Train Thoughts

In 1999, you used to hear, “It’s hard to compete with free.”  The sustainability of free gave way to ad supported for many content sites.  Near 2004 user generated content exploded.  Video.  Social Networking.  Blogging.  Photo sharing.  A host of issues made it difficult to monetize the content with ads.  Some advertisers didn’t trust the content.  Other publishers chased growth over money.

That left us in a strange spot at the end of 2008 and it’s getting stranger in 2009.

The ad market has crumbled - internal YieldBuild numbers have it down about 30%.  International growth seems to be picking up.  That’s the case with HubPages.com - growing faster internationally than domestically.  It’s also true for Youtube, and Facebook.  While it’s difficult to make money in the US from ads, it’s even more difficult to do it overseas.

If you’re in the web publishing ad supported space, I think you need to pay close attention to who you’re competing with if you want ad dollars or to be #1 in your category.

First, if you are competing against Twitter.  They don’t care about making money and don’t need to make a profit.  They’ll have more features and more growth than you if you do.  If you pursue a revenue model over growth and find a business model that works in the space, they’ll jump on it.  So, they focus on growth.  You work to make a profit.  And then they will capitalize on your business model innovation because the have the scale.

Second, if you are competing against blogs.  Bloggers will create high quality content at a fraction of the cost of professionals.  Bloggers work from home and have very little overhead.  Large organizations have much higher cost structures.  Scaling in journalism isn’t what it used to be now that distribution is free online.  Just to put some math around it.  I think a blogger can earn 1/2 of the CPMs of a big outfit and still have better profitability because of their lower cost structure.

Third, if you are growing faster internationally, this is going to cost more and earn less.  It’s going to be a lot worse if you have high delivery and storage costs like video.   The NYT did a good story on this.

The most efficient will survive.  My rule of thumb is that a company (with an office) should have less than one to two writers for every 1 million visitors their site has per month from the US.  Make your business work under this guideline and you’ll be fine.  Under this guideline, the New York Times online should have 12 - 24 fulltime writers.  I’m curious what AOL is doing with 1500 writers.