Closer To The Ideal

David Simon writes the single most ludicrous, misguided, uninformed post about the future of the newspapers that I’ve yet seen:

The true audience for this essay narrows necessarily to a pair of notables who have it in their power to save high-end journalism—two newspaper executives who can rescue an imploding industry and thereby achieve an essential civic good for the nation. It’s down to them. The rest of the print journalism world is in slash-and-burn mode, cutting product and then wondering why the product won’t sell, rushing to give away what remains online and wondering further why that content is held by advertisers to be valueless. The mode is full-bore panic. And yet these two individuals, representing as they do the two fundamental institutions that sit astride the profession, still have a card to play, and here’s a shard of good news: it’s the only card that ever really mattered. Arthur Sulzberger Jr. and Katharine Weymouth, publishers of The New York Times and The Washington Post, are at the helms of two organizations trying to find some separate peace with the digital revolution…

Melodramatic. Two brave souls have the power to save the noblest industry on Earth, the 4th estate, they can perform “an essential civic good for the nation”, but only if they act bravely and wisely. It is a good setup for a movie. How is it that Simon got so far out of touch with reality that he doesn’t understand how sentimental and over-heated this is?

Simon is so desperate to save the newspapers, that he wishes they could break the law:

Most of all, I know that here you are being individually asked to consider taking a bold, risk-laden stand for content—that antitrust considerations prohibit the Times and The Post, not to mention Rupert Murdoch or the other owners, from talking this through and acting in concert. Would that every U.S. newspaper publisher could meet in a bathroom somewhere and talk bluntly for fifteen minutes, this would be a hell of a lot easier.

This by itself says a lot about how doomed the newspapers are – that their supporters think the only way to save them is by breaking the law. Having written this paragraph, Simon should then draw the obvious conclusion – that there is no legal way to save the newspapers. But he is deep in denial. He has a strong emotional attachment to the newspapers, so contemplating their demise causes him too much pain – so he escapes into fantasy:

You must act. Together. On a specific date in the near future—let’s say September 1 for the sheer immediacy of it—both news organizations must inform readers that their Web sites will be free to subscribers only, and that while subscription fees can be a fraction of the price of having wood pulp flung on doorsteps, it is nonetheless a requirement for acquiring the contents of the news organizations that spend millions to properly acquire, edit, and present that work.

No half-measures, either. No TimesSelect program that charges for a handful of items and offers the rest for free, no limited availability of certain teaser articles, no bartering with aggregators for a few more crumbs of revenue through microbilling or pennies-on-the-dollar fees.

I’m familiar with “a miracle might happen” reasoning. I went through a lot of this when my father died: “The doctor says there is no hope, but a miracle might happen.” Of course, now, looking back, I can clearly see I was deluding myself. Simon is at an earlier stage. He has not yet started mourning because he believes the thing he loves can still be saved.

He then indulges a fantasy in which he is someday regarded as a hero (I assume he will someday be embarrassed that he wrote this):

And when the Justice Department lawyers arrive, briefcases in hand, to ask why America’s two national newspapers did these things in concert—resulting in a sea change within newspapering as one regional newspaper after another followed suit in pursuit of fresh, lifesaving revenue—you can answer directly: We never talked. Not a word. We read some rant in the Columbia Journalism Review that made the paywall argument. Blame the messenger.

Especially stupid is his dismissal of the idea that online ad revenue will someday be greater than what it is now:

Clearly, the product still moves. But to what purpose, when more and more readers rightly identify the immediate digitized version as superior, yet pay nothing for that version, and online advertising simply doesn’t deliver enough revenue?

He then makes a ludicrous comparison:

For the first thirty years of its existence as America’s primary entertainment medium, television was—after the initial purchase of the set itself—provided at no cost to viewers, instead subsidized by lucrative ad revenues. The notion of Americans in 1975 being asked to pay a monthly bill for their television consumption would have seemed farcical. Yet in the ensuing thirty years, we have become a nation that shells out $60, $70, or $120 in monthly cable fees; indeed, whole vistas of programming exist free of advertising revenue, subsidized entirely by subscriptions.

So, somehow the fact that Americans are willing to pay money to get more content proves that they are willing to pay money to get less content.

Maybe the most funny thing in his whole essay is where he compares the brave, visionary geniuses who run the television industry with the stupid, crass, profit-obessessed buffoons who run the newspaper industry:

But unlike television, in which industry leaders were constantly reinvesting profits in research and development, where a new technology like cable reception would be contemplated for all its potential and opportunity, the newspapering world was content to send its treasure to Wall Street, appeasing analysts and big-ticket shareholders. There was no reinvestment in programming, no intelligent contemplation of new and transformational circulation models, no thought beyond maximized short-term profit.

Oh, those damn newspaper publishers! Always obsessed with short-term profit! Why can’t they be more like the noble, far-seeing statesmen who run the television industry?

But here is the saddest paragraph of all, the one that truly shows how much Simon is gripped by the past, rather than what is to come:

In the newspaper industry, however, the fledgling efforts of new media to replicate the scope, competence, and consistency of a healthy daily paper have so far yielded little in the way of genuine competition. A blog here, a citizen journalist there, a news Web site getting under way in places where the newspaper is diminished—some of it is quite good, but none of it so far begins to achieve consistently what a vibrant newspaper, staffed with competent, paid beat reporters and editors, once offered. New-media entities are not yet able to truly cover—day after day—the society, culture, and politics of cities, states, and nations. And until new models emerge that are capable of paying reporters and editors to do such work—in effect becoming online newspapers with all the gravitas this implies—they are not going to get us anywhere close to professional journalism’s potential.

David Simon will only respect New Media once New Media is able to replicate what Old Media gives us everyday. And here, possibly, is the one and only thing that Simon and I agree on: New Media will never replicate what Old Media gave us.

This is reality: the newspapers will largely die, and nothing is going to take their place. There will be other forms of media in the future, but they won’t look or act like what the newspapers did.

Here is the only passage in the essay where he correctly notes that the newspapers have been dying for a long time, and the Internet is only speeding a long-term, secular trend:

Last, and perhaps most disastrous, the rot began at the bottom and it didn’t reach the highest rungs of the profession until far too much damage had been done. As early as the mid-1980s, the civic indifference and contempt of product inherent in chain ownership was apparent in many smaller American markets. While this was discussed in some circles, usually as a matter of mild rumination, little was done by the industry to address a dynamic by which men in Los Angeles or Chicago or New York, at the behest of Wall Street, determined what sort of journalism would be practiced in Baltimore, Denver, Hartford, or Dallas. If you happened to labor at a newspaper that was ceding its editorial ambition to the price-per-share, it may have been agony, but if you were at the Times, the Post, The Wall Street Journal, or the Los Angeles Times, you were insulated.

I’ve rarely read an essay where the author’s fear of change was so near the surface, so present in every sentence.

There are at least 2 ways to attack Simon’s ideas. One is offered by Brad Delong, who makes the case that the newspapers are often full of lies and misrepresentation, and so he generally finds his favorite blogs more interesting:

I am 6.5 times as likely to be happy that I have spent my time reading one of the top stories in my RSS reader as I am to be happy that I have spent my time reading one of the top stories printed by the New York Times and the Washington Post.

To some degree this is the “Daily Me” phenomenon: my RSS reader is now tuned to bring me things written by people I learn from, while the editors of the Washington Post and the New York Times select stories on the basis of… bizarre and incomprehensible algorithms. To some degree this is because this is because the WP and the NYT are pitched at a level far below the one I want to read at, in part because they think their audience is less clued-in than I am (Peter Baker and Helene Cooper; Dan Balz) and in part because their reporters are out of their depth (i.e., Tobin Harshaw). In part this is because they are unprofessional (i.e., Mark Mazzetti and David Johnston not situating their article in its proper context in the journalistic enterprise begun by The One-Percent Doctrine). To some degree this is because their reporters know nothing about how representative their anecdotes are and so have absolutely nothing interesting to say (Michael Wilson and Solomon Moore; Michael Rosenwald)….

But there is a bigger problem: the army of small start-ups that want a piece of the New York Times’s market. Last year I spent $30,000 to start a new political web site. That is, I spent a small sum, and attracted a small audience. But there are thousands of entrepreneurs like me. Collectively, we spend millions each year, trying to establish sites that can take market share from existing newspapers. And every dollar we spend is a torpedo aimed at the old institutions of media.

In the old days, it took millions of dollars to set up a new newspaper. USA Today took 15 years just to break even. The large scale of the needed capital acted as a barrier to entry, and protected the newspapers from competition. Now a new web site can get going for just $100,000 (I’ve previously written about the costs of websites). Nothing can bring back the old days, when the newspapers could generate high margins, safe behind the barriers that kept competition limited. But David Simon doesn’t see this. Consider the static, unchanging nature of the world in which he thinks he’s living in:

Antitrust considerations prohibit the Times and The Post, not to mention Rupert Murdoch or the other owners, from talking this through and acting in concert

See, in Simon’s world, all of the owners of all of the media companies are known, and could be called together to meet, if only it weren’t for antitrust considerations. What Simon doesn’t see is the vast army of entrepreneurs who are just off-stage, waiting for the right conditions, ready to strike.

My world is very different from Simon’s world. Here’s the world that I live in:

1.) Consumers do not want to pay for online content, so if the newspapers put up pay walls, then entrepreneurs like myself will jump up and down with pure joy, and call in all our favors, to put together the funding for new companies to replace the old newspapers.

2.) However, if a miracle happens, and suddenly consumers are willing to pay for online content, then entrepreneurs like myself will jump up and down with pure joy, and call in all our favors, to put together the funding for new companies to replace the old newspapers.

Either way, more funding will continue to be invested in online media ventures, and the endlessly growing supply will drive down everyone’s margins. More so, we are in for a prolonged period of over-supply, which will drive down everyone’s margins very low, so those businesses that were built around the assumption of healthy margins (and that would include the major newspapers) are going to go bankrupt. A prolonged period of very low margins will mean that only those ventures that are built to survive very low margins will, in fact, survive. And, obviously, the web-based ventures, free of the costs of printing plants and distribution networks, sometimes even free of having an office, can get by on some extremely narrow margins.

There are no scenarios in which the newspapers survive.

Penelope Trunk says you won’t make money from blogging. I assume she’s talking about personal blogging, otherwise her advice amounts to “You can’t make money with an online magazine” and clearly that is not true, since there are lots of profitable online magazines (like TechCrunch, Salon, etc).

Apparently, in the world of personal blogging mommy-blogging is a profitable exception:

Welcome to the world of mommy blogging, where women juggle the demands of childcare with building audiences online. It’s also, increasingly, a place where top brands battle for their attention, hoping for reviews from “real moms” and access to the valuable power of word of mouth. Being a player in the mommy blogger world can mean access to free products, getting big media buys and even trips to the red carpet in Hollywood and Caribbean cruises.

David Griner has a list of problems for businesses to avoid when they start using social media (I assume he’s thinking of Twitter, Facebook, MySpace, etc. The only site he mentions, in the past tense, is MySpace). At first, these might sound like clever warnings:

1. Lust: Loving your customers is great, but take it slow.

2. Gluttony: Don’t bite off more than you can chew.

3. Greed: It’s hard to shake hands while you’re reaching for someone’s wallet.

4. Sloth: Always avoid the temptation to “set it and forget it.”

5. Wrath: There are a lot of people out there itching for a punch in the nose, but you’re not the one to give it to them.

6. Envy: Don’t be dissuaded by other people “doing it better than you.”

7. Pride: Stay humble, rock star.

Sadly, the post is devoid of any data suggesting that these bits of advice have the slightest validity. Rather, the advice is hopeful, but fact-free:

In the ribald days of 2006, a business would sign up on MySpace and then start “friending” everyone with a pulse. These days, lusting after fans like that will get you labeled as desperate — or even as a spammer. So keep it in your pants and truly get to know the first people who connect with your brand. In return, they might just love you for life.

I’ve written before of my efforts to help The Second Road with their marketing. We spent a lot of time trying to find a marketing firm that we could hire. We were disappointed by most of the folks we talked to. They were fuzzy. What we wanted was a scientific approach. If, for instance, we spent $100 buying an ad on Facebook, how many people would that bring to our site? What if instead we hired a well known blogger? Everything needs to be tried, using small amounts of money. We wanted research, well-tested solutions, or experiments where success and failure were clearly defined. Instead, we got a lot of mush about things that are difficult to measure, for instance, “We will influence the way opinion shapers think of your site”. Okay, but how to measure that? We could potentially measure how many times the site got mentioned on blogs, but how much of that could be traced back to a particular marketing effort? If there was an uptick in mentions on prominent blogs, was that because of the efforts we’d made over the previous 3 months, or was it because of the new marketing firm we just hired? How to measure?

Susan Payton’s advice was a bit of a shock to me. I was almost offended by her tone of “let’s ignore the facts and do this anyway.” Her argument for social media marketing was wholly faith-based:

I think we need to shift our thinking about marketing results in terms of having absolute control and ability to micromanage the results and just sit back and let it happen. You won’t see results overnight, but if you use social networking sites correctly and participate in the right conversations, you will see a positive change. You will see traffic to your site increase. You will see sales climb. Just relax and let it happen.

Let’s all take a deep breath and let out all those years of being control freaks, of needing to know exactly how everything will pan out. Marketing 2.0 is happening as we speak. There is no precedence set. We are making history with internet marketing and social media. Do you want to go along for the ride or sit this one out and regret it later?

I’m unwilling to have that kind of blind faith in a strategy that has never been tried before and, frankly, I have to question the reasonableness of anyone making such a suggestion. I need some data before walking down that road. Even a few success stories, however much over-hyped, would help to justify this strategy. But where are the great breakthroughs? What company can say “We made friends with our customers on Facebook and results were amazing! Sales doubled!”

I apologize for picking on David Griner. I’m sure he is a nice guy. But his post gives me a good starting point to repeat my concerns about hype regarding “social media marketing.” Griner is apparently in the marketing industry. His blog describes him thus; “David Griner is a social media strategist for Luckie & Company. He’s also a contributor to Adweek’s blog, AdFreak.com.”

What I feel is missing from some of Griner’s advice, and from the advice I’ve been hearing from other enthusiasts of social media marketing, is a sense of ROI, some concept that maybe the dollars might be better spent elsewhere. Consider this concluding bit from Griner:

Successful social media really is easier than you’d think. If you plan ahead, pace yourself and listen more than you talk, you’ll strike a chord with existing customers and potential fans alike.

Right, but is it cost effective? I’ve no doubt that a company can forge close relationships with a few hundred people on Facebook or Twitter, if it makes enough of an effort to do so. But will those few hundred people actually be worth the effort? I’d like to see a lot more information on this, detailed studies, before I’d trust this approach.

In the comments to this post, Krista Neher writes:

Look at CNN – they sell t-shirts with headlines, other news sites are selling photos, books and more…. For both the content creators and publishers there seem to be better paths to monetization than advertising.

I wouldn’t know how to make money off of a property like CNN, because it is so broad in scope. But it came into existence before the web, and it still draws most of its profits from its offline business. Content sites that have no offline divisions tend to be much more niche oriented. I think advertising still offers the possibility of excellent profits for online properties, but the editorial strategy needs to be quite different from anything like CNN.

Lately, when I’ve been asked for advice about how to make a content site profitable, I’ve been emphasizing the need for extreme focus. Over the last 9 years, I think I’ve seen close to $2 million wasted on startups that simply were not focused enough. Most people who consider startups are somewhat aware of the need to be focused, but I think the need is especially intense for content sites that will supported by advertising.

I think it’s best if the entrepreneur starting a startup knows, before the site is created, which industry the site will get its advertising from. Then they need to create the content that will bring the customers who are interested in that industry. For instance, if an entrepreneur were creating a content site focused on fishing, they would (I hope) decide ahead of time whether the focus would be on deep sea fishing or freshwater fishing. After they make that decision they would know, roughly, which companies they could expect as advertisers. Then (hopefully) they would create the content that would bring in the ideal customers for those advertisers. They might, for instance, hire some bloggers who are already writing about fishing. For any large community (such as fishermen), it is possible to find at least a few bloggers who are in that community and who have distinguished themselves as excellent writers.

There is, of course, room on the web for authentic voices that speak about personal experiences or insights. Most of us have blogs where we write with no expectation of turning a profit (at least not in any direct, obvious way). But if the goal is a content site that lives 100% on the web and is meant to turn a profit, I think there needs to be a very high level of focus. And then, I think, the profits can be quite good.

Michael Arrington offers this fake criticism of  Federated Media:

But as advertising dollars become harder to come by, staying with Federated becomes more costly. The biggest issue is that as a market leader among tech blogs, we end up subsidizing others. An example – an advertiser comes to us with, say, a $100,000 spend. They are referred through to Federated, who if they make the sale gets a 40% cut. That cut is fine. But what Federated then does is spread that $100k around to many different blogs. In the end we may only see a small fraction of it spent on TechCrunch. This works in our favor as well when leads come in from other blogs. But given how much higher profile we are than many of the other blogs in the Federated network, a disproportionate share of leads comes in through us. In effect, we’re subsidizing our competition. As ad dollars become more scarce, the effect of that subsidy is more pronounced.

So if an advertiser comes to TechCrunch and says “Hey, we’ve got $100,000 for ads, what should we do with it?” then TechCrunch normally says “Go talk to our ad partner, Federated Media.” Then Federated Media talks to the ad buyer. I can imagine that negotiations between Federated Media and the ad buyer might drag on for weeks – the ad buyer needs to be convinced that the ads will show up on the web sites that are right for their product or service. Assuming the deal is closed, Federated Media will keep $40,000 for its troubles. The remaining $60,000 is given to the various sites that Federated Media and the ad buyer decided were right for this marketing campaign.

This is fake criticism, since Federated Media has an option where TechCrunch can negotiate the deal itself, keep most of the money, and simply serve the ads from Federated Media’s servers. But of course, TechCrunch doesn’t want to negotiate the ads itself. That would mean hiring sales people. That would be a big expense, and it would distract TechCrunch from its core mission.

Mostly, it would seem that Arrington is complaining that ad dollars are falling. Possibly he’s trying to strongarm Federated Media into lowering their cut, though in that case he is being disingenuous when he says “That cut is fine.”

Some people in the comments suggest that TechCrunch go their own way. The problem is that TechCrunch is too small. Ad buyers don’t want to negotiate 1,000 separate deals with 1,000 separate websites. Instead, they want to negotiate one deal with a company that controls an ad network that has those 1,000 websites in its network.

Being part of a network is good for TechCrunch.  Arrington complains “we’re subsidizing our competition”, but the competition creates the network that draws in the advertisers. Sharing ad dollars with the competition is a way to get more ad dollars.

On a different subject, Pete Spande, of Federated Media, emphasizes the effectiveness of social media advertising:

As the cost goes down, the investment in the relationship goes up with those that attend. I’m quite confident I could fill a hall with people if I had the best band, chef, location, etc. The number of people who would meet me in a park to hang out is much lower but the people who would come mean much more to me.

That is the trick with Social Media. It isn’t free but the low cost of the tools make it feel free from a distance.

If you go to where the people are (i.e. Facebook, Twitter, the “blogosphere,” etc) you must invest time, money, and energy to stimulate a conversation. Marketers can and do create fan pages, groups, and even applications for very little money. But creating them and getting people to use them are two very different things. The people who become a fan of you your brand within Facebook or subscribe to your brand blog’s RSS feed are the people your brand has already converted. To grow beyond that base you must invest money, time, and energy. If you are the social media equivalent of a fantastic chef the out of pocket costs are still relatively low. For most brands, they will need to invest in a private room at a restaurant or a caterer.

Does that make Conversational Marketing less attractive? No!

The benefit of Social Media isn’t the initial cost it is the return. If you invest time, money, and energy into a conversation with your potential customers you build equity with prospects at a scale that becomes extremely meaningful. As you build these relationships, you gain the ability to get more out of that relationship. They will share their feelings with new prospects, they will defend your brand in place you can’t, and they will amplify your message.

The conversation about “conversational marketing” has been going on since the 90s. The ClueTrain Manifesto was an early incarnation of the idea. For some reason, large companies are still struggling with the idea. Matthew DiPietro offers them some advice:

Nike, FedEx, Bud Light and countless others, have all put major efforts into building and leveraging branded Facebook applications. They experienced varying degrees of initial success followed by near-universal failure. All of these apps are now largely ignored. Why? Well, would you go to a dinner party where you knew the chief objective of the host was to get you to buy stuff? I wouldn’t.

There is a very simple marketing lesson to be learned here: Don’t build it, join it. And not just for social apps, but for the entirety of social media. Find the apps, sites and communities that encompass your audience and get involved in an authentic, transparent way.

Sarah Lacy used LinkedIn to try to help a friends of her get a job. It occurs to her that the depression will be very good for LinkedIn:

In terms of ego and validation, I got the pride of knowing my network could help someone I care about. And not just help someone with something minor– help someone potentially find a new job. In this case she wasn’t laid off but, in an economy like this where hundreds of thousands are, survivor’s guilt runs high. Especially if you’ve been laid off before and viscerally remember that feeling. You want to be able to do something when you hear that kind of news, and LinkedIn offers that, whether it’s an introduction or just writing a recommendation for a laid-off friend. It was one of the first times an interaction with LinkedIn gave me that social media endorphin rush that I more commonly get with Twitter, blogging, Flickr or Facebook.

Sam Zell made a terrible mistake when he bought the Tribune Company:

When the Tribune Company announced that it was filing for bankruptcy, last Monday, Sam Zell, the man who bought the company a year ago, for $8.2 billion, said that its problems were the result of a “perfect storm.” You take readers and advertisers who were already migrating away from print, and add a steep recession, and you’ve got serious trouble. What Zell failed to mention was that his acquisition of the company had buried it beneath such a heavy pile of debt that any storm at all would likely have sunk it. But although Zell was making excuses for his own mismanagement, the perfect storm is real enough, and it is threatening to destroy newspapers as we know them. Layoffs and buyouts have become routine. The Miami Herald and the San Diego Union-Tribune are reportedly on the selling block, while lawmakers in Connecticut are trying to keep two newspapers there afloat. Even the New York Times Company has slashed its dividend and announced that it would borrow against its headquarters to avoid cash-flow problems.There’s no mystery as to the source of all the trouble: advertising revenue has dried up. In the third quarter alone, it dropped eighteen per cent, or almost two billion dollars, from last year.

Newspapers are simply a method of delivering ads:

It turns out that subscribers are more expensive, not less expensive, than online readers. Yes, they pay more — but they’re not paying for intensive reporting, experienced editors, and the like. They’re paying for printing presses, mobbed-up newspaper delivery operations, and the whole enormous physical infrastructure involved in getting thousands of tonnes of newsprint delivered to millions of front doors every morning. It’s a hugely expensive operation, and its costs are nowhere near covered by subscription revenues.

There’s an old saying that you’ll never understand newspaper economics until you understand why newspaper vending machines are designed so that you can take as many papers as you like for your quarter. Newspapers are, first and last, devices for delivering ads to readers. It’s the ads which account for all the profits, not the cash coming from subscribers or people who buy their paper at the newsstand. Yes, news itself is free, nowadays. But it always has been. What we’ve been paying for all these years was never news, it was papers.

Lately there have been a lot of articles about the newspaper industry. We are told that this recession is killing off newspapers, everything is moving to the web. There is some mourning, people wonder how journalism will survive once the newspapers are gone. But consider the other side – where will the ad dollars go? When the next boom hits, America will have a lot less newspapers than it has had in the past. And much more of the public will think it natural to get their news online. Doesn’t it seem that at some point quite a bit of ad revenue must become available to online ventures?

I recall somewhere around 1995 there was a lot of talk about the Internet being a disruptive technology that would lead to the bankruptcy of a large number of older, obsolete firms. The bankruptcies did not materialize with the speed that people had expected, so somewhere around 2000 there were a number of articles explaining how the web wasn’t really a disruptive technology, instead, it was an enabling technology.

But in truth, it was a disruptive technology. And the bankruptices are finally beginning to arrive.

Earlier in the month, I was thinking out loud about the future of publishing online, especially where the news was concerned. Others are having a similar conversation:

Internet news is a classic disruptive technology. At its outset, it was simple, dirt cheap, and in many ways inferior to established journalism. But it improved over time, and once it began to rival traditional journalistic outfits in quality around the middle of this decade, the “dirt cheap” part of the equation began to dominate. When your competition can produce a roughly comparable product for a small fraction of the cost, your days are numbered.

But here’s the really important point that Christensen made that is often missed in these kinds of discussions: it’s often close to impossible for an organization built around an older technology to retool for a new, disruptive one because their cost structures just don’t allow it. The New York Times is an expensive place to run. It’s got writers, editors, typesetters, delivery trucks, an ad sales force, a big building, travel budgets, and so forth. In order to recoup those costs, they have to make a certain amount of revenue per unit of output. The institutional structure of the New York Times makes it almost impossible for it to produce news the way TPM Muckraker or Ars Technica do. The need to make payroll and cover their rent makes it almost mandatory for them to focus on their traditional core competencies because even as those markets shrink they still offer better margins than the emerging businesses.

Susan Mernit quotes Mark Cuban:

Yahoo has a very simple business. Generate traffic and monetize it. It generates traffic through services and content. It sells advertising around them both. Their strategy should be to acquire every and any company that makes their traffic, services, content or monetization stronger.”

And then offers some very good advice herself:

This is a very good strategy and a good suggestion. Problem is Yahoo! needs executives–and engineering leadership–who can a) make decisions on what to acquire and b) actually use the acquisition. Unfortunately, Yahoo!, like many big companies, has a history of acquiring companies and then not taking good advantage of the audience, product or IP they bring. Once Yahoo! has some new leadership in place–and resigns itself that putting 800 engineers on one project may not always be the saving grace some people thought it was–this strategy is a perfectly valid way to go, especially if they are prepared to bring in additional people to manage to this approach.

Traffic to websites follow a power law curve, a type of distribution that entails a few sites getting most of the traffic, followed by a long tail:

The shape of Figure #1, several hundred blogs ranked by number of inbound links, is roughly a power law distribution. Of the 433 listed blogs, the top two sites accounted for fully 5% of the inbound links between them. (They were InstaPundit and Andrew Sullivan, unsurprisingly.) The top dozen (less than 3% of the total) accounted for 20% of the inbound links, and the top 50 blogs (not quite 12%) accounted for 50% of such links.

The inbound link data is just an example: power law distributions are ubiquitous. Yahoo Groups mailing lists ranked by subscribers is a power law distribution. (Figure #2) LiveJournal users ranked by friends is a power law. (Figure #3) Jason Kottke has graphed the power law distribution of Technorati link data. The traffic to this article will be a power law, with a tiny percentage of the sites sending most of the traffic. If you run a website with more than a couple dozen pages, pick any time period where the traffic amounted to at least 1000 page views, and you will find that both the page views themselves and the traffic from the referring sites will follow power laws.

Advertising dollars on the web also follow a power law. The biggest sites get a huge percentage of the total amount of dollars spent online. This also means that medium sized sites struggle to get any advertising dollars at all. For this reason, local newspapers are probably doomed, because there offline sales are falling, and they are too small to get much of the online ad dollars:

 Those ambitious numbers, she continues, show how hard it is for local news sites to be really profitable, and underscore “why local papers will have trouble offsetting traditional media declines” with revenue from their websites.

But the report also says that those sites that either get very big, like the New York Times online, or  dominate a niche that is of interest to advertisers, will do well:

“Small website operations can be self-sustaining,” writes the report’s author, ContentNext Research Director Lauren Rich Fine, “but life is easier at the mega traffic sites.”

The challenge for all sites is garnering enough traffic and creating a discernable enough brand to make advertisers seek them out.

“Based on our research, the conversation [with advertisers] gets interesting at 200 million page views plus a month, but much more so around 800 million,” Ms. Fine writes.

…The report also looks at whether the Times could ever succeed as a web-only product, and concludes that it could — once NYT.com starts generating 1.3 billion page views a month.

By Ms. Fine’s back-of-the-envelope calculations, that kind of traffic would bring in $300 million in quarterly advertising revenues, about what the flagship paper is expected to generate in the fourth quarter.

The Times’ site had 173 million page views in October, according to ComScore Media Metrix.

Ms. Fine said sites such as Yahoo News and AOL News already get in the neighborhood of a billion page views a month, and it’s not out of the question that NYT.com could too.

“The fact that there are sites out there that are already achieving that suggests that this could work,” she said in an interview.

Analysts don’t dismiss the possibility of a major newspaper’s website eventually either replacing the print edition or making up for the continuing decline in print-ad revenues. But that kind of success is a long way off.