Blogger's business model

“I know half of my advertising budget is wasted. I just don’t know which half.”
--19th century Philadelphia department store owner John Wannamaker

This isn't at all related to the trip, I just thought I'd say a quick note about how impressed I am by Blogger's business model.

Their business model is based off of one simple observation about media companies: content generation is the single biggest cost. Once NBC has an episode of "Friends" filmed, they can copy it, transmit it, modify it, sell it for a fraction of the cost of getting that first copy.

Part of the reason reality shows have been so successful is that they tend to be cheaper to make than sit-coms or other shows. You need a few sadistic "idea people" and a few more masochistic exhibitionists, and you're off. Since content is the most expensive part, more of your revenue is profit.

The problem with reality shows, and with much of television, is specificity of audience. The majority of Americans (even for hit shows) don't watch. The Superbowl only tops in at 140 million, which is less than half of Americans. And furthermore, even if they did watch, its unlikely that every ad you showed during the show would appeal to each of them. So there's waste, which means lost revenue.

The same twin difficulties of content generation and ad specificity applies to other forms of media, although they try to ameliorate the problem. For example, websites like the Washingtonpost.com try to keep track of your clicks and searches and from that "guess" the ads to which you'd be most likely to respond. But thinking like people is tricky for machines, as evidenced by the fact that Washingtonpost.com is trying to sell anti-wrinkle cream on me while I read an article about Saddam Hussein’s trial. (Actually, maybe they know something I don't...)

But now the consider the genius of blogger. They get people to write content absolutely free. If that isn't enough, they offer a service where you can choose a menu of advertisements to post to your blog, and then get paid for click-thrus. This encourages content writers to pick the most appropriate ads for their audience, who they supposedly know pretty well. This laser-like focusing of specificity greatly increases the chance of click-thru, which means the advertisers are less likely to spend money on ads to uninterested people.

So blogger gets people to write their own content for free, and then has them manage the ads shown to their readers. It takes a percentage of the revenue to run the webservers, and everything else is profit. It really is genius, and I wish I'd thought of it myself.

Now, if only they’d somehow solve the problem of more bloggers than editors, it would truly be the perfect medium.