Middlemen's Faulty Belief


Batu Caves, Selangor, Malaysia, 18 July 2006   – © Vin Crosbie

If the Internet distributes information more efficiently and eliminates the middlemen, then why do so many owners and operators of traditional media — who are the middlemen — believe that they will make as much, if not more, money as the Internet becomes the primary means for distributing information?

That belief doesn’t make sense.

Earlier this year at a conference in Paris, I pointed out to the newspaper industry that it is earning between one-twentieth and one-hundredth as much per website user as print reader. In April, Scott Karp independently analyzed further why media companies shouldn’t make as much online as in their legacy modes.

His post made me wondering if there are historical precedents. When the Industrial Revolution began, did purveyors of cloth, coal, iron, lumber, and other goods that industrialization would revolutionize, believe that they too could maintain their previous profit margins? The answer is yes, those purveyors believed that industrialization would just markedly decrease their costs of production, enlarging their profit margins. But as the Austro-American guru of management Peter Drucker (1909-2005) noted, “Not only did the cost of production markedly decline, but so did the value people were willing to pay for the products.”

The value people were willing to pay for those products declined. And that was when those products had been scarce. We today live an era when we’re already awash in information. It’s surplus, not scarce.

So, why do owners and opperators of traditional media companies believe that they will make as much, if not more, money as they switch to the Internet rather than using paper or radio or television as their primary means for distributing information? Wishful thinking. Belief. Faith.

But belief isn’t business; it’s religion. Root business concepts in reality, not in belief or faith. During Web 1.0, too many executives rooted their business plans in belief or faith. Unfortunately, the false idol they worshiped then turned out to be the Pets.com sock-puppet.

Today is scarily similar. I’m seeing too many Internet trade journal stories about how this or that ‘business trend’ is underway because thousands of executives hope to do this or that. Poppycock! Instead, show me thousands of executives who are successfully doing this or that. Hope is wonderful thing (and also the name of a girl I used to go out), but business plans shouldn’t be rooted in hope. (Perhaps I too should have stayed with Prudence in 1976 rather than leaving her for Hope, but Prudence is a story for another day.)

Unless you publish or broadcast religious content, hope, faith, and belief don’t have any place in media business plans. Including plans from startups, too.

So, if you’re the owner or operator of a media who believes that you will make as much, if not more, money online as you did in print or radio or television, get your head out of the clouds. That’s not heaven you’ve been glimpsing. It’s aerial fog.

No, the world isn’t hopeless. Yes, you can make much more online than you’re making online now, just not what you were making when you’re business was based upon scarcity and Industrial Era technologies such as printing presses and transmitters. Your world is changing. Or as Ad Age‘s Simon Dumenco earlier this year wrote about the magazine industry’s perchant for traveling in limousines, We’re Sorry Ms. Wintour, but You’ll Have to Walk. Please use a map, don’t just hope or believe that you know where you’re going.

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