Chris Anderson's Amazing Ability to State the Obvious

The web has been abuzz all week with Anderson's latest treatise in the WSJ - The Economics of Giving it Away.

Here are some of the comments the article has generated across the web:

"Chris, what a fabulous perspective! I have been wondering how the changing economy might impact many of these web-based companies"

"Chris, great commentary on the current and future state of online business."

"I wanted to make a quick post this morning to point my readers toward a great piece in the Wall Street Journal [...] He talks about making money in this economic climate. "

Want a quick summary of Chris's "Fabulously Great" article?

If companies want to succeed, they'll have to sell something.

Hmmm...ya don't say, Chris?

That's some enlightening commentary right there...sure taught me a thing or two about a thing or two.

Ok, maybe I'm being overly critical here but I just don't get all the hubbub when someone who should be seeing ahead of the curve is pretty much reciting standard industrial-era business acumen. Am I missing something here or did Mr. Anderson pretty much regurgitate most media companies' business models (advertising) and the model for most software companies for the last 15 years (shareware)?

Chris states, "digital economics have spurred entirely new business models, such as "Freemium," a free version supported by a paid premium version. This model uses free as a form of marketing to put the product in the hands of the maximum number of people, converting just a small fraction to paying customers.", as if this were something new.

I was writing shareware when I was 15 years old - we'd give away a "Lite" version of the application and charge for the "Pro" version - it's been a pretty common practice for a long while now but for some reason if you slap a new brand ("freemium") on an old box and tell people it's new, they really think it is.

And when Chris talks about advertising-based models I really want to crack up. Network television has been 'free' for decades and is supported by ads - what's so unique about applying this model to media businesses on the web?

I just feel like it's 2000/2001 all over again and I'm reading some of the same articles for the 1000th time.

Let's get some fresh thoughts going on out there...stating the obvious isn't gonna help anyone out of the current predicament this country is in. It's as good as saying "banks should've done a better job at managing their risk" and hoping that will change things the next time around.

Chris, give us something we can really sink our teeth into next time!

Beware the Banks and Brokers!

After reading a post by Fred Wilson yesterday, I started to get a little concerned about an impending economic downturn. While it's always been in the back of my head - considering we've been in a bull market for the last 4 years - I haven't paid it much mind in a while.

Now Fred was talking about a downturn specific to the web - I mean, that's where he makes his bread and butter so it's something that is near and dear to his heart - but my concern is more broad based. I think we can see a major downturn hit the stock market and that will have a reverberating effect throughout the economy, and especially in the fragile tech space.

Here's my take:

After working on Wall Street for a few years you learn a couple of tricks. One of which is, if you want to know which way the market is headed six months in advance, keep an eye on the banks and brokerages.

Once you see the banks and brokerages start to take a dive, you know that the rest of Wall Street isn't too far off - we'll call them a "leading indicator". Every major bear market was preceded by sub-par results in the banks and brokerages.

Now, much of this is going to have to do with the recent mortgage crisis the country has plunged into. A lot of these banks are going to take a monster hit on all of these defaults we're seeing.

In fact, the Wall Street Journal just reported that Morgan Stanley (NYSE: MS) took a 17% hit to Net Income this quarter. Lehman Brothers (NYSE: LEH) showed an increase in profits but took a hit in fixed income due to the mortgage issues.

I also think that many of the banks and brokerages have been reaping the benefits of an unsustainable bull market - the market has been up almost 20% a year for the last 4 years - that means that when this market heads south (or stops rocketing higher) these companies can no longer use their trading and investment banking fees to compensate for losses in other divisions. And that my friends means the brokerages will be headed south for the winter.

When that happens many of the IPO dreams and lofty valuations for many of today's web startups will go into hibernation for the winter as well. But in all fairness this "dot-com renaissance" we've been seeing isn't solely predicated on the public equity markets. But at the very least I think we'll see VC's and other private equity firms tighten the purse strings a bit.

Like I said in my comment to Fred's post, I don't think we're headed for an all out crash in the Internet space, but with the market looking like it might take a bath, investors and entrepreneurs alike need to be cautious now and prepare for a potentially tough winter.

Some steps to take:

1. Batten down the hatches and lower your burn rate: If you're currently supporting high fixed costs figure out ways that you can right-size your Income statement if revenue suddenly takes a hit (i.e. if revenue drops 25%, how can you cut costs by 25%?).

2. Stockpile your supplies: For investors and entrepreneurs this means you need to get capitalized! If you've got enough cash on hand and this downturn isn't "too" bad, you'll be just fine. But for those operating on a shoe string budget already, you might be in for even tougher times if this downturn hits.

3. Focus on the Fundamentals: At the end of the day most of this stuff is beyond any of our control, so there's not much we can do by worrying. So focus on your business - continue to execute on all fronts and proceed with your plan. Don't take your eye off the ball for a single second.

I think James Dean said it best - "Dream as if you'll live forever; live as if you'll die tomorrow."

I prefer, "Act like your company will be around forever; but plan like it could be gone tomorrow."

Random Thoughts...

I've been trying to come up with a really good topic for my next blog post - the last few were just sort of ramblings about current news - but I can't seem to think of anything that is "entertaining, enlightening and informative. " There's a ton of stuff coming out in the news these days about mergers, rounds of funding, new gadgets, etc., etc. But with all the other blogs out there covering this stuff in depth why should my take on the situation matter so much?

The real question that's been racking my brain is, "how do I differentiate myself from the millions (ok maybe not millions) of other blogs covering the EXACT same topics?"

I'm not quite sure of the answer yet but I have a few ideas in mind.

What I'll do for the time being is simply jot down a few of the memes that have been popping up on my radar as of late.

I. Wall Street Journal: To Fee or not to Fee

There are a number of VC's/Bloggers/Entrepreneurs that I really admire who have been talking about the reasons for WSJ.com to go for a free model . BusinessWeek writes one of the most interesting pieces for why it may or may not make sense for WSJ.com to go free. Fred Wilson over at Union Square Ventures has also been writing about this topic since the News Corp./Down Jones merger was announced.

In the end this is going to boil down to a math equation on Mr. Murdoch's desk that will look something like this:

$65million = Annual subscription revenue from WSJ.com online

So the question becomes: At a $30 CPM rate (WSJ could probably get more but we'll be conservative) how many page views would it take to make up for the lost subscription revenue?

Well, let's do the math...

$30 * X CPM's = $65 million
X = 2,166,666 CPM's

Which translates into 2,166,666,000 page views (2.16 billion for those who have a hard time processing that many zero's).

Over the course of 12 months, WSJ will have to serve up 180.5 million pages per month in order to hit that mark. FYI: Compared to some of the larger social networks out there, 180 million page views isn't a lot.

WSJ currently does 1.5 million unique visitors per month - that's a joke when we compare it to some of the larger online financial sites. According to comScore, the top financial sites had the following unique visitors and page views during the month of June:

MSN Money: 12.7 million uniques and 180 million pages viewed
Yahoo! Finance: 10.4 million uniques and 327 million pages viewed
AOL Money: 10.5 million uniques and 206 million pages viewed
CNN Money: 5.4 million unqiues and 50 million pages viewed

Based on this data it's clear that WSJ stands a good chance of replacing its lost subscription revenue with advertising dollars. But, it's still not as "safe" as sticking with a subscription model. The thing that none of these bloggers/magazines have taken into account is the nature of investors.

I was a broker for a number of years and I know from firsthand experience that investors don't mind paying out the nose for good information. And WSJ undoubtedly has some of the best financial editorial on the planet. And with subscription revenue you don't have the ups and downs of ad-based revenue - it's like a utility company, you can reasonably predict how much revenue you'll do each year...that's very comforting for company owners.

Now, that isn't to say that WSJ.com shouldn't begin giving some of its content away for free - I mean, it's pretty obvious that there's going to be a dramatic shift in the investing demographic. As the baby boomers get older, stop investing aggressively (and sadly, begin passing away), this whole web-savvy demographic will take their places as the "investing demographic". This audience won't have a tough time navigating a web site and will be used to getting free access to content.

So to preempt this shift and gain tomorrow's investing audience today, I think WSJ should begin giving free access to some of its content.

Which content should it be? I'm not quite sure.

At the end of the day, yesterday's news is less valuable than today's so maybe giving away older articles would be helpful. It'll allow them to maintain the subscription revenue for those who want their information in a timely manner while still allowing bloggers and those in the non-mainstream press to openly cite and link to WSJ content (which will be very important for building loyalty, brand and traffic).

II. The State of the Web

There has been a ton of talk on this topic...Everybody from Mavericks owner Mark Cuban to the guys over at Read/Write Web have been talking about where we are in the evolution of the web as both a technology and a media platform.

They both raise interesting issues - Read/Write Web focuses more on where we are in the "technology cycle" and Cuban focuses more the entertainment value of the web with respect to its current infrastructure.

The argument that Read/Write Web puts forth is interesting in that they try to map the standard "business cycle" to an underlying phenomenon they view as a "technology cycle". Joseph Schumpeter and other Austrian economists would definitely find this to be a compelling case for their theories with respect to business cycles and economic fluctuations.

Cuban looks even deeper into the technology by arguing that it's not the software that needs innovating but rather the infrastructure (or internet access speeds into the home) is what needs to be upgraded before we'll see another wave of innovation on the web.

I'm not sure who (if any) I agree with yet. I'm still pondering these issues myself but it's definitely forcing my brain to think in a different direction (which I always enjoy).

That's about it for me today, but expect more posts about the "state of the web" throughout the rest of this week/month/year. :)