Online Business Models

Monetizing digital content requires a different mindset than monetizing analog content.

The marginal cost of another unit of digital content is nominal.

Unlike printing and delivering a paper, serving up another page view doesn’t cost the New York Times much.

So while the New York Times must charge its customer to recieve the paper, it doesn’t necessarily need to charge a customer for every page view, particularly since they do run ads on every page served.

Limits on sharing and borrowing are limiting widespread e-book adoption. Remove those barriers, new research says, and the e-book market will expand even faster than it already has.

Here’s that and some other new statistics…

It’s tough being an online content publisher these days.

While the flow of advertising dollars into digital continues to increase—online advertising spending is expected to grow 20% to $31.3 billion in 2011 in the U.S. alone, according to eMarketer—it has not resulted in higher CPMs for publishers.

Rather, the increase in spending is spread thin across a crowded field of technology middlemen (i.e. ad networks, exchanges, data providers, DSPs, etc.).

And it is largely following increased audience usage of digital media as opposed to resulting in larger payouts per page view for content creators.

Will people pay for quality digital content? It’s an argument that has been on the table for quite some time, with naysayers pointing towards downloads of discographies instead of paying attention to concrete purchasing decisions.

Last week, Apple released its new version of Mac OS X “Lion”, and as per usual, Ars Technica’s John Siracusa delivered a whopping 27,300 word review of it. His 19-page story, published last Wednesday is available for free online and has already received over 3 million page views.

In a telling turn of events, Ars Technica also decided to sell his review as a $5 Kindle ebook. In its first 24-hours on sale, the ebook sold 3,000 copies. And at $5 a pop, that’s a cool $15,000 in revenue in just one day.

The pundits who post about unsustainable online business models or the general demise of the publishing industry often position their arguments in stark, either/or terms: print vs. online, paid vs. free, etc. etc.

TechCrunch’s Paul Carr is the latest to paint online publishing with an overly broad stroke. He cites the layoff of Slate media critic Jack Shafer as the latest example of why the “grand experiment in free online content has failed.”

Online advertising, he explains, “is a numbers game. And, even on niche sites, the number of salable page impressions required to even break even is huge.

There are just too many pages of content being produced for advertising to remain a viable long-term business model.”

Ten years is, of course, a long time in media. Ten years ago, if you wanted to download some music, your best bet was Napster or one of the filesharing systems such as LimeWire or KaZaA.

There were legal services, but they were so dire they wouldn’t pass much muster today: there was PressPlay and MusicNet (from rival groups of record companies), which required $15 a month subscriptions for low-quality streaming (when most people had dialup connections, not today’s broadband). You couldn’t burn to CD. They were stuffed with restrictive software to prevent you sharing the songs.

What happened? Steve Jobs happened, mainly.

Author Michael Fusco explains how news rooms have overcome the initial hiccups of the transition to new medias and are now seeking to maximize profitability.

The internet is a copy machine.

The digital economy is thus run on a river of copies. Unlike the mass-produced reproductions of the machine age, these copies are not just cheap, they are free.

Our digital communication network has been engineered so that copies flow with as little friction as possible. Indeed, copies flow so freely we could think of the internet as a super-distribution system, where once a copy is introduced it will continue to flow through the network forever, much like electricity in a superconductive wire.

We see evidence of this in real life.

Once anything that can be copied is brought into contact with internet, it will be copied, and those copies never leave.

When copies are super abundant, they become worthless.

When copies are super abundant, stuff which can't be copied becomes scarce and valuable.

When copies are free, you need to sell things which can not be copied.

Well, what can't be copied?

Here is the answer: "intangibles" or "regenaratives". 

The long tail is famously good news for two classes of people; a few lucky aggregators, such as Amazon and Netflix, and 6 billion consumers. Of those two, I think consumers earn the greater reward from the wealth hidden in infinite niches.

But the long tail is a decidedly mixed blessing for creators. Individual artists, producers, inventors and makers are overlooked in the equation. The long tail does not raise the sales of creators much, but it does add massive competition and endless downward pressure on prices.

Unless artists become a large aggregator of other artist's works, the long tail offers no path out of the quiet doldrums of minuscule sales.

Other than aim for a blockbuster hit, what can an artist do to escape the long tail?

One solution is to find 1,000 True Fans. While some artists have discovered this path without calling it that, I think it is worth trying to formalize.

The gist of 1,000 True Fans can be stated simply:

A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author - in other words, anyone producing works of art - needs to acquire only 1,000 True Fans to make a living.