More on the Link Economy: End of Media as We Knew It

Apparently I haven't been the only one considering what the real state of the so-called link economy might be. Consultant and blogger Jeff Jarvis thinks that Arnon Mishkin's post about fallacies in the theory of the link economy is riddled with problems itself. I would agree with him somewhat, but find that Jarvis and Mishkin both suffer from a common malady, as do, I find, the "old" versus "new" camps when it comes to business on the Internet: an over investment in an existing point of view.

In summary, Mishkin's firm has tested what happens on a number of aggregator sites. He doesn't say how many sites were in the study, for how long they tested, how representative the aggregator sites were, nor anything else that gives you a sense of the study methodology. That generally leaves me uneasy about believing results. In fact, I mentioned in my piece earlier today that I found the click-through rate he quoted of one in three visitors as sounding high compared to other areas of click-through rates that I've seen myself and researched.

Jarvis criticizes the Mishkin post in a number of ways. Here are some of the ones I found major and of some interest:

• If you don't like links, don't allow them and you'll find out how much they're worth..
• Links may not be worth what you think they should, and they're only worth what you can make of them when an audience comes to your site.
• The assumption by Mishkin, the Associated Press, and others is that every link displayed and not clicked through is a loss of business because the aggregator delivered the value. But expecting that audience members would have clicked on one or more of the links is fallacious. Or, as Jarvis puts it, "[N]evermind the aggregator; I go to the NYTimes.com homepage or to my RSS reader â€" and I click on nothing simply because nothing interests me or nothing's new."
• Ads on aggregator pages are worth less than those on destination pages.

Online news, as an example of electronic media, is trying to make a transition to not only a new technology, but an entirely new business model. Only, few seem to admit the exact nature. Newspapers, for example, became used to a headline/story form of communication because people would have to buy the paper (or read a copy that someone else had bought) to even scan headlines. That is because newspapers were not in the information business so much as the distribution business.

Although I know long-time newspaper people would disagree, the fundamental dynamics were that papers gave away news to get people to buy the distribution mechanism: the printed pages. Subscriptions and purchased single copies didn't come close to covering the cost of gathering and producing the information known as news. Advertisers would pay to have their messages included in the distribution mechanism because so many people subscribed. The paper made enough off the advertising to pay for the information collection and production, physical distribution of papers, and a healthy profit.

So when aggregator sites allow people to view headlines from multiple news sources, they absolutely do take out a lot of the value that newspapers offer. The problem is that headlines have low value to readers, particularly when there are multiple places to see them. Unfortunately for the media companies like AP, demanding payment for the links doesn't add inherent value and won't get everyone to go to its member sites.

And even if that worked, there is still the problem of low income from online advertising. Javis mentioned a post by Simon Owens on Bloggasm (a good site, by the way, and one that I follow). Jarvis mischaracterized it as showing "anecdotally, that simple headline links didn't send him as much traffic from Huffington Post as rich links that took a lot of his content." Actually, Owens mentioned that a link prominently displayed, "with a banner headline linking to one of my articles," did orders of magnitude more than a link from one of the HuffPo user blogs. Not surprising.

But let's go a bit further here. Owens picked up 37,739 unique visitors from the HuffPo link. Now, anyone who is in the blogging business knows that you can't count on big link pick-up on every story. But say that you could get, oh, maybe ten stories a day getting 40,000 unique visitors each. That would be 400,000 hits a day. Add in a bit more for less noted stories and call it 450,000 hits a day -- a pretty generous allowance. So that would be 450 times whatever the average price per thousand that the site brought. (I know I'm leaving out complications; that's what estimates are about.)

To get a sense of online CPM (cost per thousand), we'll look at the New York Times. It starts at $8 and adds an additional $2.50 for every "layer of targeting," like saying you want people in California. Now our 450 times CPM is up to, let's be generous, $5,850. Multiply that by 365 days and you've got $2,135,250. A big number for a lone blogger, but next to nothing to maintain the infrastructure and staff of a larger news gathering organization.

In other words, if you're going to make money on the link economy, Jarvis's first point about figuring out how to make money is key. But that observation itself is also no answer. Neither is the cry that the current state of business is unfair to media companies. Both positions are unrealistic and an appeal to what should be, not what is. That industry, as we have known it, is a walking corpse, waiting for the last spark of life to flicker out. And that should be a warning to many tech-related businesses that similarly want to count on the value of links. Incoming traffic will do nothing unless you can find an inventive and novel way to make money from that traffic -- likely an approach that no one has discovered before. To chide that companies must simply get better at business is equivalent to telling a drowning man that he had better learn to swim. In the abstract, it's correct enough, but in the actual situation, the advice does nothing useful.

Image via stock.xchng user nkzs, site standard license.