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Sep 12, 2008

New Media: The Problem is Monetization, The Solution is $50.00+ eCPM

The global reach, near zero capex, and on-demand services of the Internet has spawned innovation among publishers, blogs, and web 2.0 applications. The problem is that over 90% of the new ventures depend on advertising to pay the bills. Fortunately, the bills are low, but $1.00 minus eCPM's stymy this renaissance of innovation.

How do we solve this problem?

Identifying the Problem

Low capital expenditures to develop and maintain information or other service websites leads to endless supply of providers. Whereas high printing and circulation costs limited the number of legacy publications, anyone with a computer can innovate and compete. 

Is oversupply the problem? 

No. The explosion of services provides the richness that excites the 1 billion and growing daily users of the Internet. Does the Mom in Indonesia want to share parenting experiences with the Mom in Boise? No. They don't share the same religion, nor speak the same language. Does the Dad in Michigan share work experiences with the Dad in Kyoto? No. Different economics drive the daily work flow. The world needs the diversity from millions of websites - and the services from their passionate owners.

The Internet continues to gain share of time - mindshare over other media formats. For example, Google still grows at 40% year over year on views. Thus, new media growth is exponential - bountiful to share among millions of providers.

What is the problem?
The problem is low eCPM's. And the common wisdom that this trend cannot be reversed.
Jeremy Liew, venture capitalist at Lightspeed Ventures, challenged entrepreneurs to create $50-million businesses that are ad supported. Mr. Liew states that at average eCPM's of $1.00, over 4 billion views per month would be needed to become fundable. The assumption is that $1.00- eCPM will continue, if not decline. Hundreds of analysts share this view.

Analysts further like the bigger is better model. Consolidation limits competition. It's an opinion that disregards the core history of publishing - which is to deliver value to a segmented group of readers. 

If the goal of every website is to reach 100 million viewers and 4 billion views - this forces entrepreneurs to reach for untargeted audiences. Techcrunch dominates start-ups in Silicon Valley. Now they need to write about politics and sex to reach broader audiences, but the result would be a less targeted audience that cannot be distinguished from hundreds of newspapers. The latter group is trying to change from regional dominance to world impact. 100 websites each with 100 million viewers would drive eCPM to near zero value.

The city of Santa Clara has 100,000 residents. The local weekly has 70,000 circulation reach. If the publisher is forced to reach for millions of viewers, then the paper and it's website would no longer be a targeted product. The limit is 70,000. 

Thus, the goal must be higher eCPM's for a constrained target audience. This axiom applies to local, B2B, vertical - all publishers.

The world can sustain 1 to 3 global providers that sell at $1.00 minus CPM's. This has worked for search, email, and video viewing. The world needs millions of targeted publishers, but they can't survive on $1.00 minus business model.

That's the problem - promoted by analysts who ignore the long, proud history of publishing.

The Solution is $50.00+ eCPM

To be continued... Link to Part 2

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