There’s always been a lot of money in technology and the Internet, but only recently have those profits extended to include websites themselves.
It took Amazon.com eight years to post their first annual profit, proving that you could make money running an e-commerce site that wasn’t supporting a bricks and mortar store.
Google also built on Yahoo!’s example, and proved that you could do well selling advertising by leveraging free content like Gmail and the Google search engine.
Online magazine Slate.com toiled to build a base of paid subscribers, switched to a free but registration-based readership system after a year, and then gave up on that model to offer their publication free and clear and rely instead on generating more traffic and higher advertising revenues. It was a model that is probably more successful than the subscription service, by a wide margin.
There have been horror stories as well.
America Online (AOL), flush with paper value in a tech-crazy stock market and boasting around 26 million subscribers, purchased the Time Warner media empire in 2000 for more than $160 billion with the goal of creating media synergy — Time Warner products for AOL subscribers, and AOL memberships for Time Warner readers and viewers. It turns out that the value of that synergy was exaggerated at best, and it completely ignored the fact that AOL was a low earner with declining membership that was worth a fraction of its reported stock market value (while Time Warner was a profitable, proven company). After its first year sharing a tent, AOL Time Warner reported a scorching loss of $99 billion, with Time Warner propping up the ailing web services company.
The drain forced the new company to sell off valuable Time Warner assets just to stay in business, and it’s taken years to shrug off the AOL millstone. I think Time Warner is still feeling the effects, six years later.
Although that should have been a lesson for all media companies looking to expand to the web, CBS television purchased CNet for $1.8 billion last week. While the amounts of money are about a hundred times less dire as the AOL-Time Warner deal, many experts are still scratching their heads.
CNet has some good brands under its wing, including the CNet portal that I go to all the time for technology reviews, TV.com, the coveted News.com domain, and the BNet small business networking site, but I fail to see how any of this is really relevant to CBS’s core business of producing endless CSI spin-offs. Obviously it will boost their technology reporting, but that’s about it. It makes a little sense if CBS wants to leverage TV.com and News.com to support their networks, but $1.8 billion is a lot of money to pay for two domain names. Besides, no idiot looking for news is just going to type in News.com to see what comes up, they’re going to search for news on Google or Yahoo! or go to the website owned by their local newspaper.
CNet was a growing business, and will grow even faster with capital from CBS, but the projected 13 per cent return on their investment isn’t a given and the merger may not succeed in the end — television networks have a pattern of not quite understanding the Internet or what makes an Internet business successful.
Look at NBC’s decision not to sell shows on iTunes, or Viacom’s decision to sue YouTube for a billion dollars because fans of their shows and YouTube were uploading clips from The Daily Show and South Park.
In a way all of these mergers and acquisitions are inevitable — television is not as profitable as it used to be, a growing number of people are getting their entertainment through the web, and you do have to go with the times a little to survive.
But part of me worries that one day we’ll be stuck having to make choices so that bricks and mortar companies can make a bigger return on their online investment — pay your ISP $29.95 a month and you get to access CBS, Cnet and maybe Yahoo! For $39.95 you also get Google and Wikipedia, plus 100 free minutes of Internet roaming. Without an overriding net neutrality law, and as a result of media mergers, it could happen.
Website of the Week
Graphic design and photo editing software is some of the most expensive software out there, as companies mistakenly assume that anybody looking to make a poster or design a header for a website is obviously a professional who can afford it. There are some decent cheap and even free titles out there, and programs that come bundled with operating systems are okay for photo re-touching, but if you’re designing a website or looking to remove that pimple from your grad photo you’re going to need something with a little more power.
Last week I literally Stumbled Upon (www.stumbleupon.com) a free, web-based graphics program called Splashup (www.splashup.com/splashup/Splashup.swf) that is remarkably powerful and offers similar capabilities to programs like Adobe Photoshop or CorelDraw. It’s only a Beta program at this stage, but it lets you create and edit images and post them to a variety of photo sharing sites like Picasa, flickr, Facebook, and Splashup’s own service. You can also design new images from scratch, or upload photos from your desktop.
