To live in Silicon Valley is to live sealed inside a watertight bubble.
You are suspended in an alternate universe. This is boot-strapping redefined. The sun shines constantly on the brilliant green grass, fountains play though not a drop of rain has fallen for years, you can bounce from one start-up to another simply by riding your scooter across the street and one day, if the name of your latest company has enough consecutive vowels in it, you might even get a piece from a “liquidity event” of some kind, whereupon you can start a new professional life telling fellow travelers at endless downtown San Francisco networking events the secret to your success. It is, of course, the unstated but quite obvious outcome of your special genius.
Often the Valley cognoscenti can be heard disparaging the conventional business practices of “legacy media” or “brick-and-mortar” businesses. Too slow. Too hierarchical. Too inflexible. Hidebound. Focused too much on short-term profit. They don’t even let you bring your pet to work.
But if a digital start-up happens to find success, it doesn’t take long before it has to confront some distinctly low-tech and old-fashioned business challenges itself. Successful e-commerce ventures soon find themselves building or leasing distribution centers and warehouses made of…brick-and-mortar. Digital distribution makes price comparison easy, sparking costly discount wars. The competition moves with unprecedented speed. Product and marketing expense eats into revenues. And no amount of unique visitors, inventory turns or market share can in the end make up for unprofitable customers or users of limited value to advertisers. Welcome to the real world, where you definitely don’t bring your pets to work.
At the height of the dotcom bubble a group of executives from the Bank of Japan in Tokyo visited the Internet portal Excite to assess a potential investment. As they were ushered into a meeting room for lunch with the executive team, the Excite chief executive held the door open and bowed to each member of the delegation. He shut the door behind him and followed them into the room, just in time to see a software engineer’s huge German Shepherd up on its hind legs polishing off the last of the sushi. The bring-your-pet-to-work policy was abandoned just a few seconds after the bankers left that afternoon.
The Valley even has its own language. Investment bank research analysts are in the linguistic vanguard, quickly becoming fluent in the new morphology so as to reinforce their superiority over the rest of us small-fry, under-performing cretins. It is now mandatory to begin every answer to every question with the word “so” and to end every answer with “right” used as an interrogative. Right? The word “content” must always be preceded by the word “compelling.” Or it must be “engaging.” No longer are there writers, poets, singers and painters. They’re “content providers” now, and considerably less valuable in the digital “ecosystem” than the distributors of their inconsequential doodles and scribbles. Editors have become “curators,” “social” is a noun. “Viral co-efficients” are the secret to success because they result in something called “scale” which we used to call “market penetration” except we didn’t have viral co-efficients so we had to pay for distribution and promotion to get it. Paradise is a hyper-efficient, “frictionless” world where human judgment has been sacrificed on the altar of software and data. As always any upsurge in use of the word “paradigm” is a tip-off that somebody read a management book in the 80s – and that pretention and obfuscation are about to be used to alter reality and impose a querulous new business logic on the world.
All this happens because Silicon Valley worships at the altar of Hebe, the ancient Goddess of Youth. And sure, it’s true, digital breakthroughs don’t come from experienced strategy executives or business development vice presidents or corporate planners. New applications and products typically start with a flash of intuitive insight from mainly young, smart, credential-free people who sense a potential use or an everyday need and have the unencumbered ingenuity and technology chops to exploit it. But the trouble is they don’t have a clue how to turn that into a business, particularly into a business which, well, scales. As a business partner of mine said when a potential client asked him why the company doesn’t employ anybody under the age of 25, “young people don’t know shit.” What he meant to say was that they don’t know much about business or management and they know even less about marketing and sales. Like Zuckerberg before Sandberg. Or Page and Brin before Schmidt.
“Don’t trust anyone over 30,” we used to shout in the street. Now it’s the opposite. Don’t trust anyone under 30. Nine times out of ten you’ll lose your bloody shirt.
Thing is, the impenetrable terminology of the digerati is mostly just a gleaming new patina on established business practice. Most of the time they’re not substituting one business model for another, instead they’re radically updating an established way of doing something.There really is nothing new under the sun – the fundamentals of running a media business haven’t changed that much at all for a century or so.
Even old print newspapers “aggregate” content, “integrate” news and opinion and publish “vertical channels” like entertainment guides and real estate listings. They just never describe what they do in that way. And the dark art of qualifying and segmenting and evaluating audiences was the cornerstone of direct marketing for 30 years before the Internet came along.
Despite the current funding success of viral news sites like Buzzfeed, attracting readers with gimmicks is nothing new, either. People used to read newspapers for the news but for a lot of other reasons too, like the horoscopes or Ann Landers or the crossword puzzle. A big, bold, trenchant headline always helped sell newspapers at street corner newsstands. Headlines still sell tabloids like the New York Post, the Inquirer…and now, Vice Media, too. That’s all Vice is, a digital tabloid. Nothing wrong with that, of course, it’s a publishing formula that’s worked for centuries. No wonder Murdoch put some money into it. It’s an idea he understands.
The country’s very first newspaper was Boston’s “Publick Occurrences Both Forreign and Domestick,”published by Benjamin Harris in 1690. It lasted for just one edition. The authorities, in “high Resentment” that Harris dared to report that English military forces had allied themselves with “miserable” savages, put him out of business just four days after it appeared. As well as loudly taking a stand, Harris also wanted his little paper to promote self-expression and community involvement. Publick Occurrences was just four pages in size, but only three of those pages were printed. The fourth page was left blank, so that readers could write down their own reactions and opinions on what they had read before passing the paper along. Looks like a posting vehicle to me.
There’s only three new words that matter in digital news: Millennials, mobile and social. That’s it. That’s all there is. Success simply depends on how you think about them.
The drive for competitive audience numbers triggered a race to the bottom as digital publishers sought ever-higher traffic volumes to stay in the same place. It’s great to use videos of cute pets and people doing dumb stuff and loud headlines to bring users in to sample what you have to offer. The trick is to make them stay and then come back again without being asked. A click and a swipe is not the same as a customer. Drive-by traffic has little value – users, like locusts, devour the meal in a few seconds and then quickly move on without turning more pages. The advertising eyeball is lost forever.
Loyal, recurrent users stay longer and do more. The challenge in media is the same as it always was – to produce something that people actually like and want to come back to experience again. If that doesn’t happen, the money spent producing and promoting it in the first place will never be recouped. That means creating a product that would not be possible without the Internet, a product so powerful and useful that it becomes a frequent destination, not because of an enticement – a search engine result or a tabloidal headline in a Facebook feed – but because it is valued. Then it may even become a brand.
Advertisers much prefer consistent branded environments for their messages. The central reason for the collapse of digital advertising value is the redundant nature of the delivered audience. In an advertising age characterized by targeting and measurement, undifferentiated mass audiences are low-value commodities. They’re all reach and no frequency. Many digital publishers think “native advertising” is the answer. We used to call that “sponsorship.” It’s the last refuge of the revenue-desperate at the dawn of any new medium. Even television. Go look it up.
More than 75% of Buzzfeed monthly audience of 130 million unique users still comes from social media – which means Facebook. Less than 10% come direct to the product. So what is that product’s intrinsic value and how valuable – and saleable – is its audience? Is there really anything more there than just a distinctive voice? I’m told they don’t even know who their users are.
My friend Vinod Khosla, the famed venture capitalist, once told me it pays not to know too much about a business category before you try to disrupt it. Otherwise conventional wisdom tilts you in a certain direction too early or causes you to dismiss the big solution. VK’s a big contrarian thinker who can afford to place big bets. Me? I think it’s better to know what you’re getting into. If you do, and you can keep an open mind, then you can maybe learn from the past rather than making the mistake of thinking that your thoughts have never been thought before.
Glibly dismissing the value of experience and tradition is a hallmark of Valley culture today, just as it was back in the dotcom bubble. I suspect that’s the fundamental reason why nine out of every 10 technology start-ups crash and burn.“History is not was, it is,” wrote the great William Faulkner. Those rushing to put money into today’s hot digital news properties may soon learn the wisdom in those words.