Business Models

Techmeme's Gabe Rivera points to a video by Penn & Teller, of all people, looking into the Greenscam around recycling waste. According to the report, the only thing that makes sense is aluminium can recycling, as aluminium has value (I suspect that's also true of any metal).

It's on Google Video over here (there is no embeddable thumbnail on Google Video, which is an indication of why Google had to buy YouTube )

The rest of the industry is apparently less green than pure landfill as it takes more energy to recycle anything else and only exists on subsidies. However, the subsidies are now creating an entire faux value chain - that is starting to use legal approaches to ensconce itself (its now a multi billion $ industry, based totally on subsidies). They also point out that there would be far fewer trees if we didn't use paper, as trees are a crop like potatoes.

So why put it all up here, on a digital multimedia blog? Apart from being interesting, there are two relevant reasons:

(i) Recycling as a myth has been perpetuated by the mass media, usually without much thought, analysis or dissent . The pricking of such bubbles is only happening because new types of media are emerging to re-look at things. So next time you hear a "blogging is b/s and bloggers are *ssholes...." its worth keeping in mind. (There is a lot of b/s blogging too ogf course, but as this proves, the MSM is not the solution*)

(ii) As El Reg noted this week, Green is increasingly being brought into the whole ICT area, and there is a risk a lot of that is a similar type of scam either to get subsidies or gain competitive advantage rather than being green per se.

To be clear, being Green is good - but the Greenscam, which is typically an attempt to either use consumer (or even enterprise) guilt to extort money, or to gain public subsidies, is a distortion to the Tech / New Media market. If we were cynical (as if ), we would hypothesize that the new ICT Greenlove is more about getting additional money over and above the surplus hours, Ad funding and VC cash that the market is currently subsidized by.....

*I have a friend who is researching for a PhD thesis showing that since the 1950's, the mass media has increasingly been subverted from an inform / educate role to an entertain / advertise role - ie its an adjunct to the consumer society, not the informed citizenry. Its apparently accelerated in the last decade or so. Compelling reading.

Very interesting post on Techmeme about Google investing in subsea cable:

Google is working with a consortium of carriers planning to build an intra-Asian submarine cable system. The new cable, dubbed the Southeast Asia Japan Cable (SJC), would link Unity's landing station in Japan to Guam, Hong Kong, the Philippines, Thailand and Singapore. The cable is still in the planning stage, and the consortium has yet to announce a supply contract. 'Given the current flurry of undersea cables under construction, the SJC cable will probably not be ready for service until 2011 at the earliest,' said TeleGeography analyst Alan Mauldin

This follows huge investment in quite a number of other distribution plays, including wireless spectrum. So why do this? Now part of this requirement is clearly to move traffic between datacentres, but to say the least, its unusual for a media aggregator and Ad server to want to be a major global Telco.

So, a thought experiment - Google's business model initially was to allow users to find content they want on the internet, and to pay for this it monitors their behaviour in order to optimise adverts it serves to them. Over time the model has more become about selling advertising by capturing various strands of user data, of which search is now just one component. Strategically, Google "pwns" the content market by making it easy to find it. Its market dominance allows it to "pwn" the consumer market in many ways. However, the one area it dows not "pwn" is the distribution function. But that traffic travels over the assets of some of the few companies in the world who are both rich enough and smart enough to give them a run for their money. Google gets a "free ride" right now as operators are (i) charging users for pipe and (ii) subsidizing it to grow traffic, so that their fixed costs are amortised over more people (and they get more subscription). But what if the Telcos thought the upstream players should also help pay for the next upgrades, especially those pumping out the video that is filling their pipes?

Our hypothesis is thus that Google's greatest strategic Achilles heel is in internet distribution. This is the one area where it faces a major competitive threat, as the distribution companies (mainly Telcos and ISPs) can control Google's traffic, and extract value from that. AT&T made this point very clearly when it showed that it too can monitor internet behaviour. And when it comes to who has the whip hand, its the Telcos in the final analysis. They own the means of distribution.

Hence a content aggregation and search company is making such a play in becoming a pipe owner.

Today eBay announced that it is de-emphasizing the auction part of its site, as users are - well, not using it. Says the New York Times:

The move is intended to help eBay compete more effectively with Amazon .com and other big online retailers.

The announcement, timed to increase sales during the holiday shopping season, is just one of the changes eBay has made in the last few months aimed at reducing its dependence on its auction business, which is growing more slowly than fixed-price sales.

There are various thought as to why:

“Buying online has changed,” said Scot Wingo, chief executive of the market research firm ChannelAdvisor. “Retail sites no longer make customers choose between convenience and price.”

Lower upfront fees will enable sellers to offer a bigger selection, helping eBay better compete with fixed-price retailers, Mr. Wingo said. “The current system puts eBay at a disadvantage.”

But they will still keep auctions going for some areas:

Yet even as it shifts away from the model that made it unique in the first place, the company insists the auction model is still viable, and that it intends to offer sellers and buyers a choice of formats. Auctions are often a better approach for sellers when items are in high demand, the company says, or when the seller is uncertain of an item’s value.

eBay started off as a way to shift second hand and odd goods, but has been heavily colonised by standard retailers - who find that most (ie Western) customers largely prefer the lower transaction cost of the fixed price model. However, there are questions as to how they will be distinct enough now from say Amazon.

The most interesting thing about eBay though is watching the development of the arms race between buyers and sellers, and the behavioural economics and game theory that emerges - its like a real life laboratory. Issues such as timing, splitting or grouping items, delivery options have all been gamed.

But this pales behind the signalling of trust and quality - how Akerlof's Law is enacted - using the star rating system. Akerlof's law shows that if there is low trust, average prices fall and bad goods chase out good. The latest iteration is to stop sellers automatically "black marking" a buyer who black marks them. Sellers protested the move, but from a signalling perspective, to increase trust it was critical. (In fact sellers seem to continually be upset with eBay, but they seem not to understand that sliding the game their way will reduce prices overerall)

On the auction side there has also been heavy gaming of the auction process (especially in the last few seconds), the way items are displayed for auction - now typically sold in time delayed, smaller lots - higher margin for seller, less utility for buyer. I wonder if the reduced interest in Auctions is due to decreasing utility of signalling and an allowance of too "power-user" and seller-centric gaming, putting off the majority of occasional users (quite a lot of people tell me they don't like the auctions because of that)?

(The "Silicon Soukh" was a term used in the mid 1990's for the concept of electronic markets - thus predicting an eBay before it emerged)

There is a very good summary of the basic laws governing social media over on Businessweek (seen on Techmeme). In discussing Twitter's future Ben Kunz writes:

Firstly, on Metcalfe's Law:

To understand the limits of Twitter's value, first look inside. Robert Metcalfe, co-inventor of the Ethernet, noticed that communication networks tend to increase exponentially with each single addition, a logic that today is called Metcalfe's Law. Think of a fax machine sitting alone and unplugged in your office; it has little value by itself. But plug it into a network of fax machines around the world, and suddenly that communications tool has huge potential.

Then on the Myth of Metcalfe's Law:

But Metcalfe's concept doesn't apply to Twitter [or any other social net]. The explanation why comes from two fellows named Zipf and Dunbar. Back in 1935, linguist George Zipf noticed that words in the English language are used in an interesting pattern. "The" is spoken most commonly, making up 7% of all utterances; "of" is the second-most common word, used exactly one-half as often as "the"…and the pattern continues with the 100th word in popularity being used only 1/100th as often. Zipf's Law suggests that each subsequent thing in any series (such as your Twitter contacts) has predictable diminishing value. Your spouse is more important than your best friend, who outranks your boss, colleague, and that guy you met on a plane from Chicago. Inside the 2.3 million-strong Twitter network, not all connections are equal, and some will never be used at all. You will probably never send tweets to ice skaters in Finland.

Further depressing Twitter's internal value is a concept from British anthropologist Robin Dunbar, who noted in 1992 that humans—like other primates—can handle only 150 relationships. If we try to add many more connections, our little brains get overloaded.

These are just theories, but they point out that Twitter is not a vast communications network of 2.3 million users squared. Rather, it consists of small pools of people with gaps and limits on how they interact. This is important to marketers and investors, because it puts big brakes on how internal communications could propagate inside any social media network.

Its very succinct, I wish I'd written such a good summary on this blog before (note to self - must do that Basic Laws of Social Net Economics booklet soon). To add some value and build on this though, the one key thing he left out is Coase's Law about Transaction costs:

Coase noted...that there are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good. Other costs, including search and information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially add to the cost of procuring something with a firm.

Think of a Social Network as a "firm" in this regard and you find the same - whereas Metcalfe says the value of the network grows with each connection, Coase says the transaction costs grow with it, and as it grows they possibly grow faster (search, policing the spammers, winnowing the firehose) than the service value so at some point there is a crossover, the next new user adds less value than their cumulative transaction costs - and that is the boundary for each user's utility that design of social network.

It's Coase's Law that also breaks the argument of the Long Tail as well - at some point while Zipf'ing down the tail, the transaction costs of finding that next (declining) piece of value is greater than the value you get from finding it. Yes, being digital and having search engines reduces costs, but there is still a growing cost as volumes increase.

This doesn't take away from the article's conclusions re Social Media's overall future as an Ad supported medium when it notes:

It seems social media users are too busy being social to pay much attention to ads. As marketers see poor results, they will move their ad budgets to other, more responsive ad media. The social media value bubble will be pricked by reality.

Funnily enough, I think Twitter has a bigger chance of making a go of ad-funding simply because it is lower friction than many other Social Nets. In a way, Twitter has also been lucky as it has escaped the overblown expectations of Facebook etc, but the article's view of the endgame seems on track too (I would quibble with their Ad value calculations but only insofar as they are optimistic for click throughs but neglect CPM opportunities) when Ben notes:

In the end, Twitter will most likely be sold and become a hood ornament to another service, like Gmail is to Google (GOOG) or Hotmail is to Microsoft (MSFT). The corporate buyer won't get much ad revenue, but it will pull millions of communicating consumers closer to its own business model.

There are Freemium and Sellling Virtual Goods models, but we suspect all large / generic Social Nets will move to some form of offset funding, as the real money is in the users, not the network itself.

Twitter is limiting those any one account can follow to 2,000 apparently (picked up off Dave Winer's blog)

Dave sums it up succinctly, no need to add to this:

1. My first take: Probably a good idea.

2. Is this a problem for people?

3. Confirmation that the expensive thing in Twitter is distributing status messages to large numbers of queues.

4. A business model appears? If you want more than 2000 followers, that'll cost you $X per year per thousand?

5. If no business model then here's something you can't use Twitter for. I had the idea that it would make a good medium for delivering hot news bulletins, and have set up a few channels for doing that. But if they can't grow beyond 2000 followers, there's not much point investing.

6. Or is it a method of keeping malicious or annoying Twitterers in check?

Its certainly the business model we (among others I hasten to add) suggested some time ago. Re item 6, anyone who wants to use it as a broadcasting system is abrogating its original design and is probably a business - so pay up! (Its a way of increasing transaction costs to set a minimum bar against total drivel). We also suggested a certain amount of free posts a month, then pay or be quiet as a way of limiting the drivelers.

Also seems a good number to use to cull those who follow us.

Interesting article in the Times, re the receding Greenwave:

Only a year ago, according to MORI, 15 per cent of those polled put the environment in their top three concerns. That figure has dropped by a third to 10 per cent this month. Now that people are fighting for their own survival rather than their grandchildren's, they put crime, the economy and rising prices at the top of their list.

According to Andrew Cooper, director of the research company, Populus: “There is a direct correlation between how people perceive the economy and the importance they place on the environment. When times are tough people resent paying more to salve their conscience.” This means that fewer people are now buying organic chickens from smart supermarkets when they can pay £3.99 at Lidl.

Its a fairly easily observed phenomenon that Green Memes only really flourish in the sunlight of consumer booms. In addition, the unseemly scrambling aboard by all the eco-snake oil salesmen onto the Greenscam Wagon hasn't helped:

It's not just the economic downturn that has harmed the green order. People have become wary of environmental causes that can turn out to do more harm than good. They don't want wind turbines marching across Britain's moors when nuclear power stations can do more to reduce greenhouse gas emissions. They worry that washing and bleaching all those non-disposable nappies may be damaging the ozone layer, that the massive incentives for biofuels have distorted the world food market, and that green taxes are actually stealth taxes.

However, it may be a recession achieves the end goals far better:

But paradoxically, just as Britain is turning its back on the environment, the country is finally becoming greener. Fewer people are moving house so they are buying fewer new white goods such as washing machines and fridges. They may not be queueing up for £9 organic Poilâne bread, but for the first time in a decade they are discarding less food. They buy less impulsively and think more carefully before their weekly shop. Children are wearing hand-me-down uniforms rather than new ones made in sweatshops.

Bottled water sales have fallen. Garden centres have reported a 10 per cent rise in the sales of vegetable seeds in the past 12 months. People are saving money by growing their own potatoes and carrots. They are turning off their central heating for a few more months of the year and ditching their second car rather than buying an electric runaround. And instead of carbon-offsetting their holidays, they are simply going on fewer of them.

Having been a "Green" since it was deeply unfashionable 30+ years ago, I'm happy that green and rational behaviour are starting to map again - the last few years have been a shocking exercise in Greenscams.

TechCrunch reports that startup valuation prediction engine YouNoodle is soon to fire up (we've been following it since February):

YouNoodle is preparing to launch the predictor tool (sign up to be notified here). CEO Bob Goodson let me test the service out last week and shared some of the early results with me.

I’m still skeptical, but I love the valuation prediction for TechCrunch ($87.4 million), and I have to admit that some of the predictions are within a stones throw of accurate. And if people can be convinced that this is a useful way of understanding if a startup team has a chance of succeeding, it could become part of Silicon Valley culture.

The Prediction Tool

YouNoodle collects a lot of data on startups to make the prediction - the questionnaire takes a good half hour to properly complete. YouNoodle aims to make the prediction right before the first round of funding for a company. So one way to test it is to enter information about a more mature startup that was true prior to funding, and see how well it predicts the actual results.

The key factors in determining likelihood of success, says Goodson, are the team, financial factors, the concept and advisors. Details on the education, entrepreneurial experience and other information founder and key employee. The tool wants to know everything.

I've long been intrigued by (i) how little hard edged, detailed empirical analysis is done - in public anyway* - of factors predicting startup success (it still seems to be treated mainly as an art, not a science) compared to other LOB, and (ii) also in the future of heavy duty analytic engines and prediction markets in a networked world (reading SuperCrunchers and The Predictors is a good intro here)

In fact, SuperCrunchers shows that in many "art of" fields, scientific method is resisted because it breaks the self-reinforcing relationship bonds of the incumbent "stars" that tend to populate such fields (think media, the arts etc). Could it be that this is why the VC field has been impervious to hard analysis of what makes for a successful company - or is analysis just hard?

We shall see.....

* As one of the TechCrunch commentors noted, this may be the reason few startup success prediction guides exist to date....:

“If younoodle is even slightly accurate, they should start their own venture fund, rather than sell the software.”

Last week I attended the Wealth of Nations conference - my talk was in the new media infrastructure panel, which I will write up a bit later, but I also attended the very interesting panel on Diginomics. Its taken a while to write up as (i) it needed a bit of thought and research and (ii) I have been a bit tied up on "real" work this week.

The core pieces of the session were output from (i) Thierry Rayna on the inefficiency of Web 2.0 economics (a theme that ties to our issues around Freeconomics), and (ii) a paper on the changing economics of media - especially regional print papers - by Gary Graham. There was a very interesting discussion afterwards. I've split this post into 3 sections - firstly, a discussion around Thierry's talk and a sbsequent chat with him, secondly Gary's talk about Media, third about the other issues discussed:

Web 2.0 Inefficiency

The core of the argument is that because of the non monetary nature of Web 2.0 services (ie its all given away free ) then inefficient "adverse selection" choices are resulting - of technologies, services, etc. Secondly, that because of the very low values of most of the content it is very difficult to adopt a simple market scheme for Web 2.0 output.

There are 3 main causes of adverse selection (from my notes - other can chip in if they have a different view of what was said):

- Skewed Incentives: Most contributors do not benefit from their contributions, as they become public goods very rapidly. Thus the rational decision is to "free ride", hence the huge skew between creators and consumers. Open Source software exhibits similar properties, but has avoided the consequences largely because of other benefits to the contributors.

- Search Costs & Cost of Production reduction - the "external" element of search costs (using Google) has dropped, but the "internal element" - winnowing the increased amount of chaff generated by Web 2.0's easier access to more stuff - has risen. Thus there has been declining overall net benefit in search transaction costs. Due to the lower production costs, too much crap is being produced, increasing the noise" and thus leading to a net decrease in social capital. In other words this has led to a "reverse tragedy of the commons" - instead of overgrazing we are over-polluting the commons.

- Unaccounted Externalities - the cost of this crap is by and large not being borne by the producers, it is being borne by the rest of the value chain - as there is so much crap, its increasingly hard to find the good stuff, and in effect it is being forced out the market. This is leading to Akerlof's Law in spades - Akerlof showed that in a market where quality is had to discern, crap drives out quality every time, which reduces overall value of the market. (And if you pay for the crap as per Knol, rather than just make it free, it is exacerbated)

In summary, too many of the wrong people are producing too much of the wrong stuff because it is all being subsidised to the nines.

However, it is extremely hard to actually price and thus monetise Web 2.0 content because of its low unit value and digital format. There is a "perfect storm" emerging from this format as it is:

- nearly instantly public (owing to the copy facility and near impossibility of maintaining copy control)
- infinitely durable (perfect copy every time, keep it so long as there is storage available)
- experience goods - you cannot find out the value until you try it.

Very few people will buy digital goods before sampling them, so they have to be sample-able to sell. In practice the digital format means that if I buy X, I lose nothing if I let you copy it, so there is no incentive for me to keep you from copying it, and because it is so easy, lots of copies inevitably emerge - so price collapses. Sadly, micropayments are not an answer as the rest of the transaction cost is still quite high, so pay per use is not viable yet for much of this content. (In fact, the only way much of this stuff can work is if you make it free to user because of this)

The Future of the Media

Traditionally, a newspaper did 2 things - it informed you, and made money from that. Increasingly however, the "inform" and "making money" bits have been separated. What the media has found is that people are willing to subsidise them (aka advertise) if they entertain, rather than inform. Hence free papers etc.

The economic discussion above demonstrates the theory of what is happening to the media. In the print world, infinite reams of blogcrap and sleb filled free papers are drowning out the quality content. In music (and soon video) the nature of the digital good reduces price of any social wealth producing (aka desirable) content to near zero. Owing to the resulting pricing and externality inequities, people adversely select and the result is that poor quality drives out good quality over time.

Gary's view is that the Internet Generation "News"paper will have to do what the craposphere does not - produce quality content, and charge reasonable prices for it.

So what will occur - the trends imply that two main trends will emerge in the value chain:

- Firstly, there will be customised printing close to source, done to order to try and reduce the distribution costs of paper products. This can push the economics of non subsidised (typically higher quality) products back within view of the free stuff.

- Secondly, there will probably be more customer involvement - from selection through to interaction - to create a more unique experience and compensate the customer in that way. The issue with this will be how to (i) get serendipity and (ii) prevent people from selecting such narrow/ easy to digest content that they become effectively uninformed.The final thought was to find ways of using "Internet Ju-jitsu" - use the nature of the web to create new incentives for people

The Q&A Session

There was a good debate on:

Micropayments - it was claimed that the transaction cost for each Paypal transaction is $2.35. That sounded high to me, and our analysis shows transaction costs of iTunes for eg is more than an order of magnitude lower than that. But the point stands - today, its hard to make money on something costing much less than an iTune, so that bundling methods (eg subscription) are the only way it will work. But with so much Freeconomic subsidy money in the system tight now ($150bn + if Chris Andersen has got it right) , the adverse selection bugbear rears its head.

Patents - good discussion on this, I loved Ludmila'a observation that a patent is merely a right to fight in court, and if you don't have money to fight the well funded incumbent its largely valueless (read our own Paul Lancefield's views on this - and why some trolls are your friends - over here).

Scalability of the "T Shirt & Concert" model for music, Thierry pointing out that ticket prices for concerts had to get very high to make up for lost recorded music sales owing to lower volume. And of course the higher the ticket price, the lower the volume of attendees.....

Should Incumbents just weather this - it is irrational economics, it will collapse, and the best is to stay out and let it run its course, surely. But what happens if they are wrong, or it is too big for one industry to avoid (or, as in media, it destroys far more value than it replaces it with).

An interesting start of a discussion around moving to services that are too complex to be offered by the "give it for free" startups (it was observed that many of these do not offer services, just subroutines as a main product), and these can be charged for. Another option was to package services up as cultural goods, and charge for increasing access (the Freemium model used by Flickr for example). A third discussion was to charge for the stuff that is not available for free today - privacy, quality, etc.

(In)Conclusion

No answers, lots of fascinating questions etc. Harsh though the piece on Diginomics is to the Web 2.0 faithful, I think the point about Web 2.0 potentially having a "reverse tragedy of the commons effect" and for the resulting FreeConomic based adverse selection to drive out quality for crap is a serious charge that needs addressing. Similarly, if there is a limit to micropayments that will impact Web 2.0 long term viability - and produce a huge benefit for anyone who can solve it!

Update - interesting corollary article by Kevin Kelly, arguing that people actually do want to pay:

I recently came across a UK survey, sponsored by British Music Rights (that means they represent musicians and music publishers) which suggest fans want to pay. According to this study what the respondents appear to want is an unlimited download service free of DRM that could be legally accessed for a monthly fee-- a way to pay that doesn't yet exist.

They are happy to pay if it is easy, fair, and beneficial.

Yesterday we disagreed with the Patent Blog re its view that the changes in the US patent system was unfair to entrepreneurs - this is typical of the sort of thing possible in the US previously (from TechCrunch UK)

Last week TechCrunch reported that Channel Intelligence (CI), a company based in Florida, had filed a lawsuit for patent infringement in the US against a long list of startups which - get this - offer wish lists for products people may want others to buy for them. However, many of these companies don’t yet know they’ve been sued so their defence response is likely to be slow.

The patent No. 6,917,941, appears to cover the invention of creating a list of things in a database. It was issued in July 2005 (sometime after wish lists were invented on the Internet I believe) and defendants include a long list of startups like On My List, Remember The Milk, WishList and Zlio. Channel Intelligence is not suing Amazon or Ebay, probably because these are large companies which would send Channel Intelligence packing.

A European startup, blablalist - an open-source wish list service - has also been targeted and has had a letter from CI that claims blablalist infringes its US Patent No. 6,917,941.

However, at blablalist’s helm is the eagle-eyed Geert Bevin who has found that the European patent doesn’t seem to have been granted yet. He’s now looking for prior art to stop the patent from being awarded. This could make this lawsuit null and void and protect everyone CI targeted in Europe. Here’s a list of what he has already found, Including ShopSmart in 2000, Kelkoo in 1999, Peapod in 1996 and No Amiga To Waste in 1997!

Mike Butcher over at TCUK notes that the time to challenge such laims is now, and is urging anyone who knows of prior art to:

pile in people, and contact the European Patent Office to stop this patent being issued in Europe.

I'm stunned that there wasn't prior art in the US either, and fortunately the US patent office is now re-looking at these issues so its well worth challenging them. So far Europe has remained fairly free from all this, but clearly the price of freedom is ongoing vigilance!

Update - great discussion on this going on over at /.

Interesting story today on RADAR about Gawker Media cutting revenue per impression for its hacks even while revenue and traffic increases:

....the per-employee traffic isn't that much higher than it was a year ago. And yet the site traffic is up more—meaning the site is receiving more income that the company doesn't have to share with a writer. The site received 16.7 million pageviews in June. Only about 6 million pageviews of that traffic is attributable to writers currently being paid. So why is the company cutting the costs of staff pay, when it isn't forced to cut in writers for 10 million pageviews in the month?

One of my frustrations with many of the journalists covering the new media / tech space is their very cursory understanding of economics, which means that all sort of hype and cr*p gets picked up and reported on uncritically, so it is with a certain wry amusement I read this

The issue is that unlike print where yellowing copies of last weeks' newspapers are good only for fish and chip wrappers, Digital Media is persistent, ie that stuff written 10 years ago by people long gone is still garnering traffic, and as time goes by this rises - as shown in the diagram below:



So, in a CPM based Ad serving model, as time goes by the proportion of money a site earns from current output reduces, while the money earned from existing back-catalogue output increases - so that after a while by far the majority of its income is potentially coming from media already written. (There is a "half life" to old material, but if you model it you find say 5 years of Old stuff has a large presence at fairly low visit levels - you are essentially building a larger and larger "long tail" )

At this point a bit of game theory analysis does not go amiss - given that the historical content is lower cost to the owners, as they don't have to pay out the original writers (assuming all content rights belong to owners and there is staff turnover over time ) then the reliance on the existing writers diminishes. Those who pay the piper call the tune, but if you don't even have to pay the piper 'cos you've kept the tune.....

For writers to reduce this tyranny of persistence they either (i) need to keep the right to their own historical material (unlikely, as per page payments would reduce) or (ii) current writers must make contracts that take a share of historical traffic (harder and harder to do as reliance on them reduces). Otherwise its this way to Digital Sharecropping.....

There is a second impact of Ad based media paid by the page, which is that by definition "populist" stuff is better rewarded - so expect more sleb slavering and political polemics - and niche stuff is not, so for example balanced reporting on complex issues is a route to starving in the garret.

So anyway, next time all you online hacks wax lyrical about FreeConomics or that the New Media defines a New Economic Paradigm, take a look at your own pockets and note that same New Economics is thinning them out via some very Old Rules, that was well understood in that most deeply unfashionable of places, the Main Stream Media.

Oh, and you may want to look up a guy who sussed a lot of this about 150 years ago. Name of Marx......

(Update - another take on it here by Jason Calacanis - expands on the above thoughts quite nicely....)