For the Week of December 9, 2002
I have always been interested in business models.
A business model is simply the method by which you get more money into your enterprise than you pay out. Until recently this was fairly simple. You produced a product, like oil or wheat, and you hoped you would get your costs out from people who needed oil or wheat.
In the 20th century the question of business models became more complex. Federal Express' business model put a premium on overnight shipping, then branded that so it could get a profit-making price for the service. Most of the great 20th century business models were about branding - IBM, Coca-Cola, Apple, etc. But beneath the branding "magic" business proceeded as always. You made stuff, you sold stuff, you hoped your stuff brought in more than it cost to make.
The Internet created new business model problems, not so much for stores (although problems of proper scaling killed most of the dot-bombs in their cribs) as for content producers. After all, books had a definite, product-based business model, one that music had also begun using. Magazines and newspapers charged readers the cost of delivering their products, but made up the rest from advertising. TV accumulated vast audiences and, again, made its nut through advertising.
The last two years have exposed these business models as faulty. Books and songs have sprung out of their binders and boxes and rushed onto the Internet without telling their makers where the money to produce new ones will come from. Magazines and newspapers have found that Internet advertising doesn't always give them enough value-per-reader to make up the costs of delivery, and it steals readers from print. Online TV has failed to generate mass audiences.
While Hollywood and New York look for solutions to this problem, either by bullying or harassing online users, many individual writers (like me) have gotten into a new habit, blogging.
Blogs are fun. One reason is that anyone can do what I've been doing here for years. You get stimulated by a few online articles and link to them while giving a take. It's quick, easy, and can generate instant feedback.
But blogs have absolutely no business model. A few writers who care about getting their money out, like Glenn Fleishman, have taken ads. Others have resorted to begging - that's where I got the idea for the Amazon and Paypal boxes. Hylton Joliffe at Corante sells subscriptions to an e-mail product, but that business model is difficult to translate into the blog format.
A few attempts have been made to aggregate blog content for profit. Blogstreet is trying to produce blog "ratings," but the ratings are based on links, not audience. Technorati sells a "watch service" on new links.
These represent just the start of a process that will pick up a lot of steam in 2003. Despite the low cost of maintaining a blog (it's free with blogger, and super-cheap with Weblogger or Web Crimson) it still takes the author's time to create the thing. It also takes readers far too long to sift through blogs - the process so far is too much like "surfing" - that was fun for a few weeks in the mid-90s, but the fun paled.
So far the main business models for blogging have been, as mentioned above, in the areas of software or hosting. These are interesting, but they're pretty low on the food chain. For blogging to transform itself from a hobby into a small industry (or even a semi-professional profession) we need to come up with new ways for bloggers to profit from blogs.
What are some of the possibilities? Let's play with some business models:
- Blog "dating" services - Help new readers find blogs whose content matches their interest. Help buyers of content find bloggers who can provide work for hire.
- Blog "databasing" - A Google for bloggers. You can also sell trademark owners and others "alerts" for when a blogger mentions them, favorably or unfavorably.
- Blog advertising aggregation - Aggregate blogs by content into enough pageviews to interest national advertisers.
- Blog of Blog - Serious daily content about what bloggers are blogging about.
- Blog ratings - The easiest way to do this is by looking at page views, not how many link to your blog. But "blogrolling" is also an important indication of a blog's importance.
- Bacon Blog -- A blog with few readers but a lot of links may, in fact, have more important readers than a blog with a lot of readers but few links. The best blog to advertise in is the one that wins the "Kevin Bacon" contest, the one through which you can reach most of the Internet, or an important sub-set of it, in the fewest possible moves.
I know that I haven't yet mentioned many ways in which bloggers can directly profit from their blogs, other than those tools I use - advertising, begging, word-of-mouse to stimulate paid work. That's because in order for bloggers to profit directly from their blogs, we need an infrastructure in place through which the money can flow. The process of building that infrastructure will be one of the more interesting Internet business stories of 2003.
As with the Internet itself, these are early days yet.
SSP (Shameless Self-Promotion)
We've been blogged. Roger Whitehead thought so much of last week's lead item he blogged it at Office Jotter . If you're re-printing Clues on your Web site just let me know and I'll give you free advertising, too.
There are indications the tech economy is trying to awaken from its slumber. I have recently gotten orders from BtoB and Mobile Radio Technology , the latter now headed by former "Boardwatch" editor Bill McCarthy. I could use more work, but something is better than nothing.
My book, "The Blankenhorn Effect: How to Put Moore's Law to Work for You," should be available in just a few weeks from Trafford Publishing . You can pre-order a copy with no obligation by sending me an e-mail . I'll let you know as soon as it's available.
You can follow the continuing story of The Blankenhorn Effect on my "Moore's Lore" blog . I still write for Boardwatch , Boardroom , Marketing Profs and Thom Reece's eComProfits . I still produce I-Strategy for Adventive
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Takes on the News
Insert Head in Sand and Wait
America has lost the large and (growing) market called Internet casino gambling. Billions of dollars are being made, but in places like Antigua and (even) Botswana .
American casino owners badly want to get into the market , but even when they have entered the market, in foreign ports, they have been forced to use geo-location software to ban Americans from their tables .
Efforts to ban Internet gambling completely, meanwhile, have been haphazard at best. Failing to get explicit laws passed that would let it throw gamblers in jail, the Administration has been reinterpreting old laws and trying to choke-off the industry's money supply, banning use of credit cards and even Paypal . While ads for Internet casinos have disappeared from Yahoo, offshore sports books still advertise on sports-talk radio and claim they're perfectly legal.
The result? We're losing even the payment market, as casinos switch to a Canadian processor, Neteller .
Still wonder why we have a recession?
The Real Broadband Problem
The Bells have found a new way to choke-off the Internet's growth.
The problem doesn't lie in the last mile, and it doesn't lie on the backbone. It lies in the process of dialing-down from optical speeds of 2.5-10 Gbps to something like the 1.5 Mbps a DSL user can handle. This is a chokepoint, dominated by carriers like the Bells, and they're charging ISPs out the wazoo for it. You can't have all you can eat (AYCE) DSL pricing when the Bells are doling out T-1 and T-3 speeds with an eye-dropper.
So for the last year WISPs have been playing all sorts of tricks to keep people from using the bandwidth they think they're paying for. They close-off ports commonly used by Kazaa (Kazaa's software now uses any open port) and (most popularly) they institute "bandwidth caps," a maximum number of bits a user can pass each month (usually a few billion) with surcharges on bills that go over the maximum.
So now wired ISPs are going the same route . It's not a surprise. Until the chokepoint is eliminated - until ISPs can reach competitive fiber and bypass the carriers - broadband will go nowhere. All the king's horses and all the king's men can't put together a broken promise. Unless people are free to use technology as they see fit - not as gatekeepers insist - they won't use it.
The Other Side of Stupid Laws
When you try to protect everything you end up protecting nothing.
The U.S. government and its incumbent industries want to stop the Internet from passing around Britney Spears songs, copies of Microsoft Office and trailers from the next George Lucas movie. This effort costs billions and billions of dollars. It also antagonizes the user base worldwide. It makes millions of people supportive of products like Kazaa, and piracy in general. As a result, the U.S. government can't even protect technologies that relate to national security .
The situation is analogous to the drug laws. We try to ban all psychoactives except for those we can't, like coffee, nicotine and alcohol. So the 10% of Americans who use marijuana are thrown in with the 1% who use heroin. Add all the drugs together and you have so many law-breakers (and friends of law-breakers) that all the laws become unenforceable. And people die in droves of heroin overdoses.
On the Internet it's vital that all laws undergo a cost-benefit analysis. If 25% of people are inclined to break a principle, the principle can't be enforced. Only when efforts are restricted to taboos just 1 in 100 would consider breaking do the books balance and enforcement become more than haphazard.
Want to know why our national security is being violated by the trade in defense secrets online? The answer lies with the RIAA . Just say no is just plain stupid.
Clued-in is Your Amigo of Adelaide, Australia, a search engine for the "invisible Web" spiders can't reach . With innovation stifled in the U.S., it's simply moving overseas.
Clueless is the "deep freeze" strategy , technology companies trying to spend as little as possible and wait for recovery. Technology waits for no man.
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