Net Neutrality: Paying the Piper
There's a huge amount of noise surrounding proposed legislation now in Congress that addresses so-called "Net neutrality." Like so many things these days, this catchy term means different things to different people, vastly complicating the debate.
There are several different issues marching under the banner of Net neutrality, but the one getting the most attention is the idea that the Internet will, in effect, be split into a fast lane and a slow lane, and anyone wanting to travel in the fast lane will have to pay for the privilege. What makes the idea complex -- and odd -- is that websites will have to pay extra for high-speed delivery, but users won't have to pay extra for high-speed delivery.
From a technical perspective, it doesn't take much bandwidth to post a 100 megabyte video to a website. What does eat up a lot of bandwidth is when 10 million people download that video. If we are truly trying to rationalize the use of Internet resources, it makes sense to charge users, not website operators. Indeed, in the model currently proposed, website operators are effectively being penalized for posting desirable, free content on the web, which doesn't strike me a good public policy.
The other part of the discussion that confuses me is that website operators already pay extra for faster delivery. That's why a website owner expecting a large volume of traffic hooks up with an ISP with massive amounts of bandwidth, and generally pays extra for the privilege. Bigger pipes mean better throughput, and you pay extra for the privilege of having access to them. In addition, many website operators pay substantial amounts to so-called "edge networks" to gain distributed delivery of their content to improve delivery speeds.
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Further, every ISP agreement places a limit on the number of bytes transferred by a website operator per month, an excellent proxy for bandwidth consumption. Generate too much traffic and you'll need to pay your ISP more or risk getting cut off for the balance of the month. In short, there are already ways for a website owner to get faster delivery of their content, and there are already economic constraints in place to discourage a website operator from abusing Internet bandwidth resources. However you look at it, website owners are already paying the piper.
As far as I can tell, it seems the phone and cable companies are now saying "we want to be pipers too." If you want access to the Internet, you buy a data line that you can use to your heart's content for a flat monthly fee. ISP's do exactly the same thing; they just resell this bandwidth to their customers. So it's not as if the cable and phone companies aren't getting paid exactly the amount they ask. Rather, it seems they are regretting the revenue model they have chosen because it limits their revenue opportunity.
So here's my take on the Net neutrality debate: the people who own the pipes have now decided that they deserve to be pipers. Why? Because as everybody knows, you've got to pay the piper.
IMDB: It's (not) Only A Movie
The online newsletter PaidContent.org is reporting that the Internet Movie Database (IMDB ) is getting close to launching a video downloading service – think iTunes for movies. Once again, I find myself in awe of this trend-setting data publisher, which we awarded a Model of Excellence in 2004.
IMDB traces its history back to the earliest days of the Web, when it was founded as a non-profit volunteer effort to build an incredibly rich database of every movie ever made. User-contributed data may be a hot topic these days, but IMDB pioneered this way back in 1993. Wikis and blogs may be all the rage currently, but IMDB had elements of both as far back as 1995. Online community? Check out the passionate film fanatics posting away in IMDB forums. Ratings? They've had them for years already. You get the idea. This is innovation central.
IMDB was acquired by Amazon.com in 1998. There was a lot of tension surrounding this acquisition among the thousands of people who had contributed entries to the database and even made cash donations to support its operations.
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Amazon.com did nothing with IMDB for several years other than pumping resources into it to significantly expand the coverage and depth of the database. So little seemed to change for so long (even links between IMDB and Amazon.com, which sells movies weren’t introduced for quite some time), that I eventually concluded IMDB was nothing more than Jeff Bezos indulging his personal interests. Wrong. In a great case study for other companies, Amazon.com was taking the time to prove to disaffected volunteers and users that the site was getting significantly better under its ownership. Complaints melted away and site traffic remained strong.
Current state of play? Users viewing a movie profile on the site can now buy the movie from Amazon. Given IMDB's huge traffic, that alone is a big business victory for Amazon.com. Recently, IMDB rolled out a subscription-based "pro" version of its database, aimed at movie industry professionals. And now, it seems, an iTunes for video.
I like IMDB not just for its creativity, but for its business model as well. Most of the site remains free, drawing massive traffic that can be monetized through advertising. The "pro" product gives it a subscription revenue stream. And most interesting of all, the database is also being utilized as a retailing platform. Something for everyone, and everyone goes away satisfied and happy. How many business models can make that claim?
Central Market Position: Use It or Lose It
There is a fascinating article by Hershel Sarbin at Magazine Enterprise 360 on the surprising health of the allegedly dying B2B print business. Sarbin cites a rash of statistics that point to the continued health of print.
This certainly tracks with what I am hearing from our clients with magazine properties -- business is good, revenues are up, and a few are even reporting (quietly, for fear of jinxing this success they really don't understand) record years.
Almost the first day I entered this business, a brief 20 years ago, I heard predictions on the imminent death of print. I remember a meeting at Thomas Publishing in the early 80's where its composition vendor was demonstrating a prototype version of Thomas Register on something called a CD-ROM. To illustrate this miraculous new technology, the president of the vendor company brought with him a low power laser, which certainly had the rapt attention of the room as he demonstrated it, especially after it became apparent the laser beam was not at all low-powered. First takeaway from this meeting: print is dead. Second takeaway from this meeting: lasers are not toys.
I have been hearing about, and talking about, the imminent death of print ever since. But every time I look around, I see continued health and growth in print. So what gives?
My notion is what we are seeing is less a demonstration of the power of print than a demonstration of the underlying power of business publishers. B2B publishers exist to unite buyers and seller, and both buyers and sellers continue to want and need to be united. The format of choice to do this for many decades has been print. It's understood. It is comfortable. It has a track record of delivering results. That's why many publishers continue to push print and rely on it, and that's why many advertisers continue to buy print, and this situation has the potential to go on for a very long time.
The problem and risk is complacency. There is continuing power in the printing press, but the information paradigm has shifted permanently. Up to 90% of all pre-purchase B2B research occurs online, and that's why print-based publishers need to build out strong electronic alternatives to their print products. The real strength of most B2B publishers is their central market position, which you’ll hear more about in October at this year’s InfoCommerce 2006, and publishers need to make a genuine commitment to dominating their markets online as well as in print. Because if they don't provide the online counterparts to their successful print publications, some one else assuredly will.
Google: Fishing With Dynamite
A recent article in the U.K. newspaper The Guardian, covered a conference sponsored by Google called Zeitgeist 06, designed to brief its European partners on its new initiatives. Google co-founder Larry Page and CEO Eric Schmidt focused on an ambitious new project now underway to build true artificial intelligence capabilities into its search product, a prospect they estimate may only be a few years away.
But while Google wanted to talk about artificial intelligence and the future, apparently its partners wanted to talk about the present, particularly about its seemingly scatter-shot approach to new product development, its indulgence of its engineers pursuing pet projects with little coordination, and its seeming lack of support for products when launched, allowing many to languish in the limbo of perpetual beta.
According to the article, Schmidt claimed that Google was starting to spend more time thinking about how to integrate its various offerings into its core search business, while at the same time denying that Google was entering a business consolidation phase.
Schmidt also offered a few words of wisdom to publishers who are seeing their businesses eroded by online rivals. He said usage of traditional media placed online is rising rapidly, but circulations - the revenue generator - are declining. "You don't have a lack of audience problem, you have a business model problem," he said.
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This is one of those pithy comments that on first glance sounds profound, but on closer examination doesn't make much sense. How can circulation be down, yet we as publishers don't have an audience problem? How can we as publishers have a business model problem if we don’t have an audience problem? After all, our audience is our product.
I'd contend that if we have a problem, it's a Google problem. I will grant unreservedly that Google built a better mousetrap with its search engine technology, but the jury is still out in the world of B2B if Google is has created a fundamentally better way to advertise, or if their core innovaton was simply a cheaper way to advertise. Google's new product launches are, in my opinion, the equivalent of fishing with dynamite. Toss it out and see what happens. If it doesnt achieve desirable results, ignore the wreckage you have created and toss some dynamite in another part of the lake.
The Zeitgeist at Google right now is a dangerous mix of excess cash, egos stoked by early success, and as far as any outsiders have been able to determine, not much in terms of a long-range plan or strategy. Add in a "fishing with dynamite" approach to new product development that roils existing markets, consistently creating new enemies without consistently creating new profits, and you have a company that's damaging a lot of existing business models without offering one worth emulating.
Yellow Pages: From Local to Loco
The recent announcement that the Verizon yellow pages organization will become a Google AdWords reseller seems to me further proof that the big yellow pages publishers have lost their way. Yellow pages companies bear some superficial resemblance to publishers, but they are not. Their real business is saturation distribution of advertising messages to specific markets in a convenient format. This is evidenced by their approach to editorial content (free listings): "go buy a file somewhere", and their approach to circulation and audience development: "make sure everyone gets (at least) one copy whether they want it or not."
What makes their business work is that yellow pages companies know how to sell ads, lots of expensive ads, at prices that make most B2B publishers blush. I vividly recall a B2B directory publisher bragging to a yellow pages executive that he was getting $6,000 for a full-page ad. He asked the yellow pages executive how that compared to the rates he charged. The yellow pages executive blandly replied, "Oh, about the same ... per month."
So the core asset of any successful yellow pages organization is its sales force. And, thus, you grant outsiders access to your sales force at your own peril. You don't want to distract your salespeople by having them sell less profitable products you don't even own. And presumably, you would never want them selling competitive products.
Consider this hypothetical sales call:
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Verizon Rep: Hi Bill. I'm here to renew your Verizon yellow pages program. Great news, too. We're only raising rates 6% this year, and we’ve got some great advertising deals on our Verizon SuperPages site.
Bill the Advertiser: Sounds interesting. But I've been thinking maybe I should be spending some of my advertising dollars with Google.
Verizon Rep: That's an excellent idea, and we're now authorized Google resellers! You know, Google now gets over half of all searches done on the Web. Their advertising is totally based on relevance, so it's highly effective and waste-free, and best of all you only pay if somebody actually clicks through to you.
Bill the Advertiser: That eliminates all my risk! Great, let's cut my Verizon program by 50%, and put that money into Google for me.
Verizon Rep: I wouldn't recommend that. Our print yellow pages gives you total coverage for a fixed fee per year, and SuperPages is the place people go when they need to buy something locally.
Bill the Advertiser: I can't really track my print results, but I don't think my print ad is working as well as it used to with so many people online these days, and it's pretty darn expensive at that.
Verizon Rep: Well, that's why we have Verizon SuperPages. It gets unbelievable traffic, and it's the place people go online to find local businesses.
Bill the Advertiser: How does your traffic compare to Google?
Verizon Rep: Well, it's smaller, but, err..
Bill the Advertiser: Are you saying Google doesn't help people find local businesses?
Verizon Rep: Well, no, I can't say that. Actually, it's kind of complicated … but, ah ...
Bill the Advertiser: You know, let's just move my whole ad program to Google
Verizon Rep (to himself): Wow, our management team sure is bright. Without Google, we would have lost this account!