The Myth of Free Classifieds
My friend Jeremy Philips wrote a great review for the WSJ recently of The Curse of the Mogul, a new book on the plight of the media industry by Jonathan Knee, Bruce Greenwald and Ava Seave. I recently started reading the book, and it’s quite a good read. But I want to focus here on one very insightful point Jeremy made in his piece:
For an example one need look no further than online classified advertising—which, the authors say, was the “first killer moneymaking application” on the Web. Leading online players around the world, charging fees, have withstood challenges from rivals offering listings free—suggesting significant competitive advantage. Craigslist, mythology aside, has been charging for job listings in its home market of San Francisco for more than a decade.
With all the (deserved) hoopla around the ”free” craigslist and its tremendous success, it’s important to remember that craigslist actually charges for key categories (e.g. jobs, real estate) in big markets (e.g. SF, NY). Not only is this where they make their money, but its also how they make the site useful. Without separating the wheat from the chaff in these key markets, the service would likely be overrun by spam and unusable for consumers.
This reality is consistent across all classified category leaders on the web. Leaders in Jobs (Monster, CareerBuilder), Personals (Match), Autos (AutoTrader), Real Estate (HomeAway) all have paid listings model that drive their business.
There are current attempts to buck this model, most notably Zillow in real estate and OLX in international markets.
Early on in the life cycle of a business such as Zillow, having a free platform is key to amassing listings and eyeballs. I’m very curious to see how their model evolves over time though, as they continue to drive audience and scale of listings.
OLX doesn’t suffer from some of these issues in their smaller markets with low supply volume. And it is my understanding that they are moving towards a paid listings model for exposure in key scale markets.
The only solution to this problem as I see it is a technical one that can separate the relevant listings from the noise for each unique end consumer. This is seemingly a very challenging data normalization and search/algorithmic (or potentially social data/behavioral) problem that I haven’t seen a great solution to yet. If you are out there cooking one up though, I’d love to hear about it…
Tom Friedman, NYTimes - Winds of Change?, 6/14/09
On this, Friedman is dead on. I’ve long believed that mass distribution of technology, specifically the open broadband Internet, is the key to helping alleviate the geopolitical divisions that so plague us today.
In the Muslim world especially, which is controlled by limiting access to information, the Internet is the antidote.
When people of any race, color or creed have unfettered access to information and communication tools, all is possible. Forgive me while I channel @howardlindzon here for a moment, but I’ve often joked that if you give the third-world broadband plus unlimited porn, the walls will quickly come down.
The Internet democratizes access and information, and it does so internally and externally. Case in point: the coverage of Iran’s election. The press and the people are exposing internal divisions in Iran to the world that would otherwise never see the light of day.
For my money, I’d wire the whole third-world before I ever contemplated bombing any of it.
Niche Media’s Unlikely Savior: Offline
I’ve been thinking a lot lately about the real and virtual worlds — where they intersect, where they depart, how they are the same, how they are different.
As we spend more and more time (and money) in the virtual world, elements of the ‘real world’ seem to actually increase in importance. While authentic real life experiences and interactions can be augmented significantly, they cannot be completely replaced.
For this reason, the live event business continues to thrive as many traditional media businesses struggle to survive.
Live sporting events are an immediately obvious example — anyone who’s been watching the NBA playoffs knows how powerful they are. The only part of the music business that makes money today are concerts. See Irving Azoff’s comments at D7 yesterday. Speaking of which, conferences such as D are a big business. Nothing can ultimately replace that live interaction.
Of course the current recession has a negative impact on the live event business as well. But it’s woes are temporal rather than the systemic ones of traditional media.
Niche media brands will increasingly struggle if they are solely reliant on selling banner ads against limited online inventory. While these brands will begin and end their engagment with the customer on the web, and they must be really smart about how they leverage the broader social web to do so, they will distinguish themselves from the evergrowing pack of competitors for consumer attention by actually touching their consumer in tangible ways.
A perfect example of this is an email I received yesterday from New York Magazine, 
advertising a unique culinary experience they are offering their devout readers. They have done a great job engaging a very targeted, high value audience, both on and offline, and driving meaningful revenue opportunities beyond the advertising they sell on their site.
This is only going to get more widespread and more targeted, audience by audience.
I recently spoke at an event with Scott Heiferman, and I couldn’t help but marvel at what Meetup is tapping into in this regard. What began as a community organizing tool, may actually turn into one of the most engaging platforms for advertisers to reach authentic *live* communites. Is there anything better for Pampers branding efforts than sponsoring 5000 simultaneous mommy Meetups across the country complete with free diapers?
The niche media businesses that tap into these authentic connections and experiences will survive. Those that don’t and rely on traditional publishing and banner ads will have a very hard time doing so.
It’s not the infographics on the page that interest me, rather it’s the trend of emphasizing a user’s popularity on the network. Lamentably, I think this metric will come to define the experience for the next generation of social networks. I fear that the internet’s utility for many people will equate to constant awareness of one’s value, and the play of meaningless games to increase the sum. This in turn will render many networks impersonal and irrelevant. Like a candidate’s bid speech for high school class presidency, I fear my Tumblr dashboard will become padded with ‘popular stuff’ sure to garner votes rather than the intimate, vulnerable and quirky bits that I’ve enjoyed, and define Tumblr’s personality.
I’m disappointed by Tumblarity, and Ashton’s follower count for the same reasons. I liked the Internet better when it was nebulous, and now I’m depressed that it shaping up to be a social pyramid.
A very important point from Zach. Like it or not, the online trend of ranking as a measure of self worth is here to stay….largely beacuse it’s not a new concept. Man is a self conscious being. Since the dawn of time, he has judged himself through the eyes of others. The internet simply amplifies this phenomenon.
That said, there are some, and always have been, that rise above the noise and have a sense of self that is transcendant. The scholar, philosopher, teacher, rabbi, priest, oracle, yogi — every culture, religion, creed has them. I’m not going to get into specific examples here, nor will I debate whether these archetypes truly transcend, but the *idea* is certainly prevalent. And oftentimes it is actually found in those that appear simplest in their desires — the farmer, the traveler, the proud grandfather.
Most will fall prey to the allure of online popularity (myself included). But we will increasingly need a break. An intimate, disconnected, personal space — a Sabbath of sorts, pick your form or fashion — that allows for time to think, breath and reflect.
And I wonder whether part of that space will be found on the web or will it need to be entirely divorced from it. I expect there to increasingly be a fair bit of ‘contra-innovation’ on the web around this notion of intimate spaces. Curious to see what bubbles up here.
reblogged from zachklein
Facebook’s Finances
Facebook’s capital situation is again the topic du jour. Techcrunch is reporting that the company received term sheets at a $2B valuation, SAI has it at $4B and the blogs are of course having a field day. My take:
Notwithstanding their race to cash flow positive, Facebook will need more capital to build it’s business. The key choice for them is whether they raise private capital now, figure out monetization and then go public or prepare earlier for a public offering.
Monetization is of course the fundamental issue, and I suspect Facebook is working on grand plans for a digital economy of sorts. Which makes complete sense to me…at least in theory. If you support a ‘people economy’ the size of Facebook (on and now offsite with Connect), payment infrastructure is a very natural evolution of the platform. More so than advertising given the utilitarian nature of the service.
As for the terms of the deal if FB does raise now, valuation will certainly be closer to $5B than $2B. And investors will swallow an expensive equity conversion in exchange for a piece of paper that sits at the top of the capital stack (first money out) and carries a preferred rate of return likely in the 14% - 16% range. This gives them little downside risk, a decent return in that instance and a chance for a big win should Facebook fulfill it’s promise. See the recent HomeAway financing as an example.
While I’m not sure that a deal gets done — FB may just swing for the IPO — I for one think it would be smart if they took the time to figure out the monetization path before exposing themselves to the brutal scrutiny of the quarter-to-quarter public markets.
Courtney Holt, CEO MySpace Music
Great quote from Courtney on the possibility of interactive albums and liner notes (echoing Shelby Lynne’s notorious sentiment). Check out the full Wired piece on MySpace Music — worth a read. I sure hope the music industry gives Courtney the time and latitude to figure this thing out. If anyone can do it though, he can.
First Destruction, Then Creation
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place…And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that ancient social bargains aren’t in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.
Clay Shirky, Newspapers and Thinking the Unthinkable
Since I read these lines from Clay Shirky’s brilliant piece on the decline of newspapers, I can’t seem to get them out of my head.
Recognizing destruction when it’s occurring takes a tougher emotional toll on us than an intellectual one. We may be acutely aware of what’s happening, but we still cling to familiar institutions. It’s a very natural human reaction. But once we begin to loosen our emotional grip on the past, we can break free.
Understanding what is to come in the wake of a revolution is an entirely different story. It is what venture capitalists attempt to do every day. But in reality, while we may be right on certain trends we certainly cannot predict the future with any degree of accuracy. We therefore bet on talented entrepreneurs going at big markets in the hope that *they* will figure it out.
Many markets are being completely upended today. The combination of increasing broadband penetration and speeds, rapidly declining personal computer costs, information and services moving to the cloud and recessionary pressures on many high cost traditional businesses has created the perfect storm.
But what will come in it’s stead? What businesses will be built? What models will be employed?
These are the questions being asked across a number of media and advertising markets today — the music business, the publishing business, the classified advertising business, the yellow pages business, the banner advertising business, the video business and the list goes on.
We have to change the way we think. We have to ignore old models and old cost structures. Forget the labels. Forget the printing presses. Forget the banner ad.
We have to start by asking what does the consumer or customer *really* want? How can we deliver it to them as efficiently and effectively as possible? What is the least it can cost us to deliver? What can we fairly charge for it?
Let’s take the classified ad business as an example. While the largely free craigslist has gone a long way towards annihilating a good portion of that market, does that mean there will be no value created in the future servicing local businesses looking to acquire consumers?
Certainly not. But with our limited current view, we often fail to see the possibilities or even what’s happening right under our nose.
First of all, old school classified categories such as recruiting, autos and personals have all seen hugely profitable businesses built on the web (e.g. Monster, Autotrader, Match). Now these businesses, or at least their current models, are themselves likely to be upended by better, more efficient models over time. But new ones will certainly be built in their stead to service the same needs but with very different business and economic models.
Secondly, while craigslist is incredible at inventory and demand aggregation, it has other holes in its offering for local merchants. Social marketing and payments solutions are just two examples where innovation has barely scratched the surface.
I continue to be intrigued by vertical content and marketplace businesses starting anew in the wake of the creative destruction we’re experiencing. The businesses of tomorrow are being created today. Keep ‘em coming!
Pitchfork: ‘The New Man’
The re-launched Pitchfork.com is flat out excellent. I’ve been a big fan of the site for years, but it took a quantum leap forward with the recent redesign. The editorial sensibility is as sharp as ever, the layout is incredibly clean and easily navigable, the use of lists is a great way to synthesize content into smartly digestible bits and the ability to sample more music and videos was sorely needed. All in all, it is an outstanding face-lift for what was already the gold standard in music editorial on the web.
The Pitchfork redesign and my friend Dan Harris’ Tweet to me yesterday asking if Pitchfork had become ‘the man’ got me thinking more broadly about the evolution of editorial filters.
Outside of expensive video production and serious investigative journalism, the barriers to content creation are largely non-existent today. Content is flowing like water on the web. As a result, ways to filter and curate that content are becoming ever more important for overstimulated consumers.
Technology has enabled new types of open, ‘pull’ filters previously impossible at any degree of scale in a closed, analog, ‘push’ distribution world. It’s always tough to appropriately categorize and label these things, as the specifics often fall into multiple buckets, but I generally think of two categories for these new curators: Platforms and Aggregators.
Platforms such as Twitter, Tumblr (both Spark companies) and others easily enable me to get a constant flow of great suggestions from friends and other trusted voices. Folks put stuff out, and I decide what I want to consume. Twitter has effectively replaced my news reader (more on that another day), and I get a ton of music on Tumblr from folks I follow like tuneage, tracks, Andy, Bijan, Fred and many others.
Aggregators such as Techmeme and The Hype Machine present information pulled from editorial sources across the web deemed most relevant to their respective audiences. They are not purely user-driven platforms, but rather aggregate and curate largely through technology built to measure relevance.
Brands are all the way on the other end of the spectrum and are of course more traditional in their approach to content — they are fundamentally human created and edited offerings. This is where the Pitchforks of the world reside.
Maintaining and certainly building brands with so much noise out there today is incredibly difficult. And given the openness of the web, even great brands are reliant on these platforms and aggregators for distribution. I get Pitchfork updates through Twitter; I read NYTimes content through Techmeme.
And that’s exactly what is so impressive about Pitchfork. They stuck to their guns through the ups and downs and smartly built and grew a best-of-breed niche web brand from scratch — one that rises above the crowd, leveraging these new distribution points but making it worth spending some real time on the site itself. For this they will be rewarded with a business that continues to generate revenue, albeit less than what Rolling Stone made in its hayday, but with a much lower cost structure and therefore a profitable, sustainable model.
So to Dan’s question, yes Pitchfork has become ‘the man.’ But I don’t think they sold out. What they did instead is build arguably the best niche music editorial brand on the web. How many others in the music business can say anything that positive?
Pitchfork is the new model for niche web media properties. Well done.
Taste the Rainbow of Fruit Flavor
The hoopla generated this week by the recent Skittles website redesign has been remarkable. For all three of you that haven’t seen it, the Skittles.com homepage is now a daily rotation of various social media sites from Twitter to Facebook to Wikipedia today.
The Internet was all ‘atwitter’ about the move, generating buzz around the brand in a way I’ve rarely seen it — positive or negative. And the haters have certainly come out in full force. I can’t even count the number of blog posts I’ve read decrying the Skittles stunt as stupid, inane, pathetic, silly — you get the idea.
And that is exactly the point. What Skittles has pulled off is brilliant. Brands spend millions of dollars in a desperate struggle to generate buzz. Skittles did it without spending a dime.
So I don’t care what anybody is saying about the quality or relevance of the campaign. Skittles took a huge risk by opening their brand to the user community. In return they did that elusive thing marketing is always trying to do: they got everyone talking. And positive or negative, it just doesn’t matter. Because in the end, the only thing folks will remember is the rainbow of fruit flavor.
I think I’m going to go out and buy a pack of Skittles.
Always Act From a Position of Strength
Nielsen and LRG released their latest media consumption reports yesterday, with some very encouraging results for the traditional media business.
The money stat from the Nielsen Q4 report:
The average American watches more than 151 hours of TV per month, an all-time high.
The key conclusion drawn in the LRG study:
The impact [of online viewing] on traditional TV viewing and multi-channel video subscriptions [cable and satellite] has been “negligible.”
Further, according to the LRG study:
Among all adults online, [only] 3% strongly agree that they would consider disconnecting their TV service to just watch video online – compared to 4% last year.
These results are certainly great news for an industry increasingly besieged by forces of change, perhaps still more ‘vocal’ than ‘real’ as confirmed by the latest research. And they are even more welcome as we face perhaps the worst economic downturn in our history.
I fear though that these results, as they often tend to do, may breed complacency in a media industry that should be bracing for change. Granted, with all the talk of convergence, the consumer is still not there. But mark my words he’s coming quicker than you realize.
Peeling back the onion on these two reports, a number of the secondary stats point to clearly shifting behavior:
- 74 million people watch time-shifted television vs. 54 million people in the fourth quarter of 2007, a 37% y-o-y jump.
- 31% of Internet activity occurs while consumers are also watching television.
- Young viewers (18-24) watch video on the Internet and on a DVR at the same rate: about 5 hours per month.
Simultaneous web surfing and TV viewing, the increasing move to time shifting and the growth in online video consumption, especially amongst the younger generation, are harbingers of what is to come — a largely on-demand, networked, social, lean-back viewing experience. It’s simply a matter of time.
So how should the media industry, and specifically the cable companies (where most of the value in the chain is consolidated) respond?
It is precisely at these times that they should use their existing power with consumers to lead innovation, rather than stifle it. The cable industry should act from a position of strength, ensuring that they emerge in the wake of disruption as a powerful force rather than a regulated utility.
This will involve some tough decisions and some serious wrangling between content creators/owners and distributors. But in the end, it’ll likely require some variation of the following (with many specifics of course to be worked out):
- Full embrace of the Internet as the platform for content delivery.
- Charge consumers for tangible usage rather than opaque bundling.
- Redesign content packaging to be useful for consumers rather than to protect sub-par programmers. Feed the good networks, kill the bad.
- Embrace third-party innovators and new technologies, such as Boxee (a Spark portfolio company) and others, leading the charge on the consumer front.
- A potential shrinking of overall revenue. To protect and grow margins in this new reality will require, in addition to the aforementioned ‘killing of bad networks,’ a reworking of the inflated content creation model and an end to inefficient uses of marketing dollars.
Admittedly this reality is a long way off, perhaps 10+ years before it comes to full fruition. But the time to act is now, and all parties will be better off when that day comes — cable companies, content creators, innovators and, most importantly, consumers.
