February 12, 2007: Life in the Fast Lane: An Industry in Hyper Change

This sentence caught my eye this weekend when I was catching up on some reading I couldn't squeeze into the Monday-Friday timeframe: "The nation's leading advertising executives believe we are in a period of hyper accelerated change for the media and advertising world and that things are likely to speed up even more."

Aha, no wonder we're all so busy! Our industry is in "hyper change" mode. What are the implications for our operations, business models, sales, products...really, everything we do? Online technologies and options are turbocharging the evolutionary process, with community media and audience empowerment clearly in the vanguard. As the article points out, a lot of ad executives are still struggling to keep up with the media consumption and creation preferences of the audiences they're chasing.

While I certainly don't have all the answers, there are some clear implications for those of us running a media business in the hyper change environment. First, with change happening so quickly, we must operate without the long-term visibility we were used to in the old days. Mid-term is the new long-term. Second, with greater risk, we should hedge by trying more things. Hyper change is exactly the wrong time to get overly cautious. Don't be frivolous, but make some educated guesses and put a number of irons in the fire instead of betting the farm on one big one. An upside to hyper change is that missteps will quickly recede into the past, especially if they're not too large. Hyper change means you don't have to be 100% right...just make sure you're not 100% wrong.

Recognize that with change comes an educational responsibility. You may find that the burden of communicating and explaining your initiatives increases. This isn't necessarily a sign that the people asking questions lack confidence in what you're doing; maybe they're just not up to date. Be prepared with extra documentation and analysis.

When you're hiring, especially look for and value the ability to learn and grow. There's no way the people you hire today will have all the skills you'll need two years down the road. Find people who are willing to "hyper change" their own lives and careers so they can grow with your business.

Otherwise, fasten your seatbelt. If the observers quoted above are right, the pace isn't likely to slow down any time soon.

December 1, 2006: Economics of Paid Content Online

A lot of folks still have questions about the viablity of a paid content model online. Here's why I believe the online medium is best suited to monetization through advertising, not reader payments. It boils down to basic economics.

Harking back to economics 101, picture the fundamental economic graph, where the vertical axis is price, the horizontal axis is quantity, and the downward-sloping demand curve illustrates how, at a high price, the quantity demanded is small, but as the price approaches zero, demand grows to near infinity. Therefore, at any given price point there's a corresponding quantity and you can easily calculate total revenue by multiplying price and demand. Subtract costs and you have total profit.

But what if there was a way to monetize the nearly infinite quantity of demand for free content? That would be a gold mine and it represents the potential of the web. First, you multiply price by an almost infinite number, yielding almost unlimited revenue potential. Second, there are virtually no costs involved in distributing additional content on the web, so the incremental revenue is pure profit. This is a true media business model, where revenue comes from attracting an audience and monetizing it through advertising. It's been around for decades in broadcast and has been represented in print with controlled circulation. Now the global reach and low production and distribution costs of the internet have opened up tremendous opportunities for applying the media concept to many new types of content. In fact, the only situations online where paid content still makes sense are if (1) demand for the content is limited, but it's still quite valuable to the people who want it; or (2) demand for the content outstrips advertisers' willingness to support its audience.

As a rule of thumb online, explore the option of free content monetized through advertising first. That's almost always the lowest-cost--and very often the highest profit--alternative. Invest in audience, not an e-commerce platform and support system. Do the analysis and embrace the scale opportunities of the web. It's a new medium with a new economic landscape compared to its predecessors.

September 23, 2006: Understanding Value in Online Media

Audience behavior is much more transparent online than in any previous medium. The implications are still being worked out from the business perspective, as we reconfigure our understanding of core metrics, circulation, ad performance, content performance, pricing, and other parameters to incorporate all the data that are now available.

Here we're actively aiming to evolve our online media business into an "ROI engine" where we fully understand the cost of every type of content and the value of every type of advertiser exposure and can therefore program the site to optimize ROI. I believe the entire media industry will operate in this fashion in just a few years, but there are some steps required to get there from where we are today. For one, the content management, web analytics, content selection, and ad serving systems need to operate from a common taxonomy and all talk to one another.

An ROI focus suggests many other interesting possibilities, such as compensating content creators based on the value they deliver to the business, potentially including pageviews, core readership demographics, or contributions to other business areas, such as events and lead gen. If we mine the data sufficiently we could calculate an ROI on every piece of content on the site.

In order to structure the business as a value equation two disciplines are key: economics, which uncovers the supply and demand dynamics driving our ability to match advertisers with audience, and finance, which explores the interaction between risk and value. Here are a couple of examples of how economics and finance provide insights into day-to-day operating challenges. As any media business is all about audience, so online media is built around pageviews. Ad impressions sold represent demand for pageviews, while audience browsing provides supply. But site managers quickly learn that providing raw pageviews isn't enough. To truly deliver value the views must come at the right time on the right pages. Breaking traffic records in a month with low ad demand doesn't deliver more value. Optimizing traffic means building many demand curves, not just one.

At the same time, finance teaches us that predictable traffic is more valuable than unpredictable, because of the discount that must be applied in uncertain (risky) situations. Take an example of two editors whose articles each deliver a million pageviews over the course of year. Editor A consistently draws about 80,000 views a month while Editor B typically produces just 50,000 pageviews a month, but sporadically writes "blockbusters" that can bring in 200,000 views in a month. Clearly Editor A is more valuable to the business. The same reasoning explains why the so-called "content annuity" of archived material actually has little value. It's possible old content will find a new audience but the uncertainty around timing and traffic volume requires a high discount factor to be applied to the value of those pageviews.

Succeeding in a new media business requires additional skills beyond what sufficed in traditional media, particularly on the analytical side. An industry where intuition and persuasion were powerful is evolving toward a more transparent, numbers-driven basis. To be a leader rather than a follower in the transition, brush up on economics and finance and make sure your Excel skills are top-notch.