De-portalization and Internet revenues
This post is a little more philosophical than most that you will see here. It provides a little bit of background as to why edgeio is in the business of bringing together, organizing and distributing listings to the edge of the network. In short it is because we believe that the Internet is moving away from big centralized portals, which have gathered the lions share of Internet traffic, towards a pattern where traffic is generally much flatter. The mountains, if you will, continue to exist. But the foothills advance and take up more of the overall pie. Fred Wilson had a post earlier this week about the de-portalization of the Internet which is essentially making the same point when seen from the point of view of Yahoo.
Update: 11am Pacific, Sunday 10 December
Several commentators are seeing the word “de-portalization” (first coined by Fred Wilson) and reading “end of portals”. To be clear, and apologies if I wasn’t already, de-portalization represents a change in the relative weight of portals in a traffic sense, and the emergence of what I call the “foothills” as a major source of traffic. This will affect money flows. Portals will remain both large and will continue to grow. But relativeley less than the traffic in the foothills. The foothills will monetize under greater control of its publishers and the dollar value of its traffic is already large and will get much larger.
The following 3 graphics illustrate what we believe has happened already and is likely to continue.
The first picture is a rough depiction of Internet traffic before the flattening
The second picture is a rough depiction of today – with the mountains still evident, but much less so
The third picture is where these trends are leading. To a flatter world of more evenly disributed traffic.
Some of the consequences of this trend are profound. Here are our top 10 things to watch as de-portalization continues..
1. The revenue growth that has characterized the Internet since 1994 will continue. But more and more of the revenue will be made in the foothills, not the mountains.
2. If the major destination sites want to participate in it they will need to find a way to be involved in the traffic that inhabits the foothills.
3. Widgets are a symptom of this need to embed yourself in the distributed traffic of the foothills.
4. Portals that try to widgetize the foothills will do less well than those who truly embrace distributed content, but better than those who ignore the trends.
5. Every pair of eyeballs in the foothills will have many competing advertisers looking to connect with them. Publishers will benefit from this.
6. Because of this competition the dollar value of the traffic that is in the foothills will be (already is) vastly more than a generic ad platform like Google Adsense or Yahoo’s Panama can realize. Techcrunch ($180,000 last month according to the SF Chronicle) is an example of how much more money a publisher who sells advertising and listings to target advertisers can make than when in the hands of an advertiser focused middleman like Google.
7. Publisher driven revenue models will increasingly replace middlemen. There will be no successful advertiser driven models in the foothills, only publisher centric models. Successful platform vendors will put the publisher at the center of the world in a sellers market for eyeballs. There will be more publishers able to make $180,000 a month.
8. Portals will need to evolve into platform companies in order to participate in a huge growth of Internet revenues. Service to publishers will be a huge part of this. Otherwise they will end up like Infospace, or maybe Infoseek. Relics of the past.
9. Search however will become more important as content becomes more distributed. Yet it will command less and less a proportion of the growing Internet traffic.
10. Smart companies will (a) help content find traffic by enabling its distribution. (b) help users find content that is widely dispersed by providing great search. (c) help the publishers in the rising foothills maximize the value of their publications.
edgeio is hoping to play a role in these trends. We will talk about some new products later in the month that follow from this approach.
Discussion
Kevin Burton
Techmeme
Mike Arrington
Syntagma
Keith Teare’s Weblog
Dan Farber at ZDNet
Mark Evans
Fred Wilson
Ivan Pope at Snipperoo
Tech Tailrank
Collaborative Thinking
David Black
Surfing the Chaos
Ben Griffiths
Dave Winer (great pics)
Kosso’s Braingarden
Dizzy Thinks
Mark Evans
10/12/2006 at 2:30 pm Permalink
“Sufficiently tall mountains have very different climatic conditions at the top than at the base, and will thus have different life zones at different altitudes on their slopes. The plants and animals of a zone are somewhat isolated when the zones above and below are inhospitable, and many unique species occur on mountainsides as a result.” (wikipedia)
10/12/2006 at 4:44 pm Permalink
Wow, what a publisher centric view or world.
You’re picture is missing the user/ consumer. You know the the stakeholder with scarce attention and abundant content and distribution choice – limitless choice!
So let’s say the user is represented by water in your model. In addition to the foothills rising, the water will be is rising 10x as fast – the glaciers are melting right. So when we reach 2010, all the mountains are underwater including the foothills.
That’s when the user will be in control. Want to monetize the user’s attention? Then you MUST bring a valid value proposition, and probably a trusted recommendation too, to the table to gain access to user attention.
To me de-portalization is about users taking control not the publishers.
10/12/2006 at 4:59 pm Permalink
Every mountain is just a little rock on a huge foothill, and every foothill is just the beginning of a huge mountain.
10/12/2006 at 8:58 pm Permalink
That forest in the foothills looks quite Tangled.
This is a good thread. Fred kicked it off well I think. It will be interesting to see;
a. How much more acquisition the ‘mountains’ do?
b. Whether they stay mountains or become ‘networks’ like ye olde media networks. The brand behind the mediums.
c. Whether some foothills resist acquisition (like indie bands resisting record deals) and hold on to grow up big and strong?
Building something like Tangler in this environment is like hitting a moving target from a moving vehicle with a moving instrument, and you have to do it every day.
Maybe that’s why it’s so much fun.
12/12/2006 at 4:38 am Permalink
So what is your definition of a “publisher”, and by whatever definition, how is a publisher not also a middleman?
I don’t believe we are headed to a world of foothills. I think the foothills will slowly erode until all we are left with are alluvial fans.
15/12/2006 at 8:06 am Permalink
As a fairly large Adsense publisher, I disagree with this statement (at least for now based on my experience over the past 2-3 years):
“…much more money a publisher who sells advertising and listings to target advertisers can make than when in the hands of an advertiser focused middleman like Google.”
I’ve found that many advertisers are willing to pay 2-3X per click on Adwords what they’re willing to pay us directly. They happily pay Adwords a CPM or CPC, but refuse to pay us on a CPM or CPC if we work directly.
Here’s why a 3rd party network like Adsense creates value even for those of us in the foothills…
- it creates leverage (forces advertisers to accept CPC which puts the onus on them to ensure their sites convert, ultimately increasing their ability to bid for customers)
- saves us from hiring a salesforce
- eliminates collections hassles
Google started out by aggregating an audience, but I think their magnum opus will be their ability to attract the worlds largest network of advertisers.
27/12/2006 at 5:53 pm Permalink
Your visualizations are funny.
25/07/2007 at 10:30 pm Permalink
The net is definitely becoming flatter and people orientated as we can see happening with blogs, this is what its all about making people more powerful with individual voices.
27/01/2008 at 2:55 am Permalink
If you consider other industries, such as banking and insurance, it is very difficult for newcomers or smaller firms to compete with the big boys and they maintain dominance. With so much money to play with, and invest in high calibre employees and research technicians, the internet world might not get any flatter at all. In fact, if the bog boys start buying up smaller firms, the hills might get even bigger.
18/02/2008 at 5:36 am Permalink
I think most large companies feel that investing too much into the internet could be unproductive. My feeling is that a lot of companies would consider that spending twice as much on marketing in magazines, newspapers etc. will produce twice as many customers, but spending twice as much on internet marketing might not. For a small company or individual entreprenuer, the spending twice as much on magazines, newspapers etc. might not be an option at all financially, but investing their own time (effectively nothing as they don’t pay themselves a salary) is far more viable. So as far as the internet is concerned, I think you are right; lots of new hills being grown daily flattening the mountains.
24/04/2008 at 6:56 am Permalink
I agreed with the idea in this article but let’s face it, if the bigger internet companies feel threatened by a small guy, they can just buy them out.
24/05/2008 at 8:03 pm Permalink
In real life, most mountains like Everest are actually getting bigger. Perhaps the same is happening with the internet.