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LoomisBoy

The personal journal of technology journalist and conference speaker Randall S. Newton.

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Tuesday, October 25, 2005

Media Economics and the Web, Part 1

There’s a buzz reaching critical mass about a concept called “Web 2.0.” In case you aren’t familiar with the term, here is the Wikipedia definition for “Web 2.0”:
Web 2.0 is a term often applied to a perceived ongoing transition of the World Wide Web from a collection of websites to a full-fledged computing platform serving web applications to end users. Ultimately Web 2.0 services are expected to replace desktop computing applications for many purposes.
It is a heady goal these Web 2.0 Zionists have, transforming the Web we know today into something more robust and useful. If you go back and read the early thinking about the World Wide Web, some of the ideas that are now being called Web 2.0 were there from the beginning.

Various new programming languages and tools, (Ruby on Rails, the Google Application Programming Interfaces (API’s), Ajax) are considered to be Web 2.0 tools. Microsoft, as usual, is attempting to create a Trojan horse in the Ajax/Web 2.0 space with a programming tool set called Atlas. There is a hot new annual conference called Web 2.0, devoted to discovering the next big ideas and companies that will, supposedly, reshape the Web. The company/product I wrote about in a recent blog entry (Meebo, a Web-based instant messaging client) is a typical Web 2.0 application.

I’ve been thinking about writing a Web 2.0 overview for this blog for quite a while. What flipped me into blogging mode was a PowerPoint presentation I read today entitled “The New Economics of Media: Micromedia, Connected Consumption and the Snowball Effect” by Umair Haque, a former Oxford Ph.D. student who is now a consultant on innovation. To quote Haque:

In a Media 2.0 world, mass media industry economics are inverted, value chains begin to atomize, and traditional dominant strategies, like blockbusters, begin to fail. What resources and capabilities do incumbents and new entrants need to succeed?

I started to read the PowerPoint presentation, and two hours later I had 11 pages of hand-written notes. What follows is my distillation and interpretation, which will take two or three separate items to complete.

Haque refers to mainstream media as “Media 1.0” and the new “micromedia” as “Media 2.0.” Let me explain each briefly.

In the world of Media 1.0, the cost to create media content (a newspaper, a magazine, a TV program, etc.) was high, while the cost to acquire customers was low, and dropped as the quantity of customers increased. It took a lot of money to buy a press (or a license to broadcast), hire a staff, create the media product, and to market the product. But once the money was invested, the returns were pretty good. Money spent on marketing and retailing were the best investment Media 1.0 companies could make, because they increased the number of consumers. Consumers were an abundant resource, which means they were cheap to acquire.

Media 1.0 products were created to satisfy the greatest number of consumers, who had few choices. That’s why it is called mass media. As an economist would see it, in a Media 1.0 world potential consumers are just standing around waiting for media to consume. Think of Media 1.0 as standing in line at a soup kitchen.

Media 1.0 may have TV and radio networks, but there is no network effect of the Internet at play. Media 1.0 is a one-to-many publishing process. Media 2.0, by contrast, is all about the Internet. Media 2.0 offers one-to-many, many-to-many and (even more importantly) many-to-one publishing. Consumers are becoming linked in a two-way media process (some replace “consumers” at this point with “prosumers”).

In the Media 2.0 era, the cost to create media content is low, low, low. Blogger.com is free; other blog sites are either free or cheap. Even the top-flight content management systems, as used by robust online news sites, cost a pittance compared to a printing press or a TV studio. The result is an explosion of content providers. What becomes expensive in Media 2.0 is the cost—in relative terms—of acquiring customers. Consumer options are abundant, but the amount of time they can devote to any one website or other media source is small. The same consumers now have a near-infinite number of content providers to choose from. If Media 1.0 was a soup kitchen, Media 2.0 is a very long salad bar.

For both forms of media, attention is the name of the game. Old media and new media both need the attention of consumers or they are dead. In Media 1.0, because attention was abundant (which to an economist means it is cheap) it made sense to invest in infrastructure and marketing to harvest the readily available attention. Such investment was in-kind with the media method: newspapers would give away copies, radio stations would run contests, TV stations would produce extravaganzas with big-name stars, and studios would produce blockbusters.

In Media 2.0, attention is scarce (which to an economist means it is expensive). Investing in infrastructure becomes a bad investment. You can buy a bigger press and print more copies, but the people on the street are too distracted by the thousands of other content providers to notice you. The right kind of investment in Media 2.0 is (just as it was for Media 1.0) is an in-kind investment, putting your money back into the means of distribution. For Media 2.0, that would be search, linked content, high-value-content, and publishing fresh content more often.

There is another important distinction between Media 1.0 and Media 2.0, regarding the pricing of content. The Web forces a hyper-deflation of price as supply explodes. When I took over as Editor-in-Chief and Publisher of A/E/C Automation Newsletter in 2002, it has been an expensive monthly executive newsletter for more than 25 years, but in recent years was losing subscribers at an increasing rate. By 2002, all of its competition was on the web, available to read for free. Never mind that the quality of the content was better, free was winning. So as quickly as possible, I turned the print newsletter into first a subscriber-only website, then to a free, advertising supported website, renamed as AECnews.com. I now number my readers in the thousands instead of hundreds, and I am paid by my advertisers, not my readers.

Haque argues that the solution to hyper-deflation of price is to deflate the amount of content to match the deflation of price. That means turning content into micro-content. Several prominent bloggers have proven that several small items a day generates more page views (and more ad impressions) than a single longer daily item. I need to take this lesson to heart at AECnews.com. When I “live blogged” a recent software users conference, with several items a day, my page views skyrocketed compared to my normal traffic flow.

Micro-content can take several forms in Media 2.0. For the printed word, it is the blog entry instead of the article. For recorded music, it is the song (as mp3 file), not the album (as CD). For video, it is the clip, not the show. Because the content chunk is so small, consumers are starting to reorganize their micro-content to suit their purposes. Apple recognized this earlier than most corporations, and reaped huge Media 2.0 mindshare with their slogan “Rip. Mix. Burn.” As more content becomes micro-content, consumers will want to rip and mix all the forms of media they consume. This is known as aggregation. Successful Media 2.0 organizations need to provide the tools of aggregation as well as the content (as does Apple with the iPod and iTunes). Content providers who want to move into the Media 2.0 era need to invest in the tools of micro-content distribution: RSS feeds, search engines, Ajax-style web-based applets, MP3 distribution services. Some of the products we need for Media 2.0 haven’t been invented yet.

Haque argues that while aggregation is the inevitable result of virtually free micro-content, aggregation can become a value destroyer. What is needed is smart aggregation—tools for more efficient use of resources. Smart aggregation will organize (on an individual level) content plus information, expectation, and preferences about content. Smart aggregators, Haque says, will not only rebundle content, they will also rebundle information about the content (metadata), information about the network, information about the applications in use, and information about the device running all the above.

I still have several pages of notes from my reading of Haque’s ideas, but this article has already violated a key concept of Media 2.0—create micro-chunks of content. I will continue with another entry soon. Let me leave you with this:

Media 1.0 thinking: Blog item = article.
Media 1.5 thinking: Blog item = item + comments.
Media 2.0 thinking: Blog item = item + comments + links.
Media 2.5 thinking: Blog item = item + comments + links + citation + trackback + tags + smart aggregation.

1 Comments:

Anonymous ralphg said...

Umair Haque sounds a lot like the book "PowerShift." Written in 1990, before the Internet, it correctly predicted the shift in power from the powerful to -- others.

Reading the book in the summer of 1992, it gave me a powerful validation -- I had become self-employed a year earlier.

(Perhaps a better title would have been "PowerShare," because large entities still have power; what's different is that small entities have as much power -- witness bloggers vs. corporations.)

Desktop computing and the Internet allowed me to become a one-man publishing house with international reach. I consider it significant that 'Cadence' magazine failed but upFront.eZine keeps on chugging.

6:46 AM  

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