Friday morning I had an exchange with a delivery van driver that seemed to set the course for much of the day’s thinking around the state of the media business, content migration, and overall advertising-based revenue models. In truth, it was a brief conversation — mostly consisting of nods, grunts and gestures — and one that would not normally interrupt the flow of a workday. On this occasion, however, it directly touched on a sensitive gripe of mine that I had been having trouble finding a succinct way of articulating.
The driver was merely trying to do his job. I found myself, oddly enough, trying to prevent him from doing that job. His job? Delivering new Yellow Pages phone books to my home. (Another set had already arrived at the office earlier that morning.)
He was insistent. I was more insistent. He backed off and sheepishly removed the stack of books from my front stoop and back onto his van. Apparently, I had not been the only one to stymie his delivery rounds that foggy San Francisco morning.
I began thinking about the interchange. I was, in effect, rejecting the delivery of something I had not ordered, was not consulted about, did not offer consent over, and, in fact, did not want. It occurred to me that this was a fairly recent phenomenon. I did not recall many occasions in the past when I was faced with this “opt-out” dilemma. I then realized that this was becoming an increasingly common problem. Searching for supporting data for my emerging hypothesis, I popped the lid of my blue recyclables bin and, eyeballing it for a brief moment, gauged that some 30-40% of its weekly contents consisted of “free” local papers and other media that I, too, had not requested nor been consulted about. Pulling on that thread long enough I quickly saw therein a troubling parallel for what many startup business models were predicated upon — “pushing” content versus having it “pulled” by qualified consumers — and what the implications were for overall valuations for companies adopting this precarious approach.
Think for a moment about the Yellow Pages. Put aside, for the time being, the usual knocks you hear – i.e., it’s a dead business, the internet has disintermediated it, it’s just for the geriatric set now, etc etc. Those arguments, while valid, miss my central point. At its core, the Yellow Pages business is focused upon driving viewership which, in turn, drives its advertising rate and its core revenue model. Yellow Pages prints up half a million books so they can be delivered to half a million homes so that Yellow Pages can tell advertisers that the advertiser’s 1/4 page ad will be in half a million books in half a million homes. End of story. What’s left conveniently out of the discussion is the true value of the penetration of that advertisement to that audience. How valuable is each recipient of the Yellow Pages and how does that translate into revenue for Yellow Page advertisers?
In effect, by accepting the Yellow Pages, I become one of that audience. I, for one, would be a terrible customer for Yellow Pages advertisers and, I fear, a fairly typical one. My last three editions of Yellow Pages books are propping up a bookcase in my garage (2004 edition), forming a backstop to a trapdoor in the tool shed (2005) and supporting a TV in the home gym (2006), respectively. And yet, my receipt of Yellow Pages books each year makes me a “viewer” or “user” as Yellow Pages is defining it and, therefore, I, in a minuscule way, have an impact on what Yellow Pages is charging its advertisers to “sell” to me.
Who, then, is maintaining the statistics for the average annual use of the Yellow Pages in a home that accepts copies of its books, at no charge, and still uses it to find local plumbers, personal injury attorneys, and pizzerias that deliver? Virtually any layperson with even a modest exposure to current web technologies would quickly surmise that, all things being equal, “effective” Yellow Pages usage in any given home has declined, perhaps precipitously, since the emergence of the what we now consider the modern internet.
For decades, in traditional publishing a consumer’s (or, in this case, a reader’s) value to an advertiser was fairly easily gauged. These readers ‘subscribed’ to a publication. There was a cost associated with receiving that publication. That cost, even a nominal one, served to “qualify” that lead for an advertiser. That reader, if you’ll permit the analogy, was clearly interested in, say, outdoor pup tents because he was a subscriber to Field and Stream magazine, paid $19 a year to receive 12 issues of the publication, and renewed each year for the past five years. The cost of the subscription was the “entry cost”, or the glue that cemented the relationship and loyalty of that reader to the content matter and the advertisers whose wares mirrored that magazine or periodical’s affinity or area of interest. Simple enough to understand
Now, however, that model is pretty much on life support, if not dead outright. Magazines are being given away in offers and promotions (i.e. trade in your expiring United Mileage Plus miles for these ten magazines, etc) or sold at subscription prices that barely cover shipping and production. The “entry cost” has effectively evaporated to nothing and along with it, the true underlying value of the “readership” figures these magazines, newspapers and periodicals use to support their advertising rate cards. Who is asking the tough questions, then?
Renowned psychology professor and controversial author Robert Cialdini, in his excellent book Influence, uses psychological principles to explain what most laypeople understand common-sensically: people tend to place a low value of that which they acquire with little effort or at little cost. Media, in all its forms, has become so ubiquitous and free that “readership” or “viewership” has little consequence as a gauge of potential revenue. As I see it, for the purposes of venture-backed companies “pushing” content in this way, what needs to happen is a more structured, formalized means of more realistically and effectively gauging the value of viewership, readership, etc in a world where increasingly there exist no “qualifiers” or “entry costs” for consumers to receive the content and engage with the companies providing the service. If you believe that premise, then you must also believe the premise that customer loyalty for these same companies must be at a level far below what we would consider typical or expected for these types of companies in the recent past. Customer “loyalty” for media-based companies, then, (as we have long understood the notion) must be in decline at a frightening rate.
What all this noodling means, to my mind, is a need for investors and management teams to apply greater rigor in analyzing what “viewership” or “readership” really mean to emerging web companies in the internet/content/Web 2.0 sphere where valuations are too often driven in large part by user traffic, content and services are being “pushed” to drive user metrics rather than being pulled by paying customers, and there exist little or no switching costs. We have already seen some “value realignment” in the social networking sphere (see my earlier piece, $15 Billion Folly regarding Facebook) and we will likely see a good deal more carnage as most social networking sites still struggle with the ‘hot new club’ problem or fall victim to it (Friendster, anyone?)
As goes the famous Chinese curse, “may you live in interesting times.” Yes, indeed, things are definitely getting interesting around here.