Elephant Diaries: The Business Model

Here’s the ticket to big time business success on the Internet.

  1. Find some way to put your ads next to content created by someone else.
  2. Keep all of the money.
  3. Profit!

The beauty of the model of Google is the way they’ve they leveraged their investment in engineering talent to, at relatively small marginal cost, aggregate information created by others into a useful package. And slapped their own ads alongside. Peter Osnos talks about the issue this week:

[N]o one delivers more of that content online than Google does, through its search functions supported by advertising, the revenues from which go to its bottom line. The notion that “information wants to be free” is absurd when the delivery mechanism is making a fortune and the creators are getting what amounts to zilch.

This is a great business model, and I am not blaming Google for pursuing it. They have added tremendous value, for which they deserve to be financially rewarded. But it has created a problematic asymmetry.

The standard argument is that newspapers, the primary creators of most of the real-time information under discussion here, should be doing X in order to garner some of those ad dollars themselves. (Where X is “Be more Web 2.0!” or “Hyperlocal!” or “Integrate with Facebook!”) But the reality of reality of the web is that advertisers will pay substantially less for a reader on line, because ads are substantially less effective on line. The problem here is not attracing readers. Newspapers have been enormously successful at that. More people read newspapers than every before, thanks to the web. The problem is that the web advertising model will not pay for the work necessary to create the content to draw the readers.

Which means that the only way to make the web work is to figure out how to put your ads next to work done by someone else. A bit of additional marginal investment to create some modicum of value, and profit!

(I thank Jim Belshaw for bringing this to my attention.)


  1. Stop me if I’ve said this before (I have):

    Let’s not forget the real genius behind Google’s successes, be it search algorithms or advertising business models: user-centered everything.

    Amazon has gotten rich thanks to that approach, too.

    Industries that don’t succeed online often are those that hear “user-centered (anything)” and assume it’s a punchline rather than the reason the Web matters to begin with.

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