Interview: Part II: Barry Diller: 'The Business Model For Content Is To Be Paid For It'

This story was written by Staci D. Kramer.

In part one of his interview with paidContent focusing on that shift in digital strategy, Diller, the chairman and CEO of IAC, talked about his realization that "a 'glomeration,' or multiple disparate assets, was a bad management concept." In part two, he talks about what's left at IAC, the further "editing" of its emerging businesses (yesterday, IAC confirmed RushmoreDrive.com is closing), and why it's "silly" to talk about business models for Tina Brown's Daily Beast. Edited excerpts below.

Staci D. Kramer: Citysearch. You've gone though a remake of it. You added Urbanspoon. What does it signify to you?

Barry Diller: It gives unique content. Urbanspoon is a nice, little application and it's perfect, of course, for CitySearch because of the reviews it contains and the ability for CitySearch to use that content. We've also bought Insider Pages, which is the same kind, also review based, because the more content Citysearch has, the stronger it's going to be. It has a huge audience 25-28 million uniques a month. That's huge.

Who do you see as its main competitor?

The next competitor would be Yelp, which is a bit of a different concept. Vegas.com is a good example.

In terms of the big players

For Google (NSDQ: GOOG), Yahoo (NSDQ: YHOO), Microsoft (NSDQ: MSFT), Ask, the players of search, AOL (NYSE: TWX)their efforts at local, they have never really attacked the way CItysearch has city by city, merchant by merchant, which is where Citysearch really has established itself. It has a lot of publishers, a huge number of publishers, and an awful lot of traffic in a circle of commerce. A lot of applications have online versions of themselves but none of them have really done the job. 

The directory businesses are in huge trouble.

The directories businesses still make nothing but money. They're overleveraged, they're bankrupt entities, but they still are the largest. This is all going to move online over time. Why Citysearch and Service Magic are so important to us, is because nobody has really colonized it yet completely. There's no question that local activity is going to continue forever. Organizing it online is probably the most difficult area (thumping desk for punctuation) because it is so local. There are so many merchants, so connecting it into a service that both gets you the things you want to know about all of those services in one place and then has the commerce relationships, the merchant relationshipstalk about impossible tasks. Citysearch has been working on it for 10 years and it's a third of the way there, 20 percent of the way there. It's way ahead of everybody else.

Ask isn't going to be the #1 search engine.
br>Ask is a distant player in search. Search is a big market and it's a smaller player but it has revenues for us in excess of $500 million a year so that's not nothing. We believe that can be built upon.

What needs to happen with Ask in its next iterationwith Jim leaving, with Microsoft reforming and putting a $100 million into their ad campaign?

Bing is a better effort than the one they had and they'll put a lot behind it and they'll increase their queries. Ask has been, from the period a year ago, has been each quarter increasing its queries year over year, adding audience, not as fast as we would like and we simply have to keep going and building that with the recognition that a head-on approach to Google is not going to work. What we do believe will work is giving people answers to queries rather than 10 blue links. It's hacking it through the side, through the verticals, being the best. Currently one example that is out there at the moment is being the search engine of Nascar.

Looking at the emerging businesses, do you want to keep the ones you have now or are you still winnowing?

We're winnowing. 

You're taking your time with it..

We're editing. We're going to continue to edit everywhere.

There's been some heat on the Daily Beast for not having a business model to match the success of its early branding. They got out of the gate so much faster than a lot of people would have thought but even Tina (Brown) and Caroline (Marks) admitted early on, no, we're working on the business model, we want to get the brand out there.

It's silly. The business model for content is to be paid for it. You can be paid for it either though advertising or subscriptionsor some new invention, But right now what we've got is advertising revenue and subscription revenue as the only way to be paid for content. Right?

You can do a little bit with e-commerce, but yes.

E-Commerce?

Well, with placementif you see something in a story, you can buy it through the story.

Please, that's silly. That was tried. That's never going to happen. It's not like you're in search of a business model. What we decided was to do something different with the Daily Beast. We knew we would not produce any real revenue until we had established the brand, so to speak, established the content as a place that anybody wanted to access. What we said was we're not going to take any ads. I didn't not want towe actually did in a misunderstanding, we did take an ad very early, which when I saw it, I said, 'how can you do this? This is terrible.' I don't want to take an ad now because it's not going to produce revenue for us at this stage and until we conceptualize a manner of advertising that is different than standard display, the little 2X300 box, which we don't want to do at the Daily Beast, until we figure that out, I don't want to take any advertising.

In the early period, we worked on a concept for advertising that was different than the current method of display advertising. The first rollout for that was a Bottega Veneta ad, which nobody had ever seen before. That's what we're going to pursuea magazine approach to advertising, an art approach to advertising rather than an internet approach to advertising. The 'lack of a business model' was nuts. Business model, in this case, makes no sense. There are only a couple of ways to pay for content. Either advertisers or you can charge in macro or micro subscription payments. Within that, we do think we are innovating how to do advertising in a different way than has been done before on the internet.
I guess you picked a good time to have a business that you didn't want advertising for.

Yes, it's convenient. We knew if you're going to start a content business, the idea that you're going to get any revenue to support it in the early days is foolishness.

How much time do you see for that? Do you adjust it according to the environment? Do you and Tina have

In anything like that, anything you say is bullshit. So I don't want to say it. I could say, well, two years, but a year and a half from now, it's only about 6 months old, how the hell do I know what the conditions are going to be, what success we will have achieved editorially in terms of the brand, what kind of revenue we'll be getting.  I don't know.

You have $2 billion in cash. You could acquire a lot more now than you have a year ago with that same amount money.

Probably so.

But you don't want an AOL.

We're not out there acquiring.

AOL doing the right thing with the spinoff?

Yes, profoundly.

By Staci D. Kramer