Influence Peddling

I am working on a white paper that describes how
subscription-based information publishers have responded to the Internet, and
what the future is likely to hold. And guess what (spoiler alert):
subscription-based information publishers charged for their content in the
past, charge for it now, and will charge for it in the future. So why is there
so much angst about charging for content online?

Consider all the ink and pixels that have been expended
discussing the New York Times and its new paywall. The New York Times provides
original, timely and valuable reporting on important topics. Why should it give
that information away for free? Charge for it (it was never free in print) and
be done with it. But, of course, it's more complicated than that.

For the many big media companies that put previously paid
content online for free in the early, innocent days of the web, trying to
charge now is akin to getting the genie back in the bottle. These companies are
now dependent on online advertising, which only generates real money if you
have huge traffic to your site. And these media companies get that traffic by
piling on even more free online content. Putting up a paywall means fewer
eyeballs, meaning less advertising revenue, coupled with great uncertainty as
to how many people will actually pay for online access.

But beyond the revenue aspect of paywalls, there is another
less-discussed issue lurking: almost as much as losing revenue, these media
outlets risk losing their influence. I read the New York Times because it is
influential; the stories it reports drive the national debate. What makes the
New York Times influential is that a lot of people read it. Damage that dynamic
and the publication quickly spirals into irrelevancy. That's why, whenever a
big media outlet breaks a story, it can't give it away fast enough. When
Rolling Stone published its expensively-produced take-down of Goldman Sachs,
for example, it didn't hold the story behind a paywall for the benefit of its
paid subscribers. Instead, it put the author on a media tour to discuss every
aspect of the article, while posting the full-text of the article on its
website for free. Rolling Stone wants paid subscribers, but it needs visibility
and influence to stay relevant and viable. This is a tough, possibly unwinnable
set of circumstances.

Interestingly and thankfully, subscription information
products function differently. In the majority of cases, they aren't chasing
the mass market, but rather a specific niche market. Often, they are the sole
source of information on a specific topic. Most subscription-based products
never carried much if any advertising, so audience size was never a
consideration. Perhaps most importantly, while many subscription information
products are influential, few actually seek to be influential.

Subscription information publishers may have limited
opportunity because of relatively small markets, but in this case, what limits
also protects. That's why they've ridden peacefully through so much of the
turmoil wrought by the Internet: there is simply far less pressure on their
business model.

The Hard Way

The first piece of news I saw this morning is that Angie's
List has filed to go public to raise up to $75 million. This is a big moment
for the company, which started in business in 1995, and has raised over $100
million to date. The result of that investment: over 820,000 paid memberships
in 170 markets nationwide. 2011 revenue likely to push $80 million. Over 2.2
million reviews of local contractors, service businesses and more recently,
healthcare providers. Yes, the company is still losing money, but this is
primarily due to a huge marketing expenditure to drive its rapid growth.

What has long intrigued me about Angie's List is its deep
and expensive commitment to build and maintain a human face, the critical key to
building a true community of subscribers. And this has consistently meant
taking a longer, harder path.

Angie's List could just as easily could have been built as a
Web 2.0 site with a totally automated system that allowed anyone to anonymously
enter reviews, with everything free and an advertising-supported business
model. Instead, Angie's List built itself on a subscription model, despite
long-standing consumer antipathy to paid information products.

But Angie's List didn't stop there. The company's eponymous
founder, Angie Hicks, understood from the start that she needed to deliver more
than the ordinary and often unhelpful reviews one encounters on review sites.
Instead, she needed to deliver reviews that provide depth, color and real insight.
This necessitates a substantial, ongoing, expensive effort to develop reviews
that meet this high bar, and that's where this sense of community becomes
essential, because the content it sells to subscribers is sourced from its
subscribers. Consider the complexity (and delicacy) required to extract a large
quantity of high quality reviews from a limited pool of people who you don't
want to annoy because they are paying you money!

As it has grown, Angie's List has been a trail-blazer on
many fronts. It launched a print magazine for its subscribers, both to maintain
visibility and further develop a sense of community among members. Since trust
is everything to a company that sells reviews as a product, Angie's List has
its policies and processes audited by BPA each year. It maintains a policy of
"no anonymous reviews" in a world where anonymity is the norm. It has
been a pioneer in variable pricing, allowing it to charge less when it enters
new markets and has fewer reviews initially. And the strong sense of integrity
it has built has allowed it to generate substantial advertising revenue from
the very companies its subscribers are reviewing -- a neat trick few in the
reviews business have mastered.

A big chunk of the success of Angie's List has to be attributed
to its founder, Angie Hicks. When Angie spoke at Data Content 2008, the
audience was transfixed by her energy and excitement, wrapped in an "aw
shucks" persona that belies sharp entrepreneurial drive (and a Harvard
MBA).

The model Angie's List adopted is a tough one, making its
resulting success story both durable and well-earned.

(For those of you interested in the nuances of the ratings
and reviews business, please download our recent, free white paper on this
topic: http://www.infocommercegroup.com/whitepapers/ICGDP_Ratings_8.11.pdf)

Data, Data Everywhere

I don't know exactly when it started, but the volume is growing every day. I am referring to emails, emanating from such well known companies as: E-Market Expert, Acquired Businesses, Sale-Perform and Application Users. And what are these companies selling? Data. Lots of it. And at bargain prices. Within the last 48 hours, I learned that I could obtain contact information on individuals in almost any industry, all with revenue data and SIC/NAICS codes, all with verified emails addresses and all of them opt-in names. And not to worry about legitimacy because "All data obtained legally from optin channels," as Stevenson Trina assured me in an email. That Stevenson's return email address is a metal stamping company in Germany should, I presume, not be cause for concern. What's going on? I am not sure. While the senders of these emails will often describe themselves as "a leading player in the list vending industry," and suchlike, the only commonality I have discovered so far is that none of them have working websites. Phone numbers, when offered, go directly to voicemail. And email addresses tend to be with the big providers of free email accounts. What's remarkable is that databases and lists have become such a mainstream business tool that they are now becoming the subject of scams. Because for scammers, there is nothing better than a product that everybody needs, but few really understand. Unfortunately, none of this does any good for the legitimate data industry, because these dubious data offers -- even if the recipient doesn't respond -- create a sense of commodity in the eyes of potential buyers: data is commonly available, data is cheap, industry coding and revenues should be available on 100% of records, etc. How exactly do these presumed scams work? I can't say I know for sure, but one person I talked to believes that these operators are not really out to sell data as much as they are out to collectdata. Every email open becomes a "verified" email address. Every opt-out request becomes a "responsive name." And for those who might actually send in 50 or more sample names as part of the company's offer to demonstrate its data appending skills, well that's 50 more names acquired for nothing. Crazy? Or just a crazy twist on user-generated content? These days, it's hard to say! PS -- Just a quick note to mention that the generous early-bird discount price for DataContent 2011 expires imminently, so take a moment and register now!

Social Media Do-Over?

A few months ago, I got a Facebook "friend request" from someone I had gone to high school with and hadn't been in touch with since. I accepted, and soon discovered an ambitious few from my school were busy trying to track down and connect through Facebook everyone from my school they could locate. It's actually been a fun experience learning who had ended up where and what they are doing now. Finally, I understood the appeal of Facebook. Am I really that dense? Well yes and no. I was introduced to Facebook years ago by business acquaintances who sent me friend requests so that I could see what Facebook was all about. I accepted, and consequently whenever I go into Facebook I am presented with the intimate life details of people I barely know professionally, and not at all socially. I continue to find this disconcerting, and it has warped my view of Facebook for a long time. I've had a somewhat parallel experience with Twitter. To me, Twitter is a great, expedited way to share news and thoughts with those of like interests. When my tweets include a link, I always try to provide some context, if not opinion, regarding the link. I don't use hash tags, because the notion of "viral taxonomies " offends my sense of order. That's my view of Twitter's place in the world: an easy way to send items of interest to the interested. I am very selective in who I follow on Twitter. I want to follow smart people who will share their insights and alert me to news and articles I might otherwise miss. I do get some of that, but the majority of what I see on Twitter can only be called digital narcissism. Details on one's meals, mood and hourly location updates predominate. Add to this sports scores and endless, mindless re-tweeting of breaking news as if everyone has suddenly decided they want to be the Associated Press. Does everyone really have that much free time? Social media has grown so quickly that operating rules and conventions were never established. This anarchic state may in fact have contributed to the rapid growth of social media, but in this case at least, freedom and creativity have come at the expense of utility. Internet visionary Patrick Spain told me years before Facebook was a household name that the blurring of our professional and personal lives would have great implications for the information business. It's a powerful insight, and one such implication that seems clear to me is that the collision of these two worlds has created a tremendous amount of clutter and noise. This leads me to two immediate thoughts: perhaps there should be business and personal versions of Facebook and Twitter, and certainly there are opportunities in curating this content to separate the wheat from the chaff. Surely there are other opportunities as well, and that will be among the topics we'll discuss at DataContent 2011.We hope you'll join in, and you can still sign up at significant early bird savings.

Great Expectations

I am a big fan of OpenTable. I use it regularly, I appreciate its transactional business model, and it is sitting on a mountain of incredibly valuable data that it has barely begun to tap.

Recently I was surprised to find an article entitled "Why OpenTable Is A Lousy Deal For Some Restaurants." Who says so? Apparently, a growing number of restaurants in the San Francisco area. And what specifically about OpenTable troubles these restaurants? Several things.

First, OpenTable allegedly does not increase the number of people dining out on any given night. Rather, it simply shifts some of those diners to restaurants using OpenTable.

Second, OpenTable costs money. And because OpenTable is so popular, restaurants feel compelled to subscribe, making OpenTable fees akin to extortion. Worse yet, restaurants have to raise their prices to offset OpenTable fees, which in turn drives down the total number of people dining out.

Third, OpenTable owns all the customer data that passes through its network. Cancel your subscription and you lose access to all that data.

Needless to say, this is some mighty weak reasoning. OpenTable was not created to popularize the restaurant experience and expand the market. It has a simple goal to make subscriber restaurants more attractive to diners by providing a simple, fast, seamless reservation experience. 

The second argument, that restaurants resent OpenTable because it works so well is equally odd logic. OpenTable provides a powerful application most restaurants could never afford to build and maintain. More importantly, OpenTable provides the audience as well. By the way, OpenTable succeeded in large part because it was so painful and inefficient to make reservations before it came along. Further, OpenTable helps fill seats that might otherwise go empty, makes it easy to cancel reservations that otherwise would cost a restaurant money, and helps the restaurant professionalize and better manage its entire operation, all without additional staff. Presumably benefits like these offset the fees being paid.

On the issue of data ownership, I have more sympathy. At the same time, it's news to me that non-chain restaurants ever worried about their customer databases, since so few make even the slightest effort to build them on their own.

The bigger issue here is that companies, whether data providers, transactional services providers or both, can become victims of their own success. All the rumblings above suggest an emerging view that OpenTable is so dominant it is being thought of as a monopoly and a utility. And nothing good comes out of assuming either status. We all seek lock-in and workflow embedment, but once we achieve it, we are faced with a delicate, ongoing balancing act to keep the goodwill of the industries we serve. And that challenge is compounded when industry objections are long on emotion and weak on logic, especially in the wonderful world of online, where "free" is considered an entirely reasonable price point and value is hard to demonstrate when so much is taken for granted. Going forward, OpenTable will need to continuously re-calibrate its value proposition, perhaps unlocking some of the treasure trove of data it is amassing to help its subscribers fine-tune their marketing and tighten their own business operations.