Zac Echola is muffin but trouble

Think it: Generosity as a business model

Published on 09/03/08
by Zac Echola

In order to compete you must cooperate

That statement seems counterintuitive, but hear me out.

Consider the prisoner’s dilemma, a classic study in game theory:

I keep quiet I snitch
You keep quiet We both serve 1 year I go free, you get 5 years
You snitch You go free, I get 5 years We both serve 3 years

Let’s say you and I rob a bank. We’re brought into separate interrogation rooms and the cops give us options: snitch on the other guy and go free or keep quiet and risk getting 3 years if we both snitch or 5 if only one of us snitches. Can you trust me? Can I trust you?

Obviously the matrix has arbitrary numbers. The worst case scenario for both of us is if we both snitch on each other, serving a total of 6 years, the best is if we both keep quiet, serving a total of 2 years.

What if we changed the matrix?

I keep quiet I snitch
You keep quiet We both serve 3 years I go free, you get 10 years
You snitch You go free, I get 10 years We both serve 4 years

Let’s assume we were terribly arrogant about our bank robbing prowess or just stupid like most criminals and didn’t come up with a contingency for this scenario. Since we don’t know what the other person will do, we have to base our decision on some simple logic.

It’s now most beneficial for both of us to take our chances and point the finger. At best we go free, at worst we serve only 8 years total. This disparity in this fictional legal system gives us a positive expectation value to snitch. By snitching we can expect to only spend 2 years prison or a total of 4 years divided by 2 outcomes. By not snitching, we expect 6.5 years in prison or a total of 13 years divided by two outcomes. Obviously, we have to assume these options would be given to us ad infinitum to beat variation to get these numbers, but in the short term it makes sense.

Mathematically it looks like this:

Snitching = 0 + 4 years / 2 possibilities = 2 years.

Not snitching = 10 + 3 years / 2 possibilities = 6.5 years.

Without worrying too much about silly math games, the point is that the matrix changed in our favor (insert obvious The Matrix reference here). Duh. Change happens. Sometimes good, sometimes bad. No matter which way it breaks, you have to adapt.

Change happened to our industry and now we can’t continue making the same decisions. If we continue to keep quiet, we’re making a bad decision in the long run. We have to adapt our way of thinking to a new world model. We shouldn’t ask how change happened or what we could have done to stop it–the world we live in is a much more mathematically complex place than these games–we should ask how we can leverage our situation now.

Now consider the Tragedy of the Commons.

I have a cow. You have a cow. We all have cows. And we all live in a community where we raise our cows on our own lawns. We drink their milk and what we don’t use, we turn into cheese and trade for other items like bread, meat, Wii consoles and Diaper Genies.

But one day, I get the bright idea that I can take my cow out to pasture in the common park. I do this at night, in secret, while the rest of you play Wii and raise babies. My cow does much better than your cows and starts producing more and more excess milk, which I sell to buy cooler Wii games and expensive meats. As long as I can keep this secret to myself, I’m going to do better than you.

But then one day someone I like, say, Howard Owens, comes over to my house. He asks, “Hey man, how do you afford all these delicious meats?” I decide to let Howard in on my secret and he starts producing more cheese and eventually buys some sweet gold chains. He tells Ryan Sholin and Ryan blogs about it, spilling the beans to everybody. The common park fills up with all kinds of people and their cows. It has been democratized and we’re back to where we started, except now we ruined the park. You ruined everything, Ryan…

That’s the old way to think of media. We had a few people hogging the park, dominating communication and most of us were stuck there watching from our homes. The park had certain barriers to entry (like broadcast licenses or high costs of production). That’s just not the case with the Web.

We live in a post scarcity economy (a.k.a. abundance economy) now. Now, grass that’s already been eaten by some cows still has value to cows, forever. The grass never goes away and grass grows every day. It’s always green for the cows that want it, so long as you don’t put up a fence (which is futile). But this new world gets crazier, your cows can now occupy more space faster. They can be two places at once. Your patch of grass can also be your neighbors’ patches at the same time. These cows can teleport, man. It’s nuts out there.

Ground Zero

The old investment edict “buy land because they’re not making it anymore” no longer applies to our community. All because of a little number: Zero.

Gone are the days of false scarcity (i.e. airwaves, static parks) and expensive resources (i.e. ink, paper and shipping) where the prices continue to rise. The falling costs of technology make distribution easier. Chris Anderson recently wrote about this phenomena in this Wired article and he’s been working through the problem for quite some time on his blog. As bandwidth, storage and processing power drop in price, they approach zero in cost and we’re free to waste it by giving away free email, free video hosting, free content, free software, free everything. Obviously the cost of bandwidth, storage and processors isn’t technically zero, but because of the shear volume of it there’s an economy of scale where it’s more valuable to give one product away in exchange for market share and (this is the tricky part) find something else of value to profit from.

If you want to learn more about how free economies work, Mike Masnick covers free in a fun series here.

Free works best in the aggregate for companies like Google who don’t need to worry about how to create content. They just sort data and make it easier to find. For those of us in the paragraph factories, we must find a way to make our content easier to find. But it goes beyond search engine optimization and findability once you’ve got people on your site. You must control a niche (i.e. local news, or regional farming, gadgets, anything). To do that, you must cull the best from others, be where you’re readers are and help your readers help you. That means being a part of a community.

Listen to your mother: share

I know I keep harping about this, but we have to get in front of the conversations going on out there. The whole damn point of the Internet is share media and to “create copies,” as Kevin Kelly puts it; Content can be two–or two million–places at once. Be where your readers are. Unbundle your media. Separate it from your site. Ignore copyright. It sounds like heresy. Creating and controlling information has always been our bread and butter. It still is, but the game has changed. Distribution pipes no longer work and any attempt to fake them on the Web only obfuscates our inevitable failure.

The number one thing you can do to increase readership on your Web site is to make all your content freely available. Get rid of the pay walls tomorrow and I’ll personally guarantee you double digit growth within 18 months. You don’t have to change any processes in your organization. You don’t need to rewrite for the Web. There’s no corporate philosophy shift that needs to happen. Keep posting items at midnight, don’t do video, do absolutely nothing more than open your archives to Google’s and your readers eyes. Just stop trying the transaction model. It worked for old situations, but now it harms your bottom line. Give your site away and they will come in droves. They will find you.

The second thing you need to do: Ignore copyright. No this doesn’t mean letting your competition post your stories without crediting you. Don’t let the local high school post your photos without crediting you. Don’t let Yahoo! News take your content unless they provide a link to you. Give it to them on the condition they provide links back to you. Free of any other charges. Links, in the eyes of search engines, are points. The more sites that link to you, the higher your points, the more relevant Google sees your page. When someone searches for content you can provide, you show up first or second or third and they will come.

The third thing you need to do: Give it away. Unbundle your media. Put it on other sites. Right now, take your content and feed it out to people. Let other sites syndicate your content. Let people find it where they are. Those that don’t find you in searches can find you other places. All links should lead to Rome. They will come.

Lastly, you need to take what others offer you. Pull in the headlines from your competition. Scrape craigslist for classifieds. Syndicate local bloggers. Pull event listings from Upcoming.org. Link to anything and everything you can. Every day. If you don’t have content, link to someone else’s content. If you only do original reporting, you’re doing your site and your community a disservice. Look at how popular blogs like BoingBoing and Kottke constantly link other sites. Hell, look at Drudge right now. What do you see? Links upon links upon links. Sending people away secures page views for yourself. You just have to curate links for your target community.

B-b-but that not journalism! Correct. Journalism isn’t dead, far from it, but the game has changed. We still need to produce content. But we are in the media business. Journalism is just a part of that. Sorry to break it to you. This is good in ways not many people can comprehend yet, though, and we’re on the cusp of some very interesting times in the years ahead.

If you want to really secure your future as a leader in whatever content you provide, start by being a good neighbor.

End game

When I reply to someone on twitter, in public view, the message is meant for the recipient, but others can listen in. One-to-one conversation can also be a one-to-many conversation at the same time. I haven’t read Clay Shirky’s new book yet, but from what I gather this is part of his thesis. This is what I mean when I say the game has changed. We don’t broadcast or have conversation over a few drinks. We do both at the same time. And boy does it sometimes lead to awkward social situations.

But fear of doing something wrong or fear of losing control of the conversation shouldn’t detract us. We’ve already done something wrong. We’ve already lost control. We’ve been trying to play a new game with an old set of rules.

Now, I know so much of this just sounds silly. We should curate conversations?! We talk a lot about attention economies and jostling for eyeballs because on the Web, every site potentially competes for the same people. True to a point. We need to step back and look at the bigger picture.

Yes, people spend a certain amount of time on the Web per day/week/month and what they find is usually all they get. If they’ve found someone else’s content, then they probably aren’t looking at yours. I get that. But we should ask a different question than “How do I get the people looking at site A to look at my site, site B?” We should ask how site A and site B can complement each other, distribute the workload, maximize audience and share in the benefits.

Before we look at a couple examples, I want to get back to ground zero: Free. Giving your content away doesn’t mean you’re going to lose the value of that information. If an article is worth one dollar and you give it away for free, you have to make that dollar back somehow to break even. This is the trade-off. Market share has no business value if you can’t convert size and type of community into dollars.

In reality, a page view has a cost of only a tiny fraction of a cent. Thousands of eyes on an article costs basically nothing to distribute, so charging anything more than a micro-payment flies in the face of market wisdom. And micro-payments don’t work for most products. They create a psychological hangup many people can’t or won’t accept.

So then, who takes on the costs of production and distribution? Advertisers.

Because the cost of producing a page costs so little, you can sell ads for huge returns. But, unfortunately we’re hung up on an old model that involves selling banners or tile ads or large formats to larger companies in our communities. We put ad reps feet to pavement and we go looking for big dollars.

Dumb. Dumb. Dumb. Well, not so dumb. Yes, do that for your high profile, network-wide advertising or vertical sales, but think smaller. Every Tom, Dick and Harry sells their stuff on eBay and craigslist. There’s about bajillion craft shows all over the Midwest in the summer. These people have things to sell and they can’t afford TV or newspaper spots. They have local goods they want to sell locally. So they go to Google. They go to Yahoo! They go to Facebook. They fill out a form and drop $5-$20. The simple, highly-targeted ads direct people to sites where these merchants sell their products using freely available Web tools and you get none of that money. Web forms don’t need a commission. Nearly pure profit slips out of your grasp every second you delay.

There’s a new game in town. Your advertising needs to be as granular and as unbundled as your content. It needs context. Impressions are great, but advertisers are catching on. They want click-throughs and conversions, so make it easier for them to tap your communities. If you target your ads right, your users might actually find advertising useful rather than a nuisance.

Once you have the hang of that, seriously consider sharing your business model. Let other sites handle your advertising. Google does it. Amazon does it. There’s no reason you shouldn’t figure out how to share advertising, too. Build a relationship with your community to keep it healthy. This one really flies in the face of common sense and may not even work for smaller communities. That doesn’t mean you shouldn’t try.

Tying everything together

Ok, I think this has been the longest post I’ve written yet. So let’s take a second and breathe deep. In a nice digestible list, here’s what we’ve covered so far:

  • Pick a community. It can be a geographical region, like North Dakota or it can be a theme like Tech news.
  • Start creating content. Make it evergreen. Let people into your archives.
  • Start curating content when it is relevant to your community.
  • Give others in your chosen community opportunity to share what you’ve got. This is how you build a relationship within the network.
  • Once you’ve built up a large enough community of readers, you need to fill space with advertising that favors the content.
  • Keep your community healthy by creating advertising markets to stimulate its growth.

Does curating work? Compare Drudge to the NYTimes.com. Last July Drudge had one-third as many readers as New York Times. Love him or hate him, He’s Just One Man.

Does opening up your archives work? Hell yeah it does. See that bump in people on the graph linked above? I bet you can guess when they opened their archives.

I want to talk about some sites that embody many of these principles.

The Hype Machine aggregates music posted to music blogs. It does nothing more, really. Just hit play on a song on the main page and listen to music bloggers post. But the site does some awesome stuff. Firstly it links to every blog it culls music from. Giving exposure to some great music blogs in a very, very crowded niche. Secondly, it supports itself financially through music sales at iTunes, Amazon and eMusic, as part of their ad networks. Lots of songs have links to where you can buy the tune.

Exposure to music blogs, so they benefit with link juice and spill over from click throughs. Exposure to music merchants, so they benefit through sales which also have kickbacks to the They Hype Machine. The whole site is a sharing machine. Just turn it on and let it do magic.

Everyblock aggregates data on a local level, breaking it down to the street level. The site culls information from official government sources as well as craigslist, Upcoming.org, flickr and others to give you a picture of what’s going on in your neighborhood. Throw in some story-based news and locally targeted advertising and you have a whole new way to think about news Web sites.

Lastly, this one is small potatoes, but it’s worth noting, because we’re going to start seeing more of it. There’s a small group of papers in Minnesota that started Minnesota Reader. Using only Drupal and some freely available feeds from newspapers across the state (including papers from Forum Communications, my employer), they’ve started aggregating Minnesota news. It’s basically the Google Reader OPML file we’ve set up for our editors in the state turned to face the public. It’s a bit clunky right now, but I think the concept has some interesting potential.

Take a look at the page for Woodbury Bulletin, one of the Forum Comm papers. On some of the posts, our RSS ads show up. On their page, with links back to our marketplace product. Some people may feel very uneasy about something like this. I don’t. It’s our RSS feed, so we basically control our content on their site.

Go out and grow your audience. Expand your network. People will gather around your content. Some of those people will support you by clicking on ads, more will given the right ad in the right context (either on your product or from somewhere else in your network).

All links lead to Rome.

The end. Or is it?

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