Decoding the new economy

Medium and the broken media model

Medium’s Ev Williams finds online advertising isn’t enough to sustain a hundred million dollar publishing company. The rest of the industry is not surprised.

How do you make money from online publishing? Medium’s Ev Williams shows he is as far away from the answer as the rest of us.

In a blog post yesterday Ev announced his company is firing fifty staff as online advertising revenues fall short.

Online advertising’s disappointing revenues are no surprise to pretty well anyone observing the online publishing industry for the past five years, it seems to have come as a revelation to Ev and the investors who’ve staked an estimated $140 million in the venture.

That money, which most online publishers would gag for, seems to have gone on a bloated headcount given the company can afford to fire fifty people. It’s a shame the company’s investors didn’t appoint a board that checked management’s hiring practices.

Something that should worry other publishers is the organisation’s Promoted Stories division is being shut down as part of the restructure. This underscores how branded content doesn’t scale the same way traditional advertising does and won’t represent a major revenue stream for online publications.

It isn’t the first time Ev Williams has got it wrong, in founding Twitter he and his team turned their back on ordinary users and developers to focus on courting celebrities in the hope big brands would pay large amounts to be associated with them. It didn’t work.

Contrasting Ev’s Twitter and Medium experiences with that of Buzzfeed founder Jonah Peretti is interesting. While Buzzfeed still hasn’t found the formula for profitability, Peretti and his team have gained a deep understanding of what works in online publishing.

To be fair to Ev, we’re all trying to figure out the revenue model that will work for online media, his travails with Twitter and Medium show just how hard it is to find a way for publishers to make money from the web. What is clear though is burning a lot of cash on sales staff is not the answer.

Business benefits from blogging

Blogging can be useful tool for a savvy business

This post is the final of a series of four sponsored stories brought to you by Nuffnang.

Boring is the comment often used about business websites, however smart companies are using blogs to spice up their sites and boost marketing, customer retention and employee engagement.

A blog can make a company’s website more dynamic and a destination for visitors, it’s an opportunity for an organisation to demonstrate its depth of expertise and the qualification of its staff.

Best at this are the big global companies like GE, Cisco and IBM that have large pools of experts who can contribute to the company blog. These enterprise blogs are sprawling sites that cover multiple markets and industries which the companies operate across.

More than a marketing tool

For smaller tech companies, particularly Silicon Valley startups, their blogs have become vital marketing platforms where they often describe the company’s journey and new features being added.

Some companies, like Uber and Nest, use the company blog as their press channels with entries acting as media releases. This is particularly useful for smaller businesses without a PR agency or in house communications people.

At a more tactical level, blogs can be used as a weapon in a fight for marketshare. One of the toughest battles on the internet at the moment is going on between accounting software companies MYOB and Xero and their blogs are at the forefront of this fight.

In this battle MYOB are the incumbent with over a million users in the Australian business accounting market and a small army of Certified Consultants to help clients with using the software while Xero is the well funded cloud computing service that grew its Australian customer base by nearly 50% to 147,000 so far this year.

Small business thought leadership

So the battle is intense with both companies using their blogs to show their thought leadership in the small business space. Both of the blogs illustrate each company’s strengths and weaknesses.

MYOB’s blog is the longest standing and is more of a generalist overview of small business and accounting issues while Xero’s focuses on the new features being added to the product, both have fiercely passionate followers which shows in the comments fields of their blogs.

Blogs though need not be about pure marketing or advertising functions, in fact the best small business ones are those that just tell their customers what’s on. These are particularly good for the hospitality and retail industries.

One plus with business blogs is they help employees understand their business better, particularly when staff are invited to contribute.

Blogging isn’t just about lonely geeks or bored mums sitting in their spare rooms. A well thought out business blog can be a great tool for engaging existing customers, motivating staff and building new markets.

Don’t be at the wrong end of the long tail

The state of the apps market shows how the long tail theory doesn’t work for businesses in digital markets

One of the most important characteristics of the technology industry is you have to be first or second in your market to guarantee profitability.

As more of the world become digitized this is becoming true in other sectors, as Tomi Ahonen’s survey of the app industry shows. This also demolishes the long tail theory of online economics.

The long tail idea was put out by writer Chris Anderson during the first dot com boom.

Anderson’s view was the long tail of older material would be a useful income source for creatives and businesses. For many, small payments on a ‘long tail’ of older work would add up to reasonable revenues.

I’ve always skeptical of that view as the internet tends reward the ‘one percenters’ — a tiny number with the most traffic or revenue make the money while the bulk of players fight over the few crumbs that drop from the table.

A sheer disaster industry

A good example of how digital markets favour a tiny group of leaders is in Tomi Ahonen’s survey of the 2014 mobile apps market that shows the vast majority of developers struggle for pennies.

Ahonen pulls no punches, describing the apps industry as a “sheer disaster industry with only one sector making money” and goes on to describe just how dire the predicament is for most developers.

The first point is where the money is being made; the first answer is by Google and Apple who skim five billion of the industry’s $21 billion in revenues. Just that stat alone shows where the real money is in the sector.

Of the remaining $15 billion the top 1.3% of the industry — around 27,000 developers — take $11 billion, or 73% of the revenue and leave four billion to be shared among the other 98%.

Slaves and huddled masses

At the other end of the scale those who Ahonen calls the ‘slaves’ and the ‘huddled masses’ there’s only 400 million dollars to be shared around two million developers. Implying 87% of the industry barely make a few hundred dollars a year.

On Ahonene’s figures two out of five developer make nothing.

HUDDLED MASSES IN APPS ECONOMY 2013
Revenues left . . . . . . . . . . 0 million dollars
Bottom 39% developers . . 819,000 developers
Bottom 39% earn . . . . . . . 0 million dollars
Bottom 39% earn . . . . . . . 0% of all revenues
Bottom 39% earn . . . . . . . 0% of developer revenues
Average per dev . . . . . . . . 0 dollars
In above numbers:
Beggars failed to earn . . . . 400,000
Hobbyists don’t care . . . . . 250,000
Branded utility app devs . . 170,000
Source: TomiAhonen Consulting analysis on Vision Mobile survey Aug 2014

The Apps industry is a stark indicator of just how brutal the economics of digital distribution are. The long tail is real, it’s just that it describes a massive imbalance in income within markets.

For all of us trying to make a dollar in the digital world, we need to find the niche where we fit into the profitable part of the curve.

Being on the wrong end of the long tail is a recipe for poverty.

Reinventing online publishing

Has the Daily Mail cracked the business model for online publishers?

Is the Daily Mail the future of online publishing? In USA Today Michael Wolff posits that the British media outfit might be the first newspaper company to navigate the transition from print to digital.

Certainly the 180 million unique visitors a month make it the English language’s most popular news site which, despite the unease and criticisms about its brand of journalism, shows the model might be working.

Wolff puts the success down to the digital arm being autonomous to the print operations, making the point its hard to simultaneously defend the old, but still profitable, print mastheads while growing the digital platforms.

It would be sad if it were a crusty incumbent that becomes the David Sarnoff of the digital era rather than some smart and hungry kids from a barrio or ghetto, but there’s no reason why one of the established newspaper groups couldn’t be the people who reinvent the media for modern times.

There’s plenty of competition though from groups like Vice, Buzzfeed and dozen of others. Despite the Daily Mail’s successes, there’s still no shortage of opportunity

Reinventing business in an online world

Buzzfeed founder Jonah Peretti has some important views on the future of business and online publishing

Jonah Peretti, the founder of Buzzfeed and formerly of the Huffington Post is widely thought of as one of the smartest thinkers in digital media.

In a long interview with the Felix Salmon, the former Reuters journalist and himself one of the savviest commentators on the online space, Peretti discusses the direction of both online publishing and business in general.

“Why do they need so much revenue?” is one of the questions Peretti poses about the recent New York Times’ innovation report and it’s a question worth posing of many organisations – particularly those that are in sectors with declining revenues and margins.

Reinventing organisations

As Yammer founder and now Microsoft employee Adam Pisoni told Decoding The New Economy last year, modern collaboration tools mean modern businesses don’t the need the management layers and staff numbers that older companies needed, this is something that has been lost on many modern media organisations.

Peretti’s views about communications and how stories turn viral is a worthwhile read in itself while his points about fundraising are very pertinent, particularly where he observes that venture capital investors have been reluctant to fund startups which pay writers.

What stands out in the interview is Peretti’s charitable view towards others in the industry, here’s his view on the New York Times’ innovation report.

I did read it. There were a lot of interesting things in it. I think in some places, they were a little bit overly critical of their tech and product team. When you look around the industry, The New York Times has a really great website. They’re building lots of things themselves and integrating them. It doesn’t feel like a Frankenstein website with things bolted on from millions of other places. I was a little surprised at the tone, how critical they were of their web products.

The key question Peretti asks is how do we re-imagine our industries: “What would this be if the readers and the publishers were not focused on making something similar to print?”

Reinventing industry

While Peretti’s question is asked of the newspaper industry, it’s a question that every business can ask itself as manufacturing, marketing and supply chains are being reinvented.

Following that point, Peretti points out the risks in focusing on simple metrics; too much emphasis on one figure can lead to perverse results in the publisher’s view and following a mission rather than chasing a number is a much better strategy to long term success.

As Salmon says in the introduction, there’s a lot to learn from Jonah Peretti about where the internet and digital media is taking the publishing industry and the business world in general.

Bridging the online advertising gap

Mary Meeker’s State of the Internet report reminds us that the online advertising model is yet to be found

At the Code Conference held outside Los Angeles last week, analyst Mary Meeker delivered her annual State of the Internet slideshow covering the trends and opportunities in the online world.

One of the most watched graphs is the time spent on media versus the advertising spend on that channel.

For years Meeker has shown print is receiving a higher share of advertising dollars for the amount of time consumers spend on it compared to online channels.

That implies print revenue is due for collapse and online advertising revenues will surge. Here’s the 2014 chart.

If we track this over the last five years, here’s what we see with the ‘difference’ column being the sum of print’s over-representation and online’s (mobile and web) under-spending.

Year	Print time	Print share	Online time	Online share	difference
2010	12	26	28	13	29
2011	7	25	36	23	31
2012	6	23	38	25	30
2013	5	19	45	26	35

The collapse in print’s share of consumer time, down 60% in five years, is stunning and the 2012-13 changes may indicate advertising spend may is now collapsing as marketers start to adapt to the changed marketplace.

It could be however that advertising as we know it has to change; one of the key reasons for online – particularly mobile’s – spending being under represented is because no-one is quite sure what works in the newer mediums.

Advertisers may know that consumers are moving from print channels, but at least they know what works in print. Online the experts’ guesses are still not much better than the amateurs’.

In short, we’re still watining for the digital era’s David Sarnoff. As Mary Meeker keeps reminding us, it’s a $20bn a year opportunity.

Tag: digital media

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