Follow the money… if you can find it

Follow the money… if you can find it

: There’s a mesmerizing exchange going on among lots of smart people looking for where the money will be in this explosion of citizens’ media (which, in this case, I broadly define as media controlled by citizens).

My quick answer: I don’t know. Wish I did. But I don’t.

The problem in this world — besides it being so young, which is when the really big bets are won and lost — is that the new things coming along now often destroy money instead of merely shifting it. CraigsList gives control to the people so they stop paying for “services” they used to pay for. There’s a lot of that going on. There will be a lot more. And it will have huge if sometimes left-field impact on various industries.

The only rule I can come up with is my First Law of Media (and Life): Bet on that which gives citizens control. And bet against those who try to maintain control apart from the public.

By that rule, mass-market TV is shrinking, niche content, aka cable (a proxy for control) is growing and so is the internet. The paid music business is shrinking, the free exchange of music is growing. And so on.

The correspondents in this discussion so far include Steve Smith, who writes a provocative column with his guesses, then Steve Rubel, Tom Watson, and Jason Calacanis, who respond to him, and then Fred Wilson, who wisely sits back and watches and then responds to them all. The nominees for the game of where-the-money-is-going, starting with Smith’s list:

: Blog content: Online content and citizens’ content may have contracted cooties in the bubble but that’s cleared up now — thanks in great measure to Google AdSense — and I have no doubt that there is money in valued content, supported by advertising. But — emblematic of so much in our future world — this world will be far more distributed than the old world of centralized marketplaces. Managing that diversity for the public (how do they find the good stuff?) and for advertisers (how do they find a critical mass of a market?) will be the major barrier to big bucks. But folks will follow this money and the infrastructure will be built (to manage metrics, network creation, targeting, and performance) and once that happens, money will flow from marketers to content creators (blog, video, audio, wiki, community, whatever) who bring together interested, targetable markets. Just as there will never be another Microsoft I doubt there will ever be another Time Inc. (thank goodness) but there will be gazillions of little ones. Think distributed.

: Vertical search: I believe vertical search will be huge, gigantic, life-changing (I think we’ll see specialized search engines tearing down not only established marketplaces but also new ones, challenging Google and Monster and eBay). But again, look at CraigsList: There won’t necessarily be a stranglehold on revenue and these search engines can distrupt as well as they can build.

: Controlled, Transparent Targeting: Smith says behaviorial targeting will be big. Yes, absolutely, but I think even that’s a bit too narrow or short-term. The problem is that as long as you serve me ads that don’t interest me, it’s a waste. Period. Marketers must get closer and closer to giving me only the ads I want.

And that will happen when the market controls the marketers, when consumers control their advertising, when targeting becomes transparent and I get to tell you what I want you to sell me. In advertising as in content: Give the citizens control and you will win; don’t and you will lose.

Let us control our advertising. Come up with the means of doing that and you will sell lots of products and the folks who enable that to happen will make money, too. I’m not sure what happens to ad agencies, but that’s not my problem.

: Mobile data: Again too narrow. When we get to 3G networks and beyond and wi-fi everywhere, we will get anything on any device anywhere anytime. Everything is mobile; there will be no difference between mobile and fixed. This ain’t just ringtones, baby. This is the stuff we really want how we want it. Give me the network and device that does that and I’ll love you. But… witness all those who went before and know that both will become commoditized. Another ouch.

: Streaming Video Ads: Again, a bit narrow and short-term. When TV explodes, when you get any piece of contenty stuff anytime you want it, that nugget — that video equivalent of a post — will need to come with and send back marketing and marketing data to make it free (and not get its knickers in knots about intellectual property). Whoever makes that happen for marketers and contenty creators will make money sometime in the future. In the meantime, yes, streaming ads will help support streaming content.

: Curious Content Combos: Yes, but having spent years trying to negotiate curious content deals, I can say it ain’t easy.

: Digital Distribution: Well, yeah, but that’s like saying somebody will make money in electricity (until it turns into a commodity).

Now to Fred’s list:

: Advertising Platforms: (Adsense, ContentMatch, Kanoodle, AudienceMatch). Yes, but in the longrun, look at DoubleClick. It’s for sale for a reason. The smart play in ad platforms, it seems, is to be the first to answer the latest, hottest need (e.g., behaviorial targeting, ad hoc network creation, specialized search, ads on blogs, ads in RSS, ads in BitTorrent video, ads in podcasts, ads targted in new ways…) and then sell at just the right moment. DoubleClick should have sold earlier — or kept up with those needs.

: Meta Data (Technorati, Blogpulse, Findory). I love the data, love the players, but none of them has yet clicked with the right business model. These guys will unquestionably enable smarter, better marketing and will make money doing that. The question is when advertisers will know they need it.

: RSS/Content Distribution: (Feedburner, Bloglines, Newsgator). I still don’t clearly see where RSS enablers make money. They’re trying to get in the middle of a content flow and I’m not sure how they’ll manage to stay there. But it’s way, way too soon to know and there are smart people working on it. I’m prepared to be surprised.

: Software: Fred says that software eventually becomes a feature war and then a commodity decline. Unless you have Microsoft Word, eh? But, of course, the chances of ever having another Microsoft Word in a world that creates Firefox are, as Fred pointed out when he sold his Microsoft stock, slight to nonexistent. Still, one could argue that people are more willing to pay for good software than content these days.

: Hosting: Fred says that at least you have some disinclination to switch off a host. But, again, open standards mean that the cost of switching is now slight: My son has switched back-and-forth between Movable Type and WordPress — and between hosts — effortlessly and frequently. Of course, I’m not as smart as my son, but he is a harbinger.

The bottom line to all this is: You can see why I’m not a VC. But that’s why I enjoy this discussion happening in public, for we all get to see the thought process — the betting process — VCs and entrpreneurs must go through (and I hope more join in).

There’s no question that there are big, society-changing things here and that people will make and lose big money on their bets. But which bets will win? Well, your guess is as good as mine. So guess, please….