Tom Higley: Bit by Bit

Online Profits, Privacy and Business Models

Today’s New York Times includes “Sunday Dialogue: Online Profits and Privacy,” a thought provoking exchange of emails initiated by a Boulder friend, Eric Lindemann.

Online Profits and Privacy

Eric begins by noting Facebook’s recent stumble in the marketplace, but he suggests there’s a much bigger set of questions to be asked about the Facebooks and Googles of the world. He asks: “Should the world’s communications infrastructure should be owned and operated by a few for-profit companies?”

Well, what do you think?

As the discussion progresses, Eric points to a core conflict. Facebook has a fiduciary responsibility is to its advertisers and investors. It’s users exist as a resource to be exploited. While this may be putting too fine a point on things, Eric’s perspective is not new. Facebook’s twists, turns and challenges with respect to privacy can been seen as a dance that has this conflict between investors/advertisers and users at its center.

This core conflict is a new development, but the business model is not. The business model currently being pursued both by Facebook and (more successfully) by Google was tested, refined and perfected before the Internet and the web became a platform for commerce. Remember the Yellow Pages?

The Yellow Pages model was simple and powerful. In a pre-digital world, consumers needed a way to find what they were looking for. Whether this was a plumber, a restaurant, a doctor, a lawyer or a pharmacy didn’t matter. There was one way to get that information. The book. And the book was free! By delivering the free book to consumers, Yellow Pages companies were able to drive consumer attention to a myriad of businesses. And that consumer attention came with dollars attached.

YP Business Model: Print Platform

This worked wonderfully well. Businesses came to understand that by advertising in the very same book that everyone was using to find things they would generate significant additional revenue. And if they weren’t in the book, well, they were essentially invisible. So they placed ads. And more ads. And bigger ads. Consumers found what they wanted. Merchants got consumers attention. And Yellow Pages companies made money. Lots of money.

Along then along came the Internet and the web. At first, the Yellow Pages companies were certain this was a passing fad. When it started to become more significant, they were certain that their respective brand images would drive consumers to their own destination web sites. And that might have happened, at least for a minute, but for Google. Google came along with a powerful new way to deliver relevant search results. That really didn’t matter much to the Yellow Pages companies. Who knew Google from Schmoogle? But Google was about to appropriate the Yellow Pages very own business model. It looked very very familiar . . .

Google Eats YPs for Breakfast

And it was familiar. But it was also different in a few very important respects. First, the thing being deliver was not a paper book. It was digital. And that digital delivery created a whole new set of possibilities. Second, while the Yellow Pages companies knew almost nothing about their consumers (i.e., they were merely addresses that supported the delivery of print publications to a particular doorstep), Google knew a great deal about its consumer base, and that knowledge helped them destroy the market dominance of the Yellow Pages companies. Forever.

Now lets return to the New York Times dialogue. Eric suggests that the core conflict faced by Google and Facebook – the fiduciary duty to advertisers/investors vs. consumers/users – might be overcome if the world’s communications infrastructure were supported by a very different model. He proposes two possibilities. The first is the US Post Office. Before you scoff, remember that the Internet itself grew out of government research and investment. DARPA – the Defense Advanced Research Projects Agency – was the US governmental organization that provided both research and funding for the communications infrastructure that ate the world.

But I have fundamental problems with placing the world communications infrastructure at the mercy of any government. And I suspect Eric would, too, if pressed. My distrust for the US government (or any government) differs – but not meaningfully – from my distrust of Facebook and Google.

Eric’s alternate suggestion is the nonprofit company, Wikipedia. He points out that Wikipedia is able to serve hundreds of millions of users with fewer than a hundred paid employees. And he notes that it has never been easier to build a nonprofit communications infrastructure.

I do find this intriguing. After all, just as Google ate the Yellow Pages companies for breakfast, Wikipedia dined on Microsoft’s Encarta, chewed it up and spit it out. Could someone create a nonprofit, B Corp truly ”open source” version of Google or a Facebook? Could it be free of both for-profit conflicts and governmental corruption/control? That would indeed be interesting. What are you working on these days, Jimmy?