Bret Piatt

People pick advertising because it doesn't require selling and selling is hard.

A post by Ken Fisher at Ars Technica stirred up quite the hornet’s nest.  Brian Carper replied that, “Advertising is devastating to my well-being”.  Rob Sayre chimed in on the Mozilla Blog about, “Why Ad Blockers Work”.  All three of these were picked up by Hacker News and became some of the most commented threads of the week.

I’m not going to rehash anything said in those posts — I’m instead going to look at the different business models in the print and broadcast media markets and ask the Internet site operators why they aren’t trying to monetize in those ways?

In print media publications exist that are 100% advertising supported.  You’ll find them in the magazine racks by the exit of your local supermarket or in between the exterior door and interior door of a coffee shop like Denny’s.  These publications have marginal quality content — not good enough I’d be willing to pay for it but good enough that if I want something to read while I eat my Grand Slam I might pick it up and thumb through it.  If you operate a website and you try to support it 100% through advertising you’re telling me, “My content is marginal so I only believe I can monetize it through advertising because you wouldn’t be willing to pay me for it.”

Moving to broadcast media the days of 100% advertising supported is nearly gone.  As of this study from December, 2008, nearly 90% of US households receive their television through a subscription based service.  We’ve seen a decade or more of whining from the major networks that they can’t continue to provide the quality we’re used to while viewership continues to decline.  None of the networks provide 24×7 original content, after 11:00PM on most you get 6 hours of infomercials until the early morning news shows.  The whining by website operators that users block their ads sounds a lot like the major networks crying the same thing with DVRs (a DVR is the functional equivalent to an Ad Blocker in your browser as long as you skip the commercials with it) and/or the fact we have more selection now due to competition from companies with other models.

Most content today is published under a hybrid model of pay for content (either through one time purchase or a subscription) plus advertising revenue.  This is model is used by magazines, newspapers, and cable TV channels.  Because they have a hybrid model they can produce content that doesn’t require as large of an audience to generate a profit.  Ars Technica comes close to using this model on the Internet except when you subscribe there all they do is stop showing ads — they aren’t getting the model right.  I pay a monthly subscriber fee to TNT or ESPN and they still show me advertising.  If you’re going to have a subscription service on a website give the users access to premium content — don’t just turn off ads.  I’ll pay for premium content and I won’t pay to have ads turned off when I can turn them off for free with an ad blocker.

The final model is 100% pay for content with no advertising.  In the print business this applies to very few publications — mostly academic journals.  With broadcast media many “premium channels” exist such as HBO, Showtime, Cinemax, and Starz that generate all of their revenue from pay for content.  Ars Technica is jumping from the 100% advertising model to the 100% pay for content model but they’re giving away the exact same content.  Many HBO subscribers would be willing to watch their favorite series with commercials for free each month instead of paying the $10 subscription fee — but HBO doesn’t give you that choice — it is subscribe or don’t get access.  For you to be successful with this model you have to have premium quality content that will attract more people willing to pay than your cost to produce.

Most of the Internet today is running in the first business model and because of that you get “weekly circular” quality content surrounded by tons of flashy advertising.  Very few websites have been able to successfully use a hybrid model.  The NY Times and WSJ are a couple of examples.  I’m not certain if their web divisions are profitable or not — that doesn’t have as much to do with the inability to run a hybrid model web property as it does that they have a mostly print based company still with costs a pure Internet business would not have.

We’re still very early in the days of media moving to the Internet.  Based on some 2009 estimates Internet advertising amounted to ~$21B whereas newspapers still brought in ~$31B, television at ~$36B, and magazines at ~$16B — these numbers are just advertising revenue, purchase/subscription numbers not included.  As revenue continues to shift to Internet publishing formats you’ll see all models emerge and as a publisher you’ll need to figure out which category you want to be in.  If you don’t view your content as “local circular” quality then perhaps you should start looking at a new business model today.

We’ve all been there….something we have is broken, we can’t fix it on our own and we dread picking up the phone to call technical support because we know it won’t be a good experience.  Many of you think, “It’s tier 1 support, how hard can it be to learn this stuff?”  The truth of the matter is that for many people it isn’t hard but those people are rarely the people you get on the phone.

A tier 1 role is by definition an entry level position.  Based on the stats from Top Grading only 25% of the people hired into any role will excel at it.  So at first glance you should have a 1 out of 4 chance of having an excellent tier 1 experience but the hiring only tells half the story.  Some of the people hired in at a tier 1 level aren’t complacent and don’t want to stay at that level if they are excellent — they took the tier 1 job to get in the door and from there they want to move to other roles.  Other people hired into a tier 1 role are only a C player even in that role and they aren’t qualified for anything else — they’ll be a tier 1 forever.  This leads to eventually the tier 1 ranks of a given support center filled with B and C players (some C players will become B players in a role but very rarely do they turn into an A player) as the A players are promoted to other roles and the others remain.

Have agents identify themselves, anomymity promotes mediocrity

So how do you fix this if you’re a company with a support organization?  A few options exist and the easiest to implement is hiring the right people in the first place.  This will end up sounding like a promotional piece for Top Grading but if you hire A players 75% of the time instead of 25% you’ll always have a good amount of A players even in the tier 1 ranks.  Another option is to hire for a tier 1.5 role that is customer facing and if people turn out to not be an A player in that role give them a lateral/demotion to a tier 1 role where they perform non-customer facing non-time sensitive tasks — your B/C player at the more difficult role will have a much better chance of being an A player at the easier job.

A third option is to provide training or teaming.  Training is useful where somebody enjoys the tasks they’re being asked to do but they aren’t very good at them.  Training is not going to make a person an A player at things they don’t enjoy doing — this is where teaming comes in.  As a manager people on your teams will have different strengths and by teaming people with complimentary strengths together you can improve both of their performances.  As an example assign the analytical person the task of building a score sheet to measure performance and ask the empathetic woo person to try and rebuild a relationship with a disgruntal customer.

At the end of the day though you have to be willing to have difficult conversations with people, especially difficult in an economy like today — that they may not be a fit for the role their in and that you need them to find another role in the company or looks elsewhere.  While it may be hard for both parties to have the conversation in the long run it is better for everyone — people want to be an A player in the role they fill when they wake up each day — it isn’t fun waking up and knowing you’re headed to a job where you’ll struggle for the next 8-10 hours.

So next time you talk to that tier 1 support person don’t be so hard on them.  They applied for a job, they were hired — somebody told them they could be successful and good at it.  When you ask for a manager instead of yelling at the manager about how bad their tier 1 was ask them if they use a Top Grading style interview process, if they provide training or teaming, if they are doing anything to make that tier 1 successful — if they aren’t doing any of that feel bad for the tier 1 as they’re working for a management team that accepts mediocrity or doesn’t know enough to fix it.

Cloud computing is a broad term that covers Internet based services that provide SaaS (Software as a service), PaaS (Platform as a service), and IaaS (Infrastructure as a service).  SaaS services are the most commonly used cloud solutions — web based e-mail is the prime example.  The most widely used PaaS offering is probably WordPress.org unless you consider customizing your Facebook profile a very restricted PaaS. IaaS is the newest of the cloud services with the most well known example of Amazon Web Services which includes EC2 (cloud servers) and S3 (cloud storage).

Until Hotmail launched in 1996 we all pretty much had an e-mail client on our own system and potentially had to run our own mail server if we didn’t want to have a mailbox tied to our college or ISP — now almost all of us use any number of SaaS e-mail services.  Many of these e-mail services now include full features that businesses expect such as Rackspace E-mail or Google Apps Enterprise.

Before cloud based services if you wanted to have a website you had to run your own server until GeoCities launched in late 1995 — now PaaS providers from GoDaddy, for low price, to Mosso, for horizontal scale, provide very capable platforms to deploy a website without having your own server.

Now IaaS providers like Amazon, Terremark, and Rackspace are eliminating the need to always deploy and manage dedicated configurations for complex applications.  Before these type of IaaS offerings companies like Twitter would end up with their own datacenters and dedicated infrastructure.  Load testing services from companies like SOASTA would be cost prohibitive to offer.

So what about the title, “For everyone, not everything”?  It sounds like cloud has the capability to do everything now doesn’t it?  In a broad sense, yes, it can do a bit of everything but specific use cases in all service times aren’t a fit for cloud.  In the e-mail world if you want to do offline messaging on an airplane you want a mail client.  At the platform service level perhaps your application runs 10x faster if you can customize a couple of libraries or it just doesn’t work at all without those changes.  The infrastructure offerings force you to re-architect for horizontal over vertical scale to use them effectively.

Many other use cases aren’t a fit for the cloud yet.  Take video rendering as an example; it is much less expensive to buy a video card capable of performing rendering than it is to stream the rendered video over a network as 30 JPGs per second.  Another example is a retail POS system, at least some of the functionality needs to be in the store — you don’t want to stop selling things if network connectivity is lost.  Many more explanatory and reasonable examples abound.

Will cloud ever be the answer for all computing needs?  I doubt it, but over time it will be used to solve more problems because a centrally managed pool of resources provides greater efficiency and flexibility.  An example on this is utility power; we use it almost exclusively now but for a few use cases we still need generators.  Cloud will succeed and it will be adopted for a wider set of use cases over time as it will address those use cases better than previous generation solutions.

Service Providers launch offerings with a particular use case or set of use cases in mind.  Flickr launched a photo/video sharing site, Joyent offers Accelerators to host websites, and Google/Yahoo/Hotmail/etc. offer free e-mail.  All of these services have other ways they could and probably are being used….ways the product teams never expected.

Plenty of on-line backup services exist, Jungle Disk (disclosure, they’re owned by my employer), Carbonite, Mozy, AT&T Remote Vault, and more.  These services are all priced around $50+/year after you have a resonable amount of data.  This is where Flickr enters the picture in our unexpected use cases…by using steganography I can have 50GB of free backup and after that it only costs me $24.95/year for unlimited.

Why are free e-mail services interesting? They offer free storage and bandwidth again expecting you to use it for e-mail. Many of their terms of service don’t prohibit account sharing. If you are a software company looking for a low cost way to distribute your newest release get company@<freemail>.com and upload it there. Setup the auto-updater in your software to check for a new version in the e-mail and if it is there download and update.

For general web hosting providers offer different package offerings with CPU/Disk/Bandwidth under the expectation you’ll host your entire site with them. To differentiate some offer extreme amounts in one of the categories to attract customers. One example of this is Joyent Accelerators with 10TB of transfer for $45/month (or $199/year prepaid). They figure you can’t use 10TB of transfer with 5GB of storage. I can host all of my images for an advertising campaign at Joyent and store the DB and rest of the site elsewhere. Off AWS 10TB of download transfer would cost you $1,700/month but CPU/Disk are much less expensive than they are from Joyent (my employer is Rackspace where our cloud offerings are priced much more like AWS).

This extends beyond just technical services as well. The best example of this is the “all you can eat buffet”. They pick a price based on average consumption and charge everyone the same. This works better in the buffet world than it does in the information services world as people generally eat in groups of friends or family. Information services however we can consume individually thus allowing use case versus price arbitrage much more efficiently.

Service cost arbitrage exists all over, the reason we have it, and the reason more people don’t take advantage of it is many of them aren’t efficient to utilize. If I release a steganographic Flickr backup client they’d change their terms of service. If all software companies started using free e-mail services for distribution, they’d change the terms of service. Even the “all you can eat buffet” would change the terms of service. When I used to wrestle in high school our team of 40+ would go to buffets after our tournaments and we’d frequently see a near-realtime change in the terms of service — i.e. we’d get thrown out of the buffet after we ran them out of food.

When developing a service offering the best way to meet the expectations of all of your customers is to price each component in a fair manner. Consider running promotions or specials with limited terms if you’re trying ways to attract new customers rather than setting artificially low prices in a particular category believing people will use the expected use case.