Studying the link economy

Jeff Jarvis is launching "an ambitious research project" to study what he has elsewhere called the link economy. He has penned an opening set of questions and hypotheses and issued a call for feedback.

I think this is spot-on. The issues Jeff is exploring have interested me for a long time (see e.g. this and this and this), and I think understanding them will be increasingly important for media strategy. So here are some contributing thoughts.

Jeff posits:

There are two creations of value in media online: the creation of content and the creation of a public – an audience – for that public. Online, content with no links to it has no value because it has no audience. It gains value as it gains links. Thus something of worth is created on each side of a click. […]

What is that value? Well, of course, that is impossible to calculate precisely; there are too many variables.

Let's start by clarifying what we mean by "value" here. In purely economic terms, something is valuable when someone is prepared to pay you for it, and its value is how much you can get paid for it. The "something" here is a user experience: a reader following a link in one site and reading an article in another.

Before I go on, let me narrow the discussion somewhat. Jeff is interested in the general relationship between any two sites connected by a hyperlink. I want to focus on a specific case of this: that of an aggregator linking to a publisher. By "aggregator" I mean a site whose main role is to curate other people's content: this could be the Drudge Report, the Huffington Post (or parts of it), Google News, your Facebook feed or your Twitter feed. And a "publisher" is a site which whose main role, at least for our user, is to provide content. It doesn't matter if the site also curates its own (or other people's) content; for the user experience we are talking about that is irrelevant. 

With that, the beneficiaries of our click-through are:

• The reader, who gets value from being sent to the right content in the right context. The value is the amount that the reader would be willing to pay if there were no alternatives.
• The publisher, who gets to advertise to the reader.
• The aggregator, who also gets to advertise.

Sum up the three things up and you have the value of this user experience – probably in the order of a cent or two.

New business models can use three strategies:

• Growing the pie by making the link-following experience more valuable to one or more of its three beneficiaries
• Re-slicing the pie so that the split in the value received by the parties changes
• Capturing some of the value that today readers get to enjoy, by making them pay (strictly this is a case of re-slicing)

The focus of Jeff's research is new business models involving collaboration between publishers and aggregators. In this, we can expect pure re-slicing strategies to play only a minor part, for two reasons:

• Leaving aside some edge cases like Reuters paying Breitbart for traffic (as has been rumoured), it's culturally hard to imagine a newspaper paying the Huffington Post or Google News, at least without added incentives.
• Quality publishers have more page-views than they can monetize at decent CPMs.
• As to the converse, as I've argued elsewhere, most publishers have next to no negotiating power vis-à-vis aggregators. This is because, for a given click-through, aggregators have many publishers to choose from while publishers are in a take-it-or-leave-it situation (economists call this kind of predicament a "competitive bottleneck", but the theory is dense).

Pie-growing looks more promising. Jeff himself once proposed one such strategy: aggregators would give publishers some data about the audience they are sending their way, so that publishers can sell better-paying advertising targeted at them. Publishers would pay aggregators a kick-back and thus the upside would be split between the two.

Or consider this variant. Upmarket aggregators like the Huff Post could have their sales people sell premium advertising not only against their own sites but also against the sites they link to. After all, the audience is the same and the publishers are mostly reputable. When, say, the Guardian gets the click-through and is not sold out on its own premium inventory, instead of falling back on a low-paying ad network it could display an ad sold by the Huff Po. The Huff Po would have to offer a better CPM than the ad nets, but that shouldn't be too hard.

I think this could fly, but the wheels would need lots of oiling. Although ad-hoc technology seems impractical, ad networks already have the technology and scale and could step into this quickly. They could go to the Huff Post and offer something like this on a white-label basis. There would be lots of things to iron out (e.g. around privacy and accountability) but in principle it should be doable.

I have a lot of other things to throw in Jeff's soup. Time allowing I may add more in the coming weeks.

Comments

[Mary Hamilton]

I'd suggest there's another party that gains value from most links - search engines. Each time a link is created, it has potential value for a search engine because it is a signal that the engine can use to serve better results to searchers, improving the experience of its own users. Similarly, the link itself may have value (positive or negative) to the publisher and aggregator even if it is never clicked, because of its influence on search. Quite how you'd quantify or build on that value is difficult to work, but it adds another dimension to the equation.