Assuming Michael Arrington is able to find a mate, his descendants may in 3.5 million years have normal reasoning abilities.
TechCrunch is an awful enough blog for covering worthless businesses, but now it’s criticizing a legitimate company, 37signals, for giving bad advice? It’s one thing to be an idiot, but it’s simply unacceptable for Michael Arrington to criticize a company run by people 200x smarter than him.
In his recent post, Arrington claims that it’s better to provide a free service than to charge for it. I wonder what would happen to Microsoft’s $14 billion in Net Profit if they went free. I doubt they’d even generate $1 billion on advertising.
Simply stated, Michael Arrington does not understand business. He barely understands consumers and what people care about, but to now pretend like he’s a business advisor is just insane. The only reason I would ever put Michael Arrington on my board is if I had a product targeted at the fly-by-night TechCrunch crowd that tries something out and then forgets about it two days later. What product might that be? I have no idea.
Why Do Paid Products Make Sense?
1. When you make more money than you would by being free. That is the only answer that does and should matter. If you’re running a business, your primary objective is to turn a profit. Yes, we all want to do something good for the world, but the primary purpose of a company is to make money. You can spin it however you like, but Apple’s primary purpose is to make money and they are damn good at it as is Google.
There is a reason Google works by being free. Google is aggregating information and creating mass market tools. Why wouldn’t you pay to search via Google? Because the next best free alternative, MSN or Yahoo, isn’t so awful. That being said, why does Lexis-Nexis thrive? It thrives because it has valuable information that people are willing to pay for. What’s the next alternative? West Law. That’s still paid. The free alternative? Google. Sorry retards, Google won’t quite do what Lexis-Nexis does for you at $15,000 a pop.
Furthermore, there are plenty of services that are far better paid than free. Would you go to a doctor who said “Hey, my services are free, you just have to wear these sunglasses that make you watch ads all day.” No, you wouldn’t. Would you go to a lawyer who said, “Just refer to my web site, it’s free!” No, you wouldn’t. That doesn’t mean that you wouldn’t visit a medical site or legal site to do some prior research, but when things matter, you pay for them.
It is very difficult to make the same revenue as you would from a paid product when you go free. The New York Times already made a blunder and HotorNot.com will regret its decision to go free within a few years.
Michael Arrington needs to grow a brain. If he was really that great at picking start-up winners and advising them, he’d stop TechCrunch and go invest in them. So Arrington, please stick to your core incompetency - picking stupid internet companies to write about and avoid giving business lessons to young entrepreneurs who were taught by Paul Graham that free social bookmarking sites for teens who have myopia coded in LISP are the only way to go.
Google AdSense is not capable of supporting the online economy; sorry Mike.
I agree with you here, the TechCrunch bash agaisnt 37 Signals is a joke. That said, I wanted to post on your original NYT post, but was a bit late to the conversation. Mentioning it again here, I felt compelled to post.
First, you ask “Can the NYT really generate 3 MM new visitors per month to its site with this move?”. Though they might not hit that exactly, I think they’ll get close. The times really has a lot of gravity in the media world, and the locked door of TimesSelect negated a portion of that.
More importantly though, I think this is part of the larger strategy towards moving away from print. Right now, when you buy the print product of the NYT, what you pay doesn’t even pay for the paper it’s printed on. The entire paper is supported by advertising. The circulation is constantly decreasing. Despite the fact that you pay for the Times, their business model is built on print advertising, and that revenue source will continue to decrease.
They essentially have a castle built on a swamp. In the short term, it is very expensive to move the castle, but in the long term, waiting until it sinks is going to cost more. I think the Times Select wall coming down is them starting to move the castle. In the short term, would it be cheaper to stay put? Fuck yes! But it would be worse for them in the long term.
That move is rare in current media business in that they are hurting an existing revenue stream to invest in a future one. It’s painful to do, but the lack of balls to do it is what is killing other major media companies right now.
You could pose an argument that the NYT should exist purely as a pay paper online. If anyone could pull it off - in general world news, not financial news - it might be the NYT. They’re going to lose stature no matter what, but I would guess that they’d lose more stature and revenue by following that sort of path. Cheers.
@ DVA
I think you make some valid points. That being said, WSJ has done very well being a paid service online. The real question is “What value does the information you have provide?”
I think with people like Thomas Friedman, there are enough hardcore readers who will pay to read his stories.
The whole idea that blog links can blow up traffic is nice, but it doesn’t really translate in the real world. That being said, we’ll be installing an analytics package on TechDumpster to get a better read on reader stickiness.
@ Living in First Life: Thanks for responding. It’s an interesting discussion.
“The whole idea that blog links can blow up traffic is nice, but it doesn’t really translate in the real world.” Hm, what do you mean by that? I’ll follow your attitude and remain anonymous, but I’ve seen on smaller “real world” news sites that blogging can cause 10-25% in traffic at different points. I’m not sure how that scales to an already huge organization like NYT, though to be honest, I think it might increase rather than decrease. That’s just a guess, but it’s based on the fact that the NYT isn’t some tech echo chamber. There are a lot of blogs out there on a lot of topics, and the NYT produces great content a lot of them want to talk about and are more likely to now.
“That being said, WSJ has done very well being a paid service online.” I agree, and I think they could have remained one. But then they wouldn’t be the New York Times, they would morph into a different sort of new company, more like the WSJ or The Economist. Both of those are fine media organizations, and successful models. But the NYT wants to be the paper of note, isn’t their (unofficial) slogan something like “a first draft of history, as it happens.” To do that, they need to hit the biggest (educated) audience possible, not a select paying elite. And the best way to monetize a huge audience right now is advertising.
Also, I think the thing with pay content is, it has to help you make money. The 37 Signals products aren’t paid for by people because they like to be in the know, it’s because they’re productivity tools that have a ROI. Same with the WSJ. It has distinct financial implications. NYT does for some users, but for others its more intangible, and thus you’re less likely to want to pay for it.
All of which is to say, for many other products, I would agree with you. I hate the idea of “just slap some ads on it, and you have a business model.” Especially when the ad revenue is based on a CPA. I just think the NYT is a special case in the opposite direction. Cheers!
I hope my digression here is ok, given that we’re talking about monetizing with advertising versus monetizing with fees: This is a side pet-peeve of mine, but I believe there is still a place for non-CPA advertising online, branding type ads. Case in point: when “A History of Violence” was released, it had a pretty big ad campaign on a lot of (non-tech) sites I read. I was interested in the film because I’m a fan of David Cronenberg. When I saw the ads, it reminded me subtly that “I want to see that” Sure enough, I paid at a theatre to see it. Several months later, the ads popped up again. “Oh, out on DVD, I’ll pick it up next week.” And I did. What did I never do once? Click on the god-damn advertisement through to whatever the page was. Adsense is great. I don’t bad mouth it at all. But it shouldn’t be the end-all of advertising online, and yet the web 2.0 community seems to think gesture or CPA is all that has meaning. Cheers.
@ DVA
I think you hit the nail on the head about what constitutes content that people are willing to pay for. If something is merely entertaining or interesting in a trivia building sense, free is probably the way to go online. If it’s something that actually makes you smarter, healthier, or wealthier, you can probably charge for it.
That being said, the traffic spikes are nice, but it rarely translates into stickiness. I hope to compile some data and have some results, but as with any online study, there is a high probability of not having any statistically significant conclusion.
Considering profit is the goal you might want to keep in mind the following numbers. In the fiscal year 2006 Apple profited $1.99B on $19.32B in revenue, or a 10.3% Net Profit Margin. In the fiscal year 2006 Google profited $3.08B on $10.60B in revenue, or a 29% profit margin. Google kicks the crap out of Apple when it comes to bottom line. You did the wrong comparison. You should have been comparing Google to Microsoft to let the readers understand that both are viable business models (Google and Microsoft have comparable Net Profit Margins)–especially in the software business. Outside of the software business (doctors, lawyers, etc) whether free or not will work will be relative to the industry. Cheers.