First, news orgs typically act as though other news orgs don’t exist (blame long-standing notions of “owning” the news, and more recent unjustified fears of sending readers away). Second, news orgs had few mechanisms for breaking out of that walled-garden mentality online — for finding good stories among the web’s reaches, and delivering those stories to readers — even if they wanted to.

But there’s a third, more fundamental, barrier to linking: Many journalists worry about the wild wild web.

As Carolyn Washburn commented on my post about a link-based newswire,

We need to ensure a process by which we understand the sources of the content, the understanding that not all links are created equal. We need to guarantee the expertise. The standards those sources apply for balance and news judgment.

Robert Fisk was blunter in a recent lecture:

“To hell with the web, it’s got no responsibility.”

It’s true that there’s lots of unverifiable garbage online (which journalists’ networked editorial judgment can nonetheless help filter from the good stuff). What many people tend to forget is that the web also makes accessible basically every reputable news outlet and thinker on the planet. Think of all that as the Internet’s natural spring — the total-information flipside to Google CEO Eric Schmidt’s “cesspool.”

A typical newspaper may draw from two or three dozen sources, depending on which wire services it uses. In contrast, there are conservatively more than 2,000 newspapers, magazines, and web sites (e.g. Slate, Talking Points Memo, Washington Independent, journalists’ blogs) in the U.S. alone that newspapers could link to without worry.

Add blogs written by academics (e.g. Balkinization on law, Language Log on language, Marginal Revolution on economics) and think-tankers, and that number is probably more like 2,500 to 3,000.

Nervous news organizations can embrace link journalism by tapping the spring — they don’t have to dip even one editorial toe into the cesspool. (Hooray for stretched metaphors!)

Don’t think that’s worth it? Consider Talking Points Memo: Josh Marshall and his crew didn’t own the U.S. Attorney story (and win a George Polk award) by linking to cranks and anonymous message boards. They did it by supplementing their own reporting with links to other mainstream news organizations and to documents, legislators’ letters, etc.

Yes, we need to encourage ethics, trust, and transparency on the web. These standards are what turn linking into link journalism, and they will become ever more important as the power of the press spreads among millions of citizens.

But the cesspool isn’t all-consuming. And it shouldn’t discourage journalists from linking today.

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Google is the ONLY company that has succeeded in web advertising. Why? Because they perfected search advertising, an entirely web-native form of advertising, whose value proposition is perfect for the web and which has no offline analogue.

Why do traditional advertising formats fail on the web? Because people have no patience for them, as they did in traditional media, where we were habituated to looking at print ads or watching TV commercials.

Research by Jakob Nielsen puts this into sharp relief:

Now, when people go online they know what they want and how to do it, he said.

This makes them very resistant to highlighted promotions or other editorial choices that try to distract them.

“Web users have always been ruthless and now are even more so,” said Dr Nielsen.

“People want sites to get to the point, they have very little patience,” he said.

This is why pre-roll ads on online video = fail, why overlay ads on online video = fail, and why online display advertising is a commodity business, where online publishers have to shovel page views and battle for every $1 increase in CPM. Some sites can get $50-100 CPMs on some pages from certain advertisers, but $1 — even $0.10 — CPMs are common on the web.

Just ask newspapers and magazines about their ad pricing power in print vs. online. Can you imagine a print publisher getting $1 for 1,000 times an ad was seen? You’d go bankrupt after one issue.

Here’s a sobering thought: If all advertising in offline media got converted to current online media CPMs, it would probably be worth a fraction of the value, i.e. $300 billion would become $50 billion.

If 1 to 1 transfer of advertising value is at one end of the spectrum and 1 to 0 transfer of classified advertising value to Craigslist is at the other extreme, most of online media is closer to Craigslist — online publishers are vaporizing advertising value in the shift of dollars online.

Even Google has struggled with this problem, as they still make virtually all of their money from pay-per-click search and contextual ads.

But why, why is this so? Because most online advertising creates NO value for consumers.

Search advertising, because it is relevant to what users are already searching for, creates enormous value. But the search advertising is largely about helping people buy what they already know they want.

What about the objective of advertising to convince people to buy things they don’t yet know they want or need (or what never otherwise want or need)?

Consider this: What is the most successful type of advertising online advertising that convinces people to buy something they weren’t in the market to buy?

Email spam.

Spam is probably the most inefficient form of advertising every created, and it creates more hate and loathing among consumers than the worst 30 second TV ad ever created.

But it works. With millions of emails sent at virtually no cost, a 0.001% response rate can still be highly profitable.

The reason why most online advertising fails is that web users see it as little better than spam.

Display ads are ignored in the same mindset as spam is ignored — I’m trying to get something done online and your display ad is getting in my way.

As Nielsen highlights, web use is driven more and more by utility.

Despite the popular notion of viral content, e.g. viral videos, even entertainment on the web most often happens in a utilitarian context.

Sure people browse videos on YouTube, but searching YouTube is the killer app. Want to find video content? Search for it on YouTube, and chances are someone has uploaded it (legally or not). Why do you think Google acquired it?

Social networks have hit hard against the online advertising wall — I’m trying to talk to my friends and you’re showing me ads — get out of my face. I’m trying to talk to my friends and you’re shoving down my throat notifications of what my friends are buying (i.e. Facebook Beacon) — get out of my face!

Is it any surprise that most ad spending still happens offline? Most advertisers use the web themselves. They know how annoying traditional ad formats are on the web.

So what’s the solution?

We need to invent new forms of advertising on the web. But it’s more than that. Facebook introduced Beacon as a new form of advertising — but it didn’t create a lot of value for users.

Online advertising must create value for users or it will create little or no value for advertisers.

This would seem self-evident, but it has not been the case with traditional advertising, which was developed for CAPTIVE audiences, and web users are increasingly anything but captive.

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But is this the best way to predict the future of media?

When I was a kid, I:

• Watched a lot of cartoons
• Watched a lot of TV generally
• Played a lot of video games

• Never listened to NPR

• Didn’t read the New York Times
• Didn’t use any text-based communication, i.e. never wrote letters

None of these are true anymore. Most striking is I don’t watch any TV. And I spend half my day communicating in text (mostly email). When I was a teenager in the late 80s, just prior to the dawn of the Web era, I’m sure newspaper publishers we’re bemoaning that kids these days don’t read newspapers.

Yet I became a newspaper reader…except that I don’t read newspapers in print…except for my local paper that arrives on my doorstep.

Who could have predicted my adults media habits by observing me in my youth? But it’s not just that I’ve changed. Media has changed so radically in the last 20 years, it would have been impossible to predict how I would grow into media.

The digital generation is undoubtedly developing biases and habits that will carry into adulthood. But they will also grow up. They will get corporate email addresses. Time they spend on Facebook will transform into time spend answering email. They will buy homes, have kids and become concerned with what’s happening in their communities. Maybe they will trust blogs as sources of news. Or maybe they will be more wary of which sources they choose because they are more savvy about the ways of the web.

Or, more likely, as happened to me, they will adopt media habits based on technology we have yet to imagine.

My four-year-old daughter loves watching Noggin on TV, and she can click her way through the games on Noggin.com like she was born with a mouse in her hand.

But she also loves books — more than anything else — that, perhaps, stands a chance of enduring.

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In a desperate, senseless, lunatic attempt to save the collapse of their business, the recording industry has declared jihad on their own consumers — trying to literally to sue their customers back into the stone age. This war on consumers has taken a bizarre and potentially fatal twist as the music recording industry has declared it illegal to to copy legally purchased music to a computer for personal use.

Yes, you read that right:

Now, in an unusual case in which an Arizona recipient of an RIAA letter has fought back in court rather than write a check to avoid hefty legal fees, the industry is taking its argument against music sharing one step further: In legal documents in its federal case against Jeffrey Howell, a Scottsdale, Ariz., man who kept a collection of about 2,000 music recordings on his personal computer, the industry maintains that it is illegal for someone who has legally purchased a CD to transfer that music into his computer.

The industry’s lawyer in the case, Ira Schwartz, argues in a brief filed earlier this month that the MP3 files Howell made on his computer from legally bought CDs are “unauthorized copies” of copyrighted recordings.

And you thought you actually owned the digital bits on the CD you bought. No, silly. The recording industry owns them. Who knows if you even have the right to listen to the music when you have friends over. Maybe they all need to bring their own copies. Maybe you need to buy a copy for each room of your house, or one for listening in the morning and one for listening in the evening, or…

Un-frigging-believable.

The implication of course is that virtually every individual who owns both a CD and a computer — and thus has likely copied that CD to the computer — can be subject to a lawsuit by the recording industry. Imagine the revenue potential from suing hundreds of millions of people, i.e. suing every one of your customers.

Is it possible for an industry to develop a business model based entirely on litigation?

More likely is that both consumers and recording artists alike will continue to abandon major record labels at an accelerating rate, causing at least one major label to declare bankruptcy and shut down, perhaps even in the next 12-24 months.

There is a simple, if cliched lesson in the recording industry’s bizarre death spiral, which every media company needs to carefully note:

CHANGE OR DIE

“Change” means that you should assume, worst case, that everything you know is wrong, that nothing that has worked in the past will continue to work, that complacency and resistance to change = failure, and that anyone who doesn’t get with whatever the new program is needs to be show the door as quickly as possible.

Of course that’s stating it in the extreme, but never has the disruption of technology moved so rapidly and with such extreme impact as it has in the media industry.

Don’t become the buggy whip — or the music recording industry — of the digital age.

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What company am I thinking of? Time Warner? News Corp? Viacom? New York Times?

No, silly, YouTube.

Last May, YouTube invited a select group of users to begin sharing in revenue from ads that run along with their content. Now, the user-gen site is opening up its “partner program,” giving all users in the U.S. and Canada the chance to compete for tapping the revenue from its overlay system. YouTube will judge its next round of partners according to the amount of pageviews and subscribers they attract. So far, 100 users have been added to the program, up from about 40, though YouTube doesn’t say how many participants are currently involved. Over the next few months, YouTube plans to make partner membership available internationally. (from paidContent)

Never mind the buzzwords like partner, revenue sharing, and of course user-generated content (which is now further revealed as a myth) — if you reframe it, as I did above, you realize that this is actually the traditional media business. Great content attracts an audience that is attractive to advertisers. Content producers are compensated by the media company for their work.

YouTube grew a massive user base by allowing users to post copyrighted content, much of which you couldn’t even buy if you wanted to (e.g. it’s still a treasure trove of rare concert footage), under the cover of “user generated content,” like stupid pet tricks and flatulence flambe.

Now Google needs to monetize YouTube on a massive scale, and nobody’s figured out yet how to do that with other people’s copyrighted material or with low quality content that only amuses small numbers of the content creator’s friends — and that gives advertisers the willies.

So YouTube is trying to leverage its other asset — a platform for up-and-coming talent to distribute their content for free.

This is a smart move — although other sites like Revver have been trying for a while, YouTube has the scale to become a platform for talented video producers to earn a real living. But make no mistake — the content that gets a lot of views, thus earning the producer a place in YouTube’s partner program, gets a lot of views because it’s GOOD. And making good content is HARD.

YouTube has become a place where great content can be found and attract a sizable audience, which is still, despite all the disruption of media, a good business.

But here’s the secret of why YouTube is likely to continue to attract an audience for the “talent-generated content,” even after all (or most) of the copyrighted content has been purged — and why Goolge bought YouTube.

When people come to YouTube to find copyrighted content, how do they find it? That’s right — search. For millions of people, YouTube is the go to place to search for video content. As long as people keep coming to YouTube to search for videos, the monetizable talent-generated content will be able to scale.

So Google may yet succeed in monetizing YouTube in a way that justifies the $1.65 billion price tag — but it will likely have nothing to do with “user generated content” (in the mythical sense).

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What really struck me about the Techmeme leaderboard (beyond, of course, Publishing 2.0 debuting at #58) is how it is dominated by media brands. And when I say media brands, I mean TechCrunch, GigaOm, Search Engine Land, Engadget and Gizmodo. There are very few “blogs” on in the “traditional” sense, i.e. a SINGLE voice, like Dave Winer or Jeff Jarvis. There are many media brands that use blogging software, that have comments and trackbacks, that encourage their writers to have a distinctive voice — these media brands certainly retain their blog roots.

But it seems silly at this point to box in big tech media brands like the ones I listed above with the term “blog.” These brands are media companies in the truest sense: They seek leverage by consolidating resources and talent to achieve economies of scale. They seek to scale on the strength of their brands as much (if not more) than on individual talent (although they employ individual talent that drives their brand).

If the technology vertical is one of the vanguards of new media, we can see the evolution of media towards more nimble, more networked, more conversational media companies — but media companies nonetheless.

The Techmeme Leaderboard demonstrates the convergence of new media and traditional media — with new media becoming more brand-driven, and traditional media becoming more individual voice and talent driven.

Perhaps what’s most notable, thought, is how Techmeme — the aggregator — has become such a significant arbiter of the success of these brands. Google may drive more traffic, but Techmeme drives more status. Media brands may be converging, but the is aggregator firmly at the center.

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McKinsey polled 410 marketing executives in five sectors, and among those already advertising online, 52 percent said “insufficient metrics to measure impact” was the biggest barrier, followed by insufficient in-house capabilities (41 percent), the difficulty of convincing management (33 percent), limited reach of digital tools (24 percent) and insufficient capabilities at agency (18 percent).

Does that mean advertisers really believe metrics like cost per lead, cost per sale, or even cost per visit are inferior to traditional “bottom line” metrics like reach and frequency, gross rating points, and rate base? Does that mean advertisers believe mass media have better “capabilities” than online advertising platforms like keyword-targeted search advertising, behavioral targeting — or Google’s new Gadget Ads, announced today:

According to Christian Oestlien, Google business product manager, Gadget Ads are also backed by actionable metrics. “In addition to the combination of precision and scale, advertisers get a whole system for tracking interactions. They can specify particular behaviors like mouse-overs or clicking-throughs, and get an interaction report in the AdWords Report Center.”

Tracking the Gadget Ads ROI wasn’t difficult, according to Bladimiar Norman, head of interactive advertising for Paramount Vantage.

The division of Paramount Pictures was part of the search giant’s first gadget trial, promoting “A Mighty Heart” (a thriller based on journalist Daniel Pearl’s kidnapping and murder in Pakistan) through a widget that featured the movie trailer and a news ticker, as well as a clickable timeline that enabled users to relive the 16 months surrounding Pearl’s kidnapping.

“Of course, selling tickets is the bottom line,” said Norman, “but we were able to track which articles users clicked on, how long they watched the video and whether they shared it with others.”

Well, no. Suggesting that a platform like Google’s Gadget Ads lacks the “metrics” and “capabilities” of traditional media would be silly.

The reality is that the attitudes expressed in the McKinsey report are all a smoke screen, intended to protect vested interests and organizations adapted to static media models, which went unchanged for decades, and not the dynamic innovation of the web. But they can’t deny that the future of advertising and marketing is online.

Regardless of the mode, clients and agencies are all scrambling to keep pace with consumers whose desire to live and shop online is growing. By 2010, McKinsey’s survey respondents expect a majority of their customers to discover new products or services online and a third to purchase goods there.

What this report demonstrates is that the barriers to accelerating the growth of online advertising have nothing to do with questioning the web’s increasing dominance of media consumption or the huge innovations of online advertising — including those still to come.

No, billions of dollars still remain in traditional media because the advertising industry has to go through its own transition page views are a terrible currency for media buying — this buying model, a holdover from Web 1.0, mirrors the familiar traditional media modes of buying that have been used for decades.

Online media and advertising companies share some of the blame — there’s a lot of innovation, but not a lot of standardization. Traditional media adverting — like traditional media consumption — isn’t about to go away, so the inability of many online advertising platforms to map easily to traditional media remains a huge barrier.

Indeed, although a majority of the respondents to McKinsey’s survey find online vehicles to be more efficient than traditional advertising, the relative newness of the medium and its still developing benchmark data make it a hard sell internally to bosses who demand accountability, said client consultants. What’s more, the multiplicity of online channels can make it difficult to isolate what’s working and what’s not, digital agency chiefs said.

It’s not that traditional advertising is more “accountable,” but rather it’s more “comfortable,” more “familiar.” Just ask media companies how uncomfortable the transition to digital can be.

But as the media industry has painfully discovered, the advertising industry is now discovering that making the case NOT to change is no longer viable.

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But what happens when a major content brand that was born on the web extends into analogue media? Will the web remain the primary medium?

TMZ.com, the hugely popular celebrity gossip site owned by AOL, is launching a TV show — here’s how they look at analogue vs. digital when it comes to the all important celebrity news scoop:

One obvious question: When it comes to scoops, which medium will take precedence, the Web or TV? Will TMZ hold hot gossip to accommodate its new television deadlines? Levin said the website will continue to take precedence, posting news as soon as it gets it. But then, he has been holding that tape of a celeb going “really crazy.”

“When something is not time-sensitive — and this isn’t — we’ll be smart about it,” he said.

And what about TV standards? Late last week, TMZ.com confirmed as authentic a much-disputed nude photo of allegedly squeaky-clean “High School Musical” star Vanessa Hudgens. Is that the kind of story that’s safe to drop in viewers’ homes during the dinner hour?

“There are some things we can’t do,” Levin said. “The website pushes further than TV.”

While many news orgs are reinventing their editorial processes and deadlines for the 24/7 light speed web, a web native publisher like TMZ isn’t about to be shackled by the limitations of analogue media (i.e. we have to WAIT until the show airs).

That said, TMZ appears to be acknowledging that the web isn’t the best medium for everything — a video of a celeb behaving badly may still play better on a big TV screen. Of course, they may just be doing this to prop up the value of the TV show by “holding” some content — after all, celebrity videos play just fine on the web — and they tend to spread like wildfire. TMZ has a whole celebrity video gallery.

These days, most people who see something on TV that they want to share — and what could be more shareable than celebs behaving badly — will turn to the web for a shareable version. (Hello, YouTube.)

The big test will be when Time Warner compares the top line and the bottom line for advertising on TMZ’s TV show vs. TMZ’s website — TMZ may see an opportunity to tap into big TV advertising dollars, i.e. get it while the gettin’s still good.

The flow of ad dollars will ultimately decide which medium is boss.

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Still, most media companies resist opportunities to link to other sites — which is particularly acute in instances when linking to other sites could create a lot of value for readers. Articles on the sites of most traditional media publishers still don’t contain inline links, as most blogs do, i.e. these articles conform to print publishing standards rather than web-native publishing standards. This is not surprising as the majority of traditional publishers still recycle all of their print content online (and why shouldn’t they — it’s great content that cost a lot to produce).

You can see evidence of attitudes changing in blogs that traditional publishers are running on their sites — these blogs are much more web-native in their approach to publishing, including the use of inline links to third-party sites. (Publishing 2.0, like most other blogs, contains links to third-party sites in nearly every post — and yet somehow people keep coming back to be sent away again to someplace interesting or useful.)

But reluctance to link out still abounds.

For example, I was checking out the NYTimes.com Auto section because I recalled that they were using third-party content — and indeed, there is content from other sources, like J.D. Power and New Car Test Drive. Of course, the New York Times has deals that lets them host all of this third-party content, rather than link to it on the other publisher’s site.

What really jumped out at me, though, is an instance where New York Times missed an obvious opportunity to link to third-party sources. I looked up reviews for the 2007 Toyota Prius and found this message:

The New York Times Review is not yet available for the 2007 Toyota Prius. Click on the link below to view a full, detailed review for the 2007 Toyota Prius written by the automotive experts at New Car Test Drive.

So I clicked through for the New Car Test Drive review, but it turns out that they don’t have a review yet either. So instead, I found this:

Wow, I thought — the New York Times doesn’t have any content on this topic, so they created value by aggregating the best third-party content. That’s the way to go.

Intuitively, I went to click on the links for these other reviews…but there were no links.

In print, this aggregation of quotes would create a lot of reader value. But on the web, the failure to link to the sources is overtly hostile to users.

And that’s a shame, because the New York Times is missing a great opportunity — if they linked routinely to the best third-party cars reviews, they would actually REINFORCE the value of NYT Auto as a DESTINATION. This is completely counterintuitive to the traditional media mindset, but it makes perfect sense on the web.

The problem that most traditional publishers have is that they see aggregation of third-party content as being in conflict with the distribution of their own original content. In fact, aggregating links to third-party content is highly COMPLEMENTARY to publishing original content.

Traditional publishers need to stop applying monopoly distribution thinking to web publishing. On the web, the more you direct people to other useful nodes on the network, the more they will keep coming back to your node as a starting point.

Just ask Google.

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TIME SPENT ON THE INTERNET is set to surpass time spent watching TV in the average American household, according to the results of an IBM survey released Wednesday.

Overall, 19% of respondents said they spend six or more hours a day on the Internet, versus 9% for TV. More telling, 60% reported that they spend one to four hours using the Internet, versus 66% who spend the time watching TV.

Of course, the time spent on the Internet includes growing consumption of online video, according to the global survey of about 2,000 respondents (including 885 Americans) conducted in April-June of this year. Globally, 67% of consumers say they watch video on the Internet, or would like to do so.

TV is dead. Long live TV.

As for the propping up part, Kantar Media Research and Pointlogic released a report based on what is arguably one of the most suspect types of consumer research — asking consumers how ads effect them, a category of questions most people couldn’t answer honestly if they tried (via MediaPost again):

NEW AND EMERGING DIGITAL MEDIA platforms may be the rage on Madison Avenue and in the news media, but some highly regarded consumer research suggests they still have a long way to go before they replace traditional media as effective advertising alternatives with most consumers. The conclusion, which comes from the 2007 release of Compose, a collaboration of WPP Group’s Kantar Media Research unit and Netherlands-based Pointlogic, is one of an array of new research studies being used by big media shops to evaluate the efficacy of using a wide range of communications platforms to reach consumers. Of the 33 channels – ranging from traditional outlets like TV, radio and print to new media and marketing channels like sampling, promotions and direct marketing – the study found that the vast majority of consumers still find mainstream media to have the greatest influence.

The “conclusion,” of course — we have to prop up the declining business:

“The conclusion is that the traditional media should still be the cornerstone for brand advertising and that the new media still have a long way to go before they can replace the traditional media.”

The unspoken subtext — Madison Avenue still hasn’t figured out the how to make buying new media as profitable as as buying traditional media, so they are going to continue to push traditional media on their clients, come hell or high water.

But sooner or later big corporate advertisers are going to wake up and wonder why they are only allocating single or low double digit percentages of their ad budgets to a medium that commands more than half of most people’s media time.

And then Madison Avenue is REALLY going to have to tap dance.

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Contrast your average interruptive TV ad with the other end of the advertising value spectrum, which is currently occupied by search advertising. Search advertising brings you relevant information about a company’s products or services, in the moment when you’re thinking about it, and typically takes you directly to the company’s website where you can actively “engage” (depending on the quality of the site).

The push for “branded entertainment” as a form of online advertising is still closely aligned with the traditional TV commercial ethos — it’s also aligned, on the positive side, with the YouTube Web-as-micro-entertainment ethos. But as anyone who has ever tried viral video knows, creating value for consumers around entertainment — to actual ENTERTAIN — is very hard to do well.

In contrast, creating value for consumers by providing useful, relevant information is MUCH easier. That’s why there are tens of thousands of advertisers that have done so successfully with search advertising — and so few that have succeeded at creating truly entertaining content.

Certainly there is an emotional component to branding — a world of pure utility information-based advertising wouldn’t be a panacea either.

But it’s embarrassingly clear how bankrupt of value most traditional TV advertising is — and how wasted the majority of those billions of mass advertising dollars are.

How long before big TV ad spender wake up to the imperative of creating REAL value for consumers? How long before the shareholders of big public company advertisers spending millions on valueless advertising start holding their feet to the fire?

Until advertising agencies realign themselves to themselves with digital advertising platforms that create more value for consumers, it may still be awhile.

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What Pownce offers is a key piece of functionality that is likely to take social networking to the next generation… peer-to-peer file-sharing capabilities. To explain why this is potentially significant, allow me to point you to a piece I wrote for ZDNet 15 months ago:

As we all know by now, social networking is all about self-expression. And for most, showing the world which music and videos you like is a big part of demonstrating who you are as an individual. In fact, social networks are proving to be a highly useful resource for the discovery and recommendation of all sorts of art forms and cultural products. But instead of simply declaring what you like, social networks turbo-charged with P2P capabilities will allow users to actually share. Compound this with the fact that social networks overlap… what I call the “Venns effect” (as in Venn diagrams)… and any one person can effectively have access to thousands or even millions of other connected “friends” beyond their immediate social circle. So if all of a sudden, one-click file-sharing is added to this equation, it doesn’t take a rocket scientist to figure out what will probably happen next. I’d even be comfortable predicting that such a P2P-based social networking service could quite easily trump MySpace as the next “must-have” for teens.

With the aforementioned in mind, let me now point you to an article that just came today in the U.K. Telegraph titled “Illegal Music Downloads Hit Record High”. And here’s the money quote:

Four out of every ten social network users have music embedded in their personal profiles, rising to 65pc among teenagers.

Russell Hart, chief executive of Entertainment Media Research, described this phenomenon as “the democratisation of the music industry.

“Social networks are fundamentally changing the way we discover, purchase and use music,” he said. “The dynamics of democratisation, word of mouth recommendation and instant purchase challenge the established order and offer huge opportunities to forward-thinking businesses.”

The survey has further bad news for the music industry as it found that 43pc of those questioned are downloading tracks illegally, up from 36pc last year.

At the same time, there has been a dramatic slowdown in the growth of authorised downloads, with the number of legal downloaders growing by just 15pc this year, compared to 40pc in 2006.

So does this mean that Kevin is the new Shawn Fanning? Is Pownce the “son of KaZaA” or the “grandson of Napster”? In other words, should established media companies fear that Pownce will become the new hotbed for illegal file-sharing? The New York Times, which profiled Pownce just this past Sunday, certainly seems to think so:

Most file-sharing occurs on public sites, which can be monitored by media companies; if the users violate copyrights, the sites or the users themselves can be threatened into compliance or litigated out of existence (as happened with the original Napster). File-sharing on Pownce would be difficult to police.

If I were a media executive concerned about protecting my intellectual property, I would pounce on Pownce. It’s possibly no coincidence that the name Mr. Rose chose for his new venture suggests the Internet gamer’s jargon “pwn,” which means to take control of a system by exploiting some vulnerability.

There’s certainly the chance that Pownce could become the latest “nightmare” for media companies, but let me end this post the same way I ended my ZDNet piece, by saying:

The media players need to understand that P2P that’s embedded into social networks is a very different animal than previous generations of P2P, and the issues surrounding piracy are far less insidious and much more manageable. There’s still the issue of control over distribution, of course (they’ll have to let go), but the opportunities to monetize are substantial, as are the prospects for materially lowering marketing and distribution costs. At the end of the day, the most important factor that will ultimately influence the final outcome rests on the media companies themselves, and whether they try to fight it or co-opt it to their benefit.

In short, the major record labels and film studios in Hollywood should be going out of their way to call Kevin and Leah in order to discuss ways of doing business together.

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“You’re almost always going to be able to find inventory,” says Jordan Bitterman, director of media for Digitas, which buys Internet advertising for American Express, AT&T and General Motors. “So the buyer has more leverage than in the print category.”

Advertising in traditional media, whether newspapers, magazines, or TV, is all about selling a scare resource — space.

The problem is that on the web there’s a nearly infinite amount of space. So when traditional media companies try to sell space online the same way they sell space offline, they find they only have a fraction of the pricing power.

That’s why the newspaper industry is worth about $60 billion offline but only $3 billion online — they only have about 5% of the pricing power that they did when there was only a finite amount of space in for printing ads.

Newspapers sell classified “listings” in print and they sell the same listings online. But in a newspaper, there’s only a finite amount of space for those listings. Online, on Craigslists and dozens of other “listing” sites, there’s an infinite amount of space.

So what’s the lesson for newspapers and other traditional media companies trying to transform themselves into online publishers?

Stop selling space.

Google doesn’t sell any space. It sells user intentions, i.e. what’s on people’s minds. And that’s a scare resource — there’s a finite number of people thinking about buying a digital camera today.

So what else is a scarce resource online? Locality.

There are only a finite number of people in ever city and town. Only a finite number of customers for every local business. Online a finite number of people in a particular locality seeking news and information online.

Wherever there’s scarcity, there’s opportunity.

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The major U.S. TV networks, after a slow start to the annual advertising negotiating season, have completed most of the prime-time commercial deals at prices above a year ago, executives said on Wednesday.

Although volume was down in some cases, prices were up across the board by an average of between 5 percent and 9 percent based on cost per thousand viewers, media executives said. (via Reuters)

Broadcast television’s annual springtime sales bazaar drew to a close Friday with the five networks surpassing their estimates by ringing up a combined $9.3 billion in commitments for prime-time commercial spots for the coming TV season.

The so-called upfront ad market was surprisingly strong this year, with broadcasters increasing their take by about 5% compared with last year despite generally lower ratings. Networks were also swamped with orders for spots in national evening and morning newscasts. (via LA Times)

[Robert J. Coen, senior VP-director of forecasting at Universal McCann] said large companies have been cutting expenses wherever they can as they focus on productivity and profit growth. Online advertising and search marketing have “violently” impacted established media as the appeal for marketing tactics closely tied to transactions grows.

In terms of national advertising by medium, Internet and direct mail were the biggest gainers in the first quarter, growing 16.7% and 4.5%, respectively, ovwer the same period last year. Spending on TV, spot TV, syndicated TV, spot radio and newspapers decreased in the first quarter. (via BtoB)

[Joseph Rizzo, U.S. Advisory Technology Sector Leader for PwC] said Internet advertising was being helped by a decline in television viewing by key audiences for whom “the Internet has become an integral hub of their daily experience”. (via Reuters)

It’s pretty clear that TV advertising is now in a bubble, with advertisers bidding up prices on a medium that no one ever got fired for using and that many ad agencies have deeply vested interests in propping up. But given the intense competition from online media — both in terms of the shift in consumer media habits and the greater measurability of online ads — it seems unlikely that this overinflated condition can last.

One factor preventing the bursting of the bubble is a lack certainty around online video formats, e.g. pre-roll, mid-roll, post-roll. The conventional wisdom is that consumers are used to advertising on TV shows, and even though most advertisers know that consumers channel surf, get up from the couch, and zap commercials with DVRs, they have been doing TV advertising so long that they can still pretend that it’s reliable and effective. Nielsen also contributed to propping up the TV advertising market by creating new TV ad ratings, which have now become industry standard:

Media executives said that the majority of deals for this year’s upfront — the period when networks sell about 80 percent of their prime-time advertising inventory — were based on the Nielsen commercial ratings known as live plus three.

That measurement takes into account how many viewers watched commercials that ran during the program when it first aired, plus the next three days on DVR playback.

The game with video advertising, whether traditional TV or online video, is more about perceptions than reality, and more about industry standard metrics than actual ROI. The only way online video providers will succeed in bursting the TV advertising bubble, so that they can soak up the flood of ad dollars, is to create industry standards that will help big brand advertisers find their comfort zone.

Of course, when the bubble does burst, a lot of the money, which is based on old monopoly pricing, will simply evaporate, as it has with newspaper advertising. The question for TV networks is whether their transition to digital will be as ugly and painful as it has been for newspapers.

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Of course, it really isn’t “stealing,” although the fact remains that Publishing 2.0 received a page view that might have otherwise gone to Wall Street Journal. And some of those visitors may have stayed on Publishing 2.0 rather than gone back to WSJ.

So is aggregation still a net positive for WSJ, looking at it through the microcosm of this example? WSJ did create more value for its users by pointing to other valuable content (assuming visitors found my post valuable). But is this going to make people go back to the WSJ more often? The WSJ is in a distinct position because it has paid subscribers, but paid sites need to increase traffic as much as any other.

The real question is — will WSJ subscribers be more likely to seek out the WSJ coverage of a news event or topic because they know at the end of the article they will be referred to additional related content, including third-party content?

Page view trends and clickthrough data on the related links would certainly inform this question — the big issue for creators of original content is how they maximize the value of linking to other people’s original content.

Blogs have pioneered this with inline links, which I definitely believe enhances the value of the blog’s own content. Traditional media companies have been slow to adopt third-party inline links (and are still anathema to some), so these automated third-party related links are a step in that direction — and probably more about becoming part of the link-based web ecosystem than about aggregation in the larger sense. That said, there’s a difference between me as a human editor linking to third-party content and the WSJ using Sphere’s automated system.

In fact, if you got the WSJ article now, you’ll see that Sphere has already replaced Publishing 2.0 with other related blog links (of course, you have to be a WSJ subscriber to see this). The links I create here to third-pary content are forever a part of the Web (and search).

As traditional media companies start to tear down the walls that separate them from the network, they will have to embrace a very non-traditional and counterintuitive understanding of how to leverage the dynamics of the Web, i.e. the more you give, the more you get.

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The question of whether Dow Jones — whose market capitalization has jumped to more than $4.5 billion since Mr. Murdoch’s bid — has enough scale to compete globally is fueled by recent upheaval in the news and financial-information industries, including the migration of news online and a broad decline in advertising and circulation in the newspaper industry.

And from the New York Times:

“After a detailed review of the business of Dow Jones and the evolving competitive environment in which it operates, the family has reached consensus that the mission of Dow Jones may be better accomplished in combination or collaboration with another organization, which may include News Corporation,” a statement from the family said.

and

More decisive was a presentation given by the chairman of Dow Jones, Richard F. Zannino, that laid out the company’s future with and without a sale. For several family members, Mr. Zannino was far more persuasive in describing the former, suggesting that the company was unlikely to achieve results that would match the value of Mr. Murdoch’s offer.

Interesting that the Wall Street Journal article spelled out the issue while the New York Times articles leaves you to extrapolate what is meant by “evolving competitive environment” and “company’s future without a sale” — but it’s a given now that the digital media revolution is the handwriting on the wall for every traditional media company.

There has been much hand wringing over what Rupert Murdoch might do to the Wall Street Journal, i.e. compromise its editorial integrity. You can see the hand wringing in the New York Times lede:

The family that controls Dow Jones & Company, publisher of The Wall Street Journal and one of the great names in American journalism, announced yesterday that it would consider selling the company.

From one “great name” to another. At the D5 conference, News Corp COO Peter Chernin said:

The notion that we would change The Wall Street Journal is counterintuitive. The reason we are offering a premium is because we believe that it’s a fantastic publication. I would argue that we are the publisher and guardian of some of the finest publications in the world. We would never ‘Page 6-ify’ The Wall Street Journal.

The concerns over journalistic integrity, while having some substance, are largely a red herring. The real issue boils down to whether News Corp, owner of MySpace and Fox Interactive Media, can enable the Wall Street Journal to thrive in a digital media world that is threatening newspaper brands with extinction.

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Last week, Inform announced that a number of high profile media companies would be using its technology to aggregate third-party related content on article pages. Sphere, which has a widget that aggregates third-party related content (which I use on this site), is popping up all over traditional media site, including on Time, New York Times, and Wall Street Journal — WSJ is actually displaying the third-party links on the article page, in addition to through the widget.

Today, CNN announced it would start aggregating links to third-pary content as part of a planned redesign:

Perhaps an even bigger shift in philosophy will happen later this year when CNN.com will begin linking to other news sites, even competitors.

Whether users of traditional media sites will find such sufficient value in these aggregation plays that they will click on those links rather than search on Google or seek out another pure play aggregator still remains to be seen. But it’s clear that media companies understand that the big opportunity for them is in organizing the sea of content on the web rather than just organizing their own content.

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The CBS brand is associated with broadcast TV, but CBS also happens to own the largest radio broadcast group, which is why the Last.fm acquisition is a no-brainer. What is a conundrum is how Last.fm can help CBS with its legacy radio business — the old programmed-by-someone-else radio station seems positively archaic in the age of iTunes and social music recommendations.

At one level, CBS is taking a similar tact as TV and newspaper companies in developing online assets to catch the flow of ad dollars out of their legacy media. Online advertising is set to eclipse radio advertising by 2008:

The radio industry won’t want to hear this. Advertising dollars are shifting online faster than analysts anticipated. In fact, advertisers will soon spend as much money on the Internet as they do on the airwaves, according to a newly released eMarketer study. On Dec. 6, the New York research firm increased its estimate for 2006 online advertising spending by $500 million, to $16.4 billion.

The new estimate means online advertising will pull in about 5.8% of the more than $281 billion advertisers are expected to spend this year. That’s less than radio’s 6.9%, according to Universal McCann (IPG), which tracks the radio industry. However, radio’s share is declining while online share is growing, says David Hallerman, a senior analyst at eMarketer.

By 2007, online advertising will bring in 6.8% of the total and, by 2008, it will bring in 8.1%—putting it well over radio. By some estimates, online ad spending will overtake radio even sooner.

Indeed, CBS’ radio business is experiencing a newspaper-like decline:

CBS Corp. posted a 6% decline in first-quarter profit Thursday, hurt by weakness in its radio business, costs related to the sale of some radio stations, and a decline in television licensing revenue. CBS Corp. posted a 6% decline in first-quarter profit Thursday, hurt by weakness in its radio business, costs related to the sale of some radio stations, and a decline in television licensing revenue.

Radio revenue fell 9% to $397.5 million, reflecting the impact of the previously announced radio-station sales in 10 markets as well as advertising weakness in the radio market. The company has completed the sales of the stations in five markets, four of which closed during the first quarter.

There’s a good chance CBS will be successful in using their radio advertiser sales channels to pump up Last.fm ad revenue — although it was striking that none of the coverage I read mentioned Last.fm’s revenues or profitability.

Still, the challenge for CBS is to use Last.fm and their other digital channels to compensate for the decline in the traditional radio business, i.e. keeping the Advertising Trend Ratio from sinking too low.

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A few weeks ago the New York Times announced they would use third-party content for their new auto site. And today Inform announced that 16 of is traditional media clients, including WashingtonPost.Newsweek Interactive’s Newsweek.com and Conde Nast’s Portfolio.com, would be adding third-party sites to their search results (via WSJ):

The new technology automates that process and creates a new search results page that includes information and articles about related topics from a variety of sources, such as other newspapers or blogs.

For these traditional media sites, the aim of this feature is “encouraging readers to use them as a first stop for information gathering, just like Google or Yahoo.” Suffice it to say that transforming an original content site into a general purpose search destination is a tough sell. Nevertheless, these sites will be doing a better job serving the needs of their users by not assuming they have a monopoly on the best content, and that can only be a good thing.

Also worth noting is this odd claim for the WSJ article:

The goal is to get more people to visit these sites more frequently, which would in turn cause the sites to show up higher on the results page of search engines like Google.

Since when does increased traffic mean higher search ranking? Paging SEO helpline.

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Thinking about it, I realized there are many analogues between what upstarts like Toyota and Honda did to the Detroit auto industry and what online and digital media is doing to traditional media:

1. More efficient product

While Detroit indulged the American obsession with gas-guzzling vehicles, Toyota and Honda pioneered fuel efficeint vehicles, including the increasingly successful hybrid technology. While traditional media companies tried to bolster inefficient packaged media, like CDs and newspapers, online and digital platforms like search and iTunes gave consumers access to precisely the a la carte content they wanted, without any waste.

2. Less expensive product

Toyota and Honda established their brands by giving consumers more for less. Online media is still wrangling with the old debate over whether information wants to be free, but Google has certainly perfected giving users more for less, by using advertising to financial all of its free services.

3. More technologically advanced product

It goes without saying that online and digital media are more technologically advanced, just as the engineering of a car like the Toyota Prius puts Detroit engineering to shame. But it’s not just advanced technology — it’s transformative technology. Driving a Prius is like searching for and consuming news and information on the web — a different in kind experience.

4. More nimble company

Detroit has been crushed under the weight of its pension and other HR obligations, while Toyota, Honda, and other foreign makers avoided such liabilities. Online publishing — witness solo blog publishing — is vastly more cost efficient than traditional publishing operations, from staffing to printing to distribution. And then there’s the ability to make money off of the long tail, which benefits all online and digital media. (Online video infrastructure still isn’t cheap, but there’s still a huge potential for high profit margins if the top line can catch up with that of the traditional video businesses.)

Does this mean that both Detroit automakers and traditional media companies are destined for extinction? Unlikely, at least in the near term, but for these legacy businesses to survive they will have to undergo a radical transformation to keep up with the upstart companies that are leading their industries into into the future.

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Blogging is conversation, yeah, blah, blah, but what’s so unsatisfying about these “conversations” is that too often they turn into linked monologues. Nobody actually TALKS to each other. Everyone just takes sides and helps their side dig the trench. You rarely if ever see anyone changing their mind or conceding a point. So here I am with this unhelpful view that both sides have a point.

On The One Hand

Some journalist do misquote or manipulate quotes, ergo, some journalists are bad journalists.

A very small percentage of people who journalists interview have the ability to independently publish a transcript of an interview, if there is one.

It’s now possible for those people to protect themselves from bad journalists by insisting on such a transcript, ergo, IF those people have suffered at the hand of bad journalists, it’s understandable why they might want to insist on a transcript.

As the number of people with independent publishing platforms increases, there will be pressure on journalists to “open source” their interviews — since the web is so dynamic, some interesting new models could indeed emerge.

Allowing interviewees to control their words makes sense, in principle, ASSUMING those interviewees have nothing to hide, no reason to manipulate the story themselves and/or artificially control their images.

On The Other Hand

Not all journalists are bad journalists.

Refusing to do a live interview with a journalist implies that the journalist doing the interview is likely a bad journalist, which in turn implies that the publication employing that journalist makes a practice of employing bad journalists.

Just as some journalists are bad, some interviewees are also bad, e.g. politicians trying to manufacture and control their images, elected officials trying to manipulate how the public views the actions of the government, business executives trying to control the images of companies that act irresponsibly, etc.

i.e. it’s a DOUBLE-EDGED SWORD folks!

If you throw out live interviews, you also throw out live human interactions (remember those?) — as Steve Baker and Heather Green so eloquently put it (and owning their own words, of course):

Every once in a while, I have a luminous interview. It’s usually a face to face discussion. I learn during the course of it, and it produces new ideas and new connections in my head. If it’s a really good interview, the other person feels the same way. Those are the interviews I treasure, and I’d never want to give them up for an email exchange. I’ve used e-mail “interviews” through the years for the routine gathering of facts or quotes. Not one of them has been memorable. I figure that the people who insist on this don’t want to talk to me, for one reason or another. That’s ok. If they’re feeling that way, we probably wouldn’t have a very good conversation anyway. That happens. (Steve)

But here’s the thing about a conversation. Since I don’t know what these people know, a conversation allows me to do follow up questions. The way someone says something, the emphasis they give, these little cues and nuances prompt me to dig deeper into certain areas. We’re human, we practice this ability to listen to cues all the time. It’s an amazing thing.

But here’s the other thing about conversations. Often they lead to stories that aren’t exactly what the person wanted. Is that bad? If the story is accurate, no. And here’s the thing about email interviews or allowing people to review a quote before it’s printed. People want to polish their images, they want to control their images. Again, we’re human, we want people to think well of us or we want to be powerful or we want to make money and often the way to do that is through the control of images and information. Of course, this isn’t true for everyone. But it’s something that explains why a phone or face to face interview might be better in some cases. (Heather)

It’s so easy to say the old model is ENTIRELY broken and therefore we need to throw the WHOLE thing out. If only life were that simple — everything is so much easier in black and white. But the reality is that the old model is only partially broken, so we only need to throw out part of it — and throwing out the bathwater without throwing out the baby is going to take a lot of very hard work.

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According to Jeremy, untargeted, run-of-site page views are worth about $1 per thousand. It’s RPM because it’s taking into account ALL forms of advertising on the page, including display ads sold on a cost per thousand impressions basis, pay-per-click ads, and pay-per-action ads. $1 per thousand sounds about right, but it’s also deeply disturbing.

Part of the problem is that there’s a disconnect between page views and human beings. On a site with very low page views per user, a thousand page views could be generated by a thousand people. Or, across a month, it could represent the activity of a single highly active user. So imagine a page with three display ads sold on a cost per thousand basis. An advertiser could, in theory, be paying $1 OR LESS to reach a thousand people with all three display ads.

In what other medium can you pay $1 to reach a thousand people with three ads each???

At that rate, you could reach 1 million people for $1,000. Now, granted most thousand page views are generated by less than a thousand people (in many cases far less). And granted we’re talking about untarget advertising. A highly targeted site can earn a revenue per thousand pages of, say, $20. But still, $20 is a pretty good deal to reach as many as a thousand people with your advertising. And if you assume that $20 is from multiple ad sources on each page, then each source is paying less than $20 to reach a highly targeted audience of up to a thousand people.

Compared to other media, online publishers are pretty much giving it away. Because the reality is that EVERY page view is in viewed by someone who has some value to some advertiser. The problem is when you DON’T KNOW who your users are.

This is the problem with all the focus (particularly in Web 2.0 circles) on total traffic numbers — 10 million uniques is great, but not so much if you don’t know who these people are.

Of course, you know why so many sites are valuing their traffic in bulk — Google AdSense, which doesn’t care who your users are, as long as they click on ads. Pay-per-click advertising is, on one level, all about targeting, but on another level it’s a volume game.

Is it possible that Google, the great driver of efficiency in online advertising — and the great democratizer of online ad revenue — has in fact dragged down the average value of ALL page views?

So what is online media to do? It already commands a third of total media attention, rivaling television, the ultimate monopoly medium. So why can’t websites charge monopoly prices? Well, the handful of big online media brands, like Yahoo, AOL, MySpace (homepage), MSNBC, CNN, etc. DO charge premium prices for their premium inventory. The top online destinations can and do price like high-priced offline media.

But for as the long tail — it just doesn’t scale.

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The nature of this transformation suddenly crystallized for me when I read Tom Foremski’s piece on the new West Coast/East Coast media industry divide. Tom seems to be focused more on media as defined by publishing, since New York has traditionally been the center of the publishing world, while Hollywood has been the center of the video-based media industry. Regardless, I think Tom gets it half right, because the schism in media has nothing to do with geography.

The real divide now emerging is between companies that create original content and companies that create platforms for aggregating and distributing that content. Newspapers embody the old media world where content creation, aggregation, and distribution were inextricably linked. But the digital media revolution has made it possible to separate these functions.

For traditional media companies, original content creation still straddles both coasts, but geography is quickly becoming irrelevant as an army of newly empowered individual and small enterprise content creators are storming the web from every corner of the globe.

The radical shift in the newly disaggregated business of original content creation is that, with so much competition (one might even call it a content creation bubble) and no control over distribution, content creation is no longer an easily scalable business — in fact, many players in the new content creation game are not in it to build scale business, or even to make money at all.

Individuals can now make a good living as content creators, without ever creating or becoming part of a scale content business. What’s more disruptive, however, is that in the market for original content, the attention economy is draining dollars out of the cash economy. There remains a zero sum game for consumer attention, so for every minute a consumer spends with content created by an entity whose compensation is in form of attention, there’s a minute not being spend on content created by a for-profit entity.

In contrast, the content aggregation and distribution side of the divided media industry has all the advantages of scale, with the technology-enabled platform (e.g. MySpace, Facebook, YouTube, search) serving as the organizing principle for the new scalable media businesses. Content creation is asymptotically approaching commodity status, while platforms that can effectively aggregate content and allocate scarce consumer attention can unlock immense value in the new media marketplace.

YouTube is now ground zero for the battle over the new scalable half of the divided media industry. Content companies like Viacom who have lost all of their distribution leverage are fighting YouTube to control the new platform-based media economy. The future of media will be determined by how well legacy media companies survive the unbundling of their business models, how much better legacy companies like News Corp who have acquired a platform (MySpace) can restructure their business, and the degree to which the new native platform media companies like Google can position themselves to dominate the new media landscape.

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CHAD AND RYAN STEELBERG, THE founders of an automated radio ad placement company purchased by Google in January 2006, have left the company.

The brothers resigned amid reports of growing tension between dMarc, the company they founded, and Google over differing approaches to radio ad sales. There was also said to be tension over the limited remuneration dMarc could expect under the performance-based terms of its original deal with Google.

The MediaPost article makes reference to “sluggish revenue” for Google’s radio ad program and a Valleywag report that only $200 million out of a potential $1.3 billion performance incentive from the dMarc acquisition deal will likely be earned by management and investors.

Could it be that Google’s high efficiency advertising engine is only succeeding in exposing the gross inefficiencies of traditional offline advertising to Google’s huge stable of ROI hungry online advertisers?

Can Google continue its torrid pace of growth if offline advertising turns out to be a brick wall?

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It turns out that only the top 2,457 Digg users have gotten 3 or more stories to the homepage, putting them in the top 0.35% of Digg’s 707,593 registered users. And only the top 1,662 Digg users have gotten 4 or more stories to the homepage, putting them in the top 0.23%. Even more telling is what you get if you graph even just the top 250 Digg users — can you guess? Of course, it’s a long tail:

So let’s see, being successful on Digg is hard work and only a small fraction of those who try ever succeed — remind me again what the difference is between New Media and Old Media? Wasn’t it supposed to be the end of all that awful “elitism”? Or could it be that all the old rules still apply, i.e. if you work hard, your chances of success are much higher although far from guaranteed, and most people will be inclined to just go along for the ride.

The “community” doesn’t determine what goes on the home page of Digg — it’s a handful of de facto “professionals” (who don’t get paid, but that horse has been beat pretty hard already). Sure, they leverage their network of “friends,” but then getting ahead has always been about who you know, right?

If I set up a Digg account today, I’d have about as much influence over what appears on the homepage of Digg as what appears on the front page of the New York Times — which is as it should be. I am no more qualified to judge what’s newsworthy for the home page of Digg than for the front page of the Times.

If Digg has revolutionized anything, it has been by allowing handful of people who might never have considered being professional editors to “edit” the Web for their peers (or maybe the top Diggers were all aspiring editors). But they achieved their Digg success not through any egalitarian, democratic entitlement — they got there by my making a commitment to do a good job, work hard, abide by standards, and serve their community. They earned the privilege.

You could argue that Digg’s long tail is also a revolution — but then it was always possible to get a letter to the editor published in the newspaper without actually being the editor of the front page.

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So much of old media is engaged in a thinly veiled effort to keep up appearances, because they can’t simply replace the old with the new. As Jeff Jarvis observed, in disagreeing with my prediction that a major print publication would move to web-only publishing this year:

It will come, but not yet, for there is still profit to be made in print and sluggish advertisers still aren’t ready to support the new medium — even if that’s where their customers are — and shut-down costs remain high.

That I still receive the print edition of the WSJ is a farce — when I called to renew my subscription, I was told that it was actually cheaper to get both the print and online editions than the online edition alone — and then I suddenly started receiving the print edition at home as well! That kind of blind subsidization can’t last.

This post should prompt me to finally getting around to halting that waste of paper, even if it means paying more. Eventually, publishers will get around to it as well.

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I don’t mean to be too much of an old-media-reactionary running dog. And some of the things he says make immediate sense. In fact, I asked all my writers and editors to start blogging a few months ago. (See the sidebar of B2 bloggers on the right, or go here.) But Wired’s radical transparency would help me—radically—when I make strategic decisions about how to put my magazine together. That’s because one of the most powerful attributes of my medium—the monthly magazine—is the element of surprise. What Chris is describing might indeed be wonderful online media, and yes, surprising to watch as it’s being created. But I bet the PAPER product that rolls off the printing press months later would have a much smaller audience than it does now—and would be creamed by the competition.

Editors like Chris and Josh are facing a moment of reckoning — they need to decide whether they are principally magazine publishers or online publishers. Given the “radically” divergent imperatives of online publishing, it will be difficult if not impossible to serve both equally well — one will ultimately have to be the primary medium.

Magazines face the same terrible quandary as newspapers — online audiences and revenues are where the growth are, but that growth is nowhere near sufficient, at least from a revenue perspective, to reverse the polarity from print to online.

The first step towards what promises in many cases to be a fraught transition may be to formalize the commitment to online publishing as a principal endeavor, knowing that will force decisions that ill serve the needs of the print publication.

At the end of the day, the focus needs to be the reader — are you going to serve best your online only readers, your online and print readers, or your print only readers? In print, readers can only be readers — and for many people, that’s still all they want to do. But online, readers can be participants and value creators — the community is interconnected, interactive, engaged.

In life, you can’t have everything. Brands that publish both in print and online face some tough choices indeed.

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3) “Process as Content”*. Why not share the reporting as it happens, uploading the text of each interview as soon as you can get it processed by your flat-world transcription service in India? (This may sound ridiculous, but it’s exactly what wire services such as the AP have long done–they update their stories with each new fragment of information). After you’ve woven together enough of the threads to have a semi-coherent draft, why not ask your readers to help edit it? (We did it here, and it worked great). And while you’re at it, let them write the headlines and subheads, not just for the site but also the punchier ones for the RSS feed and the one that has to work with the art for the magazine.

Upside: Open participation can make stories better–better researched, better thought through and deeper. It also can crowdsource some of the work of the copy desk and editors. And once the story is done and published, the participants have a sense of collective ownership that encourages them to spread the word.

Risk: Curating the process can quickly hit diminishing returns. Writers end up feeling like a cruise director, constantly trying to get people to participate. And all the other risks of the item above.

Reading Chris’ assessment of the “Upside” and “Risk” of each element of transparency, I’m inclined to agree with his conclusion: “Needless to say, in all these cases I think the upsides outweigh the downsides.” More importantly, Chris sounds like he’s hot on the trail of real innovation, rather than pablum ideology.

It’s amazing how much you can move the 2.0 ball forward when you strip out the ideology and just think it through.

Here’s my first prediction for 2007 — some “old media” brands, which many in new media have already counted out of the game, will from a standing start leapfrog past some new media brands in the race for innovation. 2006 has been filled with a lot of ideology and vague formulations trying to pass for real innovation.

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All of the stories are indeed notable for one reason or another — here’s my .02 cents:

In Web Traffic Tallies, Intruders Can Say You Visited Them
It’s amazing how much online media is still a raw traffic game — the more the better, no matter the source, which leads to abuses like those profiled in this piece. This is why the New York Times cozying up with Digg actually makes sense, at least for the time being — there’s no denying that Digg can drive traffic. In fact, there were two NYT stories on the first three pages of Digg when I just checked. Are any of these Diggers people that NYT advertisers want to reach? Will any of them spend any time on the site? Will any of them become regular readers? Who cares! It’s traffic!

Times Sq. Ads Spread Via Tourists’ Cameras
As my friend Rex Hammock points out, the term “consumer-generated pictures” is indeed a bad omen. And for all those marketers looking to stage events in Times Square — beware the Chevy Tahoe effect — consumers have this knack for sensing in-authenticity and taking your brand in a direction that you didn’t exactly intend.

YouTube Adds a Layer of Filtering to Be a Little Nicer
So much for the leveraging the power of the YouTube community. Too much corporate interference, and the consumers will start looking for elsewhere for a more suitable experience — the same reason why pre-roll video won’t work, as Fred Wilson argues: “So if you want to build a business around digital media, you have to be the best place to view/consume the media. Being the only place to see it is a naive strategy that won’t work. You have to make digital media easy to find, easy to watch/listen/view, easy to comment/tag/share, and easy to replicate/reblog/republish.”

Squeezing Money From the Music
You’ve got to do a lot of aggregating across the long tail to work your way back up to the big hit CD business that was based in part on getting people to buy songs they didn’t want.

Sales of iPods and iTunes Not Much in Sync
Perhaps if iTunes had a decent recommendation engine or could better harness the power of sites like Last.fm and Pandora, the long tail might do a bit more wagging.

The tech blogosphere has certainly been ahead of the curve in many instances on breaking news and original reporting, but don’t count out “old media” journalists just yet.

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In the next year or two the media world will begin to figure out what consumers really want on digital platforms and how that can best be monetized, but “we’re really in the first inning of that game,” Fox Networks Group President Tony Vinciquerra said Wednesday to Wall Street analysts attending the annual Credit Suisse Media and Telecom Week conference.

Right now, “what we’re trying to do is be very clear about something that is not clear. We really don’t know what the consumer really wants,” he said. (via TV Week)

Executives from the Gannett Company and the Washington Post Company said they were also focusing on the Internet. But no one would predict where the business was going, even in the near future.

Donald E. Graham, chairman of the Washington Post Company, said that the “only honest answer” to that question is, “I don’t know.” (via NYT)

THE FUTURE OF ONLINE ADVERTISING is still taking shape, but at least one type of ad may not be around long: the 30-second pre-roll spot. That’s according to Curt Hecht, chief digital officer at GM Planworks, Starcom MediaVest Group’s dedicated media unit for General Motors, who spoke about the topic Thursday at an industry conference.

Consumer acceptance of pre-roll ads is “completely undetermined,” said Hecht, at a panel on advertising trends of the Fortune 500 at a Cowen and Company Internet conference. “I don’t think we know yet what the consumer wants.” (via MediaPost)

It “will be determined over time” whether advertisers will simply shift dollars to digital media from broadcast — particularly as viewers get DVRs and use them to skip commercials. (via USA Today)

Of course, Yahoo has become the poster child for the Fog of 2.0 — the response to strategic uncertainty at Yahoo and, to be fair, across the media industry has been to try as many new things as they can think of, which naturally leads to the “peanut butter” strategy decay. Yahoo plans to focus more on what the customer needs:

Expand customer-centric culture and capabilities — Yahoo! will develop rich experiences for each audience segment and deliver solutions to meet the needs of all advertisers and publishers worldwide.

The problem is that, in the this increasingly complex networked 2.0 world, customers don’t know what they need. And providers don’t know either. What happens when the buy side and the sell side are wandering lost in the fog?

I keep coming back to this Henry Ford quote:

“If I had asked my customers what they wanted, they would have said a faster horse.”

As much as media is obsessed with the scarcity of attention, the real scarcity is in innovation.

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My guess is that Digg has something like 5mm monthly unique visitors worldwide. Not 20mm. The difference probably results from cookie counting, multiple browsers, and a few other factors.

Perhaps a better question is whether these audience measurements even matter. Google has $10 billion in advertising and has never had to report a single audience metric to advertisers. I think this comment from one of my previous posts nails the issue:

Why do we care about any of these metrics? Gross audience measurements like impressions are “pre-metrics” which can tell us about reach and a little bit about targeting, but very little about whether our advertising dollars are being well spent. “Post-metrics” such as conversion rates and average deal size tell us whether to keep spending or not – that’s what we really want to know. We need advertising outlets that make the transaction costs of setting up a campaign low, something that companies like Google and Spotrunner do remarkably well. We also need to be able to collect “post-metrics” quickly, something that the internet generally allows for (at least in the case of direct marketing spend). We dont’ really need more “pre-metrics”.

The problem is that New Media is still thinking like Old Media — how big is the audience? I though this was supposed to be the end of mass media. What happened to community? It feels like 1999 all over again with online media — with the exception of search — failing to live up to the promise of measureability and accountability.

I guess when your only business model is to get bought by an Old Media company, Old Media audience metrics matter a lot.

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It’s so entertaining to watch technology-driven New Media stumble over the same problems that have long been a struggle for Old Media. Technology has empowered people to create media, but it hasn’t really made them all that innovative on the business side. Ze Frank and Rocketboom are like the Mini Mes of Television, squabbling over ratings.

And let’s not forget poor Digg, who probably would have been acquired by now if any of the old media companies (like News Corp) believed their traffic stats.

Scoble is right that we DESPERATELY need some new media metrics. New Media folks may be ahead of the curve on formats and hip notions like “conversation,” but they’re actually playing catch-up on the deep, intractable problems of media — like how to prove the value.

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If individuals can bypass traditional media and connect directly with a community of common interest, why can’t brands do the same with their customers? Well, they are (via Search Engine Journal):

A growing number of Louisville businesses are turning to the social-networking Web site MySpace.com to connect with customers, promote events and, ultimately, make money.

Taverns, clothing stores and gift shops — many of them independently owned — are creating virtual profiles of themselves on the site as an informal approach to free online advertising. For Peter Berkowitz, owner of Old Louisville Coffee House, the effort was so successful that he abandoned his traditional Web site in favor of MySpace.

I’ve written before about the challenge MySpace faces in getting companies to pay for what individuals can get for free, i.e. a MySpace page. But really all of media — including the newly adopted software industry — faces the same problem. In fact, small businesses connecting with customers directly sounds like a challenge to Google as well.

Despite massive innovation on the content side (what used to be called “editorial”) — blogs, MySpace, YouTube, Flickr, Digg, search — there’s only been one real innovation on the old “business” side — pay-per-click text ads. But even search advertising is based on companies paying to ride along with a content provider (search results) to deliver a commercial message — sure it’s more relevant, but it’s still paying a big media company to deliver the message. Search ads can lead people to useful information or “meaningful brand experiences,” but when you push the new media revolution to its logical conclusion, you get companies setting up their own identities on the network (in this case MySpace) for free, empowered just like everyone else.

Sure, companies paying to advertise isn’t going to go away anytime soon — old habits die hard, and the network isn’t nearly efficient enough yet. But if brands drink enough of the Kool-Aid new media is serving, they may start to realize that self-empowerment is indeed liberating — and much more cost effective.

Or to put it another way, if it’s all about “conversation,” then why play a game of telephone by putting a media company between you and your customers?

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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.”

“Increased competition & measurement” is one explanation, but there’s also this (familiar) explanation:

Neither Merrill Lynch nor TNS have explained why this is happening, but other economists, including GroupM Futures Director Adam Smith have suggested that at least part of the change may be due to the increasing efficiencies of digital media, which may be taking pressure off overall media inflation, especially in the traditional media, as marketers begin shifting budgets to lower priced online inventory.

The “increasing efficiencies of digital media” — indeed. As I pondered back in April:

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?

Andy Kessler has an explanation for this phenomenon in the second installment of his must-read Media 2.Uh-Oh series (via Paul Kedrosky):

My definition is quite simple: Media is about control of a pipe.

But therein lies the problem. Senator Ted Stevens notwithstanding, the way the Internet is architected, there ain’t no pipes to control. No “end to end” pipes anyway.

But what about Web 2.0 and the second coming of the Internet, with its $1.65 billion all-stock acquisitions? Or Andy says:

Hey, how about Web 2.0? How about it – APIs, mashups, user content, hyperlinks, Mentos. Oooooh! Co-o-o-ool. We can just simulate a pipe. Google did it, right? $10 billion in ads. Yeah maybe. But without a pipe, is their platform precarioius?

Precarious indeed.

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.

I’m intrigued by Andy’s suggestion that Google may lose control of its “simulated pipe” and thereby lose control of its profits. Already, Google can’t control the exploitation of its “pipe.”

Why did Google buy YouTube? Because they have to own it to control it, and they need to control it in order to monetize it. But on YouTube and other user-driven content platforms, the users control the network. If they don’t like the ads or other commercialization, they will just jump to another node in the network — or jump to another network.

Think of it like this:

Pipe = one way in and one way out

Network = infinite nodes, infinite entry and exit points

Why does everyone assume that MySpace and YouTube will eventually be wildly profitable? Because in the past, no who controlled that much attention failed to make money. The problem is that MySpace and YouTube don’t control anything. They are networks, not pipes. Many ways in, many ways out, many alternatives. Even worse (from a media economics standpoint), they are networks within networks (within networks).

No control, no profit.

Ceding control to consumers was the dominant theme of the Association of National Advertisers conference — but if consumers are in control of your brand, the best way to increase sales is not by advertising in the traditional sense, but by making better products and providing better service.

As far as I can see, Google is the only media company that has successfully profited from the new network paradigm, and only through the herculean effort of controlling the network (fighting search engine spam, click fraud, arbitrage, etc.).

You can feel good about the loss of media control, if that suits your ideological sensibility, but I’m still not seeing the scalable business models.

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What pains me about such “strategy decay” (as Umair would put it) is that it doesn’t have to be this way. All MySpace needs to do is look at the central driver of its own success — letting users create their own spaces. So having a bunch of editors create a one-size-fits-all printed “space” is running full tilt in the opposite direction.

Instead, why not create a publishing tool that lets MySpace users convert their pages and their friends’ pages into a print publication? The tool could generate PDF files that users could print out on their own — OR, MySpace could pursue some actual innovation, in the area of cheap, print-on-demand technology, which might allow groups of friends to create magazines that MySpace would print and mail to them — instead of that one-size-fits all magazine that nobody will want because its so diametrically opposed to what MySpace is all about.

Assuming that MySpace can enable the publication of magazines that users actually want to read (because they created them), what about the business model? Well, MySpace could charge users to print their custom magazines, but I’m not sure if being a printing press is such a great business (unless MySpace really innovates on the print-on-demand front). MySpace could certainly sell ad space that is automatically inserted into each custom publication — which rationalizes how the users are able to get them for free — same deal as all other free Web 2.0 services. OR — MySpace could sell advertisers into an ad page pool and then let the USERS choose which ads to put in their publications. Such user placement would be a great implied endorsement to friends who read each other’s custom publications. Even better, give users tools to create their own ads for brands they use.

Of course, there’s the problem of MySpace having no control over the content that their advertisers appear next to, which might put the same cramp in their print ad sales as it has in their web ad sales. Then there’s the question of why bother with print at all when digital media is so much more of an efficient, flexible and networked form of custom publishing.

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According to a recent survey, New Media still has a long way to go to earn the public’s trust, at least in the UK:

Respondents were asked what percentage of the information they received from various sources they believed to be accurate, true and unbiased.

Around 66% said national television was the most accurate and was trusted as highly as family and friends.

National, regional and local newspapers were chosen by 63% of respondents, and radio was chosen by 55%.

Only 36% of respondents rated websites and 24% rated blogs.

AdAge has related stats for the US:

According to Jupiter Research, 7% of American adults write blogs and 22% read them; about 8% listen to podcasts and 5% use RSS feeds. According to a separate study by WorkPlace Print Media, 88% of the at-work audience doesn’t even know what RSS is.

and

While higher numbers of preteens and teens do flock to the web, according to a study by Frank N. Magid Associates, 66% claim they never watch video online and 41% never listen to or download free music online. When it comes to paid content, 84% have never paid to watch or download video and 71% never pay to listen to or download music. Sixty-nine percent never use social-networking sites, 71% have never posted a comment on a blog and 79% have never written their own blogs (though 15% do so frequently).

and

Only 1% of the country’s 210 million mobile-phone subscribers said they choose service providers based on entertainment options, according to Jupiter Research, despite networks’ best mobisode-creation efforts.

While such data should temper some of the hype, my guess is we’re still just seeing the tip of the iceberg. 7% of American adults writing blogs is actually pretty astonishing — I’m surprised that 7% of adults write ANYTHING on a regular basis. And 22% reading blogs is pretty darn good for a form of publishing that did really exist before five or so years ago. USA Today tries to use “disappointing” first weekend ticket sales for Snakes on a Plane to debunk the power of online buzz — but come on, it was a move about SNAKES ON A PLANE — how many people are really going to go see it? And the online discussion actually influenced the production of the movie!

So New Media is indeed a force to be reckoned with and will eventually take a huge share of attention from Old Media. But Old Media will persist. Radio didn’t kill print. TV didn’t kill radio. And cable didn’t kill broadcast. The shape of media will change in ways that we are only beginning to imagine.

I’ll end with some praise for a New Old Media venture — 8020 Publishing, which aims to publish, of all things, print magazines.

Here at JPG HQ, we’re web critters. Collectively, we’ve got over 40 years experience building websites. In the good ol’ days, when the web was new, it was fun to imagine a future full of screens and pixels and not a trace of paper to be found.

But something funny happened on the way to the all-digital future. Paper didn’t go away. In fact, to those of use who live and breathe the web, paper became more interesting, not less. More exotic, emotional, and real.

Don’t get us wrong, we know that the internet changed everything. But it was a mistake to think that just because this funky new medium was good at some things, that it would be good at everything.

Here at 8020, we’re embracing each medium for what it’s good at. The web is an unparalleled invention that allows far-flung people to find each other, have conversations, and sometimes, when you’re very lucky, form communities. But it’s ephemeral: Just try to find that cool website from last year, or even that interesting NY Times story from last week. The web self-mulches at an ever-increasing pace.

Print is difficult. It’s cumbersome and expensive. Highly impractical. But it’s also archival, beautiful, and emotive. Print can be intimate in a way the web never can. Print is part of real life. It’s there with you in the cafe, the restaurant, the bathroom. You can lose yourself in a story in print more than you can on a screen.

Having worked with editors and journalists who believe passionately in print as an art form, I have deep respect for what 8020 is trying to do. If they can find a way to make money and keep making money as web-savvy print publishers, then more power to them.

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What does Microsoft do when it says “we have the most blogs?” Or, when it says really ANYTHING about its Internet services?

It takes them to advertisers and says “pony up, we know you paid MySpace ‘XXX’ and we have the most now, so we want ‘XXX+y’.” See, the little game we’re all playing in this Web 2.0 world is advertising.

The other little dirty secret of advertising? Not all readers are the same. Unfortunately if you’re an A List blogger it’s egotistical (and elitist) to point that out. Since Dare pulled out the ad hominem card already might as well slap this elephant in the ass and make it sing!

Quick. Is Jeff Jarvis worth more or less to an advertiser than this guy? Or this? Or this?

Donna Bogatin wisely drills down on the issue of metrics:

Scoble may have pulled off the covers of Windows Live Spaces metrics, but, at the same time, puts forth advertising metrics related assertions about Google, MSN, Federated Media…that may need to be “audited” as well.

Donna proceeds to quote some available audience metrics from MSN and Federated Media, but it’s all Old Media-style demographics.

Regardless of whether Scoble is right about the definition of a blog, I do think he pointed to the elephant in the room, and what blows my mind is that it’s such a qualitative elephant — is Windows Live Spaces more “valuable” to advertisers if it’s defined as a “blogging” service? Are influential bloggers of higher “perceived” value to advertisers?

Is this 1.0 all over again? Where are the ROI metrics? Do bloggers vs. non-bloggers (if such a distinction exists) drive higher clickthrough rates? Do A-List bloggers drive higher clickthrough rates? If it’s about “branding” and not direct response, then what are the metrics? Are brands that are advertised on blogs or A-List blogs seeing a bump in brand perception metrics? Are they more likely to be discussed on other blogs? Do they SELL MORE STUFF?

For decades, Old Media has been selling the value of media and audience based on smoke-and-mirrors perceptions rather than any quantifiable ROI metrics. Search marketing, which actually has some workable ROI metrics, gave a good kick in the head to that old model, but apparently it’s still alive and kicking.

So my advice to the emerging blog media moguls — get better metrics! If it’s all about influence and buzz, then find a way to quantify it. Companies like Nielsen Buzzmetrics are trying to inject some metrics into this space — it’s not like people aren’t working on this.

But whatever you do, please don’t run back into the squishy quicksand of Old Media value propositions.

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What I found most fascinating is the traffic trend chart that Nick posted:

If you look at the growth in Gawker’s most successful sites, you’ll see that what sells in new media is what has always sold in media:

1. Porn – Fleshbot (NOT work safe)
2. Gossip – Gawker, Defamer
3. Sports – Deadspin
4. Games – Kotaku

Gizdmodo represents a relatively new category that was underserved in mainstream media — gadgets for geeks.

The two sites that Gawker is selling, Sploid and Screenhead, were also attempts to go after established media niches — supermarket tabloids and Boing Boing.

With all the talk of revolution, it’s amazing how little new there is in the media galaxy. David Carr writing about the Gawker restructuring in the Times observes:

But the whole digital veneer masks a bit of a media traditionalist. His sites are arrayed over very common contemporary interests — celebrity, pornography, sports, Hollywood — that would not be out of place in mass magazines (a dead-tree medium, by the way, that he believes is far from dead). He thinks all of the bluster around blogs, fueled in part by AOL’s purchase of Weblogs, has brought stupid money off the sidelines. He has felt the touch of clammy hands from venture capitalists more times than he would care to count.

Mathew Ingram makes a similar observation:

In many ways, Denton’s Gawker.com stable — much like Jason Calacanis’s very similar Weblogs Inc., now owned by AOL — are more like traditional magazines than they are like blogs. They have short items posted regularly, just like blogs, and they often have personality and a point of view just like blogs, but many of them don’t accept comments (Valleywag makes you apply to be a member who can comment) and don’t really have a sense of community about them.

I’m not saying any of that is bad — I’m just saying they are very much like magazines, and magazines need to be ruthlessly managed and pruned. And as Nick points out, online magazines are even more vulnerable than the print kind. “The barrier to entry in Internet media is low,” he said. “The barrier to success is high.”

Nick himself talks about the realities of advertisng that old media companies have face for decades:

First, advertising is a fickle thing. Particularly the entertainment advertising upon which so many websites depend. A change in the advertising industry’s conventional wisdom, cutbacks by the studios: it wouldn’t take much to prick the current exuberance. Better to sober up now, before the end of the party.

I wrote a while back about the bubble in media — add this to the mounting evidence.

Nick concurs: “There is no doubt that there is a bubble right now,” he said.

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Think of this way… what if “American Idol” had been produced solely by the capabilities of the contestants themselves, without the expertise and talent of the show’s producers, directors, writers, etc. As talented and entertaining as the contestants are, the resulting production quality, the level of emotional engagement, viewership/ratings and monetization potential of the full package would likely be far inferior to what we all see on the air today. Well, social networks should be seen in a similar way… people want to express themselves and the platforms that allow them to do so with the most creativity and production value, are the ones that people will flock to.

There are two huge problems here:

1. What if people don’t care about production values (and other such Old Media standards)? Look at MySpace — it has perhaps the greatest compilation of poor production values in the history of media, and yet it has 70 million users and a gazillion page views (at least for now).

2. What’s the business model? As Nick Carr points out, “American Idol works in the context of traditional television, but most self-commoditization occurs on the web itself, and even highly popular platforms, like MySpace and YouTube, have yet to prove they can turn an attractive profit.”

If the business model is “gather audience, sell advertising,” that’s not a recipe for innovation or growth, given that it’s now everyone’s recipe for growth.

All Robert is really advocating is a new — free — way to create content for the same old paid media advertising model.

But paid media advertising is on the decline.

Consider Vonage vs. Skype:

Vonage

In 2005 alone, it lost about $210.3 million, nearly quadrupling losses from the previous year. It currently has a deficit of about $467.4 million. Most of the loss stems from an aggressive marketing program that plasters the orange-and-blue Vonage logo in national TV advertisements, on Web pages and throughout print magazines.

Skype

Putting aside all debates over who pays for what and whether Skype was a smart buy for eBay, there’s no question Skype is one of the great word-of-mouth stories. As CGM goes, this is a brand that’s left an unprecedented trail of what I’d call “digital lipstick.” These love prints dot every corner and crevice of the Internet with enthusiastic, if not religious, tributes to Skype.

Vonage has nearly killed itself on the cost of paid media advertising — it’s like standing in quicksand.

Robert is right that consumers are the new medium — but unlike Old Media companies, they’re willing to deliver your message for free.

So I’ll keep asking — where’s the BUSINESS MODEL?

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This is all very old-school stuff: vaudevillian dazzle, copious applications of food and alcohol to lubricate the ad spigots, a frenzy of dealmaking primarily compressed into several days in one city. And all the more so in a TiVo’d, rapidly digitizing world. But the upfront ritual keeps chugging along, and the advertisers keep buying it. If you expect an imminent earthquake in TV spending to shake this year’s upfronts — well, stop. Even though the rites come amid a steady string of digital TV initiatives and the onward march of digital-video-recorder use, the nastiest thing people will say about the event is that dollars may drop slightly.

The media buying agencies are the self-interested hucksters:

The 30-second spot, maligned as it is, “still works, despite TiVo and clutter,” says Andy Donchin, director of national broadcast at media-buying firm Carat North America. “[Let's] stop talking about how the upfront is broken. It works for clients, it works for networks, and it works for agencies.”

“I see TV budgets holding,” says Heather MacPherson, a managing director of ad giant Ogilvy & Mather. “Most of the shift [to the Web] is coming out of print.”

And advertisers are their suckers:

“Overall, we are thinking flat,” says Betsy Lazar, who as executive director of advertising and marketing operations for General Motors (GM ) oversees one of the nation’s largest ad budgets.

The online ad market may be poised to swell impressively this year (Merrill Lynch (MER ) analyst Lauren Fine — no relation — just upped her estimate for Internet ad spending this year, saying it will rise 28.7%, to $16.2 billion), but it remains a fraction of the $53.9 billion total that advertisers spent on TV last year, according to TNS Media Intelligence.

A recent Arbitron media study found that “40 percent of Americans, forced to choose, would ditch their television in favor of the Internet.”

And as Fine observes:

Clear threats to its effectiveness continue to multiply. Even media-buying executives who vigorously defend it nonetheless say a TiVo-led implosion is coming, in as soon as two to five years. But when so many people who control the purse strings continue to extol the virtues of TV advertising, it makes you wonder.

There’s no need to wonder — this isn’t about advertising effectiveness and increasing sales. This is about pure economic self-interest and a willingness to go to any lengths to convince everyone in the room that the emperor still has clothes on.

The only hope is that shareholders at some of the major corporate advertisers start to wake up and ask why so much money is being dumped into a medium that fewer people are watching, that is more and more subject to technology-enable ad skipping, and that has never, in any case, been able to measure effectiveness or any economic return whatsoever.

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But as advertisers enter each bid, they will see an estimate of how many clicks they will receive each day. More important, a graph will show how many more clicks they can expect for each increased bid.

“One of the primary complaints we get is users can’t explain to their bosses what they could get for spending the next $1,000,” said Steve Mitgang, the Yahoo senior vice president who oversaw the development of Project Panama. “Now they can take this to their bosses to justify spending more.”

While Yahoo, Google, and Microsoft pour millions of dollars into perfecting search advertising efficiency, TV, magazines, and other old media dream up ways to scam advertisers into believing that old advertising models can still “work” — as if there were ever any real evidence that they did work.

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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.

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Web 2.0 is still in the wrangling over terminology phase — especially over Web 2.0 itself. Recently, there’s been some debate about term “consumer-generated content,” started by Derek Powazek, who argued:

Calling the beautiful, amazing, brilliant things people create online “user-generated content” is like sliding up to your lady, putting your arm around her and whispering, “Hey baby, let’s have intercourse.”

So let’s not give in to the buzzphrase du jour. Let’s use the real words. Those people posting to Amazon pages? They’re writing reviews. Those folks on Flickr? They’re making photographs. And if we must have an umbrella term to describe the whole shebang, I have a suggestion. Try this on for size: Authentic Media.

Scott Rosenberg pushed back:

Well, I’m sorry, but “authentic media” is a problem, too. For one thing, it’s oxymoronic: “media” refers to the middle-man, yet this stuff is ostensibly authentic because it cuts out the middleman — as Derek suggests when he says, “Authentic media is what happens when the mediators get out of the way.” Furthermore, if “user-generated content” carries a whiff of contempt for unwashed amateur contributors, then “authentic media” is vaguely discourteous to those of us in the other, older-fashioned media who still aspire to some level of authenticity ourselves, and believe that it might be attainable, even if we don’t always achieve it. The label a priori rules out that possibility.

Ah, that’s the problem with language — never as simple as it seems. You try to fix one problem and you cause another. There is no such thing as “real words” — all language is fraught with issues, as Orwell would tell you. Tim O’Reilly may not have intended the term “Web 2.0″ to fuel the next generation of internet hype, but that’s what many people have done with the term.

“User-generated content” may not be the friendliest term, but it’s reasonably accurate and descriptive, and I’d rather be stuck with that than something more problematic and obfuscating like “authentic media.”

Take “blog” as another example — “web log” software is simply a publishing platform — an easy-to-use content management system — but it has come to connote an iconoclastic, power-to-the-little-guy ethos. On the face of it, I don’t like the word “blog” because of its unfortunate onomatopoeia.

What are you doing? Blogging. Okay, but please clean it up when you’re done.

The real problem I have with the term “blog” is that everyone from stodgy old corporations to stodgy Old Media has adopted “blogging” to try to tap into that “hip” ethos — call it blogging and suddenly it’s supposed to be more than mere publishing or PR.

The problem is, it’s not.

In the case of Old Media publishers, the problem stems from their print publishing mindset. Take the New York Times’ wine critic Eric Asimov — he publishes “articles” in the print paper that also appear online. Then he has a “blog” called The Pour.

So what’s the difference between Asimov’s “articles” and his “blog posts,” especially where they appear online? Well, you can’t comment on or trackback to the articles, but that difference is purely artificial. Asimov is more informal in his blog posts, as you would expect, but again, that is an artificial difference.

Now image that the Times were entirely digital (if only) — all of Asimov’s content would be comment and trackback enabled, it would all be accessible in one place, some of it would be long and in-depth and some would short and more informal, but in the end, it would all be the Times publishing Asimov. No need to call this an “article” and that a “blog post.”

News.com, not surprisingly, gets it right by making all of its content trackback and comment enabled — but they don’t need to use the term blog as an excuse to make the content interactive (or “Web 2.0″). There’s no “interactive media” over here and “dead tree” media shoved online over there.

Now I realize the term “blog” is probably here to stay, and it’s useful in that we all know (generally) what we’re talking about when we say something is a blog.

But I think online content would evolve and “converge” a lot faster if we just saw it all as a “digital publishing.”

Or Publishing 2.0, if you will…

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The generic term for this movement, especially among the hundreds of new companies jamming the waiting rooms of venture-capital offices, is Web 2.0, but that’s misleading—some supposedly Web 1.0 companies like eBay and Google have been clueful about this all along. A more fitting description comes from Mary Hodder, the CEO of a social-video-sharing start-up called Dabble. (Since Dabble has not yet launched, I can’t explain exactly what that means.) “This is the live Web,” she says.

The article’s themes were somehow very familiar:

Got a lot of free time? You’re going to need it to enjoy the fruits of Silicon Valley’s latest labors: start-ups that want you to spend even more of your life online.

Kind of reminds me of Who Has Time for Web 2.0?

Then there’s Nesweek’s interactive quiz How Geeky Are You?
which sorta makes me think of You Know You’re a Geek If You…

Suddenly mainstream media feels like the echo chamber, doesn’t it?

I took the geek quiz, which was absurdly long at 20 questions, all of which were loaded — four “geek” answers and one generic “non-geek answer”:

If you were stranded on a desert island, which novel would you prefer to take with you?

The Lord of the Rings
Neuromancer
Starship Troopers
Snow Crash
The Bridges of Madison County

I scored a 46 on the 60 point scale. Here’s how I “compare” to Newsweek readers:

0 to 29: Stuck in the Last Century — 46%

30 to 60: Heading to Geekdom — 48%

61 and up: Seriously Nerdy — 6%

I’d be willing to bet that the 6% who scored “Seriously Nerdy” are all regular readers of tech.memeorandum, where of course the Newsweek article is at the top of the chart.

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Carl D. Haugen, president of BluePenguin Software, spent $3,000 on an ad through Google, which ran in the November issue of Budget Living magazine. Haugen offered a 20% discount on its antispyware software to Budget Living readers, so he could better track the ad’s performance. Over one month later, the ad had only generated $181.37 in sales, says Haugen.

The reason for this failure is simple: print is NOT a direct response medium — print advertising CANNOT function with the same closed-loop ROI efficiency as Google’s online Ad Words program.

This is, of course, more disastrous news for the print publishing industry, but that’s an old story at this point.

What interests me is how this impacts Google’s offline growth prospects specifically and the future of advertising generally — that’s because Google’s offline growth is pegged to a complete reinvention of advertising. This is from an Adweek article (sub required) about Google’s ambitions for advertising:

In the company’s view, it’s not just the less-than-accurate targeting, the kludgy buying process and the fuzzy analytics of most current advertising models that leave much to be desired; it’s how marketers go about allocating their money, prebudgeting way too far in advance and making decisions that aren’t necessarily based on ROI.

To work at Google is to dream big. So this isn’t just about refining current models, it’s about the whole enchilada. “In our minds, there really isn’t a difference between online and offline,” says Tim Armstrong, vp, advertising sales.

Transforming advertising into an efficient, disciplined, profitable practice is both right and inevitable. But given the that offline advertising, from an ROI perspective, is still in the dark ages, the real question is how long will this take:

Armstrong, like Sorrell, knows the gap between advertising as it exists today and advertising as Google imagines it is big, by any measure. “We clearly see this as a 10- or 20-year business,” he says of Google’s hopes for helping transform the industry.

That’s a refreshingly realistic assessment, but one that doesn’t bode well for Google’s PE ratio, at least so long as they stake their near-term growth on advertising. Google took the right approach to print advertising, trying to bring market efficiency and accountability to the system. But the medium itself is so broken that Google was bound to fail.

As media and advertising stumble down the road to an all-digital future, Google is as well positioned as anyone to win, but it may take longer than investors are willing to wait.

The Adweek article made an interesting comparison between Google and WPP Group, one of the big ad agency comglomerates:

At a summit earlier this month sponsored by WPP Group search firm Outrider, WPP CEO Sir Martin Sorrell rattled off a downbeat, side-by-side comparison of his holding company and Google. With $6 billion in revenue and 5,700 employees, Google had a market cap, even after some recent declines, of about $100 billion, he estimated. “Poor little WPP,” he said, with its 17,000 employees and its $9.8 billion in revenue, having a market cap of $15 billion. “The market is saying something about our model, and it’s a little bit depressing,” he concluded.

The market was right in this assessment when Google’s growth was driven by its success in revolutionizing online advertising. As Google looks offline for its next wave of advertising-driven growth, it’s coming face to face with the “depressing” model of traditional advertising and the long, hard slog of transformation.

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As a Media institution, Scripting News has an identity of its own, which could, in theory, be perpetuated even after Dave has left the scene.

It’s an odd comparison, but this is reminiscent of Ana Marie Cox leaving Wonkette. At the time, I observed:

Blogging and citizen journalism is undoubtedly a revolution, but (capitalized) Media, AKA the Institution, is still greater than the (lowercase) individual.

But why is this so? Weren’t blogs supposed to be the antidote to institutionalized media?

It’s because Wonkette became a brand and a community. So it’s still Wonkette even without the wonkette. More importantly, as a successful brand, Wonkette became a successful business, and it’s still a business without Ana Marie. (Why didn’t Lat go back under the robes? Because Wonkette is a better brand, and a better business.)

This theory of the ontology of blogging, stated simply, is:

Blogs are PUBLICATIONS whose brand identity exists separately from the “publisher” (i.e. the blogger).

Under this theory, the blog phenomenon represents an explosion in micro-publishing, but blogs still live and die by many of the same rules as Old Media publications. Which is why the “gatekeeper” debate has eaten up so much bandwidth — just because you publish, doesn’t mean you will be read.

The counter-theory to blogs as media institutions is that blogs are “cults of personality,” i.e. Scripting News is Dave Winer, and thus has no value without him.

I think the reality is somewhere in the middle. Most blog brands are developed through strong personality and distinctive voice, but once established, they take on a life of their own.

If Dave abandoned Scripting News and started a new blog with a new name, would it be fundamentally different from Scripting News, even if it was still Dave? I think the answer is yes.

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If it’s the never-ending blogger conversation about snarking, A-Listers, link baiting, traffic envy, ego bashing, etc. etc. then the point is to act like an algae bloom and block out the sun — witness tech.memeorandum today (it’s a Sunday).

But what about the about the “meaningful” conversations that the blogosphere strives to have on normal working days? I’ve been involved in many thought-provoking conversations, most of which seem to peter out right when they started to get interesting. That’s the way the ever-rushing, every-churning blogosphere works. There’s always new news to read and new posts to write.

Blog conversations remind me a lot of conferences and committee meetings — lot’s of great conversation and discussion, and maybe some promising ideas, but little if any synthesis, summary, or follow-up.

I’m NOT saying that conversational media isn’t an innovation — it’s a HUGE leap forward from uni-directional Old Media. But “conversation” feels like half the process — there needs to be SYNTHESIS (as I’ve tried in the past to articulate).

You can see the problem in this week’s BusinessWeek, which published in its print edition a roundup of the blogosphere’s responses to the previous week’s cover story.

First, let me say this was a hugely innovative step to take, and kudos to BW for trying to bridge to gap. But it also illustrates the problem with conversation as an end in itself.

I think the mistake BusinessWeek made was not to allow the author of the original cover story to respond to the criticism in the print edition’s “conversation roundup” — instead, it comes off as a he said/she said. Worse, some of the comments are examples of the substance-less accusations and personal attacks that you often see in the unedited, unmoderated blogosphere.

For example:

Seeing that Mike Mandel and Chris Farrell are two of the authors goes a long way in understanding what it’s about…. Both of these guys are so far out of touch with Main Street — one of these days some laid-off worker is going to give both of them a wedgie. –Tim Iacono, commenting on bigpicture.typepad.com

This type of personal attack is par for the course in the blogosphere (see the snarkfest in the memeorandum link above).

The theory is clearly delusional bubble thinking, but it’s so new that economists haven’t had time to assimilate it and show exactly why it’s delusional bubble thinking. –Walt Pohl, commenting on delong.typepad.com

Thanks, that’s really helpful. I guess if you’re going to throw open the gates to the kingdom, you have to let EVERYONE in, including those whose comments just raise the noise-to-signal ratio.

But it would be worth it if Michael Mandel had the opportunity to take on the substantive responses, like:

The notion of using intangibles to calculate GDP has been around for some time. And most economists believe it is a bad idea because such numbers are inherently unreliable. They are intangibles — unknowns. To allow subjective analysis to seep into our GDP statistics would be, in effect, to Enron-ize the national account. –Gal Beckerman, www.cjrdaily.org

and

I don’t see how it matters who the debt is to, if the money is well spent. If the education spending is worthwhile (which it may not be, of course), then the U.S. should welcome Chinese investments into our education. The fact that the individual getting the education has to pay back some of their future earnings to Chinese creditors, as opposed to American creditors, won’t really matter to them. –Joseph Weisenthal, www.thestalwart.com

Of course, Michael Mandel engages deeply in the conversation on his excellent BW blog, which sits alongside BW’s other excellent blogs. And for the record, I think BW is one of the Old Media brands that has gone most fearlessly in search of Media 2.0.

But in this experiment, BW would be well-served to remember some of its Old Media principles, i.e. synthesis matters. BW enabled a great conversation, but it would have been great to see all the threads tied together. I don’t expect these issues of economic theory to be easily resolved, but after all the back and forth, as a BW reader I want to have a sense of where the debate stands.

Long before the advent of blogging and conversational media, some publications (I won’t name names) were renowned for having a robust Letters to the Editor section, where thoughtful readers responded at length to authors and authors responded thoughtfully to readers. My favorite blogs are those where the blogger responds to comments, rather than just phoning in the post and hurrying on to the next one. The best bloggers will actually write a new post to sum up or reflect on the conversation from a previous post.

Conversation is a process — but the most useful conversations also have a sense of progress and, in rare instances, a destination.

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The other day, my 2-year-old daughter observed that all of the snow from the recent East Coast storm had melted. “Go to the store and buy more snow,” she suggested.

Try as it may, Old Media can’t “buy more snow” — it needs to evolve by leveraging its two greatest assets — audience and brand. But unless Old Media embraces deep audience participation and provides its content in fully distributed, atomized, and digitized forms (and about 27 other 2.0 imperatives), Old Media brands will have as much value as melting snow to a 2-year-old: here today, gone tomorrow.

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These days, the best way to get people’s attention is not to engage consumers with a brand, but to host or facilitate a context for people to engage with one another. People don’t want to see ads; they want to see their friends. And while they’re doing so, they’ll do business as well.

and

Social engagement is the next big thing for the entire marketplace. In this age of consumer resistance, people are avoiding brands while seeking one another. Brands must shift away from the single-minded focus on engaging consumers and instead become adept at enabling people to engage with each other.

If Web 2.0 is going to make any money, it needs to pursue these new marketing paradigms and not just depend on Old Media models like selling ads — even Google AdWords feels like its Marketing 1.2 at best.

Here’s Umair Haque on Marketing 2.0:

The challenge, of course, is for geeks to understand that it’s exactly this value equation they should be disrupting, not ignoring: making marketing, branding, advertising not evil.

That they’re evil doesn’t mean you should ignore them – it means you should be destroying them and then redefining them: making them less about Madison Ave and BuzzAgent, and more about the deep 2.0 principles that in fact, are revolutionizing the deep economics of many industries – principles like peer production, gift economies, sharing, transparency, social capital, anticonsumption, and deep culture.

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The problem, as many people have stated many times, is that the more everyone participates in content creation and content interaction, the harder it is to navigate the sea of information to find what’s useful.

Google perfected the first-generation solution to information overload by using hyperlinks as “votes of value” — the more links there are to a piece of content, the more valuable and relevant it must be.

Web 2.0 has created new activities beyond linking that the “people formerly known as the audience” can use to interact with content — tagging, rating, blogging, commenting, seeding, etc. — these activities create datasets that ostensibly reflect the value of the content.

But the fundamental problem of information filtering still remains, and in fact seems to be getting worse. Matt McAlister brought this into sharp relief for me with his insightful post: What will be the next PageRank? (Matt has a couple of simple but highly useful conceptual graphics that you should check out.)

The hyperlink was a vote in the search-driven Internet. Now I’m dependent on a new currency – human action. The click is much more potent than the existence of a link. Even more potent than clicks are tags, ratings, comments and emailed URLs. A hyperlink is still a vote, but seeing some form of human action gives me much more confidence that a source has value.

So, the trick now is for content creators to figure out how to get users to act on their stuff. How do you get people to add that extra bit of value to your content that validates and then qualifies the value for other people? And then how do you expose the user-contributed value so that the right things get picked up from the right tools at the right time to reach the right people?

I think Matt has it exactly right — but there’s still a crucial element missing. It’s not just about getting ANY people to “add that extra bit of value to your content that validates and then qualifies the value for other people.” For “the right things get picked up from the right tools at the right time to reach the right people,” content creators need to get the RIGHT people to “act on their stuff.” Like Matt, I have more confidence in human action, but I have more confidence in some humans than others.

There’s an egalitarian sensibility among Web 2.0 and participatory media evangelists that says any participation is good participation. But as anyone who works in media ought to know, all audiences are not created equal. Some audiences are more valuable than others, depending on what you’re selling, what your message is, or what your objective is. That’s why you don’t see ads for Prada in Saltwater Sportsman or ads for fishing rods in Vogue.

And that’s why I find community filters like Digg and Reddit so useless. If you have a random group of people act as a filter, you’re going to get a random result. Here are some headlines pulled right off of Digg and Reddit:

DIGG
A Supernova Spectacle Begins
Mom’s Genetics Could Produce Gay Sons
Acer has its own take on video iPod due next month.
Porsche Unveils Most Powerful Non-Turbo 911in History: The 2007 911 GT3
FREE Books: Mastering AJAX
World’s First USB Powered Drink Cooler Tested

REDDIT
Autistic Basketball Player Causes Mayhem (youtube.com)
It’s just your mind that makes it dirty (programmerstools.org)
The real reason Skype isn’t as good as it was (theregister.co.uk)
Biking in the Norwegian Mountains — cool Flickr photo (flickr.com)
How To Make Circuit Boards With A Laser Printer

Here’s where I get accused of being elitist — the collective intelligence of some groups of people is more intelligent than that of other groups. Why? Because on certain topics, and in general, some people are smarter than others.

There, I’ve said it.

Yes, there are many types of intelligence, knowledge, and talent, but some people have more than others. So get over it. I can’t play basketball, which is why I can’t show up at a free city court and expect to be included in a pick-up game just because the financial cost of entry is low — I will add NO value to the other players and in fact will detract from their game experience.

If that doesn’t make the sky fall on me, how about this:

The New York Times’ audience probably has a richer and more varied collective intelligence than the audience of most Web 2.0 media sites. Or if that’s too “highbrow” and “elitist,” I’d say that USA Today’s audience can probably generate more value through participation than the random users of some Web 2.0 apps. This is more true as you get more niche — I’d trust BusinessWeek readers on business and Vogue readers on fashion. And I’d trust the readers of New Media brands, including blogs, that have established a clearly defined audience by providing them with clearly defined value.

To put it in terms of attention — and “return on attention” — not all attention provides the same return.

To be clear, I’m not saying that the people who RUN the New York Times, USA Today, BusinessWeek, Vogue or any Old Media brands are smarter — my critique points to a failing of BOTH Old Media and New Media. Old Media doesn’t understand that they need to leverage the collective intelligence of their audience. New Media doesn’t understand that WHO your audience (or users, participants, community, etc) is matters.

To put it more simply: Old Media has the audiences, but doesn’t know what to do with them. New Media knows what to do, but doesn’t have the audiences.

So what to do?

For Old Media, the answer is simple. Start engaging your audiences and leverage the value they can create.

For New Media (Web 2.0), the challenge is to figure out WHO your audience is. This is media 101. Don’t build an application just because it’s “cool.” Do some market research. Find a group of people with an unmet need that you can address. This is your audience (or your customers, users, participants, whatever). If you have any hope of making money by selling advertising, you need to know who your audience is and what their relationship to you is.

I was talking to Umair Haque yesterday, and he said that the future of media lies somewhere between Old Media and Web 2.0, and as always he’s right.

Whoever finds this middle ground between audiences and applications, between human intelligence and technology, will win the media game.

UPDATE

Pete Cashmore’s response got me thinking:

Like Scott, I find Digg useless. But that’s because it’s populist – like a tabloid newspaper, it seems to converge on the lowest common denominator. Digg users choose the “right” stories for other Digg users, but these might not be so interesting to the Memeorandum set. In fact, most of what turns up on Memeorandum is completely useless to me. Contrary to Scott’s argument, this is not because one audience is smarter than another, but because different tribes have different priorities. The answer is not to reintroduce old media hierarchies. Instead, we allow people to become their own editors through personalization.

Why does everyone distrust hierarchies so much? It may offend everyone’s egalitarian sensibilities, but some audiences ARE smarter than others about SOME things.

Pete is absolutely right about “tribes” — the problem with so much Web 2.0 activity is that it’s not focused on defining tribes and, more importantly, defining those tribes’ NEEDS. Most Web 2.0 apps are one-size-fits-all. They don’t define a distinct value proposition for a distinct tribe — if they did, the participation of that tribe would be hugely valuable for members of the tribe. Instead, you get random participation by random people who are curious in a random geeky sort of way.

Memetrackers are a great example of this problem. Instead of building the same app over and over for no one in particular, what they should be doing is something like CarSpace. The lesson of MySpace is not to go off and create a direct competitor to MySpace, but to use that approach to define a value proposition for a distinct group of people — in this case, people who dig cars.

I’ll play the usual ghost of media past role and point out that a “tribe” is what Old Media calls a “niche audience.” It used to be that niche media just pushed out information of common interest to its niche audience. Now that the audience can participate, it can create huge value on the topic that it knows best.

But first you need to DEFINE the audience, user group, niche, tribe, community — choose your own term, it doesn’t matter.

What I can guarantee you is that the readers of Saltwater Sportsman know MORE about fishing rods than the readers of Vogue, and vice versa about handbags. Hierarchies of knowledge DO exist — instead of denying it, try leveraging it.

UPDATE #2
Pete Cashmore responded to my previous Update and took the thinking an interesting step forward:

Digg users know very little about the stories they vote for, but they do seem to pick stories that other Digg users will like. This is an affinity group, rather than a group with “knowledge” of any topic in particular. Yes, there’s often a correlation between being knowledgable about a topic and making good editorial choices, but not always. (And I define good editorial choices as “what your audience wants to read”, rather than “what your audience should be reading”. It’s descriptive, rather than prescriptive).

Here, I think, is a critical issue. Is the objective of filtering to find what you WANT or what you NEED? Fox News, for example, has mastered the art of giving people what they WANT. If building a better echo chamber is the objective, then the Digg model works well.

Pete also writes:

But I think Scott’s argument becomes muddled when he says that one audience is “smarter” or “better” than another.

and

These are still half-formed thoughts, but I think the question I’m trying to ask is: instead of stating what the tribes should be from the outset (”building verticals”), could we let the tribes evolve on their own?

From that perspective, the Digg audience is defined by the group of geeky people who think that the app is cool and that the eclectic, geeky results it produces are cool — and they have become BETTER than other groups at producing those results.

So Pete is right that tribes can evolve on their own, but I’m not sure that is the best approach from a business standpoint. It’s still very technology-centric to build an app and let it lead people where they may. It’s more people-centric to realize that most affinity groups or tribes form around specific topics, interests, or objectives, and these affinity groups aren’t necessarily served well by the same app.

Take StarStyle — here’s an app that fills a need for a specific affinity group — people who want to dress like the stars they see in movies and TV. (Via Umair.) These people didn’t need a Web 2.0 app to help them realize that they want their fashion to reflect the most popular trends. Someone identified this need and built something for them.

Pete also writes:

Helping affinity groups to find each other by building verticals (eg. Carspace) is certainly a good route, but what happens if my interests span multiple tribes? Instead of a one-size-fits-all “Memeorandum for widgets”, wouldn’t a widget enthusiast prefer a personalized memetracker that acknowledges both his love of widgets and his interest in foo?

But isn’t the idea of personalized memetracker moving away from community? And why does my media solution have to be all in one place? My life and my social connections don’t exist all in one place. I don’t have everyone I know over for dinner all at once, and I don’t expect my doctor to be my lawyer. There’s a reason why the niche strategy worked so well in Old Media — technology has made media MUCH more flexible, but people haven’t changed.

Pete ends by saying we should focus on both people and technology, and he’s right. I just think Web 2.0 needs to shift its center of gravity more towards people.

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