by Dana Blankenhorn
Volume V, No. XXI
For the Week of May 28, 2001

This Week's Clue: New Search for Content Business Models

This Week's Clue: New Search for Content Business Models

SSP (Shameless Self Promotion)

SP (Shameless Promotion)

The Halo Effect

Why AOL's Risk Will Work 

The Scam Mummy Returns

Clued-in, Clueless

The dot-calm and Internet Depression have rightfully discredited many of the Internet Boom's key concepts. Ideas like "first-mover advantage" now draw chuckles from investors, as they should. It's far more important to do something right than do it first.

But there's one term that should not be discarded. That term is "business model." It has been discredited because so many companies failed to execute on their models, and many models were shown to be faulty. A business model alone is not enough.

But no new business works without a business model, and no new way of business is possible without new business models. The Internet, which is still a new medium, absolutely demands them.

Fortunately the search is back on. The difference now is that small-scale experiments with new models are taking the place of full-fledged investment. (That's good.) 

You can see the new approach in the recent moves of Universal Music. The company has bought a variety of music sites with a variety of business models , and its marketers will now try and find out which model works best for which audiences. The company has demanded an assurance of success once new models are found, so it has locked-up every current method by which musicians might find their own models. But Universal's success, however it comes, will create a road map for others, and while Universal won't like to hear this others will follow it.

Content publishers are going about the search for new business models in a panic. Variety essentially removed itself from the Net and began offering its content only to print subscribers (selected by the publisher) and paid subscribers. Salon went to begging its readers for money, threatening to inundate them with intrusive ads if they didn't pay. 

I've had several conversations with Web publishers in recent weeks. All bemoan the fact of Internet advertising's collapse, all are desperate to either force registration, payments, or both. I have found that approach Clueless, and have told them so.

I have talked before of how publishers must know their readers and define their markets if they want to build serious businesses. But it's just as important to understand how you proceed to widen your sources of revenue.

The trick is to understand leakage and to up-sell. 

When you try to make people register for content you will lose many readers. They will leak away from you. You must provide an incentive for gathering their information. You should also make it as easy as possible for them to give this information. In the short term integrating with something like the Gator  wallet, so simple questions can be answered in one-click, would be a great move for any publisher. In the longer run some standard for collecting information into registration databases should be created, perhaps in conjunction with an auditing organization.

Any publisher now offering content free would be unwise to suddenly slap a cash register on their site. They'll reduce traffic by 90%, maybe more, if they do. But a package of e-mail, interactive, and premium content (perhaps with delivery to wireless devices) could be combined into a "membership" that might be up-sold. Figure that initially only 10% of your readers will register and 10% of them will buy the member package, but that's a start. You build on that, executing your strategy steadily, increasing the incentives to register and improving the value of the membership bundle. 

Here's the key Clue from this week I want you to memorize. Permission is the key to finding new content business models. 

SSP (Shameless Self-Promotion)

I'm working on what I call the "first book of the 21st century," a tome that will combine insight and hyperlinks. It's about half-done, and I'm looking for publishers as well as publicity. Drop me a note if you want to learn more

Boardwatch has launched its newsletter under my byline called ISP Executive. Check it out. You can join the A-Clue.Com discussion at I-Strategy , our shared e-mail digest produced with Adventive.Com. You can also read me daily at ClickZ , monthly at B2B, and Boardwatch, and bi-weekly at Internet Content. More deals are being negotiated as we speak. Remember that it's journalism that keeps the Clues coming...

Shameless Promotion

What, you haven't signed up for WZ.Com's "The 45-Second Mentor?" What will it take to convince you?

If you benefit from the insights of a-clue.com but can't turn my advice into knowledge, you need this. If you're short of capital but still need pre-digested, actionable knowledge (rather than random news stories and insights) you need this service. If you're a player (not just a poser) you need this service.

So don't delay. Your investment is minimal and the potential benefits enormous. Click the link.

Takes on the News

The Halo Effect

One of the great proofs we're still in a technology recession (despite a recent run-up in stock prices) is in the "halo effect" that a well-capitalized company can give one less well endowed with money through a simple announcement.

A great example was to be found last week when McAfee said its products would support Microsoft's Hailstorm . The news was no surprise (McAfee has been tightly aligned with Microsoft for years) nor was it really a big deal, but McAfee's stock price jumped over 50% when the news hit .

Microsoft still has big problems. Few people automatically upgrade their hardware anymore, let alone their software. Microsoft has been trying to force upgrades by refusing to allow them on older products like Office 95. You don't really think its Web sites are making money when they're filled with ads from online casinos and Classmates.com, do you? But there's still so much cash flow, and the gross margins on its software are still so huge, that its weakness looks like strength in comparison to anyone else.

You will know the market has turned decisively when announcements like this draw yawns, or when hard questions begin to be asked concerning the continued strength and size of Microsoft's profits.

AOL acquired this "halo effect" image for itself when it bought Time Warner last year. Now it's taking advantage of it.

Why AOL's Risk Will Work

AOL's decision to hike prices $2/month, or 9%, on top of an earlier 10% price hike, will not hurt it in the short run.

For that to happen it would have to lose a net of 2.4 million subscribers (or thereabouts). That's not in the cards because no firm currently has a proprietary Internet suite that can compete with the AOL package, so the "switching costs" of regular users dropping the service are high. (It will still cost more than $2/month, net, for someone to switch to a regular ISP account while retaining just an AOL "lifeline" of a few hours per month.)

Earthlink tried to encourage a mass revolt after the last price hike, and failed. AOL is now thinking of its online cash the way it thinks of its Time Warner cable rates, as something that can be adjusted upward whenever it wants. The street is buying that argument, and AOL's stock price rose on the news .

In all these areas AOL Time Warner is being managed, not for long-term success but for short-term profits. Costs are being squeezed everywhere, "synergies" are being invented to hide marketing costs across the board, and prices are being pushed up on everything. With so many companies in so much financial hot water, AOL figures that putting the profit pedal-to-the-metal will give it the "street credibility" it needs to then go on another acquisition binge.

This is smart market timing. But it's a tactical move. AOL is leaving a ton of goodwill on the table, goodwill it will either find ways to recoup when the investment climate changes or which will be lost forever. If AOL can get through the next six months with rising profits it will have built for itself a Microsoft-like "halo effect" that will not only give it the capital with which to expand, but will guarantee that Time Warner's people kowtow to those from Virginia forevermore. As someone who has long found Time Warner's people to be arrogant, needlessly cruel and hopelessly Clueless, that's not altogether a bad thing.

The Scam Mummy Returns

Just as AOL is squeezing its customers and business partners, so registry companies are doing the same through the new .biz and .info domains.

I recently got a spam (there's no other word for it) from Verisign's Network Solutions unit on this very subject. It was headlined "An important opportunity for all trademark holders to protect your intellectual property," and basically demanded that I start paying another $35/year for my business name or risk losing it. That's the cost of getting a .biz domain name alongside my current .com. "You must act before July 9, 2001" the spam continued or someone else can grab a-clue.biz and all my goodwill.

New Top Level Domains were created to avoid this, to allow multiple companies in separate industries to do business under the same name. But that's not to the benefit of the domain name scammers so they're launching a new fear campaign aimed at stealing more money from poor, honest businesspeople. You know what's most shocking? Recognized experts on trademarks are advising clients in no uncertain terms to knuckle-under, to buy .biz, .info, .jp and any other TLDs the registry extortionists may turn up with.

You'll find just such a call from the Washington law firm of Gartner, Carton and Douglas (no relation intended to that other fine law firm of Dewey, Cheatham & Howe) in this list . The important point is their opinion is not unusual. In fact this scam has more backers than the Bush campaign. That's not a majority - it's not even a plurality - but it's enough to win.

Clued-in, Clueless

Clued-in is Professor Edward Felton of Princeton for noting that if copyright can trump his First Amendment rights they can trump yours, too.

Clueless is Steven Levy, who once again has missed the point with his "Newsweek" column on being "Napsterized" . The conflict was always over creating new business models, not ripping off artists. (Oh, and Steve, we're talking here about an 18-year old book on the one hand and a piece of your market that wouldn't buy your stuff anyway on the other.) Steve's a fine writer, but his story well illustrates the brain-dead thought process that leads so many creative slaves to love their slavemasters.

A-Clue.Com is a free email publication, registered with the U.S. Copyright Office as number TXu 888-819. We're on the Web at http://www.a-clue.com.