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I’m beginning to realize that many of the technologies that drive our favorite internet sites really don’t create any soft of competitive advantage.

Just how easy is it to enter the industry?

I am, by no means, a developer. I have zero programming experience, but I have been around enough startups and followed enough business models to comment, somewhat intelligently on the issue.

I’ve had several experiences with “outsourced” development. I worked on a Microsoft team that outsourced a customized toolset application to India, I’ve befriended several entrepreneurs who’ve outsourced (or hired permanent) help from abroad and recently I’ve hired a Hungarian team to redo DeParisRedinger.com Of all these experiences, the website experience was the most interesting.

Elance.com, the perfect example of globalization at work.

I’m sure most of my readers know about Elance, but I certainly didn’t. Luckily a local website programmer/designer forwarded me that way. After receiving some rather steep bids on our website (I’m talking $5,000+), I eagerly submitted project specifications and waited. Within 24 hours, I had 8 bids from experienced web programmers/designers.

I fired up Skype and right away I had eager salespeople requesting more details and fighting for my business. They came from China, Nepal, India, Hungary and the US. The best thing about it was that the average bid (including US bidders) had moved down to $2,000. I was getting excited. My final bid ended up being $800 dollars for a rather robust website with content management, file management and other much-needed features. I happily accepted a Hungarian team’s offer after finalizing terms over Skype.

If I never met the team, why would I hire them?

Elance provides all the infrastructure necessary to protect myself. It provides reviews, an escrow account, a rating system, an experience metric and a phased development. The site facilitated the transaction and removed the risks. Additionally, because the cost is so low, I had little fear over a failure.

Elance reveals a world that is much cheaper to enter than you may think

The most interesting thing on Elance are the bids for other, richer projects. I’ve seen Yelp Clones, Digg Clones, Content-Specific Portals, Social Networking Web Apps, Sports Betting etc. The cost of these sites often fall under $10k. I find this simply amazing. While I havn’t decided to foot the bill for my own clone, I do believe this speaks to the commoditization of technology.

While the tech is a commodity, the ability to execute an idea is the competitive advantage

VCs always explain they “invest in people, not the idea.” With so many eager foreigners ready to build that idea (for the cheap), I thoroughly believe this. Maybe I’m stating the obvious, but Elance was a very clear example of the lack of any barrier to entry. I find it fascinating and hope that my readers get the chance to experiment.

I wasn’t too surprised to read the WSJ article that discussed the potential GE and Microsoft bid for Dow Jones.  Well, I’m a little surprised that after the rumours that GE was considering spinning of NBC that they would consider a major acquisition.   I have commented on the need for technology companies to own content companies many times in the past.  My articles include:

• March 5th, 2007:  Tech firms must own content
• May 9th, 2007:  When will technology companies buy media companies?

The “when” is still being decided, but this rumour goes to show you that there is increasing interest in the value of content when combined with a technology focused company.  Would this deal make sense for Yahoo?

I’m beginning to wonder if Google has secretly admitted licensing newspaper (and other types of media) content makes sense.

If technology companies aren’t content owners, they must license content to avoid copyright infringment risk.  Duncan Riley from TechCrunch misses the point and talks about the need to “run ads” on Google news.   There is certainly fear of further Viacom-esque lawsuits, and those dreaded “content licensing consortiums.”  But, it’s about advertising dollars, although not in the way Riley explained.

They key here is that Google needs to be friendly because newspapers have a dominate share of the advertising market. 

Google can’t piss off newspaper companies with Google news (or any other type of product) and expect newspapers to come with open arms and accept Google’s ad placement technology.  I expect Google will admit that content has value (i.e. license content from many different partners) because then it will be easier for them to create advertising partnerships with those content providers.

I’ve been following startup/VC news for a while now and I’m beginning to wonder about the viability of these business plans. Market verticals need better solutions. Every day it seems like a new RSS feed alerts me to a social networking/new media site devoted to the _______ vertical. Ironically, TechCrunch talks about Cut/Paste innovation as if it isn’t happening in many places.

My theory is that cut/paste innovation is crowding the social media; but being “guised” as different verticals

Examples include Fishing Doctors and Sailors

Your user community will no longer come to you

MySpace and Facebook were early market concepts that have broad appeal. Looking at increasingly smaller fragments of markets is not sustainable from a business perspective; your market is just too small. You also need a substantial product that has advertising value. You need critical mass.

The Technology Expertise is a Commodity

If you don’t take my word for it, read this. Janko explains:

We’ve seen tons of startups lately that essentially aren’t anything but glorified mashups. Social network aggregators, video and web annotation tools, media conversion platforms: They’re all based on remixing data feeds. Some of these might actually be quite useful – but are they really worth business plans, VC money and acquisition talks? Or are they just tools that someone in some remote place of the world could develop in a day out of boredom?

I totally agree with this. If newspaper companies are still having trouble figuring out “how to get to the next level” they should call me. I’ll tell you about everything.

Social media platforms are free and ready for the taking

The opportunity for a startup using these various platforms are not so much in the target vertical, but rather in being the expert for a larger media company with existing resources (and the hunger) to make investments into new, properly aligned spaces.

VCs are so 90s

I admire VCs immensely, but as Business Week points out, they are facing increasing competition from Angels. It’s that cheap to start a New Media company. But, Angels really aren’t that interesting either. Maybe they give startups more favorable terms, but when the technology is so cheap to create and terms are more favorable to the founders, success will increasingly be determined by the “value” of the money.

What the hell is the “value of the money?”

$100 is not worth just $100 dollars to a startup. Take a look at the “selected partners” of Joost. Think about money above and beyond the number of Benjamin’s. Partnerships and networks are more valuable. Maybe there are different return requirements for different VC arrangements, but let’s just say in a competitive market, the return requirements are substantial because of the losses. Everyone is promising you capital and each one saying they have a better network. But times are changing…

Traditional media companies (TMCs) are the New VCs

Well, maybe they aren’t raising capital from institutional investors, but they do make much better investment partners. Here is why:

• Established content businesses with an existing sales force, customer relations, supplier contacts, etc.
• Much lower return requirements
• Shareholder-driven need to aggressively pursue “new media” type strategies
• Opportunity Cost of not having the next YouTube, MySpace, Facebook, etc
• Access to high quality content

Still Don’t Believe Me? List of “Established” Funds by Parent:

NBC, Disney, Bertlesman, Die Zelt, Holtzbrink, and Time Warner all have investment arms for startups.

This list doesn’t even include the non-formally established VC arms. CBS, Fox and many others are all looking to deploy capital into new media investments. I suggest you consider them as valuable partners and investors for taking your startup into the next level.

Where to go from here?

First you should be very picky about whom you go to bed with. Look at their current strategy/property portfolio, and see if you fit in. How will company A deliver your product to market quicker than company B? Not all TMCs are made the same. Some, like TMCs in print media (newspapers, magazines, journals, etc…) have great relationships with their individual communities/towns/cities. Does that kind of TMC make sense for a YouTube type site? Probably not. TMCs in the broadcast space “get” the power of video and have the established video-ad networks to deploy pre/mid/end rolls on the videos. Should a social networking site focused on user generated recipes/cooking videos approach Viacom? I would suggest approaching Scripps Networks, which has the Food Network in its expansive portfolio.

In the context of this post, these suggestions seem logical, but how many of you have done this? How much VC money have you swallowed and how much more would you have benefited from the platform TMCs could have given you?

As much as you think TMCs don’t get it, they really do. They have weathered and survived storms from “category killers” such as radio, TV, and now the internet, but they are here to stay and grow. Pick your mates wisely and grow with them. Salmon fight the current to live, but it doesn’t mean you do too.

As I’ve said before, Google is alienating content owners with its views on the value of content. This reuters article contains some very interesting points. The best quote was:

“We’re in a world where we’re a partner with everybody and we’re fighting everybody,” News Corp. Chief Operating Officer Peter Chernin said on the panel.

A relationship with Google is love/hate. Google has now has the critical mass. The traditional media companies sat on the sidelines and watched the internet grow beyond what was expected.  But, they do sit on valuable IP that can and will be protected by the courts.

I think the solution is for the technology companies of the world to admit they need to own content. I’m still waiting for the day one of the media companies gets acquired by a technology company.

Berkshire Hathaway had their annual shareholder meeting on Saturday, May 5, 2007. You can read the PDF of the meeting schedule here. The WSJ highlighted a very interesting point:

Mr. Buffett suggested he isn’t planning to buy more newspapers, which he predicts will increasingly fall into the hands of owners who are willing to pay more for them than their economic value because of the notoriety or political cachet a newspaper can confer on an owner.

Woah! Are newspapers really so dead that people will buy them for personal reasons? I’d wager that newspapers sit on a tremendous amount of value. Berkshire Hathaway doesn’t invest in technology companies and perhaps this is the disconnect.

Embracing technology and enabling a digital sales force will unlock newspaper value

Newspaper companies own the brand, the local advertising market, local market knowledge and have all the information necessary to create a destination site for a given community. Newspaper companies must focus on using technology to leverage these existing strengths. If Buffet saw the potential of technology when applied to newspapers he might think otherwise. What do you think?

*Warren Buffet is obviously a smart person, but I think his perspective is from an traditional view of the “newspaper.” New media enables so much more community interaction. Newspapers just need to be thought of in a different way.

EDIT: Good summary of 2007 Shareholder meeting information.

Looks like NBC just joined ranks with Viacom against YouTube/Google. Who is next?  Anyone care to wager?  I’d put my money on News Corp.

CNet reports:

“Any ruling on YouTube’s motion will have far-reaching ramifications for the owners of video content,” NBC and Viacom said in their filing. “And especially for content owners such as Viacom and NBCU, whose works have been copied, displayed, and performed and disseminated by YouTube and others without their authorization.”

This case will result in a landmark ruling for industry.  Unfortunetly, we are going to wait several years until we hear anything.  In the meantime, I wonder if a technology solution will solve the problems asserted by content companies.

News Corp to Buy Dow Jones? From WSJ:

Dow Jones says it has received unsolicited takeover proposal from News Corp. for $60 a share. Full story to follow shortly.

Read my blog post from March 5th. In it I argue that technology companies will need to own content. Jeff Maurone, sent something to my inbox today. Bloomberg reports:

General Electric Co. shares staged their biggest rally in four months after Citigroup Inc. analysts said the company should spin off NBC Universal, GE Money and the real-estate division.

“GE’s size and complexity is working against investor interest in the stock and has contributed to further valuation erosion,” the analysts wrote.

This is the second time this week analysts have suggested GE take such steps. Nicholas Heymann of Prudential Equity Group Inc. in New York said a company such as Google Inc. may be interested in buying NBC Universal as part of its effort to add to its mix of media offerings including YouTube.

We come from a background of M&A transactions in print media. We understand the value of content.

Technology companies need content in order to deliver their products to an existing user-base. Aggragation and user generated content are crowded markets. Growth will come from partnerships with media companies, not stand alone technologies.

I don’t know if Google is the best buyer for NBC, but it wouldn’t surprise me if this happened.

Thoughts?

I wrote about how newspapers have an incredible amount of value online. Technology companies largely ignore this. Many a self-proclaimed Web 2.0 evangelist have declared the “death of newspapers.” This post summarizes my initial thoughts on the online newspaper revenue model. I decided to start because Mark Glaser over at MediaShift wrote a recent article entitled “How the Online Newspaper can Become a Community Hub.” I agree with his key points which are focused around incorporating the community in the news creation process and structuring the online site around niche areas.

Community and interactivity are key for local newspapers as they move online

The New Media viewpoint is that local news agencies are no longer gatekeepers of information and that the user is now in control. While I don’t agree that the user is fully in control, newspapers must realize that incorporating an actively participating community is key for online success. The internet benefits content creators because it lets users interact with content. Interacting with content means more personalization and more consumption time. These are the types of things that drive online revenues, assuming the right advertising strategy.

Online Newspapers should create a social network focused on their community

Online social networking features are the tools that will enable community members to interact with news. It won’t be easy at first. The majority of newspaper readers probably haven’t done much more than submit letters to the editor. Newspapers should give readers an online platform to interact, rank and participate in commentary and article submission. The cost of managing comments might be high at first, but as users become more familiar with online social network features, participation becomes more transparent and technology gets better, the community will bear the cost.

Online Newspapers should create a wiki business model

Local newspapers sit on huge repositories of information. Everything from local sports information, to political history, to development history has, at some point, been in a newspaper article. Additionally, local communities look to newspapers as primary news sources for local information. Taking the social network model to the online newspaper means creating wikis that allow users to maintain information about niche community topics that are relevant for them. Think: County High School Soccer team record and history repository; or County Governor Campaign History. Enable users to pick and choose the topics that are most important to them and empower them with information.

Because social networks and wikis create loyal and active users, this business model will drive participation and interaction online-key components for monetization success.

Obviously the advertising model needs to get much more creative than in the past. This will be the focus of my next post. Please comment.

Update 1: “Be the Platform“

Online Video Ads are at least TWICE as likely to be clicked

According to a recent study by DoubleClick, the CTR (Click-Through-Rates) for video ads is twice as high as standard images. Specifically:

Online video ads experience click-through rates ranging from 0.4 percent to 0.74 percent depending on the online video format. By comparison, the click-through rate for plain GIF or JPG image ads ranges between 0.1 and 0.2 percent, based on DoubleClick data.

Behavioral Targeting (BT) already demonstrates 2X CTRs vs Non-BT

Studies have shown that BT more than doubles CTRs when compared with non-behavioral targeted content.

As advertisers fill inventory with video ads, and companies use BT to better target those ads, an increasing percentage of ads will be BT Video Ads. Additionally, the number of ads could decrease. Pretty straightforward, but still important for newspapers as they make the transition online.

Update1: MillwardBrown Study saying the exact same thing.

Stay tuned for an online revenue model for newspapers…

I know the people who built the New York Times Reader. They did a good job.

The NYT just announced they would charge for its use. I’d be surprised if the NYT made money with a $15/month subscription, but maybe, just maybe there are enough baby boomers out there who need access to the NYT crossword, wherever they are in the world. The Reader is a fantastic example of readability and offline mobility for an online publication.

The real value of the Reader is much greater than people realize

If I’m able to create custom pages, based on my interests and print them out for myself, the Reader gives me what I want as a New Media consumer. For example, I can eliminate articles on gardening and focus on sports, or technology or something I find more valuable. Additionally, if I were the NYT I could start pulling the best blog articles from other sites and incorporating them in relevant categories for my users. I could also incorporate social bookmarking rankings to automate some of that relevance. All of a sudden, the NYT Reader becomes a very useful way to deliver relevant content and outsource non-core strengths. The NYT just needs to make sure that it isn’t reliant on a technology company to deliver this value proposition.  All the more reason for the NYT to become a technology company itself.

The Reader’s users can print and distribute their own custom papers!

The real value in this model is that it eliminates the distribution and printing costs for the publisher. I just don’t understand why the NYT is trying to charge for something that should save them a lot of money if it is widely adopted in the long run. Can anyone explain this to me?

I was reading through the 2007 Annual Report of the Project for Excellence in Journalism (PEJ), when I came across a very shocking section; so shocking that I needed to write about it immediately. In the seemingly innocent section titled “Online: New Economic Model,” I read about the new model:

News providers would charge Internet providers and aggregators licensing fees for content . . . News organizations may have to create consortiums to make this happen, which is a complicated but not necessarily difficult . . . This is the model that exists in cable. The cable companies pay a fee to the channels that they carry, and they pass the cost of that fee along to the consumer.

The online community should be getting nervous about a content licensing consortium

I can’t believe the online blogging and aggregator community isn’t rolling over in their graves about this idea (maybe it’s because they are all under 55). For the sake of brevity and focus, let’s ignore all the other things newspapers could do to solve their problems (become technology/news hybrids, become niche players, acquire technology companies, etc). Net Radio Royalties are already in the works, are news royalties next?

Content licensing consortiums (CLCs) would change the online world significantly

Let’s say content licensing consortiums (CLCs for short), decide to charge a licensing fees for use of news articles. Aggregators would be easy targets for the CLC legal team. Is it that simple? The internet has a lot more nuances than cable distribution channels. Moving from an open, information sharing system, to a closed and controlled system will present many challenges.

News licensing consortiums could not define clear guidelines

Because aggregators, bloggers and social networks are interconnected, CLCs couldn’t fairly price or accurately track content. For example, pretend I have a site that aggregates content and today the blogging world is discussing the latest toy stocks that were written about in the WSJ and Financial Times. I’m a smart aggregator, so I never use CLC participants (WSJ and FT in this case) as news stories. Have I avoided the CLC royalty fees? As long as referencing and quoting is legal, sites can aggregate non-CLC stories to summarize information for readers. This would be a work-around given the legality of citing other people’s work.

A few other issues are:

• How would pricing work when content is constantly being analyzed and set in different contexts?
• How would CLCs track usage without requiring every website to install CLC mandated software?
• Would CLCs become best friends with technology companies to better track content usage?
• Would charging ISPs be possible without government intervention?
• Would the high cost of forming a CLC dissuade news providers from embarking on such a difficult battle?

After thinking about CLCs, if I were solely a content aggregator, I would start assembling a powerful legal team and/or rethinking my business model. Otherwise, CLCs cannot establish a viable model that wouldn’t dramatically impact consumer choice and creativity. What do you think?

I figured almost everyone would have read about this, but, just in case, go visit the new USA Today Website and play with the latest comment, social networking and other fancy Web 2.0 features. The features are getting great reviews from around the web and the New Media community is happy to see these changes. USA Today’s blog post discusses the mission in detail. Mark Glaser over at MediaShift, wrote a nice article summarizing the changes and the positive response from the community.

USA Today acknowledges that interactivity and community are key consumer demands

This is a major step for traditional media company, but the key turning point will be when a major paper acknowledges that reader submitted stories also deserve front page placement. Will this happen? What will make this happen?