Skip to main content

Peabody, Jarvis, and the New Sacred Cows

Bo Peabody has a nice piece in the WaPo about the business models of Social Networks.

He's a bit more dour about their monetization schemes than I would venture, but generally is in the ballpark.
A visit from the pope may attract a large audience, but it's not a great place to make money. Likewise, social networks can successfully bring people together, but don't expect them to turn a profit
Peabody cites examples of the failure of both advertising models on social networks, and the inability of social networks to get subscribers to pay for their services. Peabody cites the experience of Tripod (a once moderately sized social network which Peabody created), and reveals that the ad revenue generated on the site was never a fraction of a percent of that which Google hauls in with targeted search ads.

This is not necessarily a failure of a social networking ad model, but a failure of the size and intelligence of the social network. I imagine that Facebook's targeted ads, based on the intelligence and the size of the network, can one day generate a decent amount of ad revenue. But neither Facebook nor Google, nor whatever comes next will generate ad revenue akin to what we were used to from the bloated an inefficient media channels of the 20th century. As long as distribution channels are relying on that outdated benchmark, they're going to be disappointed by the amount of revenue their ads generate. From my post on the idea of "Innovative Deflation":
We're told to believe in our future in a knowledge based economy, but nobody has really figured out how to make real money of it. Of those who are making money off of it (Craigslist, Google), they are making pennies per dollar in the old markets that they've upset or practically eliminated with their innovation. This isn't because we haven't found the right monetization scheme yet. It is because innovation is leading to efficiency and not growth and that is exerting deflationary pressure on bloated industries.
As far as getting paid subscribers to generate revenue for a social networking site, even the slightest barrier to entry can hinder the growth of any given social network, and this is a kiss of death in a highly competitive market. Price always trends towards the marginal cost, and for social network sites, the marginal cost is practically less than zero! The value of the system increases with each additional subscriber.

Now Peabody warns:
We need to learn from the first dot-com bust, when services that benefited society disappeared just because they didn't make money. Imagine a world without social networks, in which I could not use Facebook to share hundreds of pictures of my infant son with his grandparents and the citizens of Iran could not use Twitter to challenge their political system. If we focus simply on a profit-and-loss equation, there is a real chance we will eventually lose these invaluable services.
This is alarmist to the extreme. Venture capitalists *do* need to learn from the first dot-com bust that many things on the Internet provide value without providing profit. It's the nature of non-rival goods ("bits-not-atoms", Jeff Jarvis would say). If Facebook collapses under the weight of its own walled garden (*cough* *cough*... MySpace), something will pop up to replace it. It may be a knockoff site, it may be an open source platform, it may be nothing more than a set of APIs and open protocols, but the genie isn't getting stuffed back into the bottle any time soon. If social networking has taught us anything it's that people are motivated to create and share for reasons far beyond profit, and in a world of information abundance (as opposed to the material scarcity of the real world), they will do it for no charge.

This brings to mind Jeff Jarvis' recent SideWiki jihad. Jarvis thinks that Google SideWiki has centralized power, not distributed it. The fact is, SideWiki has moved power away from his site and out to the readers (who can use SideWiki to comment on his site, as well as grant or remove authority of SideWiki posts by voting them up or down--the classic crowdsourced form of editorializing known as a "reputation system"). He's on the receiving end of the same treatment he's been advocating against old media, and doesn't much like the perceived loss of control he had previously exercised over his site.

It feels like we're retracing our steps. The Internet has consistently produced results along the following lines:

1) It preys on the inefficiency of old media
2) It moves control, power, and authority to the end user/edge of the network
3) It promotes/enables collaboration at nearly no cost
4) It removes scarcity from the Supply-and-Demand equation where bits-not-atoms are concerned.
5) It allows the crowd to control your brand

That certain Internet tools are subject to the same combat in which they dispatched their 20th century counterparts shouldn't surprise them. It amazes me how quickly some people can free themselves of one outmoded mindset, adopt some new gewgaw as revolutionary, and then immediately fall back into protectionist mode of their *new* sacred cow. Both Peabody and Jarvis, even armed with powerful observations and keen insight into new media, seem to be flirting with this temptation.

Popular posts from this blog

COVID-19 and the Tools We Need to Re-open Wisely

There's a lot of graphs and stats that the news is throwing at people right now. So much so, that you can get information overload trying to make sense of the statistics that have meaning. To quote my old Econometrics professor, "There are three types of lies: 'Lies', 'Damned Lies', and 'Statistics' ". I should also lead with the caveat that I'm an engineer and data nerd by trade, but I'm not an epidemiologist. I welcome feedback from those who have more experience than I do. The most important question we're trying to answer (at least here in Michigan), is "How are we doing?", and "When can we reopen our economy?". With respect to those questions, here's my take on the most important data, and some caveats about what these data are telling us. The four most cited data in news stories are: Total Number of Cases Daily New Cases. Total Number of Deaths Daily New Deaths This post will talk about #1 and #2

The Re-Opening Experiment

We should remind ourselves that, this Memorial Day weekend and the weeks that follow, we are subjects in a grand experiment to see how good we are at social distancing as stay-at-home orders are being slowly lifted. The state's stay-at-home order was never meant to keep you, individually, safe from infection. It was meant to keep hospital's safe from being overwhelmed by too many of us needing them at the same time. In Michigan, the daily new cases of COVID-19 are higher today than they were when we locked down in late March. We are testing whether or not we can open up (with all of our new precautions and protocols) without spiking the rate of spread, but make no mistake: it *is* an experiment, and we *are* the test subjects. Please don't get careless as things start to open up. We need to get our economies back on track, but we are still a long way (and a vaccine away) from being out of the woods. Stay vigilant, folks. Wash your hands. Wear a mask. As has always been the

What Advice Would You Give Your Younger Self?

An old friend recently reached out to me (and presumably others) and asked us what advice we'd give our younger selves, particularly at ages 20, 30 and 40. After writing my response to him, I thought it worth posting myself as well.  The substantive bulk of my response to him follows: ----- The difficult thing is that I really wouldn't change a thing about who I am, so any call for advice feels a bit like a time-traveler scenario where my advice to a younger self would affect the outcome of my present life, and I'm not sure I'd risk it. My experiences shaped me, including the glaring mistakes, and I wouldn't trade places today with anyone on Earth. But, for the sake of argument, let's assume the Many-Worlds Interpretation of quantum physics here, and thus assume I won't mess my own (present) life up. Wibbly-Wobbly. Timey-Wimey. It is also important to note that the question is "What advice would you give your younger self?". The a