media sees a positive margin from bundling content by leveraging ad revenue throughout a more holistic product. Online sites, however, receive ad revenue only for the sections users actually view. Plus, no print edi- tion means no markup up on print distribution, and therefore, no marginal utility benefit from mass distribution.

Targeting the Niche
Another promising function of online content distribution was to be the ability to attract premium advertising rates through the targeting of niche audiences. But targeted audiences are, by definition, smaller than untargeted audiences, and higher ad rates have not proven enough of an elixir to counter this fact, in combination with the economic issues listed earlier. Seemingly, the only way to counter this problem is to aggregate niche audiences into a wider distribution.

Mass distribution to a niche audience may sound like an oxymoron, but it is the logical goal of the ad networks like DoubleClick and 24/7, and content syndicators such as iSyndicate, ScreamingMedia, and YellowBrix. By creating incremental distribution for small and large content creators alike, syndicators create value for content sites through increased traffic, while expanding the market for content creators. For publishers like the New York Times and the Washington Post, this amounts largely to an exercise in branding. Smaller individual contributors, though, can earn into the thousands of dollars per month through online syndication.

Yet online syndicators are faced with a strange dilemma. To some extent, they are commoditizing their own products, and, in the process, debasing the currency they are circulating. Ironically, this simple Old World supply and demand equation is not superceded online by the network dynamic that is the linchpin of the New Economy—that is, increasing the supply of hubs on a network translates into increased demand within the network. (The fax machine is the classic example.) Network theory, of course, applies to networked products; content does not fit neatly into this model. Furthermore, while more regional print syndication is immune from this situation largely as a result of geography, the network aspect of online syndication is negated by the lack of geographic obstacles. After all, a big city is still only a two-newspaper town. But cyberspace is not subject to geographic competitive barriers.

The negative economics outlined here would seem to indicate that content models are a guaranteed money loser. If content sites and syndicators are to survive online, these are the problems they will need to solve. As Brown, Duguid, and Saffo have asserted, creating context through filters is surely a valuable service, and indeed is already underway in some forms. Account and content aggregators such as Yodlee and Octopus.com have been well received so far, making the claims that filters will rule seem prescient.

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