Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Monday, April 24, 2006

Edge Competencies and Media 2.0 Profit Pools

So you read the NYT MySpace piece. Lots of great conversation surrounding it, for me, the best was Scott asking, in a phenomenal post: will Media 2.0 be less profitable than Media 1.0?

He does some quick CPM-fu to demonstrate that MySpace isn't making a huge amount of cash from it's voluminous traffic.

Some points to note. First, I think Scott is asking a great question. But it's the wrong one. Yesterday, newspapers were the most profitable industry in the economy - for the better part of a century. in the bigger picutre, media markets were characterized by local monopolies or very heavily protected oligopolies with fat margins.

So profits don't really have any historical room to grow. If they did, it would be a fairly huge economic phenomenon.

Now, that begs the question: for average players, do profits rise, or fall?

The answer is straightforward - the evidence is already voluminous.

There's no middle ground. Those players who stick to yesterday's models - whether content creators, distributors, publishers - get hypercommoditized. This should be crystal clear: just think of the huge number of media players getting killed, from newspapers like NYT and WPO, to magazines like Meredith, to broadcast networks like Sinclair, etc.

OTOH, those players who leverage the edge - who learn to create and capture value from the new forms outside the boundaries of the firms, like markets, networks, communities, commons - will capture the lion's share of returns. This should be crystal clear: think of players as different as Apple and Google, both of whom are turning the media industry inside out by using markets and networks.

There's another, simpler way to see this. It is a great economic discontinuity, which is already flowing like an avalanche across the economy: value will shift outside the boundaries of the firm, to more economical modes of coordination; it is those players who own or leverage them - who learn to build strategy and advantage around them - who will earn supernormal profits.


Now, the MySpace example is also flawed. Scott is using CPM to value MySpace. MySpace's success is predicated on shifting the industry away from the flawed assumptions and logic of CPM, much like Google has done. MySpace's challenge is to do the same thing for branding - to create a hyperefficient form of interaction, much like it's already done with sponsored profiles.

Put another way, MySpace is focused (like Google) on breaking or disrupting CPM (and the rest of yesterday's silly media metrics). When it does so, like Google, it's success will largely be at the expense of older, slower players.

-- umair // 2:32 PM // 7 comments



CPM will continue to be the principal metric so long as everyone is focused on measuring the scale of MySpace in 1.0 terms � virtually every mention of MySpace comes with an obligatory reference to the total number of MySpace users and the total number of MySpace page views, along with a comparison to Yahoo�s scale.

But in 2.0 terms, the value of MySpace is in the network effect, i.e. the interaction among users and their ability to propogate information, including brand messages. But it�s very 1.0 to assume that the owner of the network platform is in the position to monetize this value � brands may discover that they don�t need to pay MySpace a dime to leverage the network of MySpace users.

The real risk to MySpace is not in applying a 1.0 advertising model but in assuming that there's a lot of money for THEM to make with ANNY model, given that brands can leverage their network directly.
// Anonymous Anonymous // 9:18 PM

I agree with Scott's point that the site owner may not be able to monetize the transactions taking place - yes, you can pay MySpace $35,000 to set up a profile (apparently), but you can also do that for free (and a lot of long-tail advertisers already are - check out the Innertee page, for instance). Maybe there's a middle-ground whereby you could charge a long-tail brand advertiser a few dollars a month to have a "special" profile, with bonus features and inclusion into some kind of directory.

But I think there's the opportunity to do something more disruptive: why not let the users decide what products to pimp on their pages?
// Anonymous Anonymous // 10:22 PM

Hey guys,

I agree that MySpace needs to move away from CPM and that brands can bypass. So much so in fact, I believe they need to go all the way into ecommerce, as I wrote here...
// Anonymous Anonymous // 1:03 AM

I think Pete's idea is a really interesting one. Essentially let users (in a simple user-friendly way) put up billboards that pay them in exchange for space on their page and let the MySpace guys take a cut. I'm sure if MySpace allowed for that an entirely new business model would spring up over night and be almost immediately successful.

It's the adsense model but done on a much grander scale than any blog or blog service could ever provide.

Plus, via the network, it allows you (as the advertiser) to leverage the fact that friends often like the same things, especially teens.

The bigger question is whether or not Fox would ever go for something like this. That's a pretty ballsy move for one of the biggest media conglomerates in the world.
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