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.

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?

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.

However, it is still declining.

The days of making money online via advertising would, by most accounts, seem to be over and with it comes the question, “How exactly do we make our industry profitable again?”

Conventional wisdom suggests that there are two models. The first is the advertising model. The second is a paid subscription model. Though we have been brainwashed to expect free at every turn, part of me wonders if a paid subscription model would work better. Surely, readers are willing to pay a small fee for access to valuable content?

For my part, I am considering a switch to a paid model. It is my belief that the content found here is worth paying a small fee for. In exchange, such a model would eliminate advertising and would probably be in the neighborhood of $5 a month. But I want to talk to you first.

Does this make sense to you? Would you be willing to support the emergence of a new model that benefits the larger community and how content business models evolve for a low price?

Take a listen.

Early apologies for some of Gary’s language as he is obviously passionate and fired up. Don’t let the language scare you away His message is very important.

Thanks also to Allen Stern for the video:

Regardless, the issue has sparked a very interesting discussion around the blogosphere. Duncan Riley took the first major step of actually putting out a call to action on the concept of an advertisement federation.

Steve Hodson complained that he was concerned about the users who read a blog for the blog and might not like editorial restraint that might come from a new “conglomerate”. He did a whole podcast around this. Thanks Steve!

From my perspective, there’s two parts to this equation. There’s a play for advertising dollars where a combined alliance of 5-8 blogs each doing 150k pageviews a month can command a far more significant direct sale interest than any one of those blogs alone.

The second part of that equation is in content, and more importantly, diversity of content. Mark “Rizzn” Hopkins seems to think there is no problem with bunches of bloggers talking about the same things all the time. I disagree, as I think most. But putting that aside, there will always be the echo chamber, regardless of alliances. It’s just that an alliance can present a distributed voice on a wide variety of topics making it more desirable for the combined audience of all member blogs put together as well as the advertisers.

End of the day, this concept still has miles to go before anything actually happens. But I’m happy with the direction of the conversation.

Here’s the second video.

The description of this panel is:

How does traditional advertiging work on social networks? What products and techniques are required to develop a viral marketing campaign? Find out how to use social networks, social advertising, and social applications to reach hundreds of millions of today’s online users.

I’ve been desperately (admittedly) looking for means of monetizing this site recently. This site is in the awkward in-between stage of hot property and an long tail property where it cannot be repped by larger ad repping sites like Federated Media because it’s not large enough, and simply cannot make enough money with Adsense or most of the “commodity” advertising properties.

Since leaving b5media, I’ve attempted to do my own ad repping but I’ll be honest – it’s not my thing. I don’t have a nose for advertising, nor the experience to do direct selling.

In the past week, I’ve applied to several agencies to gauge interest.

So I ask in all humility, and in the spirit of crowd-sourcing, how would you monetize this site if it were yours? What tips can you share with me? Introductions you might be able to make? While I would love to have this conversation in comments, I also recognize that some conversations might be better had in private. So please, email me at aaron@technosailor.com or one of the other methods listed here.

So, back to Zuckerberg. Mark posted an entry today on the Facebook blog apologizing for Beacon, admitting that the program was mismanaged from the start and that the response to the outcry were abysmal:

We’ve made a lot of mistakes building this feature, but we’ve made even more with how we’ve handled them. We simply did a bad job with this release, and I apologize for it. While I am disappointed with our mistakes, we appreciate all the feedback we have received from our users.

Zuckerberg continues on to outline how to turn off Beacon altogether – and that’s where this is still breaking down. First, Beacon is still “opt-out”. That is, users still have to proactively turn the “feature” off. I’m guessing that most Facebook users are not paying attention to this whole Beacon uprising, and thus probably have no idea that there is something that can be turned off and how it would be turned off. The majority of Facebook users, I’d venture, are purely using the site to keep up with their circle of people. No one is paying attention to these higher-level issues – something I admit I’m disappointed in as I think these issues affect all users.

The reality is that Beacon is damaged goods and I will be surprised if partners don’t continue to drop the technology. It’s a huge mistake to send data to Facebook and let Facebook determine if the user 1) exists or 2) has not opted-out.

Someone I talked to recently described Facebook and Beacon as, “[Facebook] is like inviting the devil into your home by accident and now [Beacon] is seen as angel of death.”

No, despite Facebook’s steps to “right the wrong”, they have not gone far enough. At the very least, they need to make it completely opt-in and let their marketing department “sell” opting-in to their users. In an ideal world, Beacon is completely abandoned – something that might very well happen if the backlash doesn’t stop soon.

Cada persona, compañía o producto tiene lo que llamamos una cuenta de confianza (trust account). Hay acciones que resultan en un aporte a la cuenta de confianza y acciones que implican un retiro de esta cuenta. Cuando cometemos un error, por ejemplo, realizamos un retiro de esta cuenta. Es importante mantener la cuenta con fondos, ya que una vez que nos sobregiramos, se hace muy difícil mantener la credibilidad.

Hace unos años, Samsung realizó un comercial para sus televisores en el cual una persona recibía por error una televisión que era para su vecino. Después de probar la televisión y ver lo supuestamente buena que era, decide quedársela, así que cuando el vecino viene a preguntarle si había recibido el envio, se hace el loco. En pocas palabras, ¡se roba la televisión de su vecino! Así que cuando fuí a comprar un televisor HD, compré uno marca Sharp.

Ahora, Toyota decide realizar un retiro enorme de su cuenta de confianza con su última campaña publicitaria en EEUU para el Toyotathon (al momento de escribir este artículo no pude encontrar copias de estos comerciales en Internet). La campaña muestra a varias personas en distintas situaciones destruyendo sus vehículos actuales para poder obtener un Toyota último modelo. Uno deja su pickup amarrada al muelle para que esta se caiga del ferry, otros empujan una roca enorme para que le caiga encima a su vehículo, entre otros. El mensaje, aunque no explícito, pareciera ser defraudar a las compañías de seguro para obtener un vehículo nuevo.

Toyota quiso hacer una gracia y le salió una morisqueta… y su cuenta de confianza perdió unos cuantos ceros.

Facebook Beacon, as we talked about, is a major privacy violator. Facebook’s official policy on this states that:

When you send an action to Facebook, the user is immediately alerted of the story you wish to publish and will be alerted again when they sign into Facebook. The user can choose to opt out of the story in either instance, but the user doesn’t need to take any action for the story to be published on Facebook.

Putting aside the obvious problems surrounding Facebook’s opt-in/opt-out policy, the real problem lies in the fact that partner companies are sending data to Facebook without permission in the first place. Undoubtedly, it is a violation of their own privacy policies. This begs the question: will some big-shot lawyer come along and file a class action lawsuit on behalf of the 50M+ Facebook users who have fallen victim to this conspiratorial betrayal of their trust and privacy?

Let’s explore some privacy policies to see what these companies are allowed to do as it pertains to third parties and user data.

Hotwire has a policy that allows for third party release of info for specific purposes but stipulates that the firms cannot share the data with other organizations:

Hotwire will also share your information with business firms contracted to provide specific services to us, in a manner consistent with this Privacy Policy. For instance, if Hotwire were to hold a sweepstakes offer on our Site, we may choose to hire a Sweepstakes Administration firm to handle the legal requirements surrounding entrant and winner selection and validation. We also share complete booking data for registered coolExtras members with Affinion Group, a loyalty marketing firm that administers coolExtras rebates. In situations such as this where your data is shared with a third-party firm, these firms are contractually obligated to only use your personal data for the purpose for which the relationship exists. These firms do not have the right to share your data with other organizations or contact you outside the bounds of their contract with us.

GameFly expressly forbids itself from transferring personally identifying data to anyone except in the case of a merger or acquisition or in the case of subpoena or cooperating with law enforcement:

Disclosure and/or Transfer of Personal Information

We may disclose any and/or all personal information about you in the good faith belief that we are required to do so by law, including but not limited to requests pursuant to subpoena or court order, and/or disclosure to local, state, or federal law enforcement, or other government officials pursuant to investigations they are conducting. In addition, in the event of a merger, acquisition, reorganization, bankruptcy, or other similar event, GameFly’s customer information may be transferred to our successor or assign.

Aggregate Information

We may provide our prospective partners, advertisers, and other third parties with aggregate data about members and visitors to the GameFly Website. However, such data is anonymous, and we do not disclose personally identifying information about specific users.

eBay has not introduced Beacon yet, but appears to be angling to do so and also protect itself and its users, something I applaud. Furthermore, their privacy policy explicitly allows for such sharing of information.

Web beacons

A web beacon is an electronic image placed in the web page code that can serve many of the same purposes as cookies. Web beacons are used to track the traffic patterns of users from one page to another in order to maximize web traffic flow.

How eBay protects your privacy with third parties

eBay may work with other companies who place cookies or web beacons on our websites. These companies help operate our websites and provide you with additional products and services. They are subject to confidentiality agreements with eBay and other legal restrictions. eBay does not permit any of these companies to collect personal information using cookies or web beacons on our websites.

While eBay may be angling to protect itself, OVerstock.com has no excuse considering purchases are explicitly banned from being disclosed to third parties not involved in closing the transaction (e.g. credit card companies):

We may collect information actively generated by the purchase of a product or service, such as a payment method. We use this information to process your order and analyze and support your use of the Overstock.com web site. This information may be disclosed only to our staff and to third parties involved in the completion of your transaction, the delivery of your order or the analysis and support of your use of the Overstock.com web site.

Blockbuster is over the top with their privacy policy readily admitting to sharing personally identifiable information:

Blockbuster, its affiliates and franchisees (if permitted by Blockbuster) on occasion may disclose to their business partners certain data, such as names and addresses and the genre of products rented or purchased by Users or Members, so that the business partner may send their own direct marketing communications to Users and Members. Blockbuster will not provide User or Member e-mail addresses to business partners, unless the User or Member has provided express permission to Blockbuster. If you would prefer that Blockbuster not use disclose your personal information to its business partners for direct marketing purposes, subject to legal, or contractual restrictions and legal notice you may opt out of such uses and/or disclosures by (a) checking the appropriate “Opt Out” box in any applicable e-mail communication or e-newsletter, (b) sending an e-mail to blockbuster@custhelp.com (c) writing to us at 1201 Elm Street, ATTN: Online Customer Loyalty, Dallas, TX 75270 or (d) visiting your local BLOCKBUSTER store.

So the problem here is not only Facebook. Facebook pledges to protect these company’s users privacy. My question is… why is Facebook doing the job these companies should be doing in accordance with their own privacy policy. I will go out on a limb right now and say for the record that I will gladly sign on to any class-action lawsuit on behalf of Facebook’s 50M+ users who have had their privacy violated on account of this program. Companies like Coca-cola have wisely decided not to get involved. Others have foolishly determined that they will stay involved.

I guess we’ll let the dust settle on this.

In case you’ve been under a rock for the past few weeks, Beacon is the program that Facebook marketed as a B2C advertising platform. Companies utilizing Beacon would benefit by automatically getting postings in the profile of a user utilizing the company’s website in some way, whether for purchase or otherwise. It was marketed to businesses as completely “opt-in” but as turned out to be exactly opposite.

The privacy concerns that have been demonstrated by the Beacon program is well documented. One guy bought his girlfriend a an engagement ring on Overstock.com and she found out about it by reading his Facebook profile where Overstock had posted this fact on the guy’s profile without him knowing. Personally, I’ve been dismayed to find my Gamefly activity documented as well as a car rental I purchased through Hotwire for later in the month.

Lots of people have proposed methods of “blocking” Beacon, but the fact is that whenever you are logged in, Beacon companies can (and will) post data to Facebook. Even if you opt to never show these details on your profile, Facebook still collects the data and quite possibly shares that demographic data with interested companies. Dare Obasanjo has detailed how broke Beacon really is…

Awhile ago, I wrote an article entitled “The Art of War: Facebook’s Strategy for Ultimate Victory“. In that article, I outlined how I thought Facebook had made all the right decisions and as a result would eclipse MySpace and other social networks as the premiere network around.

I am taking that article back. Facebook has not only violated all sense of trust on this matter, but faced with the problems, they’ve only made matters worse. (Sidenote: If you have a few hours, go through these court docs and tell me at the end if you trust Mark Zuckerberg or find him to be completely slippery. Also read this lengthy “pieced together account” of Facebook’s origins).

The real question here is there any real way to opt out? I don’t think there is.

1. The Privacy tab in Facebook – good for taking companies that use Beacon and that you’ve already engaged with out of a newsfeed – but what about future companies that I do business with?
2. Companies still sending data to Facebook regardless of if I’ve turned the privacy level way down. What is Facebook actually doing with this data? Telling me that it will be deleted is not a good enough answer for me. Beacon should be opt-in ONLY at the Facebook AND vendor levels.
3. The firefox extension for blocking sites. This is a good idea in principle but I shouldn’t have to do anything to maintain my own privacy!

To me, the only option here is deleting your Facebook profile – something I am very close to doing.

En este comercial, el malo de la película se disfraza como una bella modelo en apuros, accidentada al lado de la carretera en su Toyota Corolla, pero es descubierta cuando sus victimas se percatan de que el auto es un Corolla y estos “no se accidentan.”

Toyota aprovechó la impecable reputación de su Corolla para crear este comercial. Lo interesante es que el comercial vino una vez que la reputación existía y no para crear esta reputación. Esta estrategia solidifica la reputación de Toyota como una marca confiable.

El caso contrario, tratar de convencer al cliente de una supuesta característica de nuestro producto casi nunca funciona (ver el caso de Wal-Mart y su blog) y menos ahora que estamos todos conectados, cualquiera puede montar una página web y nuestras quejas llegan a millones de oídos en un click.

¿Tienes algún ejemplo para compartir? Deja tu comentario y enciende la discusión.

Though I am one of the speakers, I will be in the lobby working during the opening keynote (as well as the first session).  Why?

1) I need to get some work done. And 2) the opening keynote is AOL’s Vice Chair Ted Leonsis. And I just don’t think he or the AOL brand is that relevant anymore.  In short, this was one of the sessions I could most afford to miss.

Look, AOL does have some great things going on. My fellow panelist Frank Gruber for one. And no one can deny how powerful TMZ is in the gossip side of things.

But at the same time AOL the brand has faded, it’s lost its luster. And that’s because it’s not really dominating much, and its leadership — like Leonsis – seem to be following, not creating earth shaking vision.

For many, including me, AOL just means dial-up.  And that’s because the brand promise was safe, easy dial up access for so long it’s permanently etched into my brain. This is in spite of the many things AOL is doing in 2.0. And is it any coincidence that one of its most successful efforts is branded TMZ and not AOL?

Perhaps it is me, but wouldn’t all of AOL’s current social media efforts benefit from a re-brand.  I just think the dial-up legacy kills it. As a result the company seems to be fading. What do you think about AOL’s efforts?

Phonetics and mashup are all the rage in Silicon Valley web 2.0 start-up naming conventions right now.  When it was Digg, FaceBook and Skype, this was different.  It was cool, fresh and neat.  You could not help but ask yourself, what’s that?!?

Now, it’s not cute anymore (‘sup Pownce and Jaiku!). Instead it signals, “Oh, another 2 dot-bomb.” OK, maybe we’re not there yet, but you get the point.

Branding gurus are charging clients tens, hundreds of thousands for not-so-cheeky plays on phonetics or slamming two words together.  Read TechCrunch, and you’ll find posts littered with examples:

• GigaPan
• Boomj
• TasteBook

Out of the three of these, there’s only one I like: TasteBook. Why?  Because it tells you or at least gives you an idea of what it does.  TasteBook allows users to create and order custom hardback cookbooks (“tastebooks”). BTW, that’s what a company name is supposed to do. Tell potential buyers, partners and investors what kind of business it is.

One must wonder how much longer this latest naming fad will continue.  And if you don’t think it’s a fad, how many eGoofy cos and .bombs can you name in five seconds? Pets.com, eHarmony, eLuminant, etc., etc.

P.S. As a result of this rant and as a tribute to Doug Haslam, I’ve decided to rename my PR firm Shazaaamr.