If You Build It, They Will Come
Streaming Magazine March 2001
By John Silliman Dodge
The prospectors weren't the ones who got rich during the gold rushes,
you know. The guys who sold the picks, the shovels and the whiskey
turned the real coin. Levi Strauss, the most famous purveyor of his
age, built his denim empire on the butts of the 49ers. Could it be
that the only people making money in today's Internet Economy are
making infrastructure, selling digital tools to new media miners?
Jupiter Media Metrix analyst, Dave Rader comments, "A
lot of vendors either have or are developing an enterprise plank to
cover them until the consumer space gets going. Entertainment is sexy,
it gets a lot of coverage, but it's not the only market out there."
Does Dave suggest that the Web is a business-only medium? That the
best entertainment we can look forward to is quarterly earnings reports?
Hardly. But for the time being fans of streaming media could see a
dearth of high production value, high bandwidth, high cost content
supported by banner ads.
Content may be king but the king's fortunes are mercurial.
Like fashion or music, nobody knows the hits until after the fact.
Meanwhile this information is expensive to produce, sensitive to mood
swings in the ad economy, and almost instantly outdated upon publication.
Even though it pulls a fraction of the audience, the Web is a hungrier
place than mass media. Referencing that insatiable demand for everything,
all the time, one of the cleverest corporate names in recent memory
belonged to the now defunct Web design and content company, FeedTheMonster.
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It wasn't supposed to work out this way. Way back in
Internet time, oh, five years ago, we naïvely thought we'd save
a bundle on manufacturing and distribution costs. We didn't. We figured,
people pay $49.95 for a subscription to Time Magazine, they'll pony
up for Slate. They didn't. We thought, advertisers will pay double-plus
CPM's to target qualified, niche audiences. No. What we got instead
is a medium whose future is totally blue sky but whose near-term profit
potential is partly to mostly cloudy. Much of this trouble stems from
a complex and only slightly stable delivery system that requires expensive
components at each link in the chain. Couple this with an audience
conditioned to expect high quality, resource-intensive information
and entertainment free on demand 24/7, and today people will think
you're brilliant when you quote Mel Karmazan and pronounce, "This
isn't a business."
In contrast to consumer content production and distribution,
the infrastructure business seems less exposed. The thinking seems
to be, We&'ll just leave content to the big media brands who have
the machinery in place and the pocket depth to shock-absorb the bumps
in the road. We'll be the aggregators, the pass-through guys, the
dumb pipes. We'll be the FedEx in this relationship and just deliver
the packages on time. Or build the tools that content companies require
and the functionality that facilitates deeper relationships with their
end users. (Excuse me, but could we possibly a more sterile term to
apply to customers than "end users"? How about BMU's, Bio Marketing
So Macromedia, Adobe, Akamai, Digital Island, Inktomi,
Intervu, Loudeye, iBeam, RBN, Microsoft, Oracle, Sun, EMC, IBM, and
Cisco are making money. What about the guys on the front end? After
significant spending on design and deployment, databases, hosting,
bandwidth, maintenance, service contracts, storage, value-added vendors,
etc., no wonder their house of cards looks a little tippy. Margin-wise,
it's a four-story factory that back-ends a lemonade stand. It just
doesn"t pencil out.
This from a recent Wall Street Journal article by Thomas
E. Weber: "The economics of all the new technology advancements will
now be questioned," says Internet pioneer John Sidgmore, vice chairman
of WorldCom. He doesn't expect the Internet's performance to degrade.
"But the rate at which the performance improves might slow down."
Welcome to the dark side of the business cycle. And
just because you sell tools and systems B2B doesn't make you immune
to irrational pessimism. When sentiment turns bearish everyone throttles
back. Customers sit tight. Layoffs and cost cuts ensue, even in IT.
"Just not a have-to-have right now, Frank. We';ll sit out this upgrade
and wait for your next major release." For start-ups the time for
burning through investor cash in search of a business model is over.
Billy Pidgeon, a research analyst with Jupiter's Web Technologies
Service group says, "Experimentation isn't a good model in today's
financial environment. A lot of these content plays are shaking out
hard-Pop.com being the poster child when they pulled the plug prior
to launch. It"s just a more conservative climate. And a lot of players
who were focused on broadband and video have scaled back their efforts
because they"re finding that audio is the better short-term opportunity."
It's not all Chicken Little. This too shall pass. A
zoom out of history reveals that businesses are iterated just like
technologies; we don't necessarily get them right the first time.
Could it be that interactive business models simply haven't been fully
cooked yet? The old SAT formula-subscriptions, advertising and transactions-hasn't
delivered the kind of cash flow required to make streaming media content
uniformly profitable. And web syndication, content's hope for the
future, is still in its infancy. Billy Pidgeon again: "We're starting
to see more syndication offers. It just makes sense to place content
where people already are rather than trying to use content to pull
people to someplace new. And looking forward, subscription services
will have more uptake because they'7;re easier to tweak." Meaning
that we don't have to get everything right the first time.
Truth be told, the Web still can't compete with mass
media. We may be headed for the magic kingdom of one-to-one marketing
where, like the Cheers bar, everybody knows your name and delivers
just the targeted content and advertising you want when you want it.
We'll get there, but we're not there yet. Ad agencies still want tonnage.
They'll accept the waste that comes with broadcasting to get the reach
they crave, the sheer numbers that the web can't yet provide. (Unless
we're talking Victoria's girls in their underwear. Then it';s server-crashing
numbers.) In the meantime, whether you're on the back end, the front
end, or hedging both ends against the middle, profitability is pretty
sexy in the current climate-B2C, B2B, P2P, no matter where it comes