Related to my previous post about the future of open technologies, Tim Wu has a great review of Jonathan Zittrain’s book. Wu reviews the origins of the 20th century’s great media empires, which steadily consolidated once-fractious markets. He suggests that the Internet likely won’t meet the same fate. My favorite part:
In the 2000s, AOL and Time Warner took the biggest and most notorious run at trying to make the Internet more like traditional media. The merger was a bet that unifying content and distribution might yield the kind of power that Paramount and NBC gained in the 1920s. They were not alone: Microsoft in the 1990s thought that, by owning a browser (Explorer), dial-in service (MSN), and some content (Slate), it could emerge as the NBC of the Internet era. Lastly, AT&T, the same firm that built the first radio network, keeps signaling plans to assert more control over “its pipes,” or even create its own competitor to the Internet. In 2000, when AT&T first announced its plans to enter the media market, a spokesman said: “We believe it’s very important to have control of the underlying network.”
Yet so far these would-be Zukors and NBCs have crashed and burned. Unlike radio or film, the structure of the Internet stoutly resists integration. AOL tried, in the 1990s, to keep its users in a “walled garden” of AOL content, but its users wanted the whole Internet, and finally AOL gave in. To make it after the merger, AOL-Time Warner needed to build a new garden with even higher walls–some way for AOL to discriminate in favor of Time Warner content. But AOL had no real power over its users, and pretty soon it did not have many of them left.
I think the monolithic media firms of the 20th century ultimately owed their size and success to economies of scale in the communication technologies of their day. For example, a single newspaper with a million readers is a lot cheaper to produce and distribute than ten newspapers with 100,000 readers each. And so the larger film studios, newspapers, broadcast networks, and so on were able to squeeze out smaller players. Once one newspaper in a given area began reaping the benefits of scale, it made it difficult for its competitors to turn a profit, and a lot of them went out of business or got acquired at firesale prices.
On the Internet, distributing content is so cheap that economies of scale in distribution just don’t matter. On a per-reader basis, my personal blog certainly costs more to operate than CNN. But the cost is so small that it’s simply not a significant factor in deciding whether to continue publishing it. Even if the larger sites capture the bulk of the readership and advertising revenue, that doesn’t preclude a “long tail” of small, often amateur sites with a wide variety of different content.
Everybody seems to be talking past each other here. If you’re trying to make money off internet content, things like economies of scale are critically important. Talking about personal blogs in the context of Big Media is like wondering how much early-20th-century monopolies on theatrical distribution of movies affected the popularity of sitting around the piano at someone’s house singing christmas carols.
The main misunderstanding is that internet monopolies — excuse me, commanding market positions — occur at different points in the distribution chain than with print or broadcast, with those points having to do in large part with points where there’s a stream of revenue capable of being tapped, rather than with some specific content that revenue is nominally associated with.
In a lot of ways, the internet, like the microprocessor, set software/content generation back by one or more generations, simply because the stuff from the people who actually knew how to produce good content (the walled-garden folks) was so much slower to appear than mostly-inferior work by random outsiders that increasing returns rules set in…
Wu’s review doesn’t even bother addressing the major themes or arguments set forth in Zittrain’s book. Don’t get me wrong, Wu’s written an interesting piece, but it’s not a review of “The Future of the Internet” and I’m not sure why he billed it as such.
While I agree that economies of scale don’t really apply because the initial cost is so low as to be negligible, you still get network effects which will tend to limit the number of big players in the market. Not only that, but because the big players can be reached from just about anywhere, you don’t get regional distinctions for many things, so the big players can be big players worldwide.
Google, as one example, has been so good at doing searches that it’s unlikely that any other general web search engine will be created, aside from the ones that already exist.
eBay, despite their active attempts to alienate people, isn’t going anywhere soon either. The only other online auction houses I’ve seen that have survived are the ‘long tail’ ones mentioned above. These focus on specific communities and types of items, and attract those who don’t want to deal with searching through everything on a larger site.
The problem with the ‘long tail’ sites, of course, is getting out to your intended audience.