Sokrates: Internet Media and the Fall of GigaOm
Adeimantos: What? Are you now intellectually flirting with both Hinduism and techno-transhumanism?
Sokrates: No. GigaOm. Om Malik's weblog grown huge and turned into a business. A rather large business. That failed.
: I told you so. If I may quote myself:
Felix Salmon: First, the good news: 2014 was the year that digital media got big and got optimistic... bad for the second and third tier.... How huge is the market now? Three years ago... AOL bought the Huffington Post for $315 million, after the site posted 2010 revenues of $30.7 million.... Today... Jonah Peretti['s]... revenues surpass $100 million, and [he] is giving each of his 700 employees an Apple Watch to celebrate. He can afford it: he raised $50 million in new venture capital this summer, from a single investor, at a valuation of $850 million.... Business Insider raised $12 million in March, at a $100 million valuation.... Vox Media raised $46.5 million in November, at a valuation of $380 million.... Not all of these investments will end up being profitable, and not all of these valuations will end up seeming sensible with hindsight. But digital media has now clearly established itself as a rational asset class to invest in...
Sokrates: I regret that this will be an inadequate dialogue without a point. In fact, I would be surprised if it survives a month: I think it is likely to be replaced by "Internet Media and the Fall of GigaOm II" when conclusions become clearer in some way...
Aristokles: So then why did GigaOm collapse?
Felix Salmon: Let me finish! This isn't Twitter, you know! Ahem: The result is real problems for the owners of companies which shouldn’t aspire to massive scale. Chris Hughes... Pierre Omidyar.... To make matters worse, the generous nature of the old web, where linking to other people was a smart strategy, doesn’t help you in mobile. Web surfing on a phone is a clunky, unhappy experience, with the result that a whole generation is growing up preferring to get all of its information from inside one fast, slick app. (That app could easily be Snapchat: Vice claims that its Snapchat-based news show is the most-watched news show in America.)... Either you aspire to become a ‘platform’, or else you simply join up with somebody else’s. (Take your choice, from WordPress, Tumblr, Medium, YouTube, or, of course, Facebook.)... If you’re not getting 20-30 million unique visitors every month, and don’t aspire to such heights, then you’re basically an economic irrelevance. Advertisers won’t touch you, you won’t make any money, and your remaining visitors will inexorably leach away as they move from their desktops to their phones." That, in a nutshell, is what happened to GigaOm.
: Acer founder Stan Stih... and the ‘Smiling Curve’.... From Wikipedia:
A smiling curve is an illustration of value-adding potentials of different components of the value chain in an IT-related manufacturing industry.... Both ends of the value chain command higher values added to the product than the middle part of the value chain. If this phenomenon is presented in a graph with a Y-axis for value-added and an X-axis for value chain (stage of production), the resulting curve appears like a ‘smile’....
Aristokles: I sense an irony here. Am I correct?
**Ben Thompson: Acer is the epitomical company at the bottom of the curve.... Intel and Windows... captured most of the value on the left, and systems integrators and value-added resellers like IBM or Accenture that captured the rest of the value on the right.... I was reminded of the smiling curve while reading... David Carr.
David Carr: Why, thank you: For traditional publishers, the home page may soon become akin to the print edition--nice to have, but not the primary attraction. In the last few months, more than half the visitors to The New York Times have come via mobile--the figure increases with each passing month--and that percentage is higher for many other publishers. Enter Facebook’s popular mobile app... the No. 1 source of traffic for many digital publishers. Yes, search from Google still creates inbound interest, and Twitter can spark attention, especially among media types, but when it comes to sheer tonnage of eyeballs, nothing rivals Facebook...
Ben Thompson: When people follow a link on Facebook (or Google or Twitter or even in an email), the page view that results is not generated because the viewer has any particular affinity for the publication that is hosting the link, and it is uncertain at best whether or not their affinity will increase once they’ve read the article. If anything, the reader is likely to ascribe any positive feelings to the author, perhaps taking a peek at their archives or Twitter feed...
Ibn Khaldun: That is not a problem for the Institute for New Economic Thinking or the Washington Center for Equitable Growth. For them, the authors--the researchers and analysts--are the product, rather than the site as a nexus of eyeballs to be sold to advertisers.
Hypatia: I am hardened to such gruesome imagery. But others may not be. Just saying...
Ben Thompson: On the right you have... Google ($369.7 billion), Facebook ($209.0 billion), Twitter ($26.4 billion), Pinterest (private).... Traditional publishers... are stuck in the middle. The New York Times... is worth a mere $2.03 billion... Acer, offering the same PC as the next guy.... German publishers were taking Google to court to demand compensation for article snippets that appeared on Google News. Instead Google simply removed the snippets, which resulted in such a drop in traffic that the publishers this week came crawling back asking Google to re-add the snippets, no compensation required.... Google proved it was adding value to the publishers.... The publishers demonstrated that they provide no value to their writers.
Hypatia: That seems to me to be wrong: the publishers pay the writers. The writers--except for those who are (cough, cough) tenured--cannot make a go of it on their own...
Phryne: Unless they become newsletter publishers to a small, restricted, paying clientele. You would not believe how much some people are willing to pay for...
Ben Thompson: I remain convinced that the most successful writers and publications will pursue a similar strategy: do what they do best and accrue outsized value relative to publishers that are rapidly shifting from platform to obstacle.... The Internet by removing friction... removes the need for folks in the middle, and the result is that value will flow to the edges... aggregators on one side, and focused, responsive, and differentiated writers and publications on the other...
Hypatia: But the publisher intermediaries will do all they can to tear down the attachment of the reader to the author, and all they can to build up the periodical. Wonkette, not Ana Marie Cox. Wonkblog, not Ezra Klein. The Economist, not Greg Ip.
Potone: Is not the publisher correct? Are not Jim Tankersley and Ezra Klein close substitutes?
Axiothea: Greg Ip is back at the Wall Street Journal*, BTW...
Enter the Ghost of GigaOm, in the form of Matthew Ingram from December 15, 2014:
**Ghost of GigaOm: It’s easy to see the media landscape as one in which the big get bigger and the small fry get annihilated... Fusion writer Felix Salmon... media gadfly Michael Wolff. There’s just one problem with this apocalyptic vision, however: It’s not true.... Both Salmon and Wolff... see media success as being composed of just one thing: namely, huge amounts of traffic gained by reaching a massive audience of millennials and then selling them to advertisers for tens of millions of dollars.... But this is demonstrably not true. The cost of starting a digital-media entity... has never been lower. Ask Jessica Lessin... The Information... Lara Setrakian of News Deeply... Andrew Sullivan of The Daily Dish... or blogger Ben Thompson... of Stratechery...
Ibn Khaldun: What the Ghost of GigaOm misses is that the explosion of the Behemoths reduces the advertising rates available to the smaller fry, and so undermines their abilities to earn a living via advertising...
Hypatia: Which is why Andrew Sullivan was a bad example for the Ghost of GigaOm to bring up...
Adeimantos: And the platforms would rather pour their money into programming up recommendation engines that will put interesting material in front of people surfing on their cell phones than pour their money into paying, say, Felix Salmon. Something like Medium will--if it scales to sustainability, and if it survives--be in the game of selling "we really do have the most interesting stuff on Bull Market" rather than "we pay Felix Salmon to write on Medium".
Ibn Khaldun: But this is, again, not a problem if you are interested in the nexus of a high-quality public sphere: Who cares whether Brad DeLong remains an important internet destination for learning about economic policy if people are instead funneled to things like Bull Market...
Brad DeLong: Or the Washington Center for Equitable Growth, which ought to be able to support a web dialogue that is both deeper and broader...
Ben Thompson: The thing about Internet scale is it doesn’t just have to mean you strive to serve the most possible people at the lowest possible price; individuals and focused publications or companies can go the other way and charge relatively high prices but with far better products or services than were possible previously...
Adeimantos: Limited by the ability of Facebook's recommendation engines to come up with material as interesting and much cheaper than a newsletter, or by the willingness of a Brad DeLong to give it away for free...
Medium: And we have Michael Wolf!
Michael Wolf: Gigaom had just topped up the tank a year ago with an $8 million funding round. Om... announcing his transition to full-time VC talked about how the company was doing well.... I’d point to the massive amount of VC funding and the resulting company cost model that was put in place to attempt to scale.... Gigaom... punch[ed] above its weight... [with] an editorial ethos instilled by Om... leveraged this premium tech insider brand... ad dollars... events.... Paul believed that there was an opportunity for... deeper reads in the form of research reports.... Independents [would] write reports on a freelance basis, they would get the exposure of being part of a ‘virtual analyst network’ at Gigaom and we would get to tap into their expertise without having to pay the high salaries that often come with such knowledge and backgrounds. Win-win....
The editorial team.... On the research side... sales people and some research directors.... Site engineering and QA.... Product management types.... Manhattan office space... office space in high-rent San Francisco.... Playing a dangerous game the entire time, using a combination of venture capital and debt that forced decisions across the business to continue invest heavily to result in growth, hoping that a level of scale would happen to where eventually revenues growth would outrun expenses.... Perhaps the biggest mystery--and sadness--in all of this is the decision to simply shut the company down...
**Matthew Ingram: Peter Kafka at Re/code reported that sources told him the company borrowed $5 million in a debt round led by Western Technology Investments in 2011 and then borrowed even more debt after that. According to his story, by the end of last year, Gigaom was paying a total of $400,000 a month for rent and debt-service costs.... The head of Western Technology Investment said that his firm likes to put borrowers who can’t pay their loans into what he called ‘friendly foreclosure,’ so that they don’t have to file for bankruptcy...
Sokrates: That sounds like a personality conflict of some sort: WTI said: "We could foreclose, but wouldn't you rather just admit that we own 100% of the equity now and do what we say?" And some bodies else said: "No. We will fire everybody, and dare you to actually throw us into bankruptcy while we shop the website."
Hypatia: GigaOm has not filed for bankruptcy...
Axiothea: That means that individual unpaid creditors file in court for individual unpaid bills?
Hypatia: Until one of the creditors decides to ask a judge to force it into bankruptcy...
Adeimantos: This is definitely not a situation on an equilibrium path...
Aristokles That suggests pointy-haired boss syndrome: the wrong managers with big egos thinking they have more bargaining power than they in fact have...
Matthew Ingram: Does Gigaom’s failure mean the model the company was based on--a three-part structure composed of advertising-supported editorial, events and subscription research--is fundamentally flawed, or was it just poorly executed?... I actually believed (and continue to believe) that it can work... the Economist... Politico...
Thrasymakhos: Remind me what Politico's source of expertise and value-added is supposed to be? Is it the Teddy White business--we are first with dubious insider gossip because we are willing to go the extra mile via beat-sweeteners to flatter our sources?
Ibn Khaldun: Please call that the "Bob Woodward model", not the "Teddy White model"...
Matthew Ingram: You bring readers in through the front door--the free, ad-supported editorial side, which hopefully carries its own weight.... You... create a relationship with them based around your expertise... [and] monetize that relationship through other means... events and subscription research.... Michael Wolf argued... the research arm lost its way... high-volume (but relatively commoditized) products like webinars and sponsored white papers... targeted large corporate clients... instead of focusing on individual buyers and growing more slowly...
Mentor: The thing that puzzles me--or, rather, the way in which this demonstrates that my Visualization of the Cosmic All is grossly incomplete along these dimensions--is that in both the cases of GigaOm and The Daily Dish, the flow of new content to the website is shut down. You have a central place on the internet because of the flow of new content. That central place is a valuable asset. Remember in 1999 when AOL paid Netscape Communications $10 billion for the ability to control what the links on http://netscape.com would be?
Hypatia: That was 1999...
Thrasymakhos: That was AOL...
Mentor: The point stands: With a central place that people come to, you never simply abandon the site. There is always something you can do to provide value to the people who show up...
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