April 23rd, 2006

What If Media 2.0 Is Less Profitable Than Media 1.0?

by

The advent of web-based e-commerce fundamentally lowered the costs of doing business, increasing the scalability (and in many cases the viability) of thousands of small businesses. The introduction of micro-marketing through Google AdWords gave a huge jolt to this trend, making marketing scalable and profitable for these same small businesses. Two companies — Google and eBay — have been the principal beneficiaries of this trend.

As consumers spend more and more of their media time online, ad dollars have been pouring into online media — the assumption has been that the billions of dollars that large companies spend on mass media advertising and marketing (i.e. TV ads) will ultimately follow the small company dollars online. If this assumption is correct, websites with the greatest command of online consumer attention, e.g. MySpace, will be the beneficiaries of this 1-to-1 transfer of marketing and advertising dollars to digital media.

But what if there’s a fatal flaw in this assumption? What if the transfer of marketing and advertising dollars online is not 1-to-1? What if the Internet has fundamentally lowered the marketing and advertising costs for big companies as it has for small companies? What if large companies can achieve the same sales objectives for a fraction of the cost of traditional mass media advertising?

All marketers know intuitively that mass media advertising is wildly inefficient — there’s the obsessively repeated Wanamaker quote about knowing that half of all advertising is wasted but not knowing which half. But the Internet may be doing more than make advertising more efficient and measureable, i.e. reducing wasted dollars — it may be fundamentally lowering its unit costs.

Let’s take my favorite example — MySpace. There’s an article in the Times today about MySpace’s struggle to monetize it’s ever-ballooning asset. According to comScore Media Metrix, MySpace had 28 billion page views in March 2006. Annualized, that’s 366 billion page views. Yet Richard Greenfield of Pali Capital estimates that MySpace’s revenue this year will only be $200 million.

Do the math — that’s a CPM of $0.06 $0.55!

Now consider one of MySpace’s key strategies for monetizing its vast network:

To expand ad sales, especially to big brands, Mr. Levinsohn plans to supplement the MySpace staff with a second sales force linked to the Fox TV sales department. He wants to expand one of Mr. DeWolfe’s advertising ideas — turning advertisers into members of the MySpace community, with their own profiles, like the teenagers’ — so that the young people who often spend hours each day on MySpace can become “friends” with movies, cellphone companies and even deodorants. Young people can link to the profiles set up for these goods and services, as they would to real friends, and these commercial “friends” can even send them messages — ads, really, but of a whole new kind.

Rumor has it that MySpace is currently charging $35,000 for these “advertising spaces” — from a comment by Pete Cashmore on one of my previous MySpace posts:

Well, MySpace was successful because it *refrained* from interfering with the community – heavy-handedness may actually harm it. But I agree with you that the monetization methods are totally unoriginal and very much a 1.0 approach. They’re trying to charge companies $35,000 to set up a profile, but there’s nothing to stop you doing that for free. However, I think there may be profitable ways to leverage the community itself (ie. not banner ads).

But what happens if big company brands realize that they no longer need a media middleman to connect with consumers? Why, for example, does a brand need to set up a page on MySpace in order for MySpace users to link to that brand’s online presence? If a brand succeeds in creating compelling and entertaining content that speaks directly to consumers and creates immediate value for them, why not just set that up “for free” on their own site and use the viral power of social networks to spread the word?

As Pete said, “there may be profitable ways to leverage the community itself” — but what if those profits go directly to brands and not to the owners of the network where the community exists?

Even for Google, the implications are great — big brands my spend more on search marketing than small companies, but that delta may be far less than in the world of traditional media, where big brands spent billions and many small companies couldn’t afford access to mass media advertising.

Now, I’m not suggesting that there’s no money to be made in 2.0 — I’m speculating that for media companies, it’s a whole lot less than what they enjoyed with 1.0.

I’m speculating that in a 2.0 future, total spending on marketing and advertising will shrink as marketing 2.0 proves to be far more cost efficient than marketing 1.0 — and big advertisers start pocketing that half of their advertising costs that were previously wasted.

UPDATE:

Umair takes issue with my MySpace example:

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.

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.

A few other items worth noting:

1. Business 2.0 has a link to this post under the headline “MySpace haters unload on the Web” — why is it that skepticism is always equated with fear and loathing?

2. An Economist article on new media cites Lauren Rich Fine, a financial analyst for newspapers, who estimates that “for every advertising dollar that a newspaper gets for a print reader, it receives only 20-30 cents for his online equivalent.”

3. A perfect example of a brand cutting out the media middleman is Land Rover’s new broadband TV channel Go Beyond — if this effort is successful, the dollars flowing from Land Rover to media companies will likely diminish significantly over time.

Comments (86 Responses so far)

  1. Publishing 2.0 What If Media 2.0 Is Less Profitable Than Media 1.0?

  2. konzise Abhandlung über die Frage, wie profitabel Media 2.0 tatsächlich ist. Scott macht die Rechnung am Beispiel von MySpace auf, das mit 28 Mrd. Seitenabrufen im März 2006 (was 366 Mrd. auf Jahresbasis ergeben würde) nach Schätzungen auf gerade mal 200 Millionen

  3. adjustment. They launch, measure then adjust. Measure again and adjust. And never stop. However, not everyone is as impressed. Many, in fact, are critical of MySpace’s numbers and business model. For starters, check out Scott Karp’s fantastic piece What If Media 2.0 Is Less Profitable Than Media 1.0?. Quote: But what happens if big company brands realize that they no longer need a media middleman to connect with consumers? Why, for example, does a brand need to set up a page on MySpace in order for MySpace users to link to that brandÂ’s online

  4. Publishing 2.0 » What If Media 2.0 Is Less Profitable Than Media 1.0?

  5. What If Media 2.0 Is Less Profitable Than Media 1.0? The advent of web-based e-commerce fundamentally lowered the costs of doing business, increasing the scalability (and in many cases the viability) of thousands of small businesses. The introduction of micro-marketing through Google AdWords gave a huge

  6. 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

  7. Publishing 2.0

  8. Scott Karp

  9. costs for big companies as it has for small companies? What if large companies can achieve the same sales objectives for a fraction of the cost of traditional mass media advertising? No problem. That’s still more money for folks like me. Full story here

  10. Publishing 2.0 Â? What If Media 2.0 Is Less Profitable Than Media 1.0? What if the Internet has fundamentally lowered the marketing and advertising costs for big companies as it has for small companies? What if large companies can achieve the same sales objectives for a fraction of the cost of traditional mass media

  11. che les professionnels du secteur de disposer d’analyses et de données fiables. Je ferme la parenthèse, provisoirement… MISE A JOUR : lire un billet très intéressant sur MYSpace.com suite à l’article du NYTimes. Intitullé “What If Media 2.0 Is Less Profitable Than Media 1.0 ? ” et publié sur l’excellent et très critique Publishing 2.0.

  12. Here’s a lively discussion on Publishing 2.0, where publisher Scott Karp, as well as Yahoo!’s Matt McAlister and Jeff Jarvis from BuzzMachine, talk about the impact of social media on advertising and the decreasing CPM that new technology offers. Go there >>     by Administrator at April 28, 2006 11:04 PM under NewsGrok

  13. de pages vues pour Mars 2006 contre 32,9 pour le champion). Pour faire court: MySpace attire du monde, mais ça ne rapporte pas grand chose… Ce problème posl, d’autres s’en emparent… Le 23 avril 2006 sur Publishing 2.0, un billet intitulé “What If Media 2.0 Is Less Profitable Than Media 1.0?” Que dit l’auteur? Il remarquait que si l’on utilisait les modes de calculs habituels, ces médias devenaient très peu efficaces, au moins aussi longtemps que l’on utilisait les outils de calculs jusque là répandus. Mais là n’était pas le centre

  14. inzwischen bei vielen Formen von Software) sind typischerweise sehr gering. Das heisst, dass neue Konkurrenten sehr einfach in den Markt eintreten können und dass dadurch die verbleibenden Profite grundsätzlich weiter geschmälert werden. Scott Karpstellte auf seinem Blog Publishing 2.0 kürzlich die Frage: “What if Media 2.0 is less profitable than Media 1.0?” Nun, das ist eigentlich die richtige Frage, denn dass es in der Regel so sein wird, ist ökonomisch gesehen eigentlich nur logisch. Aber natürlich gibt es wesentliche Ausnahmen:

  15. Steps To Planning Your Podcasts and Vodcasts 关于BitTorrent的讨论: Next steps for BitTorrent (支持BitTorrent的Podcast客户端,如何?) Lets P2P How to make Bittorrent the new network Blogosphere及其它:Scott Karp问: “如果大公司都意识到他们可以不需要媒体作为中间人就可以与他们的客户直接联系,那意味着什么” (不仅是大公司。每个人也都可以直接营销。这就是互联网。)

  16. their everyday social networks and music has driven mobile content, MySpace has the potential to open up a whole new phase for mobile content and marketing. Related News: For MySpace, Making Friends Was Easy. Big Profit Is Tougher – NY TimesWhat If Media 2.0 Is Less Profitable Than Media 1.0? – Publishing 2.0 ô 08:26 PM in Social Networks | Permalink | Comments (0) | TrackBack (0)

  17. Publishing 2.0, 23.04.2006: What If Media 2.0 Is Less Profitable Than Media 1.0?

  18. mais bien plus justement à des outils communautaires et des contenus hétérogènes qui vont certainement avoir du mal à cadrer avec des outils d’analyse qui ne leur sont pas adaptés. La contradiction que ce constat soulève, c’est peut-êtreScott Karp qui la présente le mieux : “L’arrivée du e-commerce a fondamentalement abaissé les coûts d’exploitation, améliorant les perspectives de croissance et la viabilité de milliers de petites entreprises. L’introduction du micro-marketing par Google Adwords a renforcé

  19. generated by my art. However, my sense is that there are more sophisticated ways of generating income than mere t-shirts. I don’t know what those ways are yet, but that’s what I’m interested in experimenting with. related links: from gaping void and Publishing 2.0 the (w)hole

  20. , written by Scott Karp, who asks What If Media 2.0 Is Less Profitable Than Media 1.0? Scott Johnson agrees: Of Course Media 2.0 is Less Profitable, and a comment on ScottK’s blog by Bob Aman suggests that Everything 2.0 is less profitable than Anything 1.0. There are two different issues here – one micro and one macro. Umair focuses on the microeconomic – which media strategies will be (relatively) more profitable. ScottK makes a more sweeping prediction: “total spending on marketing and advertising

  21. Steps To Planning Your Podcasts and Vodcasts 关于BitTorrent的讨论: Next steps for BitTorrent (支持BitTorrent的Podcast客户端,如何?) Lets P2P How to make Bittorrent the new network Blogosphere及其它: Scott Karp问: “如果大公司都意识到他们可以不需要媒体作为中间人就可以与他们的客户直接联系,那意味着什么” (不仅是大公司。每个人也都可以直接营销。这就是互联网。)

  22. Scott has made many predictions foretelling radical change to media and advertising economics (here – “Consumers Are The New Medium”, here – “TV Industry Will be Downsized Online”, here – “The Death Of The Intermediary” and here – “What If Media 2.0 Is less Profitable Than Media 1.0 ?”, for example). Social Media Sites Start Snagging Big-Name Marketers Adage is reporting that social media sites start signing up big marketing names.

  23. Scott has made many predictions foretelling radical change to media and advertising economics (here – “Consumers Are The New Medium”, here – “TV Industry Will be Downsized Online”, here – “The Death Of The Intermediary” and here – “What If Media 2.0 Is less Profitable Than Media 1.0 ?”, for example). Social Media Sites Start Snagging Big-Name Marketers Adage is reporting that social media sites start signing up big marketing names.

  24. ●現役SEMコンサルタントが暴露する!「増殖!スパイダーマーケティング」 ●【 FX成功法則 】 FXで、成功率97%!1日10%の利益率! 初心者でもできた ~ローリスク&ハイリターン「超」投資法~  <特典1>

  25. Il mio grosso graso matrimonio grecoChe fine ha fatto Santa Claus?Save the last danceIl diario di Bridget JonesChe pasticcio Bridget JonesNotting HillLa vita è bellaMamma ho perso l’aereoForrest GumpTop GunOrgoglio e pregiudizio: Dall’omonimo libro di Jane Austin[IMG ]

  26. by launching a contest and asking users to submit videos related to the show. In return, NBC will advertise YouTube on air. What isn’t clear is why media companies feel the need to strike deals with social networks – as Scott Karp pointed out with regards to MySpace, anyone can create media on these platforms. What’s to stop NBC uploading their promotional clips themselves? Better still: why not let the users do it? [IMG]

  27. by launching a contest and asking users to submit videos related to the show. In return, NBC will advertise YouTube on air. What isn’t clear is why media companies feel the need to strike deals with social networks – as Scott Karp pointed out with regards to MySpace, anyone can create media on these platforms. What’s to stop NBC uploading their promotional clips themselves? Better still: why not let the users do it? [IMG]

  28. Earlier this year at a conference in Paris, I pointed out to the newspaper industry that it is earning between one-twentieth and one-hundredth as much per website user as print reader. In April, Scott Karp independently analyzed further why media companies shouldn’t make as much online as in their legacy modes. His post made me wondering if there are historical precedents. When the Industrial Revolution began, did purveyors of cloth, coal, iron, lumber, and other goods that

  29. Publishing 2.0-ben publikált bejegyzésében.  Crosbie most egy újabb bejegyzésében az ipari forradalom korai szakaszához hasonlítja a média mostani helyzetét: Akkor a sokan azt hitték, hogy csak a gyártási költségek csökkennek, de a profitjuk változatlan marad. Crosbie  Minden

  30. http://publishing2.com/2006/04/23/what-if-media-20-is-less-profitable-than-media

  31. Earlier this year at a conference in Paris, I pointed out to the newspaper industry that it is earning between one-twentieth and one-hundredth as much per website user as print reader. In April, Scott Karp independently analyzed further why media companies shouldn’t make as much online as in their legacy modes. His post made me wondering if there are historical precedents. When the Industrial Revolution began, did purveyors of cloth, coal, iron, lumber, and other goods that

  32. Los Medio 2.0 podrían ser menor rentables que los Medios 1.0…

    En este artículo, el autor sugiere o especula sobre la posibilidad de que internet, al hacer más eficiente la publicidad, haga que los anunciantes dediquen menos "presupuestos" para la publicidad….

  33. Of course, it’s less profitable: There is no scarcity, there are no monopolies. So there are not the gigantic margins for the few monopolies. And without scarcity, competition will lower rates. But with targeting, I argue, rates for just the right buys can increase while efficiency and performance for advertisers also increase. It’s a more efficient business. Is it bigger in gross? We’ll see.

  34. You’re (finally :) ) right about something.I’ve been saying for a while that advertising will be completely different. Who needs ads?

  35. [...] Scott Karp: “But what happens if big company brands realize that they no longer need a media middleman to connect with consumers?” [...]

  36. [...] *Chuckle*.  Scott Karp of Publishing 2.0 has a great piece about “What if Media 2.0 is less profitable than Media 1.0“.  Guess what?  Dollars to donuts — it is.  One of the brilliant aspects of the Internet is that virtually all activities get cheaper for the consumer and less profitable for the provider.  Think about Amazon for example — the consumer has gotten a great deal over the past 10 years and the provider?  Well lets just say that Amazon hasn’t gotten rich on profits — stock gains yes — profits?  Nope.  Although I’ve never sat down and done a true study of this I suspect you’d find a distinct trend here: [...]

  37. [...] Scott Karp: “But what happens if big company brands realize that they no longer need a media middleman to connect with consumers?” [...]

  38. [...] Wrong Question: “What If Media 2.0 Is Less Profitable Than Media 1.0?” [...]

  39. [...] Over on Publishing 2.0, Scott Karp wonders if Media 2.0 will be less profitable than Media 1.0. I think it will be. While the cost to produce and distribute content on the Internet is much cheaper than print, people value online content differently. There is a dichotomy between what people are willing to pay for in a bookstore and what they are willing to pay for online. Exact same content, but valued differently. [...]

  40. [...] What If Media 2.0 Is Less Profitable Than Media 1.0? Scott Karp raises an interesting — and potentially scary — question about the future value of advertising. [...]

  41. Frankly, I’d take it at least a step further and say that Everything 2.0 is less profitable than Anything 1.0. Probably significantly less. Does that mean it’s not worth bothering? Eh, no, not really. The 2.0 stuff is way more fun, and that counts for something.

  42. Scott, my take on the whole MySpace challenge is this. Not only do they have a huge challenge in monetizing the traffic because they can’t make money off of people “going” somewhere (they want to stay put, thank you very much) but also the talent available to deliver a monetizable message to them where they are is not widely available. The finesse and light touch necessary to make creative that will work is not likely to emerge from the traditional ad world. It’s a microcosm of the broader challenge the ad and broadcast world is having with all of these changes.

    Looking forward to seeing you at mesh.

  43. I don’t think I’ve ever seen an ad on MySpace that’s geotargeted or personalized in any way to me, so they could surely increase their CPM by using some of the information they know about me to display ads I may actually find relevant.

  44. [...] Trawling through Memeorandum on a cloudy April day, just came across the following from a discussion surrounding the question "What If Media 2.0 Is Less Profitable Than Media 1.0?".  Now, I can’t claim to know, with certainty what Media 2.0 or even Media 1.0 is.  It’s best to leave leave that to the experts.  What I can say is that, anything 2.0 should be less profitable than the 1.0 version.  And if there’s ever a third iteration, that better be even less profitable. [...]

  45. I like your take on web2.0 marketing and do believe it runs true. At Creative Slice we are constantly finding new ways to promote small businesses we work with and with the whole web two point zero trend it’s becoming easier and easier to level the playing field.

    Personally I believe this trend will help small businesses rather than large corporations. Advertising will be less about quantity (e.g. TV ads) and more about quality, experience and personal touch.

  46. Profit is a virtue…

    Scott Karp wonders if Web 2.0 isn’t less profitable than Web 1.0. Maybe I am misisng something but there seems to be a basic confusion between revenues and profits in the comments. Even if online revenues are lower than traditional…

  47. [...] The Publishing 2.0 blog asks an interesting question, “What If Media 2.0 Is Less Profitable Than Media 1.0?” But what if there’s a fatal flaw in this assumption? What if the transfer of marketing and advertising dollars online is not 1-to-1? What if the Internet has fundamentally lowered the marketing and advertising costs for big companies as it has for small companies? What if large companies can achieve the same sales objectives for a fraction of the cost of traditional mass media advertising? [...]

  48. [...] As it turns out, the software of the future is about building participatory audiences more than it is about attracting customers, at least at first. Whether that will lower the value of business models themselves remains to be seen, but providing the right interface to your audience will be a big part of the equation, inside and outside the firewall. [...]

  49. [...] Dave Winer quotes a piece by Scott Karp: “But what happens if big company brands realize that they no longer need a media middleman to connect with consumers?” Well, forget the ‘if’. Some of us already did realise – a decade ago. [...]

  50. Am I wrong here or $0.06 CPM is a mistake?

    Annual income: $200,000,000
    Annual page-views: 366,000,000,000
    Annual Mega Page-views: 366,000,000 (thousands of page-views)

    CPM: $0.55 (that’s 200/366)

    That’s the CPM I would expect from this type of website. No surprises here.

  51. Eyal, indeed, you are correct — I was off by a decimal place. Unfortunately, it’s going to take several more decimal places to make MySpace the hot property everyone assumes it will be.

  52. [...] Scott Karp at Publishing 2.0 poses some interesting economic questions about scale and efficiency. As consumers spend more and more of their media time online, ad dollars have been pouring into online media — the assumption has been that the billions of dollars that large companies spend on mass media advertising and marketing (i.e. TV ads) will ultimately follow the small company dollars online. If this assumption is correct, websites with the greatest command of online consumer attention, e.g. MySpace, will be the beneficiaries of this 1-to-1 transfer of marketing and advertising dollars to digital media. [...]

  53. [...] Do the digerati have it in for MySpace? After a lengthy profile of the social-networking website appeared in the New York Times this weekend, the blogosphere quickly erupted with bilious reactions. Some observers made basic errors in their haste to put down MySpace, like Newsvine CEO Mike Davidson, who confused reach, the size of a website’s audience, with pageviews. But the most thoughtful posts questioned the premise of the Times piece: That MySpace, with all its billions of pageviews, has yet to live up to the profit potential for which News Corp. (Research) bought it last year. Bloggers noted that MySpace’s advertising woes went far beyond its deeply discounted ad rates. Publishing 2.0 argues that online advertising may simply never be as profitable as older forms of advertising, since it’s easier for advertisers to see which ads are effective and only pay for those. Clickety Clack notes that the Times piece underplayed a key point – that Yahoo (Research) and Google (Research) passed on the opportunity to place text advertisements on MySpace’s pages, because MySpace users are on the site to socialize, not shop. [...]

  54. [...] Dave Winer answers Scott Karp’s question about Media 2.0: “But what happens if big company brands realize that they no longer need a media middleman to connect with consumers?” Why do you think they call it media? [...]

  55. [...] Scott Karp asks a good question: What If Media 2.0 Is Less Profitable Than Media 1.0? He uses the example of MySpace, now in the hands of a Media 1.0-ish company. Will they actually get the returns they seem to expect? He suggests that the answer is maybe not. But what happens if big company brands realize that they no longer need a media middleman to connect with consumers? Why, for example, does a brand need to set up a page on MySpace in order for MySpace users to link to that brand’s online presence? If a brand succeeds in creating compelling and entertaining content that speaks directly to consumers and creates immediate value for them, why not just set that up “for free” on their own site and use the viral power of social networks to spread the word? [...]

  56. grumpysecretary

    Regarding this:

    2. An Economist article on new media cites Lauren Rich Fine, a financial analyst for newspapers, who estimates that “for every advertising dollar that a newspaper gets for a print reader, it receives only 20-30 cents for his online equivalent.”

    This of course is true…for now. But that will change.This is a temporary problem caused by the unwillingness of the “print sales” infrastucture to embrace the internet. Most newspaper’s sales staff’s are full of old school sales folks who in many cases refuse to admit that the “online edition” is relevant to them. Most papers have seperate staffs for the “online edition” and small market papers may not have any online sales strategy at all! And the publishers are weak and feckless in the face of sales ineptitude.

    Don’t you see? It is the “newspaper” that undervalues the online reader, not the advertiser.

  57. About CPM : I m afraid Comscore and Nielsen always underestimate the number of pages views. Mostly because they exclude traffic from outside US (and others reasons relative to the panel). So the real CPM is lower …

  58. [...] MISE A JOUR : lire un billet très intéressant sur MYSpace.com suite à l’article du NYTimes. Intitullé “What If Media 2.0 Is Less Profitable Than Media 1.0 ? ” et publié sur l’excellent et très critique Publishing 2.0. [...]

  59. [...] What If Media 2.0 Is Less Profitable Than Media 1.0? : Publishing 2.0 MySpace earned $0.55 CPM in March 2006? Looks like a great opportunity for advertisers other than dating sites. (tags: media web2.0 myspace advertising cpm) [...]

  60. [...] Falling Rate of Profit I don’t seem to be able to go anywhere on the blogosphere without tripping over a blog called something-or-other 2.0. (The emergence and propagation of 2.0 makes it an interesting example of what Richard Dawkins calls a meme.)Following a link from Umair Haque’s post on Edge Competencies and Media 2.0 Profit Pools, I reach something called Publishing 2.0, written by Scott Karp, who asks What If Media 2.0 Is Less Profitable Than Media 1.0? Scott Johnson agrees: Of Course Media 2.0 is Less Profitable, and a comment on ScottK’s blog by Bob Aman suggests that Everything 2.0 is less profitable than Anything 1.0.There are two different issues here – one micro and one macro. Umair focuses on the microeconomic – which media strategies will be (relatively) more profitable. ScottK makes a more sweeping prediction: “total spending on marketing and advertising will shrink as marketing 2.0 proves to be far more cost efficient than marketing 1.0″.But what of the wider implications of Bob Aman’s comment for the software industry? Companies typically invest in information technology in the hope of greater efficiency and effectiveness. SAP recently claimed that “companies that run SAP are 32% more profitable than those that don’t” – but even if this is true (which Nucleus Research challenges), it is not easy to prove cause-effect. Andy Hayler (of IT vendor Kalido) calls this A Bit Rich, A Bit Poor.One of the things that puzzled Marx was not why profits fell (the falling rate of profit had been identified by earlier economists including Smith and Ricardo) but why they didn’t fall even faster (see SPGB pamphlet). The same question now applies to IT – why has productivity risen so little, despite massive IT expenditure.Part of the problem here is the relationship between macro and micro. One firm’s cost saving is another firm’s lost revenue. Doesn’t this mean that if everybody suddenly became more massively more efficient, for example if IT suddenly started delivering real ROI across the board, the economy would collapse? If so, it’s probably just as well that IT has never delivered quite as much efficiency as the salesmen promised. There have always been well-informed observers expressing doubts about the benefits of IT, from Paul Strassman to Nicholas Carr.On this argument, we shouldn’t be surprised if Industry version n+1 is less profitable in total than Industry version n. In a 2002 study, McKinsey identified only six industries in which productivity has increased : retail, wholesale, securities, telecommunications, semiconductor and computer manufacturing. But these industries are characterized either by massive ongoing centralization (retail productivity statistics are one-sided because they only show the big chains and not the struggling mom-and-pop stores) or by unlimited growth in product demand (Moore’s Law assumes an exponential demand for chips).Let’s come back to Media 2.0. What exactly is the choice facing the media industry? Perhaps the internet erodes the profitability of Media 1.0 even if no media companies are willing to try Media 2.0. In which case, Media 2.0 starts to look a bit more attractive. [...]

  61. [...] Even Scott Karp. [...]

  62. [...] Scott Karp asked a few days ago “What If Media 2.0 Is Less Profitable Than Media 1.0?” As consumers spend more and more of their media time online, ad dollars have been pouring into online media — the assumption has been that the billions of dollars that large companies spend on mass media advertising and marketing (i.e. TV ads) will ultimately follow the small company dollars online. [snip]. [...]

  63. [...] Diese Frage stellte Fischmarkt bzw. verwies auf einen Artikel von Scott Karp in Publishing 2.0. Dort stellt Karp folgende Rechnung auf: Let’s take my favorite example — MySpace. There’s an article in the Times today about MySpace’s struggle to monetize it’s ever-ballooning asset. According to comScore Media Metrix, MySpace had 28 billion page views in March 2006. Annualized, that’s 366 billion page views. Yet Richard Greenfield of Pali Capital estimates that MySpace’s revenue this year will only be $200 million. Do the math — that’s a CPM of $0.55! [...]

  64. [...] [...]

  65. Publishing 2.0 article on Media 2.0…

    This article appeared on my del.icio.us homepage in the Popular section this morning. It is a really interesting overview of what may be happening in the world of brand media. Some larger advertisers are starting to realize that they can…

  66. What can you do with $17m that you can´t with $3m?…

    Visible Path raised $17 million in a second round of venture-capital funding. We hear through the grapvine that Facebook is generating about $1 million per week in revenue and that Linkedin finally broke through too. Social Software isn´t hype anymore,…

  67. [...] What If Media 2.0 Is Less Profitable Than Media 1.0?bye-bye sinead deegan – a great goodbye flash movie of photos! [...]

  68. [...] This article complements the earlier one on MySpace that John posted earlier. Even though much of the hype on social networking software has a negative slant, there is always an upside. The insight here is that MySpace can be used by advertisers for free, even though the major players are rumored to have paid $35,000 for a profile. http://publishing2.com/2006/04/23/what-if-media-20-is-less-profitable-than-media-10/ [...]

  69. Scott Karp on the Profitability of Media 2.0…

    Scott has a wonderful blog called Publishing 2.0. If you appreciate my blog you’ll really like Scott’s. One of his more recent posts is entitled “What If Media 2.0 Is Less Profitable Than Media 1.0?” He talks about the reduced…

  70. [...] Here’s a lively discussion on Publishing 2.0, where publisher Scott Karp, as well as Yahoo!’s Matt McAlister and Jeff Jarvis from BuzzMachine, talk about the impact of social media on advertising and the decreasing CPM that new technology offers. Go there >> [...]

  71. [...] The first reason is that it might not be so big a market after all, once online advertising really takes hold. A few days before I stood up to speak in Santa Monica, Scott Karp wrote an insightful piece on his Publishing 2.0 blog that posed the question: What If Media 2.0 Is Less Profitable Than Media 1.0?. It was so pertinent that I devoted an entire slide to quote a core passage from his blog: "What if the transfer of marketing and advertising dollars online is not 1-to-1? What if the Internet has fundamentally lowered the marketing and advertising costs for big companies as it has for small companies? What if large companies can achieve the same sales objectives for a fraction of the cost of traditional mass media advertising? [...]

  72. [...] April 23rd, 2006 What If Media 2.0 Is Less Profitable Than Media 1.0?  —  The advent of web-based e-commerce fundamentally lowered the costs of doing business, increasing the scalability (and in many cases the viability) of thousands of small businesses.  The introduction of micro-marketing through Google AdWords gave … Source:   Publishing 2.0 Author:   Scott Karp Link:   http://publishing2.com/2006/04/23/what-if-media-20-is… View discussion Filed in News [...]

  73. [...] Maybe I’m just slow. But I still worry that the sea change that is upon us will lead to fewer dollars in the market and Google-like monopolization of the dollars that do remain. I worry that there’s no way to monetize either “owning” or “enabling” the community — both assume a 1.0-like role for a middleman. It still assumes control of something. AdWords is fully distributed, but it is an intermediary — Google OWNS the system, they control it, and they can make it do whatever they want — unless, of course, it’s being exploited by botnets. Maybe cybercrime is the real edge. [...]

  74. [...] My favorite doomsday advocate Scott Karp thinks we are all just going to go broke. [...]

  75. Yes, Scott. The newspaper industry wasn’t profitable at all.

  76. [...] I make no claim to being either the first or only to have said this: http://publishing2.com/2006/04/23/what-if-media-20-is-less-profitable-than-media-10/ [...]

  77. [...] I’ve been predicting for a while that companies would find ways to leverage the community marketing power of social networking sites like MySpace without the network seeing any financial benefit. Here’s a perfect example (via The Economist): MySpace seems to offer a chance for companies to take their marketing into new, potentially more lucrative territory, by becoming, in effect, members of their customers’ network of “friends”. A growing number of firms have established their own pages on MySpace, to which users can link. In the process, some are getting into bed with some unlikely partners. Earlier this year, for example, Unilever, a consumer-goods giant, hooked up with Christine Dolce to promote Axe, a deodorant. Ms Dolce, who goes by the alias ForBiddeN, boasts around 900,000 “friends” who link to her MySpace page. Bleached, buxom and with impressive marketing savvy, she is arguably the most successful brand to emerge from MySpace, and has already launched a line of clothing. [...]

  78. [...] Earlier this year at a conference in Paris, I pointed out to the newspaper industry that it is earning between one-twentieth and one-hundredth as much per website user as print reader. In April, Scott Karp independently analyzed further why media companies shouldn’t make as much online as in their legacy modes. [...]

  79. [...] Quién haya gestionado negocios online basados en publicidad sabe que no es un buen CPM. MySpace no se basa en contenido, que es lo que da fuerza al CPM. Por eso MySpace está tratando de hacer de los anunciantes un factor más de su activo principal: la red social. Se comenta que MySpace está ofreciendo a los anunciantes por unos 35000$ la creación a medida de un espacio propio en la red, como el de los usuarios comunes, para que estos se relacionen con los anunciantes al igual que con su comunidad de amigos y enlacen a las marcas. Es decir que la gente puede hacerse “amiga” de los nuevos modelos de coches, de los programas de televisión y de las cremas depilatorias. Lo que ofrece MySpace al anunciante es viralidad integrada en su propia red, publicidad que no es percibida como publicidad sino como relación social. Este movimiento se alinea con las tendencias actuales de la publicidad online donde se busca crear viralidad y buzz antes que poner anuncios. El problema de esta estrategia de MySpace es que la viralidad la puede conseguir el anunciante sin ayuda de MySpace, sencillamente colocando en su propio web contenido vírico y facilitando la interacción directa con la audiencia – sin los media tradicionales ni los nuevos media 2.0. [...]

  80. [...] Scott Karp asks this question: What If Media 2.0 Is Less Profitable Than Media 1.0? [...]

  81. [...] J’ai ensuite rebondi sur l’article ‘What if media 2.0 is less profitable thans Media 1.0 ?’, sur Publishing 2.0, et sur ‘Web 2.0 feels good, but where is the business model ?’, qui rejoint des interrogations de Marc Simoncini dans le Journal du Net. [...]

  82. [...] – What If Media 2.0 Is Less Profitable Than Media 1.0? As consumers spend more and more of their media time online, ad dollars have been pouring into online media — the assumption has been that the billions of dollars that large companies spend on mass media advertising and marketing (i.e. TV ads) will ultimately follow the small company dollars online. [...]

  83. [...] Webcomics Nation’s Joey Manley points us to Publishing 2.0 media pundit Scott Karp’s musings on how the media giants of the future won’t be as big as the media giants of the past: There is now macroeconomic data to support the theory that Media 2.0 won’t be as profitable as Media 1.0 (from MediaPost): In a break from historical patterns, the equities research team at Merrill Lynch says the rate of advertising price inflation now trails the overall rate of economic inflation. “Interestingly, advertising growth seems to be tracking real [gross domestic product] growth instead of nominal GDP growth, as it did in the past plus some,” writes Merrill Lynch ad industry analyst Lauren Rich Fine in a report released early this morning. “This supports our belief that media no longer enjoys the benefit of above average rate inflation, rather the opposite where increased competition & measurement is putting pressure on rates.” [...]

  84. [...] Your page is now on StumbleUpon! For each appearance in your referral logs, one of our members has ‘stumbled upon’ your site after clicking “Stumble!” on our toolbar to discover a new great site. Enter Your URL → [...]

  85. [...] This article appeared on my del.icio.us homepage in the "Popular" section this morning.  It is a really interesting overview of what may be happening in the world of brand media.  Some larger advertisers are starting to realize that they can use guerrilla marketing tactics via MySpace at really low cost (note: for more on guerrilla marketing tactics, see my recent post on Ecko’s recent brilliant campaign).  I’ve cited this example before (see article here) — here’s the MySpace page for the Honda Element (and even more bizarre, here’s the MySpace page for a local Honda dealership from Cedar Rapids, Iowa!). [...]

  86. [...] it possible that the future of the content business is worse than being less profitable and worse even than not scaling anymore — is it possible that content creation will cease to [...]

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