In previous articles, we’ve looked at the one-sided deal that has emerged when it comes to search engines and publishers. Whilst there is no question that search engines provide value to end users, it’s clear that the search engines are ...
In previous articles, we’ve looked at the one-sided deal that has emerged when it comes to search engines and publishers. Whilst there is no question that search engines provide value to end users, it’s clear that the search engines are taking the lionshare of the value when it comes to web publishing.
That isn’t sustainable.
The more value stripped from publishing, the less money will be spent on publishing in future. In this respect, the search engines current business model undermines their own long-term value to end users.
In this ecosystem, the incentive is to publish content that is cheap to produce. Content might also be loss-leader content that serves as a funnel leading to a transaction. Some of the content might be advertorial, the result of direct sponsorship, and may well include paid links. Curiously, it has been suggested by a Google rep that "....you blur the lines between advertising and content. That’s really what we’ve been advocating our advertisers to do". Some of it might be "the right kind of native", courtesy of Google Doubleclick. Some of the higher value content tends to be a by-product of the education sector, however the education sector may be the next in line to suffer a commodification of value.
There is little return to be had in producing high value content and making it publicly available for free, with no strings attached, so naturally such content is disappearing behind paywalls and taking other forms.
Some YouTube producers are rebelling.
In a recent post, Jason Calacanis outlines the problem for video content producers. He maintains that Google’s cut of the rewards amounts to 45%, and that this cut simply isn’t sustainable for video producers as their margins aren’t that high.
Successful media businesses today have margins in the 20% to 50% range--if they hit profitability. That means if you give a partner 45% off the top, you have no chance of breaking even (emphasis mine). In fact, this absurd revenue is so bad that people have made amazingly clever strategies to skirt them, like VICE producing the Snoop Lion documentary and Grace Helbig becoming the face of Lowe’s Hardware. A full 100% of that money goes to the content creator -- boxing out YouTube. More on this later.
Sure, it can *feel* like you’re making money, but when you look across the landscape of YouTube businesses -- and I won’t call anyone out here -- it’s very, very clear they are losing millions and millions of dollars a year.
YouTube doesn’t have to worry because they simply lop off 45% of the revenue from the top for providing video hosting. Hosting for them is, essentially, free since they have a huge -- and growing -- network of fiber (see ‘Google's Fiber Takeover Plan Expands: Will Kill Cable & Carriers’).
Since YouTube doesn’t have to create any content, just aggregate it, they don’t need to worry about the individual profitability of any one brand......With YouTube, as with their AdSense product, Google is trying to insert itself between publishers and advertisers and extract a massive tax. In the case of YouTube, it’s a 45% tax
In a subsequent post, Calacanis laments that whilst a lot of publishers got back to him in support of his views, he received no contact from YouTube, even though he is supposedly a high value “partner”.
And what do YouTube do for this 45% cut? Hosting? They’ve pretty much outsourced support and liability to the MCNs for no money down. I imagine running a video network is pretty expensive, although I wonder about the true costs for Google. Calacanis obviously doesn’t think they’re great enough to justify the cut.
PPC Not Immune
Paid search also extracts a high tax.
Let’s run the numbers. A site has an average order price of $100. The site converts at 1% i.e. a site makes a sale to one in every hundred visitors. Sales are $1 per visitor. If the total cost of providing the order is $50, then the profit is 50 cents per visitor. The site can pay the search engine up to