Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
Googled (45 page)
Yossi Vardi, the Israeli entrepreneur whose company invented instant messaging, once spent three years trying to graph the future. The result was a presentation consisting of four hundred slides. He discarded the slides and substituted what he called Vardi’s Law: “If you need four hundred slides to explain it, it really means you don’t have a clue.” In fact, the questions are more apparent than the answers, and a central question that will profoundly shape the future of old and new media is this: Will users who have grown up with the Web pay for content they now get free?
IN THIS BACK-TO-THE-FUTURE moment, online companies ape broadcasters by proclaiming that their services are “free” because advertisers pay for them. This is the answer touted by
Wired
editor Chris Anderson in his latest book,
Free: The Future of
a
Radical Price.
He argues that making information free allows digital content creators to use the Internet as a promotional platform to create alternate money streams, including concerts, selling goods and lectures and premium services. In the digital world, he writes, “Free becomes not just an option but an inevitability Bits want to be free.” In his spirited book
What Would Google Do?
Jeff Jarvis argues that online news aggregaters like Google are the equivalent of newsstands that help papers boost online circulation and serve as promotional platforms for the newspapers. By increasing their online traffic, Jarvis posits, aggregaters allow papers to charge a steeper price for their online ads. “I believe papers should beg to be aggregated so more readers will discover their content,” he writes. He concludes, “Free is impossible to compete against. The most efficient marketplace is a free marketplace.”
Wired
editor Chris Anderson in his latest book,
Free: The Future of
a
Radical Price.
He argues that making information free allows digital content creators to use the Internet as a promotional platform to create alternate money streams, including concerts, selling goods and lectures and premium services. In the digital world, he writes, “Free becomes not just an option but an inevitability Bits want to be free.” In his spirited book
What Would Google Do?
Jeff Jarvis argues that online news aggregaters like Google are the equivalent of newsstands that help papers boost online circulation and serve as promotional platforms for the newspapers. By increasing their online traffic, Jarvis posits, aggregaters allow papers to charge a steeper price for their online ads. “I believe papers should beg to be aggregated so more readers will discover their content,” he writes. He concludes, “Free is impossible to compete against. The most efficient marketplace is a free marketplace.”
There is no question that links increase the number of newspaper readers. Marissa Mayer said that Google search and Google News generate “more than one billion clicks per month” for newspaper sites. But for “free” to work as Jarvis says it will, news aggregaters like Google or Yahoo would have to be gushing money into newspaper coffers. They are not. While Larry Page, Sergey Brin, and Eric Schmidt insist they want to help newspapers, and AdSense does bequeath ad revenues to newspapers, the three men admit AdSense’s receipts are relatively modest, too meager to restore newspapers to health. Jarvis is correct that free “is impossible to compete against,” but I fear that the consequence will be the opposite of the one he intended. For newspapers, if revenues continue to fall short of costs, free may be a death certificate.
Second, advertising is a wobbly crutch. In economic downturns, ad expenditures are usually among the first to be pared. Indeed, in harmony with the worldwide recession, total U.S. ad spending dropped in 2008, and in 2009 Jack Myers, a respected marketing consultant, projects that total advertising will plunge 12.1 percent. Newspaper ad revenues, according to ZenithOptimedia, will fall from $44 billion in 2008 to $37.4 billion in 2009, or 8 percent; Jack Myers predicted the falloff would be almost three times greater (22 percent). And just as the Internet has disrupted traditional ad sales, it may well disrupt the effectiveness of advertising itself. Consumers now have the tools to easily comparison shop online, to compare prices and performance reviews. The emotional power of a commercial is weakened by the informational power of the Web. Even
Wired
editor Chris Anderson, who once more forcefully advocated that free was the perfect model, has changed his position. Blaming the deep recession, Anderson appended a “Coda” chapter at the end of his book in which he amends what he wrote earlier. He writes that he now believes “Free is not enough. It also has to be matched with Paid.”
Wired
editor Chris Anderson, who once more forcefully advocated that free was the perfect model, has changed his position. Blaming the deep recession, Anderson appended a “Coda” chapter at the end of his book in which he amends what he wrote earlier. He writes that he now believes “Free is not enough. It also has to be matched with Paid.”
Third, to rely solely on advertising is to risk becoming dependent on a revenue source whose interests may diverge from those of good journalism. The wall between advertising and news was erected to ensure that news was not at the service of commercial interests. This wall is easier to maintain when newspapers can buttress their ad revenues with subscriptions and newsstand sales. In a February 2009
Time
cover story titled “How to Save Your Newspaper,” former
Time
editor Walter Isaacson quoted Henry Luce, cofounder of the magazine, as saying that to rely solely on advertising was “economically self-defeating.” Luce, Isaacson wrote, “believed that good journalism required that a publication’s primary duty be to its readers, not to its advertisers.” The warning was given life several weeks later when the management of Time Inc. goaded five of its magazines—
Time, Fortune, People, Sports Illustrated,
and
Entertainment Weekly
—to prepare major stories on a new 3-D animated movie from DreamWorks,
Monsters vs. Aliens.
The publications would each receive advertising from three of DreamWorks’ corporate partners on the movie, McDonald‘s, HP, and Intel. Many other media companies have felt compelled to make similar Faustian bargains, potentially trading credibility for dollars. In April 2009, page one of the
Los Angeles Times
featured an ad for a new NBC show that was laid out to look at first glance like just another news story
Time
cover story titled “How to Save Your Newspaper,” former
Time
editor Walter Isaacson quoted Henry Luce, cofounder of the magazine, as saying that to rely solely on advertising was “economically self-defeating.” Luce, Isaacson wrote, “believed that good journalism required that a publication’s primary duty be to its readers, not to its advertisers.” The warning was given life several weeks later when the management of Time Inc. goaded five of its magazines—
Time, Fortune, People, Sports Illustrated,
and
Entertainment Weekly
—to prepare major stories on a new 3-D animated movie from DreamWorks,
Monsters vs. Aliens.
The publications would each receive advertising from three of DreamWorks’ corporate partners on the movie, McDonald‘s, HP, and Intel. Many other media companies have felt compelled to make similar Faustian bargains, potentially trading credibility for dollars. In April 2009, page one of the
Los Angeles Times
featured an ad for a new NBC show that was laid out to look at first glance like just another news story
It is no surprise that advertisers will always want the most conducive setting for their ads; they want to sell products and have perfectly good business reasons to be concerned with the environment in which their ads appear. The problem is that this impulse leads them to push for more “friendly” news: a senior network news executive said, “I’ve seen increasing incursions by advertisers into morning show content. Can the evening news be far behind?” Of course, network news has in recent years made itself more of an inviting target for advertisers by allowing the morning shows and evening newscasts to become “softer” and more superficial. Likewise, it is as certain as a sunrise that advertisers will want tamer social networks and more predictable YouTube videos to accompany their products. To better target their ads, they also want to extract as much information about their potential customers as they can. But news outlets or Web sites that share users’ private information or allow themselves to be seen as bought and paid for will lose the trust of their customers. An additional revenue source will give them more leverage to resist.
When media companies depend solely on advertising revenues, there is also a real risk to quality. As more people read newspapers online, or watch their favorite TV shows online, or illegally but effortlessly download movies or music, the revenues of traditional content companies will fall. While it is true that too few newspapers do a good job of covering state capitals or city hall, or sustaining investigative reporting or investing resources in international news, those elite papers that do—the
New York Times, Wall Street Journal,
and
Washington Post—are hobbled; that kind of report
ing is expensive. Similarly, a television network’s ability to invest in expensive but exemplary programs like
Friday Night Lights,
30 Rock, or even the more popular fare—
Desperate Housewives, CSI: Miami
—will be endangered.
New York Times, Wall Street Journal,
and
Washington Post—are hobbled; that kind of report
ing is expensive. Similarly, a television network’s ability to invest in expensive but exemplary programs like
Friday Night Lights,
30 Rock, or even the more popular fare—
Desperate Housewives, CSI: Miami
—will be endangered.
A total reliance on advertising can menace many new media sites as well. Facebook and YouTube and Twitter have an enormous base of users, but they lose money Sites like Facebook and MySpace struggle to devise ad-friendly formats, but have so far stumbled. Robert Pittman, the former president of AOL, thinks he knows why: “Wrestling had bigger audiences than some prime-time shows, yet wrestling never monetized well. Why? Because most advertisers didn’t want to be associated with it. Environment did matter. We had huge audiences on AOL chat rooms. We couldn’t sell it worth a damn. People were communicating. They didn’t want to be interrupted by ads. You start running an ad on Facebook and users will say, ‘I don’t like GAP. Don’t put GAP on my page!’ It will attract some advertising dollars. But I don’t think social networks monetize to the size of the audience they have. The advertiser doesn’t want to be in an environment where they feel they are a big negative.” Social networks might be able to sell more ads if they share more of their users’ private information with advertisers, but when Facebook tried that approach in 2007 with an ad program called Beacon, irate users forced it to install a system that relied on the users’ willingness to participate. Eventually, if these sites cannot devise an ad formula that works, they will once again demonstrate—as AOL chat rooms or
Friendster.com
did—that advertisers may not always follow the audience.
Friendster.com
did—that advertisers may not always follow the audience.
One begins to hear anxious whispers in Silicon Valley that “free” might not be free. “I think people are getting more willing to pay,” said Marc Andreessen, who cited iTunes and Amazon’s Kindle as successful online pay services. “More and more of what people do, they do online. I think most people like the things they like and are willing to pay for it.” Maybe. Certainly there are products that users are willing to pay for on the Web, most notably the music on iTunes. Google generates 3 percent of its revenues by charging corporations for premium services—tailored searches, special software apps, extra Gmail storage—and expects those numbers to rise. Web companies such as Ning and Linkedin charge corporations for extra tools or premium services—including a fee to have an ad-free environment. Those wanting online access to the full
Wall Street Journal,
or to the New
York Times
archives and crossroad puzzle, pay for it. To read the
Times
on a Kindle one must subscribe. In 2008, each of the 40,000 member groups of
Meetup.com
paid the social network site fifteen dollars per month to host them online. One-quarter of CBS’s digital revenues comes from fees or subscriptions. The online dating service
Match.com
has nearly 1.5 million paid subscribers. By mid-2008, China was generating $2.5 billion in online video game revenues.
Wall Street Journal,
or to the New
York Times
archives and crossroad puzzle, pay for it. To read the
Times
on a Kindle one must subscribe. In 2008, each of the 40,000 member groups of
Meetup.com
paid the social network site fifteen dollars per month to host them online. One-quarter of CBS’s digital revenues comes from fees or subscriptions. The online dating service
Match.com
has nearly 1.5 million paid subscribers. By mid-2008, China was generating $2.5 billion in online video game revenues.
Mary Meeker predicts, “Ultimately, while advertising will remain the primary revenue driver for Internet content companies, I think we’ll find more and more examples of people paying for content, the way people do to download games on mobile devices. With mobile downloads, where the payment mechanism is integrated, I think you will be able to charge just a little bit a lot of times.” A research report from the market research firm Piper Jaffray projected that consumers would pay $2.8 billion to download applications to their mobile phones in 2009, a number projected to rise to $13 billion by 2012. One alternative is a monthly or annual subscription model. Another is micropayments. The impediment to either a subscription or a micropayment system is that with notable exceptions—mobile phones, Amazon, PayPal, Google Checkout, broadband providers—most Web sites do not have the names and credit card information of their users; new users would have to make a considered decision about whether the service was worth paying for before handing over their billing information. “At Ning,” Andreessen said of the social network site he funded, “we want to get credit card numbers. We’re edging towards it.” With over one million Ning niche networks—female writers have one, fans of Enrique Iglesias have one—the credit cards would stack up.
The cable and telephone companies, already in possession of the credit card or banking information of their customers, are well positioned to benefit from a micropayment or metered payment system. Using their broadband wires, they could offer a range of new pay services. Referring to smart phones as “the stealth device of this planet,” Ivan Seidenberg of Verizon painted a blue sky: “Your phone will replace your credit card, your keys. It will become your personal remote control to life.”
Nevertheless, a chasm yawns between the needs of business and the culture that has grown up around the Internet. Users may love YouTube or Facebook or Google News, but will they pay for them? Schmidt said he is dubious that “social network traffic will ever be as lucrative as business, professional, and educational traffic. When you go to a bar you may buy a drink, but you’re fundamentally there for social interaction.” Advertising, he believes, will become an annoying distraction.
Stanford president John Hennessy surprised me when he said, “We made one really big mistake in the Internet, which is hard to reverse now. We should have made a micropayment system work. Make it very simple, very straightforward. Let’s say I go to Google’s home page or Yahoo’s and I see a story I want to read in the
New York Times,
and that story is going to cost me a penny I click on it. I pay the penny electronically I have a system up that says, ‘Any story that costs less than a quarter, give it to me instantly If it costs more than a quarter, ask me first.’ I get a monthly bill. It pays automatically against my credit card. We could have done this easily The technology is all there to do it. The question is, how do we get back to something like that? We need some people to go out and say, ‘We need some approaches other than advertising.”’
New York Times,
and that story is going to cost me a penny I click on it. I pay the penny electronically I have a system up that says, ‘Any story that costs less than a quarter, give it to me instantly If it costs more than a quarter, ask me first.’ I get a monthly bill. It pays automatically against my credit card. We could have done this easily The technology is all there to do it. The question is, how do we get back to something like that? We need some people to go out and say, ‘We need some approaches other than advertising.”’
In September 2008, I related Hennessy’s thinking about micropayments to Eric Schmidt. “A lot of people believe that,” he said. “I’ve been pretty skeptical.” Free is the right model, he believed then. “The benefit of free is that you get 100 percent of the market. And in a world where there’s no physical limits, it’s easy to have so much free. Traditional thinking doesn’t work.” There are businesses that can succeed by charging, he said, “but it’s a one percent opportunity The lesson that Google sort of learned a long time ago is that free is the right answer....”
It is not, I fear, the right answer for many media businesses. Nor was it the answer Schmidt came to seven months later, when we again discussed charging for content on the Internet. “My current view of the world,” he told me in April 2009, “is you end up with advertising and micropayments and big payments based on” the nature of the audience. Each member of the old guard—newspapers, magazines, TV and cable, phone companies—has its own online challenges. None can afford to blithely give away their services, yet neither can they afford to ignore that this is what the public might want.
Other books
Droids Don't Cry by Sam Kepfield
Royal Protocol by Christine Flynn
SexyShortsGeneric by Shana Gray
Frosting and Friendship by Lisa Schroeder
One Real Thing by Anah Crow and Dianne Fox
Helene Blackmailed by Elliot Mabeuse
Quentin Tarantino and Philosophy by Richard Greene, K. Silem Mohammad
Betrayal in the Highlands by Robert Evert
The Glass Casket by Templeman, Mccormick
Rebels of Babylon by Parry, Owen, Peters, Ralph