Last Night: The Internet Wants to Be Free, But We Need to Get Paid - Dealmaker LA
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As eyeballs flock to the Internet without a reciprocal shift in advertising revenue, the online world is scrambling for a new business model that reflects the potential and reach of online marketing. As traditional media is losing ground with its push mechanism and high cost CPM (i.e. how much it costs advertisers to get a thousand people to look at whatever it is they're hawking), and the model for getting paid for online content is still up in the air, the question on everyone's lips is "WHAT ARE WE GOING TO DO?"
The specific enigma of how to monetize content was what motivated me to attend the DealmakerLA Strategy Series at Rustic Canyon last night. Moderated by Nate Redmond of VC firm Rustic Canyon Partners the panel featured local online industry leaders like Break.com CEO Keith Richman, Mylife.com CEO Jeffrey Tinsley, PerfectMarket CTO Jay Budzik, and Middleshift Parter Vince Thompson. Apparently a lot of people wanted answers; the event was so packed people were relegated to an overflow room.
As Los Angeles positions itself to become new media content capital of the world, I expect the answer to this "How do I make money online?" conundrum wrapped in an enigma will come from this city. After all, as DealmakerLA Conference Producer Christen O'Brien put it, "If there's any place that has a handle on this it's L.A.; the successes here have something to teach us all."
The event began with an overview of the most common online business models:
#1. Consumer Subscription (like the WSJ)
#2. One-off Content (iTunes)
#3. Free to Consumer/Paid for by Advertising (like The New York Times).
Any business school professor worth his office hours will tell you the most viable option is a combination of all three (multiple revenue streams) and the big buzzword right now is "Freemium" (which means charge some users for premium services and leave the basic services free, like LinkedIn or Topix).
The strategy part of the roundtable was actually a free form discussion on optimizing these models or a combination thereof in order to make immediate revenue, because as panelist Jeffrey Tinsley put it: "We believe in making money." Rising over the din of metrics and talk of Alexa ratings, Tinsely's sage advice "Don't be afraid to start charging for something" was the most enlightening part of the talk. He held that the "biggest mistake online entrepreneurs make is thinking that just because 100% of consumers won't buy the product that nobody will"-- i.e. the fear they will be "disappointing more people than they help."
People who sell things or help people sell things to people over 25-years-old (like Amazon) and people who help those people sell things (like Google) have found a way to pay the bills, but U.S.S. Content is sinking into the ocean, namely because it is really easy for a person to find whatever they need online if they've got mad Googling skills. This is best exemplified by the Millennials, or the generation that launched a thousand marketing Powerpoints who tend not to pay for anything on the Internet because they either know how to torrent or have friends who do.
Gen Y's reluctance to spend money online is precisely the reason "the Internet wants to be free" - they built it that way on purpose (note to business owners: if you want us to pay for stuff why don't you start actually paying us? It's called a "wage motive"). If, as one panelist put it, "when times are tough people gravitate to quality," then how do you market to an entire generation that doesn't mind watching their free copy of Reality Bites with Russian subtitles? Echoing Winona Ryders' graduation speech in the opening credits of that movie, the collective answer of the DealmakerLA panelists was "I don't know." (The only answer that was remotely close to clarity was Keith Richman's imperative to either make engaging content, or have a high advertising trade-off as it seems Gen Y has blinders on when viewing and - gasp - DOESN'T CLICK ON ADS).
The scariest part about this thing is that the old system has broken down; the national debt is at 10.3 trillion and as of yet, no Harvard MBA has come up with a definitive plan for making money online.
But before you go lock yourself in a bunker with a stack of books or a Kindle, a charger and a Snuggie, the key words here are AS OF YET. Let me second Christen O'Brian's parting advice, "If you have something that is valuable, people will pay for it" even if you have to build an entirely new model for them to do so. So whether you're trying to help people lose weight or meet their wife online it comes back to the old school maxim, "fulfill a need" (and keep your fingers crossed). In essence, just keep doing what you're doing and the money will come.
Or you could just sell ringtones?
The next event in the DealmakerLA Series is (appropriately enough) "When the Going Gets Tough, the Tough Change their Business Models" on April 7.
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