September 13th, 2006

The 2.0 Control Paradox

by

There is a fundamental tension in Web/Media 2.0 between openness and control — openness is required to leverage the network effect of the Web and harness the power of socially-connected users, but control is required to get a share of any money that changes hands.

Google has been most successful in walking this line — AdWords advertisers and AdSense publishers have a great degree of control over the system, but only to a point. Google still owns the system, and everyone needs to play by Google’s rules — and pay Google its share (which is undisclosed, i.e. obsessively controlled). Google shares just enough revenue with AdSense publishers to exceed other revenue sources — but only just enough.

Yet despite Google’s runaway success, they have struggled recently with this balancing act, as click fraud and other abuses test the limits of openness.

Hat tip to Nick Carr for crystalizing this issue:

This tension between technological structure and economic interest has been one of the main formative forces influencing the commercial internet since profit-making players first appeared. But it has become even more salient with the rise of Web 2.0, which amplifies openness at the technological level (by encouraging the free flow not only of the user’s attention but also of underlying data and applications) while at the same time increasing the economic rewards for keeping the user within a particular site (by making advertising even more important to profit-making).

The 2.0 control paradox is evident in two stories from the last 24. First, News Corps’ Peter Chernin’s comments about MySpace’s ambition to control the value chain:

“If you look at virtually any Web 2.0 application, whether its YouTube, whether it’s Flicker, whether it’s Photobucket or any of the next-generation Web applications, almost all of them are really driven off the back of MySpace,” Chernin said at the conference. “There’s no reason why we can’t build a parallel business.”

There was a great uproar in the blogosphere over MySpace’s will to control, but how else are they going to make money off their own ecosystem unless they control the businesses that feed off it?

Second, there’s NBC’s announcement of NBBC:

The new venture, called the National Broadband Company, or NBBC, will have content from NBC’s networks and local stations as well as from other companies. That programming will appear on NBC’s own Web sites as well as other sites.

Commercials will be inserted before each video segment, with the revenue split among the program’s creator, the Web site owner and NBBC.

and

For now, NBBC is going to keep a distance from the hottest trend in online video — programs created and uploaded by users. The company wants to work only with established producers, although it will feature programs from companies like Break.com that are edited selections of the best amateur videos.

Similarly, NBBC is not going to allow the programs it distributes to be inserted on personal blogs or Web pages, although it might work with well-established high-traffic blogs.


Jeff Jarvis rips into NBBC
for what he calls “outmoded controlfreakishness”:

* They will not allow us, the people, to put stuff on our blogs. They want control.

* They will not accept video from us the people. Not up to their standards.

* They take a shameful share of the revenue: 50 percent (30 percent goes to the video’s creator, 20 percent to the site running the video).

The future of 2.0 economics — who wins the Google-sized pots of gold — will hinge on solving the control paradox.

Should NBBC let any site host their videos? Then what about the “made for AdSense” crowd who will approach it as a pure profit maximizing venture, even if it doesn’t maximize value for the advertisers?

Should NBBC distribute any and all content that “the people” create? But what if advertisers won’t pay for it? What if the check signers insist on standards and control? As an advertising-side commenter observed on my post “Will Content Quality Still Be a Driver of Advertising Online?“:

It’s not just that brand advertisers are concerned about quality for branding’s sake–we ran a Fortune 500 financial services client’s ads on an AOL content program and because there were not enough quality controls, our client was exposed to $2.5M in compliance liability. Without a controlled environment companies also expose themselve to legal risks, which can have a much more tangible and immediate negative impact than brand erosion.

How does the ideology of openness deal with legal liability? Are all the users going to chip in to pay the legal bill?

And, to the bottom line, should NBBC share more revenue? Does someone other than the content creator and the content distributor deserve 50% of the revenue? In the case of AdSense, Google is merely a broker, like NBBC — are they taking 50%? (Again, Google is enough of a control freak not to let such information leak out as NBBC did.)

The Google approach to revenue sharing is not to approach it as a matter of principal, but as a matter of profit maximizing — share too little revenue, and there won’t be enough profit motive in the network to optimize the system.

It’s easy to criticize NBBC and MySpace for not taking 2.0 ideological openness to the extreme, but the truth is that nobody has demonstrated yet how to maximize profits while ceding all control. Google, for all the leveraging of open architecture and network effects, is a notorious control freak — and their success is driven by figuring out how much to control.

Absolute openness makes for great ideological dogma, but until someone convincingly demonstraes how absolute openness without any control makes for great business, I’m going to stake my tent next to Google in the DMZ between the land of openness and the land of control.

Comments (16 Responses so far)

  1. netZoo newZfeed [Technorati logo] Publishing 2.0 – Scott Karp on the Convergence of Media and Technology : The 2.0 Control Paradox There is a fundamental tension in Web/Media 2.0 between openness and control — openness is required to leverage the network effect of the Web and harness the power of socially-connected users, but control is required

  2. and small can leverage this new media format as an opportunity for greater consumer engagement. Apparently I’m not the only one … there’s been a spate of articles on the topic over the past few days. And of course a number of strong reactions to NewsCorps’ Peter Chernin’s rather stunning comment. “If you look at virtually any Web 2.0 application, whether its YouTube, whether it’s Flicker, whether it’s Photobucket or any of the next-generation Web applications, almost all of them are really driven off the back of

  3. little Pequot bird that has strayed into the trap of Owanux ‘Towanquattick,’ he said, ‘is my friend, and will watch over the little Pequot bird that has strayed into the trap of Owanux.’ ViewScore.com – Product Ranking – All Reviews Combined The 2.0 Control Paradox Publishing 2.0 openness is required to leverage the network effect of the Web and harness the power of socially-connected users, but control is required to get a share of any money that changes hands.but the truth is that nobody has demonstrated yet how to maximize

  4. Andy Kessler. Then, in More Evidence That Media 2.0 May Be Less Profitable Than Media 1.0, Scott Karp writes: … Andy put his finger on the deep structural problem that I’ve previously highlighted: the loss of control. Web 2.0 works great as an ideology, but maybe not so great as the basis for a media economy. Less control = less profit. … Link: Publishing 2.0. A complete oil transport system includes not just pipes, it includes storage for all that petroleum

  5. industria del cine y la televisión? La respuesta depende en gran parte del dilema entre apertura a la participación y el control sobre la comercialización. Lo que se llama ya la paradoja del control, en versión 2.0. Dos artículos abordan el problema este fin de semana. En El País Negocios explican cómo se acortan los tiempos de las ventanas de exhibición mientras nacen nuevas ventanas o formas de acceder a los contenidos.

  6. Big Money” to break out of the long tail Who Will Make Money with User-Generated Online Video? » Publishing 2.0 compares the different business and revenue models in the online video space The 2.0 Control Paradox » Publishing 2.0 There is a fundamental tension in Web/Media 2.0 between openness and control — openness is required to leverage the network effect of the Web and harness the power of socially-connected users, but control is required to get a share of any

  7. [...] with del.icio.us   |   Email this entry   |   TrackBack URI   |   Digg it   |   Track with co.mments   |     |   Cosmos Click here forcopyright permissions! Copyright 2006 Mathew Ingram [...]

  8. [...] Mais pour gagner de l’argent, même quant on est w2, il faut contrôler le tiroir caisse. Il en résulte donc une tension entre ouverture et contrôle que nous aurions tort, dit Scott Karp sur son site Publishing 2.0, d’ignorer sauf à vouloir aborder le problème à son niveau strictement idéologique. There is a fundamental tension in Web/Media 2.0 between openness and control — openness is required to leverage the network effect of the Web and harness the power of socially-connected users, but control is required to get a share of any money that changes hands. [...]

  9. hear hear! Interesting contrast in UK between Times new comment blog section (guided by a central figure with links to rivals where appropriate) and Guardian/comment is free (everyone has their say, let a million flowers bloom).

    aside from your well made commercial point, what the heck is wrong with letting someone trained with years of experience make a value judgement about what is good or bad copy/video etc. apply this rule to other fields and you may as well let me go off and indulge in plumbing yoru house or doign surgery on your brain without any training…

  10. I recently wrote a post about the Web 2.0 Open Data Access Connundrum at: http://www.openlinksw.com/blog/~kidehen/index.vspx?page=&id=1034

    Open Data Access atop Flexible Data Models is the implosion point for Web 2.0. Which implies inflection point for next phase of the Web’s evolution: The Data Web | Web of Databases (Semantic Web Layer 1).

    Hopefully, we are all beginning to see that the Web is comprised of usage patterns that can also expressed as “dimensions of the web” (see: http://www.openlinksw.com/blog/~kidehen/index.vspx?page=&id=1035) along the following lines: Interactive-Web (Web primarily experienced via Web Browsers), Services-Web (what is many incorrectly refer to as Web 2.0), and now the Data-Web (the Open Data Access supported by Flexible Data Model aspect of the web).

  11. [...] Scott Karp has a good post identifying the key issue, once again: control. [...]

  12. [...] Scott Karp habla de un debate que será esencial a muy corto plazo. [...]

  13. [...] So, a question – why do bands need music labels? I’d have thought that the answer is to promote and distribute the band’s music – the band does not itself have the resources to fund a multi-million pound marketing campaign nor the facilities to produce CDs and ship them to Tower Records, so it lets the label bear the risk of that up-front cost and accepts in return merely a percentage of sale proceeds. This made sense for the band in the old world where attention was abundant and could be bought via marketing, and where distribution was about the shipping of physical CDs. As music moves online, it makes less and less sense for the artist. Now Universal Record’s CEO Doug Morris blasts YouTube and MySpace (Mercury News), calling them copyright infringers and essentially demanding tens of millions of dollars in reparations. Terry Heaton calls his rant "more of the same"; Jeff says that "you can’t teach an old moghul new tricks". Indeed. But there is the potential for something new to emerge out of this rant. Universal provides two economic benefits to its artists – marketing and distribution. Distribution is increasingly irrelevant – we buy tunes online, we do not buy CDs, so sooner or later the artists will be able to bear production and shipping cots (of zero) on their own. As for marketing – well, by fighting YouTube and MySpace Doug Morris is setting up Universal as a block on marketing the bands in Universal’s stable. That’s not delivering a positive benefit to his guys. Scott Karp says that this is about control. Of course. Universal risks shovelling over its power to YouTube and MySpace and will fight that to the last breath. But the control here is really with the bands and the audiences, and the bands don’t have to keep signing contracts with the music labels. Universal has fallen into the familiar trap of thinking the audience is its enemy. Not so. The new economics of music promotion and music distribution are its enemy, and these things are outside its control. The benefits that music labels provide to bands are simply evaporating in the face of technological and consumer change. As the gyre widens, the falconers panic. The steps music labels are taking to defend their intermediary position actually serve to worsen this problem. The next Arctic Monkeys simply won’t sign on the dotted line because they’ll get more attention, and make more money, on their own. That’s the future the music labels are facing, and resisting – simply being cut out of the value chain because the benefits they used to provide no longer matter. [...]

  14. Thanks for a great post. Very pertinent, as I’ve been tackling these issues personally as we steadily build our Cinema 2.0 project, A Swarm of Angels, a project to make the first £1 million ‘open source’ movie. We’re still building the rules but its working pretty well – as subscribers get an unprecedented amount of input into a feature film, and connection with the creators, and in return I get more control than going through a traditional entertainment model. I’d be interested to hear your thoughts…

  15. [...] The 2.0 Control Paradox “There is a fundamental tension in Web/Media 2.0 between openness and control — openness is required to leverage the network effect of the Web and harness the power of socially-connected users, but control is required to get a share of any money that ch (tags: web20 advertising socialmedia google ddcgroup nbbc)   [...]

  16. [...] Andy put his finger on the deep structural problem that I’ve previously highlighted: the loss of control. Web 2.0 works great as an ideology, but maybe not so great as the basis for a media economy. Less control = less profit. [...]

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