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Product is King. Content is Not.

Photo by The Rocketeer on Flickr
Remember the bad old days of blog networks. Like when I was at b5media championing the idea of content as the great savior of the Internet, the bellwether of future journalism, the dawn of an era of online advertising as the dominant (and only) truly valuable means of creating revenue online?

Yeah… so about that.

I was wrong.

I was wrong about the idea of wide adoption of online advertising as a primary revenue source for the long tail. I was wrong about content not being a commodity. I was wrong to think that successful online startups could have successful advertising models. I was just wrong.

As recently as this week, AOL laid off it’s “freelance writer” staff as part of the recent Huffington Post acquisition and subsequent roll-up of AOL properties.

All you people thinking you can make money online using the standard advertising/content model… well, think again. You’re not.

Advertising is a commodity. Commodities, by definition, are resources that flood the marketplace, diluting the individual value of each resource. Advertising online is dominated by “remnant” advertising, which is cheap commodity advertising that costs the buyer little to purchase in bulk (think Adsense) and results in little payout to the publisher. There’s very little real money in commodity advertising. The real players are getting paid on direct sales advertising targeting big sites with high payouts (Think Apple taking out prominent advertising space on the New York Times for tens of thousands of dollars).

Content is a commodity. There are millions of bloggers. Millions of publishers. Hell, just this week, I migrated a site to WP Engine that had 11k+ sports blogs. Content is a commodity and, by definition, not valuable.

But if you want to keep thinking it’s valuable, go for it. You keep writing blog posts and giving yourself some sense of value. While you’re at it, take a look at the sky and convince yourself it’s actually orange.

Content companies are not likely to generate enough value in today’s economy. Certainly not for any kind of acquisition or exit.

I was wrong. I’m man enough to admit it.

In today’s internet economy, the real value and, in my opinion, the only viable model for successful online business is in product. Products. Real, tangible products. An iPhone app. A digital goods marketplace. A software product. A social network, perhaps. Something that has measurable customer acquisition and a real exchange of monetary value. You know, like the good old days where I pay you for something that I can, with certainty, validate receipt. I give you $30, you give me a text editor application for my Mac. I pay you $15/mo, I get an online invoicing service. I pay $0.99 and get a car locator app for my phone.

Content commoditization strategy says, I do something for you, Mr. Advertiser (put some code on my site), and you may pay me something if anything productive (click, action, impression) comes from it and, oh yeah, there’s no real measurements or guarantees for said exchange. Keep churning out content and page views will pay me.

No. That’s not how it works anymore. Why do you think Netflix built their model on a pay-for-service concept instead of intro/outro/in-video advertising? Why do you think Amazon continues to diversify their product offering with no real advertisement and certainly no content? Need a server? You can have 10 for cheap. Need music? We’ve got that covered at a competitive rate and now you can play it from anywhere. Need toilet paper? We’re partnered with retailers across the country to provide any essential product you might need and you can even have it shipped free if you pay for this other service we call Prime

See? It’s product… not content. Content is becoming significantly less valuable.

Time to pivot.

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AOL, 2006 Called and Wants Its Content Commoditization Strategy Back…

Photo by jdlasica on Flickr
It was a Monday like any other Monday. After a weekend of too much drinking, low-key football-centric Sunday celebrations (Go Packers!) and an early night to bed, I woke up this morning in the way I normally do on a Monday: Cursing ye gods of Mondays past, and hoping the day would not turn into the inevitable case of the Mondays that they all do.

Wearily, I reached for my laptop to find out what the Monday morning tech news buzz was and my eyes flew open in surprise: AOL had acquired the Huffington Post for $315M in a hybrid cash and stock transaction. This only a few months after TechCrunch had been acquired, also by AOL, for an undisclosed amount.

It was a deja vu kind of moment this morning as I saw the stereotypical business model of the mid-2000s flash before my eyes. In those days, everyone thought they could make money purely on advertising and content. Crank out the content, get more eyeballs, get more ad dollars, PROFIT!

The problem was (and still is!) is that the more content that is produced, the less valuable it becomes. It’s really very simple economics. More importantly, the advertising world has two buckets… maybe three if you put Adsense by itself in the lowest bracket. You have direct-buy, expensive, high-return type ads. These are most often purchased by big companies with big advertising budgets like Apple, Cisco, etc.

The second type of advertising (putting aside alphabet soup forms like CPA, CPM, CPC, etc) is generically called “remnant advertising”. Remnant ads make up the vast majority of internet advertising. It’s cheap to buy in bulk (and in a less targeted way), doesn’t usually pay a lot and, in general, is a good way to do commodity advertising.

This is what we did at b5media. I’ve not spoken much about my time at b5media because, frankly, it disgusts me where they’ve come. We actually had a good product going and things went awry. I won’t place blame. But what I will say is… we built that company on commodity advertising, commodity content, and had a tough time growing the company. I left with over 350 blogs in a dozen “channels”, each channel being a grouping of 20-30 blogs around a topic like sports or entertainment.

It was easier to try to do ad sales for a group of blogs on a topic, than it was to do targeted, lucrative advertising.

The problem with the b5media model, along with the Weblogs Inc model that sold (ironically also to AOL), the Gawker model, the Glam model, and now the AOL model, is that the content quality sucks. When I pick up a magazine or newspaper, I would not liken most media to The Atlantic or The New Yorker, both of which are highly intelligent publications that put out content that is exceptionally tuned and academic. The quality of the content is orders of magnitude higher than most newspapers or magazines (obviously including this blog).

Those publications are rare and can get private money from subscriptions, etc. The advertising route is the cheap route, and the route that business models go when they aren’t good enough to charge for access (a more reliable revenue source).

For the record, commodity business don’t normally pay their writers anything comparable to what their “colleagues” at uncommoditized media organizations get paid. That’s because, their work is not valuable unless it is in bulk.

Going back to the $25M Weblogs Inc acquisition in 2005, AOL has gone down this road of commodity content before. They even killed off a bunch of the WIN properties keeping only the ones that were truly valuable – like Engadget. They are taking a different approach and buying individual high-productivity sites now – which is better – but then their strategy is one that involves combining these sites, at least on a content integration level, into a mass-produced, commoditized content machine.

So is it really different?

FTC to Close Loopholes in Blogger-Marketer Relationships

Late last night, I came across an AP article that indicated a long awaited smackdown was coming from the FTC regarding paid reviews on blogs. Digging deeper into the article, it seems that the issue is not so much paid reviews as it is proper disclosure and verifiable claims.

In the blog world, we are subject to increasing amounts of “freebies”, particularly as our individual or demographic influence grows stronger. Companies want to get involved and get bloggers on their side, spouting their reviews and influencing opinion. As a disclosure, I participated in a Sears promotion, have been provided VMWare software on a “view” basis and was given a pair of Joe’s Jeans. Early on, I was also provided a cell phone from Sprint. That’s about the extent of the freebies I received. In terms of reviews, my policy has already been defined.

In some sections of the blogosphere, it’s reached a tipping point.

Meanwhile, some readers of Outside the Beltway see the move as indicative of future malfeasance by the federal government.

The problem is, this enforcement measure is just that – enforcement. There already are fair trade regulations on the books that dictate appropriate ways for businesses to engage in commerce – whether marketing, communications, disclosures, advertising, etc. These regulations already exist to protect the consumer. As with many industries, new media was a disruptive introduction and businesses are left trying to figure out how to compete in a new landscape.

The medium changes, but the business does not.

Businesses are still subject to FTC regulations that protect the consumer from the overrun of over-capitalistic companies trying to beat the competition at the expense of the consumer. This new regulation will simply update existing regulations to more specifically clarify that, hey, yes, companies have to play by the same rules when it comes to bloggers too. Companies should be enforcing their legal requirements on anyone peddling their goods in a quid pro quo or financial exchange. This is fair trade.

Deeper in, we see the same kind of attention and connection to affiliate marketing – the online business tool that allows a blogger to sell a product or service on behalf of someone else, and make a commission on it. While I don’t endorse eliminating affiliate marketing, I do find it borderline seditious and would not mind stiffer requirements on it’s use. For example, there should probably be an LLC or other legitimate business entity behind the use of affiliate marketing to ensure that paper trails and accountability can be traced.

Either way, this sort of thing requires some kind of enforcement, I think. It doesn’t feel right. On the flipside, this feels completely right from an ethical standpoint.

Update: Caroline McCarthy of CNET has more. Everyone keeps talking about the freebies. I want to know more about the affiliate crap.