Futurewatch: The Business
One of the advantages of producing an internet TV channel for the digital media industry is that you attend a great number of events and hear from a lot of the leaders who shape the industry. As I look back at most of what I’ve seen the last few years, however, something strikes me as missing. There seems to be no end to new companies popping up and offering clever new tweaks on ways to create, publish, promote, and share digital media content—new technological advances that are nearly always trumpeted as revolutionary but most often come much closer to evolution than they do revolution. Much more difficult to find, however, are new ways or means to generate sustainable revenue, and even harder to find are new technologies aimed specifically at doing just that.
One recurring theme in most of the presentations and announcements of all the new technological baubles is the answer most often given when a question comes up about how the company plans to or is generating revenue from their new toys: "We’re working on that."
Are we? The question is worth asking, and it begs a follow-up question about the type of companies we are creating that will shape and develop our industry beyond its nascence. Are we building companies primarily for the purpose of attracting investment or acquisition based on a perceived value of what the technology might be used for or how the huge audience we want to attract might be monetized? Or are we trying to build long-term successful companies that can develop sustainable and scalable revenues that can last and grow long after we’re gone?
It’s time we start building real value, instead of just the perception of value.
In most young, emerging industries, but perhaps never truer than in the digital media industry, there is often a boom time of excitement and explosive opportunity to get in and ride the wave with a huge temptation to try to cash out at the perfect opportunity. Nothing exemplifies this more than the whopping $5.7 billion acquisition of Broadcast.com in 1999 by Yahoo! that made Mark Cuban an instant celebrity and his company one of the most "successful" in the history of the industry even to this day. It even makes the Google/YouTube deal look small in comparison. Although Cuban was certainly successful in timing the market right in April 1999, it would be hard to find anyone today who would be ready to label that deal a financial success for Yahoo!.
On the other hand, it seems likely that similar opportunities to cash out must have come to Larry Page and Sergey Brin as they began getting a foothold on the burgeoning search market with Google. They, however, came up with more than technology—they came up with a business model that not only created huge scalable revenue but fundamentally changed the way the advertising industry spends its marketing budgets.
Which is the more successful company? In fact, which is the more successful entrepreneur? Certainly no one can fault for making that deal, but by taking a different approach, Sergey Brin has become one of the wealthiest Americans, according to the Forbes 400—a continuing climb that has seen him go from 26th in 2005 to 16th in 2006 all the way to 5th in the 2007 list.
The issue of corporate motives is an important one to consider as we continue to work to develop the digital media industry from an investment gamble to an investment staple. We can continue to develop more technological baubles, shiny new toys that will always excite the churn-and-burn investor looking for a company to flip. Or, we can put some of the same energy and ingenuity into creating technological tools and business models that can generate sustainable revenue for the industry and justify long-term investment.
Initially, the onus of revenue generation must lie with the content producers and aggregators—the companies on the frontlines that sit between the content and the money, whether it’s from advertising and sponsorship, pay-per-view and subscriptions, syndication, data mining, ecommerce, or all of the above. It’s up to these companies to redefine the terms of success with both their business models and the types of investment they seek.
But this is as much an issue for the hardware, software, and service providers as it is for the content producers. If the front-end companies don’t create models for successful revenue generation, they will have less money to spend on hardware, software, and services. Therefore, while companies on the front end work to standardize, collaborate, network, and facilitate to generate revenue from digital media content, back-end companies must work to identify and develop the tools and technology that make revenue generation possible.