Sucks to be a Blog Network These Days

Having come from the blog network space, I have a mostly unique understanding of the difficulties encountered when running a content business. There is always a war between traffic and community, profitability and loss, long term projections and short term realities. It’s not an easy business.

It’s even more challenging when you’re a blog network. Unlike more traditional style content companies like Newscorp (owners of MySpace, AskMen.com and FoxSports.com) or the New York Times, blog networks attempt to take a relatively new medium, a blog, and lump it together with other relatively new media – blogs. There’s no counter-balance of strengths and weakness. They are all blogs, possessing the same inherent strengths and weaknesses.

One of the core problems with the “traditional”, if there is such a thing in the space, blog networks – and really any online media – is that the business model almost always comes back to advertising models of revenue generation. Historically, the advertising market has come and gone in a predictably cyclical way.

As expected, the advertising model is taking somewhat of a hit during these difficult economic times and only in the past two days, two major media players in the blog network space have had to cut pay, create layoffs or otherwise cut costs due to an impending, or in some cases already present, decline in online ad revenue.

Gawker Media, the second largest blog network and home to industry favorites Gizmodo, Gawker, Valleywag and Lifehacker has announced a restructuring of staff – laying off 60% of Valleywag staff, as an example, and increasing the staff on their flagship properties. Consolidation is the name of the game in this case.

Likewise, b5media (with whom I worked for several years), had an internal memo leaked (and TechCrunch published) describing a complete revamp of their compensation system “to reduce costs”. Many bloggers are taking significant pay reductions as the company streamlines their burn rate.

This on the heels of AOL/Weblogs Inc layoffs and pay reductions a few months ago and the very public walk-out of Profy staff when pay was to be reduced shortly thereafter.

Let me be clear. If you’re in the content space, you are dealing in a non-tangible asset. Therefore, the economic rules of asset valuation do not apply. There is no “market price”. There is no assessment value. There is no depreciation. If anything, content can appreciate over time. Typical rules do not apply and in a market where investors, advertisers and publishers are trying to identify concrete ideas and assets that they can count on as a sure investment, non-tangible assets will always take a hit.

Publishers, particularly publisher networks, have to look around and identify means to continue to generate non-tangible assets cheaply (yet fairly), and I imagine some models might end up looking to non-tangible compensation (such as community benefits) to acquire new publishers and content.

Problem is, bloggers have this idea that they can be rich by blogging. Some are smarter and think they can simply “make a living” by blogging, without ever uttering the rich word. Truth is, unless you’re a few important people in the world, it’s not happening. It won’t happen. There are other meaningful ways to benefit from blogging, and most of them are non-monetary.

Transparency and Handling

Transparency happens to be the number one search term for this blog. Don’t ask me how it happened. I’ll simply say that I talk about honesty and transparency quite a bit. The reason is that it is the cornerstone for business and brand.

Today at the Interact 2008 conference, AOL founder Ted Leonsis dropped a bomb on a largely communications oriented audience. Having a “special place in my heart” for public relations and marketing, I can tell you that your industry is the one that is most in need of transparency.

Of course, your industry is not the only one needing transparency. Anyone in business needs transparency as it is the cornerstone of trust and brand loyalty. However, public relations more than any other industry in my book needs to be transparent. Transparent with customers. Transparent with the press and bloggers. Transparent with clients.

Ted notes that many of your [Public Relations] clients are asking for handling. What they don’t realize is that the more handling they have, the more they will be rejected.

Pure and simple, handling eliminates flaws. It’s the photoshopped model on the magazine cover. It’s plastic. It’s memorex. And, let’s be honest, consumers see right through it. It’s deceptive and in todays age of user-centric communications, plastic is the downfall of traditional communications. It’s all about transparency.

Young TechStars Become Grizzled TechVeterans

I’m not usually one to cover breaking news, but this demands it. Not so much because Boulder-based SocialThing is a great company or that they are a particularly good example of a great company acquired by an even greater company. Frankly, it’s neither. But it deserves a huge congratulations nonetheless.

TechStars, a YCombinator-style early incubation investment co-op(?), has a major exit by being acquired by AOL. Hats off to SocialThing and the young entrepreneurs behind it for making a very quick exit in a difficult market.

SocialThing is a lifestreaming service, much like the more popular FriendFeed. It was launched in March of this year making it all of four months old. It is so new it is still in private beta (we have an account) and doesn’t support Internet Explorer!

AOL, on the other hand, is a company desparate for relevancy. They continue to downsize announcing even more layoffs and consolidations of their business last month. Most of the business has been consolidated to Ad sales and retired to the hallowed halls of Madison Ave, though their former Dulles, VA HQ still boasts some performing products (AIM, Meebo, etc).

The feel good story here is that founders Matt Galligan and Ben Brightwell have just grown up very fast. They are no longer relegated to incubator company founders that might never make it. They have created a succcess story with an early stage exit that now makes them veterans in this space. Veterans being entrepreneurs with a successful exit (my definition, loose as it might be).

So congratulations to AOL and more importantly, the SocialThing team. Good to be grown up now.

Walled Gardens and Business Models in the 21st Century

Walled Gardens. Defined as media properties utilizing privileged access to provide information services or content to a user. The classic example of a walled garden was AOL, before they opened up most of their services. Users paid $23.95 or whatever the access rate was and got access to the “AOL Network.”

Then there was Facebook, the walled garden social network that restricted access to college and high school students, and businesses who had a Facebook presence. In all these cases, the confirming matter was a legitimate email address issued by the legitimate university, high school or business.

Web 2.0 drastically changed the way we do “internet”. No longer do people expect to pay for these services, they simply don’t. AOL recognized this fact a few years ago when then CEO Jonathan Miller suggested to the board that AOL should drop its subscription model and open up. AOL decentralized and became an open platform, including their very popular AIM service. AIM, a formerly closed protocol, now is run via Open AIM, a service which has allowed the interoperability between Google Talk, Jabber, and .Me, to name a few.

Facebook opened up big time. They decided to let the world see what was behind the curtain and were wildly successful. Though Facebook is still a walled garden in some respect to data, the walls keep falling with Facebook apps and Facebook Connect, announced last week.

As a final example of a traditionally closed walled garden throwing all caution to the wind and embracing the open internet environment, I give you the New York Times. NYT excessively applies metadata to all of its content, opening up the door for others such as Blogrunner, a Techmeme competitor which is actually owned by NYT. More notably to the traditional media norm, the registration requirement (which is almost always free at online newspapers) to view articles was removed giving full access to NYT content.

No registration. No hoops. Profit.

The challenge, as Seth Godin is probably about to find out, is when a business model is built around paid access (or even free but registration required). I’ve toyed with the idea of premium content for RSS subscribers only here. Though I won’t promise not to try it again, I can say it did not work. There was no increase in subscribers. There was even better content and resources, yes. But it does not work.

That said… one of the things that the open content movement seems to be bringing to light is single sign in. Facebook Connect, for instance, allows users to gain access to dedicated non-Facebook resources, free of charge and without forcing yet another account.

This doesn’t solve business model. I think the Pay per Play model is flawed inherently and though some people are successfully making money on older models, I don’t think the honeymoon can last.

That’s just me, though. Curious to hear what you think the best method of monetizing premium content is.