Chatalas Shrugged

The thrust of Benkler’s “The Wealth of Networks” is how the wired world is changing the way in which society communicates and creates. Another influential book about the Internet era is “The Cluetrain Manifesto” which laid out a series of statements challenging business status quo amid this tech revolution. Among the points put forth in that book is that people don’t want to be marketed to anymore; instead, they want to be part of the conversation.

“Cluetrain” came to mind while listening David Hanley of Banyan Branch talk about the many methods his company uses to interact with the public on behalf of clients. While he covered many cutting edge techniques for doing such, a casual comment resonated with me: referring to one of his employees, he said that she spent her time selling benefits rather than building relationships.

This reflected once again that a shift is truly taking place within the walls of business, not merely being expressed within the pages of books. The fact is that we are tired of being treated as targets of a message; we see through the marketing and cheerleading both as consumers and employees. We want to be leveled with, not patronized. And online tools make finding the facts easier than ever. We don’t glance at an advertisement and buy the product or visit the restaurant. We research it, looking for reviews, and turning to those whose opinions we trust. As a result, the approach of engaging a community is gradually becoming a business norm, not just a corporate buzzword.

The discussion of Comcast’s prospective purchase of a majority share of NBC was timely. I’ve subsequently read Nicholas Carr’s article in The New York Times Magazine about the topic, and was impressed that many his insights were included in our conversation the other evening. He points out that television was initially thought to be the medium that would suffer least in the Internet era, due mainly to the size of watching video online. But as bandwidth has increased, tv is now scrambling like news and music have previously. And Carr agrees with us that net neutrality is crucial to ensuring that overzealous owners of “programming and plumbing” won’t use their power to control or infringe upon the information we seek to access.

Tuesdays discussions were very interesting. I thoroughly enjoyed hearing the gritty details of the West Seattle Blog, some of which I’ll surely reflect upon in a later post. But the theme of the evening was free as a business model, so I’m going to tie that into a few of my observations as they apply to online content.

Amid all the hue and cry about the demise of newspapers, the fact remains that they are still profitable for the most part. The problem was that they grew accustomed to large profit margins. When those margins got smaller the newspapers panicked because they’d made business decisions based on the inflated return, including purchasing other papers and real estate, two areas industries hit hard in the recession. And, of course, they had to answer to their investors on Wall Street. One of their answers, cutting staff and coverage, may have saved money but led to a worse product. If only they had learned to live with margins in the 5 to 10 percent range, which they are very capable of achieving, then they wouldn’t be pleading poverty. Barron’s online on Monday ran analysis saying that in reality, newspapers are doing just fine. And if newspaper management had been even a little bit agile in regard to digital media, they would have figured out ways to stem the losses to Craigslist and others.

The New Yorker doesn’t skimp on its content; it’s well-respected and award-winning. Online, though, it doesn’t offer access to every article. It lists all the content in the current issue, but some of the best articles don’t open when you click on them. The magazine can get away with this because of its sterling reputation; people can either buy a subscription to read the article, or wait until it becomes live online later. Many publications use this method, including Columbia Journalism Review, and it underscores the point that having compelling content needs to be central to any media approach.

Week 2 of class provided a nice overview of the economics basics, explained in a fairly easy-to-understand manner. This baseline should be helpful as we delve further into the subject matter. However, as I become re-acquainted with Adam Smith, I’m not overly impressed with how some of his theories have played out.

It’s clear that the economics of information varies greatly from the time-worn economic approaches applied to industry. And my reading of the first few chapters of Free support this. Scarcity doesn’t apply to information, and distribution costs are minimal. Information is, indeed, the epitome of high fixed costs, low marginal costs.

From our discussion, Adam Smith isn’t getting too many plaudits from me. His definition of  “perfect competition” is elusive in reality; it’s far too narrow a definition to give the competitive markets credibility in this context. There is just too much product differentiation for this type of competition to apply.

Going further, society and economy these days are far too diverse to be governed any more by the standard economic dogma and theories. I’m guessing that all the books we read this term are likely to reinforce this. In particular, “externalities” are challenging the premise that all market decisions are based on money. Instead, we are seeing externalities such as reputation playing a much larger role in the economics of information. We regularly see people creating and sharing for free to enhance their standing, rather than working within a typical market relationship. And as we review more of Adam Smith’s theories, I’m willing to bet that he has some corollaries that do apply to the present.

Lastly… we spoke about it briefly, but the topic of whether online content will find a paying audience is very interesting to me, too. I’ll be focusing on this subject in my discussion/presentation for class next week. See you then.

As I wade into this new class, defining what I want to gain from it is worthwhile both to my learning and how the class may be structured to accommodate my interests.

I don’t have a particularly strong understanding of economics. Sure, I can make cursury comments, which typically are based on something I’ve read online or in the paper. But a primary objective of mine is to be able to speak knowledgeably about economics, and be able to assess sides of an argument in a more cognitive manner. So a background in the basics and how they apply to communications and media. This needn’t be too technical; I want to focus on learning, rather than grapple with comprehending the arcane.

More specifically, I work in the media world, so examining current trends in the business models will be of significant interest. There are an abundance of questions these days about an uncertain media future, and hopefully this class will enable me to answer them with an inkling of expertise.

Among questions of interest that I’d like to better understand: Where is the money going to come from, and where will it go? Is the advertising business dying? Will anybody pay for content? What business models will replace newspapers? Will monopolies give way to smaller companies? What will be the successful businesses and opportunies in the digital media world?

Further, I want to be able to articulate why I think a certain business model has merit, or not. I would like to present ideas as to how my business (and others) can move forward in a manner that makes sound business and economic sense.

It’s a long list, and surely more questions and objectives will arise. But it’s a good starting point.