June 13th, 2006

Google Is Killing the Economics of Content

by

When Seth Jayson at Motley Fool suggested the other day that Google’s AdSense is killing the internet by driving the creation of sites that exist solely to squeeze money from AdSense, many people scoffed. But here’s more evidence that he’s right:

A venture-backed Waltham company that’s quietly amassed more than 650,000 Internet domain names is stepping out of stealth mode today and unveiling its plans to build a substantial Boston-area Web 2.0 business around the emerging field of “direct navigation.”

The company, called NameMedia, is being led by Kelly P. Conlin , 46, a veteran media executive who previously had been chief executive of International Data Corp. in Boston and Primemedia Inc. in New York. NameMedia has already hired 75 people in its office near Route 128 to buy, sell, and develop businesses around Internet domain names.

NameMedia, which already is profitable, says it owns more Internet domain names than any other party and draws more than 25 million consumers monthly to its vast collection of websites. It makes money when computer users type the name of one of its sites, such as photography.com, bookstore.com, or jobfinder.com, into the Internet address bar and then click on advertising links.

Here is a new term to line up next to “click fraud” — “direct navigation.” Here’s what this means:

People have been buying up Internet domain names since the early 1990s, though most of the early speculators were “domain parkers” or “cybersquatters” who owned static websites. As companies like Google and Yahoo deployed technology to monetize Internet traffic through advertising, some of those website owners were able to piggyback on their success by hosting advertising links. The sites attract traffic because millions of Internet surfers bypass search engines and type domain names directly into address bars.

The sites were talking about here are NOT about content and they are NOT about serving web users in any meaningful way — they exist for one purpose — pay-per-click ad revenue.

Here’s an example of one of NameMedia’s properties: Photography.com

When you got to the site, it appears to be content-based:

Photography Home

But when you click on a category, you find that it is nothing but a pay-per-click link farm:

Photography Camera

If you click on one of the ads, you’ll catch a glimpse of an Overture domain on the way to the company website, suggesting that this is actually a Yahoo link farm.

Here’s what the CEO of NameMedia has to say:

“The analogy we use is real estate,” Conlin said in an interview. “Our objective is to build the largest portfolio of undeveloped real estate on the Internet. Some of the sites we have will be held for resale. The best ones, the waterfront properties, we’ll build businesses around. It’s a content-light, user- friendly way for people to find what they want.”

“Content-light”

Pay-per-click advertising is destroying the economics of content, making it more profitable to create entire sites with nothing but ads.

Why bother with the expense of creating content? Google certainly doesn’t care. And the advertisers dumping billions of dollars into AdWords and similar ad networks don’t seem to care where their ads appear. It’s all about the click.

The media business has been reduced to pure transaction.

Just read NameMedia’s description of their “business”:

NameMedia’s core business is creating value when consumers and online advertisers connect.

It’s all about “consumers” and “advertisers.” No need for content. No need for an intermediary.

“Direct navigation” is a euphemism for navigating around content and right to ads.

What happens when the web becomes one big network of ads?

UPDATE

I should add that this phenomenon also threatens the economics of Web 2.0 — at least for those companies that are betting on advertising as a revenue model. Web applications and user-generated content are just more intermediaries to be “navigated” around.

Note to Web 2.0: Welcome to the wonderful world of post-Google media.

UPDATE #2
First, yes, of course this phenomenon is not new and not limited to Google’s pay-per-click ad network — Google is merely emblematic.

That said, in response to some of the assertions below that this is really not a big deal, here’s some data to chew on from the original article:

Within the world of Web 2.0, the name coined for the second wave of businesses to capitalize on the Internet, direct navigation, sometimes called direct search or ‘searching without a search engine,” is considered one of the fastest-growing niches. It is projected to generate $650 million in sales this year in the United States, about 7.5 percent of all search revenue, much of it from revenue sharing with search engines like Google Inc. and Yahoo Inc. on paid placement ads hosted on its sites, said Jordan Rohan , an Internet stock analyst for RBC Capital in New York.

Rohan estimates that revenue pool could double in the next three years if direct navigation companies like NameMedia can refine their processes and develop e-commerce portals on their sites.

Hmm…$650million, 7.5 percent of all search advertising revenue, projected to double over the next three years — doesn’t sound all that trivial.

And “domaining,” as Danny Sullivan calls it below, has taken on a new life in the larger ecosystem of search marketing that Google pioneered, where all value accrues to the transaction. The economics of search are not based on how useful the information is to the consumer but rather on the efficiency with which the consumer can be connected with a prospective seller.

Dave Winer thinks it’s good news that the old media system is being destroyed because now everyone can have a voice — from the standpoint of democracy, that’s great, but it does not bode well for the economic wellbeing of long tail of publishers.

  • PJ

    Word of mouth is the #1 source of traffic--there's nothing to worry about.

  • Fred Laruelle

    (have not read every single post ahead of me, so this point might have been made already)

    What prevents Google, Yahoo et al. from detecting and treating linkfarms as such?
    I can't see why this problem could not be addressed programmatically... , and sorry (or not so) for these unscrupulous businesses.

  • Z

    Frankly I don't see how this is a bad thing. It is not pushed into your inbox - you need to type photography.com into the address bar to get there. And if you don't know too much about internet and you really type photography.com into the address bar, it is more usefull if that page aggregates some photography related searches than if you got an 'domain not found' error. And PageRank should be immune for that. I don't see where this can have negative utility.

    That said I do see how sites with domains made from common mistakes do decrease the value of the Net.

  • None of this is new.

    In the offline world, we've had plenty of advertising-only publications of various sorts for a very long time. At the bottom of the barrel, we've got "Thrifty Nickel" classifieds, for example. 0 content, all ads.

    At the higher end, we have special-interest magazines (say, ones that cater to people restoring Craftsman bungalows) that people buy (at least in part) *because* of the ads for, say, period reproduction hardware.

  • Me thinks "direct navigation" will also have a negative impact on Google - specifically, the value of their search results. People will turn to search engines (in the long run) that can filter out sites like photography.com. Social link networks like digg.com and del.icio.us will become more important to finding quality content over time. "Generic" search results might not have a long-term future.

    -- Cale palmit.com

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