But Greg Golebiewski, the founder and CEO of a micropayment provider, thinks this conventional wisdom is wrong, and that media companies are missing a lucrative opportunity.

Golebiewski’s company is called Znak It, and he says he has spent the past five years or so trying to convince publishers and media companies of all kinds that they should at least experiment with micropayments — and that they could actually make more from such a model than they do from a paywall, while also attracting new readers who might never get beyond the subscription barrier. But with only a handful of clients using his system, most of them located in eastern Europe, the Znak It founder is still very much a lonely voice crying in the media wilderness.

“I’ve been trying to sell this idea for the past five years — it’s extremely difficult to break that notion, the theory that micropayments don’t sell. [Critics] don’t have any data, it’s just conventional wisdom or common knowledge, but it’s very difficult to go to them and say we have a flexible system for payments and then when they figure out it’s micropayments, they stop listening.”

Micropayments equal being “nickel and dimed”

The idea that micropayments are unworkable for content stems in part from a piece by media theorist Clay Shirky in 2009, in which he said that users “don’t like being nickel and dimed.” The psychological friction created by this perception, he said, meant that very few people would go through with a micropayment for content. Suggestions that Bitcoins (as described recently by Jeremy Liew of Lightspeed Venture Partners) or some other system could make the idea more feasible are routinely dismissed by media-industry insiders.

Golebiewski, however, says that his research shows that when given a choice between a paywall or micropayments, readers are overwhelmingly in favor of paying for specific pieces of content rather than signing up for a monthly or annual subscription plan — and that this is particularly true for younger users, who are often thought to be opposed to paying for content online.

Znak It published a white paper last year (PDF link) based on the results of five pilot projects involving a variety of different kinds of media such as videos, music and text content. Out of a total of 43,000 unique users there were 1,281 buyers and the largest single group was 18-24 years of age, although that number could be skewed because music was part of the trial. In that age category, as many as 5 percent of the unique users wound up becoming buyers (paywalls usually get about one percent conversion).

Part of the problem for Golebiewski and Znak It is the chicken-and-egg factor: there are so few companies using micropayments that it’s difficult to come up with any comprehensive research to prove that they work. Znak It’s white paper is based on such a small sample size that it’s hard to use it as an argument for why the New York Times or another newspaper should go with the micropayment model. But the Znak It founder is adamant that publishers need to try it, if only to increase their reach.

This is a challenge that I discussed in a recent post — the idea that paywalls are good for monetizing your existing readers, but not particularly good for encouraging new readers (apart from the occasional dropping of the wall for breaking-news purposes). Part of Golebiewski’s point is that allowing readers to pay for a single article encourages browsing, which makes it more likely someone will convert into a regular paying customer.

Micropayments aren’t a quick fix

The Znak It founder admits that he has so far only had success with a few eastern European media companies — including a national weekly publication in Poland (where Golebiewski is from) and some small newspapers in other countries — and blames this on the deep-seated dislike of micropayments in North America.

“We started in some of the countries in eastern Europe and elsewhere that were a bit more responsive to our ideas — a bit more desperate if you will. It was easier to go to those smaller countries and start there, they’re a little more open to experiment — they don’t have the big brands and massive traffic, so they are a little bit more receptive.”

The company’s system has two different models: in one, users create accounts with Znak-It and can then use its payment process with any site that supports it, while the second is an “earn free access” option in which advertisers subsidize access for readers who provide some kind of information or engage in some kind of task — such as reading through an ad or filling out a survey. Part of the challenge for Znak It as a small provider is signing up enough clients to make it worthwhile to have an account there (Google has also experimented with micropayments via Google Wallet, and has a “survey wall” service as well).

Despite his lack of substantial progress, however, Golebiewski says he remains convinced that some form of micropayments has to be part of the future of media and content online, since subscription models are only going to appeal to small sub-segment of the total population:

“Many publishers are looking for a quick fix, and I don’t think this logic we are trying to sell is attractive enough — but it will be. It’s inevitable. Maybe if we don’t call it micropayments, maybe we should call it flexible payments. But study after study shows that flexible payments are more popular with users… it has to be the future of the internet as a marketplace.”

Post and thumbnail photos courtesy of Shutterstock / Maryna Pleshkun and Shutterstock / Patryk Kosmider

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Our mobile devices are amazing at capturing real-world data — location, temperature, movement, sound — that just goes to waste if we don’t put it to use. It’s easy enough to get a personalized experience on the web, but these types of data might make it possible to get one in traditionally more-static places such as retail and radio as well. At the least, perhaps we can expect content, price tags and experiences that cater more to our actual tastes than those of station programmers and a fashion designer’s idea of what people should be willing to pay.

Location is the key to everything

Retailers already have a pretty good sense of what people are buying and even how they’re moving through stores, but they don’t really know where customers are going once they leave. This knowledge could be very useful, however: If you want to improve your store or figure out how to market your company, knowing what else your customers are up to could go a long way. This type of data is starting to become available thanks in part to a Seattle-based startup called Placed.

We’ve been covering Placed for about a year, since it launched its first product targeting developers interested in learning where users were accessing their applications and mobile sites. The company has since expanded its operations to include a Panels service that lets the company track around the clock, on behalf of paying businesses, the physical location of customers who have downloaded the app (usually in exchange for a small monetary reward). It also has its own Panels app, unaffiliated with commercial customers, that allows Placed to provide market data on the physical movements of some 70,000 consumers.

This week, the company released a report highlighting some national findings from the first quarter, including, for example, what departments stores are most popular with what demographics, what business categories experienced the most increases in traffic, and what businesses have the highest and lowest affinities (i.e., people who visit one also visit, or don’t visit, the other). If you’re willing to pay, Placed will tell you pretty much anything you want to know, founder and CEO David Shim told me, broken down by geographic region, business type, demographic, you name it.

Shim noted a couple of actual users and potential users that I think highlight why this type of data is so valuable. One is a high-end retail business that found out that while female millenials enter its stores a lot, they don’t buy a lot. Rather, the stores they visit next are usually discount retailers such as Burlington Coat Factory and Ross. The suggestion is clear: These shoppers want to see what’s hot and then buy a reasonable facsimile at a lower price.

He also noted that some Las Vegas casinos are interested in running their own Placed panels to figure out what restaurants their guests are eating at once they leave the casino grounds. Now, if casinos can figure out where else on the Strip people are spending their money, they can make better choices when it comes time to swap out their own restaurants and shops.

In both cases, it’s possible the answer to the question of how to get more of these customers’ money is to drop prices. If a 10 percent price reduction leads to a 14 percent increase in sales, that’s a win-win situation.

Rethinking radio

Location data becomes even more valuable when combined with other data, though, such as sound. Consider the implications of knowing not just what radio stations people are hearing — which is essentially how the Arbitron ratings work — but what songs they’re actually listening to. Just because you hear the Latino station for an hour at the taco shop during lunchtime or the top 40 station at the gym, that doesn’t mean you’re listening to them or like listening to them.

But the songs you choose to listen to in your car, for example, probably tell a lot about what you actually like. And the technology exists to determine that. Last month, I wrote about how Gracenote is able to use the internal microphones on tablets and smartphones to recognize the songs playing on people’s televisions or stereos. It can also detect reactions such as cheering or booing, and likely whether someone turns up the volume.

Arbitron’s Portable People Meter

Now, all of a sudden, one can envision a world in which programming managers at radio stations can figure out on a song-by-song (or artist-by-artist) basis what people are actually listening to, and when and where they’re listening. If all it involves is someone downloading an app, they can presumably do it at a larger scale than requiring people to wear special additional sensors or fill out a diary. Broadcast radio can never be as personalized as something like Pandora, but it could start sounding a lot more like what listeners would choose if left to their own devices.

Digital radio could get downright great, even better than what Pandora can currently offer. I might never add Disney theme songs or the Sesame Street favorites to my preferences list, but if that’s all I listen to when I’m in my car between 4:30 p.m. and 5 p.m. — and it is — maybe a service could hook me up with some new songs every day. If I’ve turned up the volume on a Taylor Swift song three times this week while I was at home, maybe I actually like it and want to hear more even if I won’t admit it.

Not just data, but good data

As great as all this might sound (it does to me), it’s the advent of big data that makes it all possible. Placed’s analytics are so accurate because it has special algorithms to determine where a person actually is — even if there are numerous options within a small area — and its models are constantly being trained. Shim said his company gets 15,000 responses a day to surveys asking Panels users whether it had them at the right location, and it has already validated 3.5 million of the the 13 billion locations in its database.

Gracenote, for its part, has audio and metadata for millions of songs that it keeps in memory so it can access them in a hurry for the sake of real-time recognition. It can group music into dozens of categories based on genre, artist, geography or even just how the songs sound. It wants to build an in-car system that can change songs based on driving conditions fed to the stereo from the car itself.

I acknowledge this all sounds a little creepy, but, ironically, it also sounds like the beginning of the end for some concerns over privacy. Heck, Shim said, about 500,000 people have already downloaded the Placed Panels app.

Really, it all comes down to value. If handing over a little bit of data actually provides value in return — in the form something better than just targeted ads — it appears people will be willing to do so. People tell Amazon about their purchases, let Google Now access their email and tell Placed which store they’re at out of five possibilities because they think they’re getting a worthwhile service in exchange.

The data-collection genie is already out of the bottle. Now it’s just a matter of making it work for us instead of at our expense.

Feature image courtesy of Shutterstock user Vadim Georgiev.

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Chief technology officer Eric Feng said in an interview prior to the launch of the new version that this is much more than just an evolution of Flipboard — it’s a major push into a whole new area, namely curation and publishing of content by individual users. “It’s one of the most ambitious efforts we have ever undertaken,” said the former CTO of Hulu. “It’s been more than 18 months since the inception of the idea, so this is a pretty big deal for us. We were originally focused on discovery and filtering of content, but now we are moving into curation in a big way.”

Flipboard has always had curated topics such as technology and sports, where the service uses a combination of human editors and algorithms — based on frequency of sharing and other metrics — to highlight specific content. In effect, the new tools allow any Flipboard user to take on the same role as an editor and create their own magazine around a topic, and share it with other users.

Reader magazines get promoted in Flipboard

In a nutshell, users with the new features (which are available only for iPhone and iPad currently, but will appear in an Android version soon, according to the company) can simply click a “plus” sign next to a blog post or article they are reading — as well as any video or audio content that appears in their stream — and add that piece of content or “flip it into” to a magazine, which will then be available to them or any other user who searches for that topic.

And Flipboard isn’t just giving users that ability within the app: the service is also launching a bookmarklet that will allow users to pull in content from anywhere on the web — whether it’s a blog post, a news website or Twitter and Facebook — and add it to their custom-created magazine. In a sense, Flipboard is trying to capitalize on the same curatorial impulse that makes people create collections about specific topics on Pinterest or re-blog photos on Tumblr, and in many ways this move is a shot across the bow of those other services.

It’s also clearly a threat to the existing publishing industry, since a Flipboard user can now create their own custom publication using the content that comes from dozens of different magazines, blogs, websites and other sources. So Flipboard is trying to bring publishers in as well and get them to create their own custom magazines — such as a magazine about the Beatles created with archival content from Rolling Stone. It has even built e-commerce functionality into the app so users can click and buy directly from within an article or ad.

But the most subversive aspect of the new features from a media-industry point of view is that they can be used by anyone — including advertisers. If an advertiser can create their own magazine by pulling in their own editorial content as well as content from other sources, and build e-commerce functionality into it, then it gives new meaning to the idea of brands as publishers and media entities.

Bringing users into the editorial process

The new version of the app will have a section called “By Our Readers” in the table of contents, which will include a mix of magazines that have been created by users on a variety of topics — a small group of beta testers (including GigaOM) have had access to this function for several months. As with the other Flipboard sections, some of the magazines that are highlighted will be chosen based on the number of times they have been shared, and others will be chosen by editors.

Like most news-aggregation and recommendation apps such as Pulse and Zite (which is owned by CNN), Flipboard users have always had the ability to share specific stories or items, but the new magazine-creation features effectively allow a user to spend some time creating a collection of content they can then share all at once. Feng used the example of an editor who is getting married soon and created an entire magazine with content about weddings.

In a way, the new version of the app also picks up where Google Reader and other RSS services left off. Instead of just passively consuming text and photos in a chronological timeline or series of folders, Flipboard turns everything into part of a magazine-style experience. According to Feng, many users have already imported their Google Reader feeds into the app, and those feeds will be available once Google sunsets the service in July.

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The most obvious appeal of a purchase like Summly is that Yahoo gets access to a brilliant and charismatic young programmer in founder Nick D’Aloisio, who started the company in Britain when he was just 15. Om met D’Aloisio in Berlin and did an interview with him about the concept behind Summly not long after the teen launched his startup, and described how far ahead he was of many of his much more experienced peers. If nothing else, D’Aloisio might inject some fresh thinking into Yahoo, something it desperately needs.

Nick D’Aloisio

It’s not just fresh thinking about content or design either: while it may not be a blockbuster success story like Instagram or SnapChat, part of what made Summly interesting is that it was an attempt to rethink how we consume content on a mobile device. Circa, which is funded by Cheezburger CEO Ben Huh (and is part of our startup showcase at paidContent Live in April) is another startup focused on the same problem: how does news content need to be rethought for mobile?

Yahoo News may be far from cutting edge, but it still pulls in a fairly large audience — far larger than Google News. If Yahoo can use D’Aloisio and Summly’s algorithms to figure out how to take advantage of that on a mobile device, it could potentially have a winner on its hands. Google has done virtually nothing to optimize its news-reading experience for mobile, and efforts at recommendation or curation apps like Currents have mostly fallen flat.

According to an All Things Digital report, Yahoo may have paid as much as $30 million — primarily in cash — for Summly. That’s a lot for an app that only racked up about a million downloads and hasn’t really taken off in terms of readership, but for Mayer it theoretically accomplishes two important things: it shows that the company is intent on figuring out how content works on mobile, and it sends a message that Yahoo is willing to make acquisitions and bring in new talent in order to fix itself. Whether those efforts work, of course, remains to be seen.

Post and thumbnail image courtesy of Getty Images / Chris Jackson

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The driving force behind both of these phenomena should be fairly obvious: the media industry is desperate to find new sources of revenue.

That the Washington Post has finally seen fit to erect a paywall — albeit a very leaky one, as my colleague Jeff Roberts has pointed out — makes this point better than almost any other, since the newspaper’s chairman and CEO Don Graham has been vocal in the past about his opposition to such an idea, and so has the paper’s publisher, his niece Katharine Weymouth. As the Columbia Journalism Review has noted, however, the Post’s business is disintegrating fairly rapidly, giving it relatively few options.

Everyone is searching for new revenue options

This isn’t unique to the Washington Post, by any means. It’s a dilemma that almost every media entity, large or small — both digital and non-digital — is struggling with, as advertising continues to decline and no new source of revenue has emerged to take its place. And that’s one of the key questions were are going to be discussing at paidContent Live in New York on April 17, through a variety of panels. What is the best way (if there is a single best way) for publishers to monetize their content?

Is it better to erect a paywall and base your future on a reader-driven subscription model, as many newspapers are doing — and as some individuals such as Andrew Sullivan are also doing? Or should publishers rely on what has always been the core of their business model, namely advertising, and find new ways of delivering that value to brands?

Newer digital-native publishers such as BuzzFeed are pinning their revenue hopes on sponsored content and other forms of “native” advertising, in which the site creates content that is indistinguishable from its regular content (apart from the name of the brand sponsoring it). While this seems to work well for an entertainment-focused site like BuzzFeed — which is introducing its own sponsored-content advertising network for other sites, according to a report in Ad Week — it has been a somewhat rockier road for more traditional publishers such as The Atlantic.

On one of our panels at paidContent Live, we have News Corp. executive Raju Narisetti — who not only works for the owner of one of the premier examples of a paywall in action, the Wall Street Journal, but previously worked for the Washington Post, and has also spoken in the past about his enthusiasm for what he calls a “reverse paywall” approach, in which loyal readers are given rewards for their loyalty instead of being asked to pay more for the privilege, which is the way that most paywalls typically work.

What is the best monetization method?

We also have Justin Smith, president of Atlantic Media, which publishes a magazine with a 160-year history, but has also been at the forefront of experimentation with new revenue models online — including real-world events, as well as sponsored content. A recent episode involving a sponsored piece about Scientology, however, led to a firestorm of criticism, including a comment from widely-followed media theorist Clay Shirky that “we don’t trust The Atlantic as much as we used to.” The company later changed its policies around how it handles such content as a result of the uproar.

Major League Baseball CEO Bob Bowman will also be joining us, since the MLB is a company that has become a powerful content producer in its own right — and in fact was earlier to the digital evolution of content than many content companies — and has used a paywall and mobile apps to great success as a way of monetizing that content. Are there lessons baseball can teach other content companies? We’re going to find out.

No one can claim to have all the answers to the future of the media business — not the largest traditional media player, nor the smallest and most innovative startup. All we really have are some very interesting questions, and we hope some of you can join us in that discussion on April 17 in New York. You can find more details about paidContent Live, including a link to register, on our event page.

Images courtesy of Shutterstock / Eldorado3D

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The article that The Atlantic wanted Thayer to repurpose was a long feature about how the relationship between North Korea and the U.S. revolves around basketball, pegged to a recent trip by American basketball star Dennis Rodman. Olga Khazan, a relatively recent addition to the Atlantic‘s editorial staff, sent an email asking Thayer to submit a shorter version for the magazine, and when the writer asked how much the Atlantic was prepared to pay, the editor said zero — but offered exposure as an inducement:

“We unfortunately can’t pay you for it, but we do reach 13 million readers a month. I understand if that’s not a workable arrangement for you, I just wanted to see if you were interested.”

The economics of writing have changed

Needless to say, Thayer was a little offended at this, as he describes on his blog (he also provided a somewhat more colorful response to New York magazine). For Thayer, and for many who responded both on his blog post and on Twitter, this was just another sign of how far the media have fallen, and how little people value good writing. Eventually, the Atlantic‘s editor-in-chief apologized for offending the writer, saying the case was “unusual,” and that all the editor was trying to do was help Thayer’s work find a larger audience.

Atlantic to freelancer: We'd like the milk and cow for free, please. bit.ly/WGApbv

—
david carr (@carr2n) March 05, 2013

Felix Salmon tried to analyze what happened to Thayer in a blog post at Reuters, and came to the conclusion that freelancing is a lot harder to make a living at than it used to be — in part because online media works in such a way that having staff writers is a lot more efficient than using outside contributors. But I think he missed the most important aspect of what Thayer’s treatment says about the practice of writing now, and the economics of digital media (writer and editor Jane Friedman has a good overview of the issues).

In some ways, it’s odd that the Atlantic would even bother to ask Thayer for permission to run a condensed version of his piece: many outlets would have simply excerpted large chunks of it with links back to Thayer’s original — the way that GlobalPost did — since that costs nothing and achieves virtually the exact same thing (Thayer even mentions this possibility in his blog post). Whether you believe this is right or wrong, it arguably serves a purpose in the media ecosystem. And we are more or less stuck with it, whether you like it or not.

Some will always be willing to work for free

As former YouTube staffer Hunter Walk pointed out on Twitter, and Matt Yglesias noted at Slate, there is no shortage of free writing out there — in fact, the supply of free writing is theoretically infinite, since there will always be people who want to write and are willing to be compensated in other ways: by broadening their reach, enhancing their reputation, etc. This is why new publishing platforms like Medium and Svbtle are having some success, not to mention the rapidly expanding LinkedIn “Influencers” program.

People write for free. Happens all the time. So if you run a magazine and you're *not* asking people to write for free you're doing it wrong

—
Farhad Manjoo (@fmanjoo) March 05, 2013

This same process was famously — or infamously — also the foundation of The Huffington Post, and sparked a huge amount of controversy about that company’s practice of not paying its bloggers. As a number of people pointed out at the time (including me), there will always be people who want to write for free, and that’s not necessarily a bad thing. Unless, of course, you are one of those writers who used to profit from the lack of marketplace competition.

When it comes to things like media, your real competition isn’t the product that is better than you, but the one that is good enough to satisfy your customers — and if readers are happy to patronize media outlets that use writing they got for free, or writing they have aggregated and excerpted, there is precious little that freelance writers or any of us can do about it. Our only option, as a number of commenters at Hacker News pointed out, is to make it clear that we want better quality writing by actually paying for and/or clicking on it.

The part that Thayer and his supporters aren’t talking about is how much easier it is for writers of all kinds to make a living if they want to — not by submitting their work to a handful of traditional outlets, but by turning it into e-books and Byliner singles and other formats, something that has expanded the field of writing more than just about anything since the printing press. Are there new economics for writing? Yes. Are they unrelentingly evil and negative? No.

Images courtesy of Shutterstock / patpitchaya and Poynter

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Internet curmudgeon Nick Carr attacked this particular question in a recent post on his blog, and got into an interesting debate with digital-media theorist Clay Shirky via the comments. Ironically, while Shirky is often criticized as a purveyor of wishful thinking about media, it is Carr who argues there is something ineffable and mysterious about the format we know as the book, while Shirky’s argument seems more based in reality

(Note: we are going to be discussing the future of the book and potential business models for book-related content at our paidContent media conference in New York on April 18, with a panel discussion featuring Atavist founder Evan Ratliff and Dominique Raccah of Sourcebooks).

In his original essay — entitled “Will Gutenberg laugh last?” — Carr notes that research shows e-book reading is still on the rise, but also shows that print reading continues to command a large share of the market, and that printed book sales are “holding up relatively well.” Some publishers and distributors have even noticed a slowdown in e-book sales, says Carr, who then goes on to propose some reasons why that might be the case, including:

“We may be discovering that e-books are well suited to some types of books (like genre fiction) but not well suited to other types (like nonfiction and literary fiction)… the e-book may turn out to be more a complement to the printed book, as audiobooks have long been.”

Shirky says even e-books themselves are transitional

Among those who showed up to comment on Carr’s piece was Shirky, who argues that it is more likely the book format itself is simply going to die out as a result of the web and other developments — and not just the printed book, but the whole concept of a book, which he describes as nothing more than a “production unit” for content, like the album was for music.

As Shirky puts it:

“Maybe books won’t survive the transition to digital devices, any more than scrolls survived the transition to movable type… what the internet portends is not the end of the paper container of the book, but rather the way paper organized our assumptions about writing altogether.”

In a comment of his own, Carr responds that whatever might happen to reference works like encyclopedias or phone books — which he agrees would make more sense in digital form — books that consist of an “extended narrative, either fictional or factual and almost always shaped by a single authorial consciousness and expressed in a single authorial voice” would always remain, even if it is in digital form, because there is more to it than just being a convenient container for content.

“Your desire to see cultural artifacts as mere technological artifacts, as “production units,” leads you to jump to the conclusion that because the narrative art of the book is resistant to digital re-formation, the narrative art is doomed to obsolescence.”

In a follow-up comment, Shirky maintains that the novel — fictional or not — is a content model that is “pretty decisively wrapped up in the affordances and limitations of print,” from their length to the idea that all of the content has to be delivered at the same time and for a single price. He argues that given the “native grain of the internet,” those features would not be transferrable to an online environment in the long term. In other words, e-books themselves might be just an interim step towards something else.

“If I’m right about this, the fate of the printed book will have less to do with competition from ebooks (at least in their ‘digital copy of print’ versions) than from competition with Longreads and New Inquiry for the time and attention of the reader of extended narratives.”

Will books follow the epic poem into oblivion?

This doesn’t sit well with Carr, however, who responds with a comment that (among other things) accuses Shirky of having an almost nihilistic approach to cultural artefacts like books, and of failing to see that in some cases having a new product or platform replace an old one might be a loss for humanity rather than a gain:

“I’m certainly not suggesting that uniquely valuable forms of media, or the modes of thinking or expression that they promote, are immune to destruction or alteration by historical forces, particularly ones driven by utilitarian concerns. But if such a medium is lost or diminished by technological or economic change, we shouldn’t simply say ‘who cares; other shit will come along.’”

In a response to an email from Wired magazine founder and author Kevin Kelly on the subject, Carr gives some examples of valuable forms of media that he believes have been lost or diminished: namely, “the oral epic poem, the symphony, the silent film with live musician accompaniment, the dramatic play, the short-form cartoon, the map [and] the LP.” And he argues that the book, the movie and the video game could also fall into this category.

In the end, Carr’s argument comes down to a belief that old forms of expression like the traditional book are better than anything that might have come along to displace them from their position of dominance in our culture — and his belief forms part of the argument in his book The Shallows, which argues that digital media is actually changing the way we think, and in general making us more stupid (a view I have argued against).

Are we seeing the rise of new artistic forms that will be as beneficial to humanity as the epic poem was, or the symphony, or the silent film? I think we are, and Clay Shirky seems to as well, but Carr clearly disagrees. Who is right won’t be known for some time, if ever.

Post and thumbnail images courtesy of Flickr users Marcus Hansson, retro writer and Frederic della Faile

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“This notion of content being here and commerce being there doesn’t really exist any more. Everyone has become a publisher,” Lerer Ventures partner and former Huffington Post CEO Eric Hippeau said Tuesday at Group Commerce’s Think Commerce conference in New York.

But, as content and commerce merge, he added that “it’s a lot easier for commerce brands to become publishers… than it is for people on the media side to add commerce.”

Historically, publishers have respected the line between “church and state,” separating editorial content from advertising and commercial content. Even Condé Nast’s Lucky fashion magazine, which is perfectly positioned for commerce, has not made the transition, he said. (Although the recently-launched iPad app does include direct links to products.)

And, it’s easy to understand why that bridge is difficult to cross. In addition to the cultural resistance against compromising an editorial identity with a commercial interest, e-commerce involves creating a whole new business model, with potentially new margin structures, customer service needs and other requirements.

How much credibility can commerce companies earn?

Interestingly, however, Philippe von Borries, co-founder of fashion and beauty site Refinery29 recently told Pandodaily that he thinks it’s commerce companies who have more challenges crossing over into publishing. “No one gives a shit about content from a commerce company,” he said, explaining that his is a media company that uses content to drive its commerce business.  While media companies come from a place of credibility, he believes that any content from commerce companies will only be viewed as a kind of sophisticated marketing.

But while it’s true that a customer may never look to Warby Parker or Gilt Groupe for a position on, say, the fiscal cliff, it doesn’t mean that commerce companies can’t be credible purveyors of content within the verticals on which they focus.  And, as Hippeau said, as social platforms turn everyone into some kind of publisher, the definition of “content” itself is changing, in turn altering what it means to be in the media business.

Thrillist: we’ve turned readers into buyers and vice versa

One company leading the way in the new world of content-meets-commerce is Thrillist and, at the Think Commerce conference, Ben Lerer, the company’s co-founder and CEO, said that more than half of Thrillist’s nearly $70 million annual revenue comes from Jack Threads, the e-commerce site it purchased in 2010.

“We’ve proven that we can turn a reader into a buyer,” he said. “We’re pleased that we can also turn a buyer into a reader.”

But despite Thrillist’s own success, he acknowledged not all media companies are as well positioned to cross into commerce.  From its launch, Thrillist’s value proposition was a site that recommended ways in which young men should spend their time – an ideal starting point for a commercial relationship. But news and sports publishers, even those with engaged audiences, may have a more difficult time with commerce because their content isn’t recommendation or action oriented.

Shana Fisher, managing partner at High Line Venture Partners, said that while it can be tricky to focus on two revenue streams at once and that companies initially supported by advertising revenue (like nearly all media companies) may find it difficult to later ask customers for credit card information, more companies should blend revenue strategies based on content and commerce.

“In verticals that are transactional, the divide is really small,” she said, highlighting food and fashion. “If it’s not related to something that’s transactional, it’s more abstract.”

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These dreams may be difficult to see when you look at the cramped office Cross and his five co-workers inhabit in San Francisco (a converted apartment that had a mattress on the floor the last time I visited) but they come to life when you talk to him. Of course, that passion also means it can be hard to get a word in edgewise sometimes, as the Prismatic founder holds forth on his vision for the future, or how current recommendation services are failing users, or the state of affairs in the Twitterverse. Like a lot of startup founders, Cross can be a bit of a whirling dervish of ideas — but listening to him is almost always worth it.

Prismatic is interesting in part because it isn’t run by media experts or anyone with journalism training; in fact, Cross has no media background of any kind. His specialty is data science and machine learning, and he says he chose to focus initially on news recommendation because it is an obvious problem — the deluge of information that we are all submerged in requires smart filters — and solving it will help lead the way to other similar problems. And one of the reasons why media players of all kinds would be wise to pay attention is that this data-powered filtering ability could be the key to whatever success the media industry has in the future, as traditional gatekeepers are replaced by crowd-powered and algorithm-driven sources.

“Brad is probably one of the leaders right now in using big data and machine learning to provide consumer services,” says Jason Freedman, his former co-founder at Flightcaster, the startup that the two worked on for several years before selling it last year. Using that knowledge of data science and machine learning, Cross says that he hopes to eventually learn so much about his users via Prismatic that he can start making smart recommendations about almost everything, from movies or books to varieties of scotch or even people:

“The idea is that we become this trusted agent that you rely on to show you things, and over time we can really start to learn a lot about you. We do care a lot about [news recommendation], but we’ve also thought through how it’s a stepping stone to something much bigger. And a lot of what we do in the background, and how we slice and dice data and so on… is relevant across a really wide range of problems.”

Lessons learned from failure

Cross started out in computer science at Virginia Polytechnic Institute, but later switched to finance after he grew bored with his computer courses. Even then, the now-32-year-old founder was interested in large-scale machine learning projects and what they were capable of — and that desire would cost him dearly, at least in the short term. After university, he and a friend started their own investment fund and did fairly well (a 30-percent return in their first year, Cross says) and he parlayed that into a job with a small hedge fund called O’Higgins Asset Management in Miami.

Given his own fund to run, he made even better returns and generated a substantial income for himself, even though he was just 23 at the time. But Cross says he was obsessed with starting his own trading firm, based on his own software. Unfortunately, he admits now that he didn’t really know what he was doing, and the job he took on — building his own data-driven trading algorithms — was far beyond what he was capable of at the time, and he says he learned a painful lesson about entrepreneurialism:

“I basically failed at it, and lost all the money I had made through actual trading, which is ironic. I had no idea what I was doing. It was a pretty hard-core problem, one of the more complicated things in the world to do. It was a very interesting experience that lasted for about 12 months. I knew it wasn’t going to work but I didn’t want to let it go. And eventually I realized I just wasn’t very good at building software.”

Humbled by that experience, the Prismatic founder says he realized that he needed a lot more than just some stock-trading skills and a computer-science background in order to do what he had in mind, so he decided to try and get a job that would allow him to broaden his skill set. Freedman says this is a classic Cross-type move: when he realizes he needs to learn certain things in order to advance, the Prismatic founder figures out a way to get that knowledge. “Brad has this thing where he realizes something is holding him back and he just goes into a 100-percent all-out focused sprint to get better at it,” says his Flightcaster co-founder.

Not long ago, Freedman says he told Cross that if he wanted to hire engineers, he would have to become better known in the hacker community — but his blog was old and stale, and he never spent any time on Hacker News or other popular sites. “So he just went all out, and built a new profile, and wrote all these really smart blog posts, got a new blog design and in seven days had learned everything you need to know about using social media,” says Freedman, who is now running a startup called 42floors.

The building blocks of a smart recommendation engine

After blowing most of his savings on his failed attempt to build a trading system, Cross wound up getting a job with ThoughtWorks, a consulting company that he contacted when his venture was falling apart. The company’s specialty was getting parachuted in to fix things at other companies when they were coming off the rails, and one of the companies Cross spent a lot of time working with was Google. The team spent much of its time on the operating system that powered Google’s storage clusters, but he also worked on consumer products such as Books, Cross says (and met his wife, a Slovak software engineer).

“I didn’t especially enjoy it, but it taught me a lot — it taught me a lot about what not to do. You get an understanding of really gnarly technical issues [and] at the same time, you develop this sixth sense where you can see early on where something bad will lead you. That was a huge experience for me.”

After the Google stint came Flightcaster, a Y Combinator-funded startup. Freedman and his partner Evan Konwiser needed a more technical co-founder in order to get their funding from the incubator (“someone who could actually build what they were talking about,” Cross says) and so they brought Cross in to run the technical side. He designed and built the systems that sucked in terabytes worth of data from airlines, weather services and other sources and made recommendations about routes or flights. “Flightcaster was a very early permutation of this kind of thing [social recommendations], which is the whole reason why I joined,” Cross says.

Once Flightcaster was sold, Cross finally had enough time, knowledge and resources to start his own venture, and Prismatic was born in early 2011 and initially known as Woven. The idea was to use the machine-learning techniques that Flightcaster was based on to filter through and understand social data, and then use that to make recommendations about news and other content. In other words, to create a kind of customized newspaper for users based on their activity on social networks like Twitter and Facebook.

Can a mad scientist reinvent the way media works?

Facebook may have close to a billion users and vast storehouses of knowledge — as does Google — and Twitter may be focusing more on the kind of smart curation that Prismatic is talking about as the service evolves, but Cross says he is convinced that his small company (which was seed funded with $1.2 million from investors including Battery Ventures and Javelin Venture Partners) has a better chance of solving this problem than any of its much larger competitors — even though that might seem to some like an excess of hubris:

“Google won’t get this right, Twitter won’t get this right, Facebook won’t get this quite right, Amazon won’t even get this right — the company that gets it right needs to have it in its DNA. We think this is a Trojan horse into a much bigger thing… in five years time or 10 years time, AI will be all over our daily lives, everything we interact with will be intelligent, and the interfaces to it will be completely different. Backtracking from that very distant kind of vision led us to start in this place.”

There’s no question that the odds of Prismatic succeeding are almost astronomical — not only are there other older, better-funded players going after a similar goal, including News360 and Zite and even Flipboard, but Twitter and Google and Facebook are not likely to let an upstart take away what could be the future of their business.

If sheer devotion to wrestling with big problems is the secret, then Cross has a good head-start: Freedman says he remembers how Cross was always taking the engineers away for 18-hour hackathons to solve pressing issues with the code base. “One day I looked around the office and it was just my co-founder and I,” he says. “Everyone else was at Brad’s house, in his living room, working these crazy hours, but also just having fun. He loves a big problem.” Cross is definitely still a “mad-scientist type,” Freedman says, “but he’s also a lot more than that.”

When we spoke recently, Cross was busy trying to manage a hundred different aspects of being a small six-person startup: a deluge of interest based on the launch of Prismatic’s new iPhone app (an iPad app is coming soon), calls from potential acquirers, and the need to raise financing to fund the growth that he expects — or wants — to see in the future. Is it worth it, I asked? “It’s not worth it unless you have something really important that you’re trying to do,” he said. “And I think we do.”

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The BBC is often thought of as an online exemplar. In fact, the big digital ideology of the the last several years has been making linear conventional broadcast material available on-demand, live and through multiple internet devices, principally through the iPlayer service.

But George Entwhistle, in a keynote delivered to staff as he replaced New York Times-bound Mark Thompson on Tuesday, said this practise has come to its natural limit; instead, he said, the BBC must now create content conceived for interactive platforms, not re-interpreted from older media.

In some ways, this may herald a return to the late 1990s and early  2000s, when the BBC, embracing the web as a third platform, published many kinds of text-based websites that were not dependent on broadcast services. Those projects have been cut over the last few years as video excitement grew and as the digital division adopted a 25 percent budget cut.

Entwhistle’s digital-native content is likely to be created for a richer and more multi-screen online environment than the last time the BBC followed such a strategy. So we may see a new era of inventiveness.

Here is the relevant excerpt from Entwhistle’s full speech…

“The BBC is rightly thought to have done well in the early stages of the digital revolution. iPlayer has been feted for its superbly engineered platform, which set new standards in video streaming, and a user interface that made catching up on the TV you’d missed a pleasure. But while celebrating all that, the real key to iPlayer is the unmissability of the content it offers.

“Even in our near-miraculous coverage of the Olympics, I would say that we’ve taken – joyously – our capacity to present and distribute existing forms of content to their natural limits rather than innovate to discover genuinely new forms of content.

“Yet it’s the quest for this – genuinely new forms of digital content – that represents the next profound moment of change we need to prepare for if we’re to deserve a new charter.

“As we increasingly make use of a distribution model – the internet – principally characterised by its return path, its capacity for interaction, its hunger for more and more information about the habits and preferences of individual users, then we need to be ready to create content which exploits this new environment – content which shifts the height of our ambition from live output to living output.

“We need to be ready to produce and create genuinely digital content for the first time. And we need to understand better what it will mean to assemble, edit and present such content in a digital setting where social recommendation and other forms of curation will play a much more influential role.

“Now I believe an organisation run, for decades now, around the existing platforms and the content they define for themselves – radio and TV – is going to find it hard to get ready for that. A television or radio organisation can always be forgiven for obsessing only about the creation of television or radio.

“To be ready for the world into which a new Charter would take us we will need to change the way we’re organised.

“So, in around two years time, my aim is to have restructured the BBC – with fundamental implications for A&M, Vision and Future Media. To be ready to create and curate genuinely digital content, we will need to integrate all three disciplines – definitively. We need to ask people from all three to work more closely together in order to imagine ourselves into the space where a new kind of content is possible.

“I promise this won’t be a repeat of the bi-media experiment many of us lived through in the 1990s, where people who loved and were good at one thing were asked to do another.

“But it will mean a careful reconstruction of some of the output structures of the BBC. My initial view is that a genre-based approach will give us the right way forward.”

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