The Web, Blogs, and the Reed Effect
May 31, 2011
There was a blip in the blogosphere about the infusion of capital into the big, firm information arteries of GigaOm, founded by Om Malik. Even the trend tracking Mashable covered the story in “Tech Blog GigaOM Shifts Focus to Premium Content.”
The money apparently flowed from Reed Elsevier Ventures with some other investors betting on the blog news and analysis service. The founder added some cash to the pot as did Alloy Ventures. The funding flies in the face of the well received of the Business Insider’s link to a presentation about how traditional media companies can behave more like start ups.
Traditional professional publishers push prices to the peak of Mount Tolerance. As long as revenues do not decline, the number of customers is irrelevant. Remember the concept of elasticity in pricing from Econ 100?
This is an interesting development for three reasons:
First, although the Huffington Post hit the jackpot, the GigaOM investment is suggestive. What I see is that the GigaOM content play is interesting, but not yet at the Huffington Post level. Investors hope to reach that benchmark in money magnetism so outfits like AOL will acquire GigaOM for an even more juicy pay day.
Second, the shift signals more trouble for the advertiser supported model of publishing. Google Adsense seems to be losing some steam, and the costs of pitching vendors to support a blog is expensive and time consuming. With more cash, GigaOM can follow in the footsteps of more traditional publishing, consulting, and analysis businesses. Get subscribers, sell reports, and cherry pick other money making opportunities as they come along—Sounds like a plan to me. For outfits like Google, the river of money may behave like Lake Hamoun. The Reed Effect, in my view, is pushing prices to the heights. If customers want the information, those customers can pay.
Third, traditional publishers are a cautious lot. XML is pretty cutting edge and the technology is now gaining traction decades after CALS SGML illuminated the content landscape. Will Reed Elsevier take stakes in more blogs in the hopes of finding the ideal replacement to the brutal costs and customer pushback from spiking professional journal prices? Maybe.
Fascinating development.
In fact, the deal may be a one more harbinger of trouble in Google-like advertising businesses.
Will GigaOM’s owner become the management whiz that Arianna Huffington seems to be? Worth watching. What search engine will be used to make the GigaOM content accessible? No idea. Maybe Reed Elsevier’s experience with Fast Search and Lucene/Solr will provide a clue?
Stephen E Arnold, May 31, 2011
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