Online: Welcome to 1981 and 2018

January 8, 2018

I have been thinking about online. I met with a long-time friend and owner of a consumer-centric Web site. For many years (since 1993, in fact), the site grew and generated a solid stream of revenue.

At lunch, the site owner told me that in the last three years, the revenue was falling. As I listened to this sharp businessperson, I realized that his site had shifted from ads which he and his partners sold to ads provided by automated systems.

From direct control to the ease of automated ad provision created the current predicament: Falling revenue. At the same time, the mechanisms for selling ads directly evolved as well. The shift from many industry events to a handful of large business sector conferences took place. There were more potential customers at these shows, but the attendance shifted from hands-on marketers to people who wanted to make use of online automated sales and marketing systems began to dominate.

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He said, “In the good old days of 1996, I could go to a trade show and meet people who made advertising and marketing decisions based on experience with print and TV advertising, dealer promotions, and ideas.”

“Now,” he continued, “I meet smart people who want to use methods which rely on automated advertising. When I talk about buying an ad on our site or sponsoring a section of our content, the new generation look at me like I’m crazy. What’s that?”

I listened. What could I say.

The good, old days maybe never existed.

I read “Facebook and Google Are Free. They Shouldn’t Be.” The write up has a simple premise: Users should pay for information.

I am not certain if the write up realizes that paying for online information was the only way to generate revenue from digital content in the past. I know that partners in law firms realize that running queries on LexisNexis and Westlaw have to allocate cash to pay for the digital information about laws, decisions, and cases. For the technical information in Chemical Abstracts, researchers and chemists have to pay as well. Financial data for traders costs money as well.

I highlighted this passage in the article:

The [advertising based’] business model does not reward a more informed readership or a more productive political dialogue — it rewards clicks and views, however they are generated.

Let’s assume that the argument in the article is accurate. How does this related to the plight of my friend with the content-rich Web site which is struggling for advertising revenue?

From my point of view, three forces are in play:

  1. In order to cover the costs on online content, a great deal of revenue is needed. Consumer users balk at paying for online content. Thus, successful online content services like LexisNexis have to be sold at a premium to a niche market; that is, lawyers who have to buy the information. This “nice to have” versus “have to have” is what created the online advertising model which I associate with GoTo.com.
  2. Paying for individual online services like Chemical Abstracts requires expertise. ChemAbs is the dead opposite of a Google-style “personalized” search. Pizza is easier than perchlorate nanometal structures. When a person says to me, “I am a good Google or Yandex searcher,” I know that’s not true. Knowledge of search, even among recent graduates of library schools, is sketchy in my experience. Search means letting the system think for the searcher. Searching a for fee service requires that one know what’s needed, how to identify what’s germane, and how to verify that the information is perceived as “accurate.”
  3. Consumer services are now shifting to walled gardens. Google is making Chrome a vehicle for Google products and services. This trend was evident when I wrote “The Google Legacy.” However, the modern walled garden will use payment to allow an individual to enter the garden. Then, once in the garden the user will be tracked, analyzed, and converted into an ad revenue generator. The new world is going to be different from the “old” 1980 model.

For me, the existing niche online services will continue to struggle to generate revenue and, therefore, cover their content costs and other expenses.

For the emerging walled garden services, the model will be more like Disneyland’s with high parking fees, long wait times, and over priced extras on offer within a total advertising experience. I don’t think those who pay to use a Facebook-type service will notice or if they do notice, care too much. The “experience” is the thing today.

I think the 1980s “pay to access” model will come roaring back. But it will not be the same.

Online has been commoditized or democratized. Once one had to be trained to look up something online. Not now. A device in the home listens and delivers the “answer.” Soon that answer will come with ads. No one will care in my opinion.

Relevance has largely become some archaic notion mouthed by the equivalent of a grunting pre-historic hominid like me. Most people don’t know relevance from having a mobile phone display a map with a pizza joint and a gas station identified.

Advertising has shifted from a mostly personal experience to an automated impersonal experienced wrapped in faux personalization. You are in a cluster, baby. The system does not know “you.”

What about my friend’s online service? Realistically it can limp along, but it will not grow and generate growing revenues. What about existing niche, for fee online services? I think these will become cost pits for their owners who will have to embrace the Google-style online advertising approach, create the equivalent of memberships which pay annual fees to “play online.” What about new online products and survives? These will come and go, but i think they will have a life cycle similar to the drug markets on the Dark Web. There will be a surge of interest from those who “need” the information and then a lurch toward a newer service. The existing services struggle to survive.

Am I optimistic about making money from online products and services?

The is, “It depends.”

That’s why we are heading back to the 1980s when three or four large companies controlled the fate of the commercial database companies.

In a sense, online has never changed.

Stephen E Arnold, January 8, 2018

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