Friday, April 01, 2005

COMMENTARY: Blogs will Transform Media but Lead to Tiny Profits

There is a lot of excitement about blogs these days. Reminiscent of the heady days of the mid 1990s, upstarts are calling for a revolution. “Off with their heads” they cry pointing to the big media titans. Some of these titans are disdainful of the mobs carrying pitchforks unimportant. The bloggers, cry back, “you don’t get it.” Others in big media are quaking in their boots launching their own preemptive strikes. We’ve all seen this movie before. But like any great movie – we just can’t help getting swept away in the excitement no matter how many times the same types of characters do the same things.

When investor money and corporate development is at stake its key to remain dispassionate – skip the drama – and focus on some key economic lessons.

1) Innovation is fast but transformation is slow. As fast as blogs seem to have arrived and gain in stature every day, the real impact will be gradual. It will not be a revolution that overturns the established order overnight, rather a slow evolution over time. What we are seeing now is the rapid adoption among a ripe and ready group of consumers. According to Technorati, there are more than 8 million online blogs, up from 100,000 just two years ago. A new blog is created every 7.4 seconds generating 275,000 posts a day and 10,800 updates an hour. However, moving to large segments of the population where numbers need to hit tens of millions to register will take a lot longer. That means established companies have a longer than they think to figure out the most effective way to respond. Just remember even now, not even Barnes and Noble was “Amazoned.”

2) Despite the transformation, profits will be elusive. Think about email. It transformed the way humans interact with each other across the globe by making communication free, easy and fast. Despite this it is very difficult to generate notable profits. Yahoo! recently announced that it is increasing its free email storage to 1 Gigabyte. 2 GB is offered fo $20 per year. Blogs offer the potential to further transform communication by making broadcast media more social and interactive. But like email it will be very hard to make real profits. It takes about 45 seconds to log on to blogger.com and create a blog for free.

3) Where will the money go? Over time look for a very small handful of successful personalities to emerge from the blogsphere and capture a large enough group of followers whose demographic is appealing enough to advertisers that they can generate some advertising revenue. However, this model will be little different from an individual perusing a career as a talk show host.

Blog content aggregators and search engines may be able to generate some targeted advertising revenue similar to the paid search approach of Google and Yahoo. But as hot as paid internet placement is today, the market is getting stretched fairly thin with a growing number of competitors and more savvy and demanding buyers.

A few lucky start-ups might eventually get bought by larger media firms and if they time it at the right moment in the hype cycle, they will get far more money than they are worth. If they time it wrong, no one will touch them.

Most likely the money will remain with existing media companies that successfully adapt. Increasingly, traditional media are setting up their own blog content such as Business Week’s The Tech Beat. Local newspapers around the country are dong the same, from the Philadelphia Philadelphia Daily News' anti-war "Attytood," to News & Record, of North Carolina. Njo.com was started by a group of New Jersey newspapers focused on Bruce Springsteen and "The Sopranos."

The future of blogging is bright indeed but long term profit potential is dim.


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