OK, so your NCAA tournament bracket has officially been busted. Don’t feel so bad. ESPN college basketball analyst Jay Bilas, stat-geek superstar Nate Silver and even SAP’s vaunted predictive analytics software all missed the upsets, too. So did President Obama.

Three of the four correctly picked 11 of the Sweet 16 teams, while Bilas correctly chose 10. But despite the similariy in results between men and models, I’d follow Silver’s model-based forecast every time. Not only is it accurate, but it stands to make people a lot of money.

Just to be clear, though, Silver doesn’t actually pick winners and losers (at least not publicly, as far as I can tell). Rather, he uses a model that takes into account a number of variables — including a handful of popular computer rankings — and produces the probability of each team advancing through each round of the tournament. That’s what makes his forecast so effective if you’re a betting man: It’s easy enough to pick the winner and most of the final four by just choosing the top seeds (I’m looking at you, POTUS), but the way to accel past everyone else in points is to spot the Cinderellas.

If I were ESPN, I’d pay Silver a boatload of money to come on TV once a year and present his forecast to a March-Madness-obsessed nation. I’m fairly certain the network could extend the broadcast out to about three hours and charge Super-Bowl-like advertising rates. Here’s why.

It’s the probabilities, stupid

As I was saying, anyone, including Silver, can spot the best teams in the tournament by watching enough basketball, settling on some important data points to analyze or just following the NCAA’s seeding. Here are the seeds my experts, data analysts and the leader of the free world chose for the Sweet 16:

• Bilas: 1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 5, 5
• Obama: 1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 5
• SAP: 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 4, 5, 5, 6, 7, 8
• Silver: 1, 1, 1, 1, 2, 2, 2, 2, 3, 3, 3, 3, 4, 4, 4, 5

Here are the actual seeds that advanced to the Sweet 16: 1, 1, 1, 2, 2, 2, 3, 3, 3, 4, 4, 6, 9, 12, 13, 15.

SAP’s mid-seed-heavy bracket

The smart money is always on the higher seeds from a pure probability standpoint (although I have no idea how SAP built its model to get so many 5-8 seeds in the Sweet 16). But strange things can, and often do, happen in the NCAA tournament. This year, those strange things are called Wichita State (9-seed), Oregon (12-seed), LaSalle (13-seed) and Florida Gulf Coast University (15-seed).

So why am I so high on Silver if his Sweet 16 probabilities were just as off-base as the two non model-based human brackets and SAP’s model-based picks? Because if I were looking for a few upsets, he might have helped me spot them. Here some of his notable projections for lower-seeded teams most likely to advance:

• Arizona (6-seed): 38.1 percent of reaching the Sweet 16 — they made it (SAP picked this correctly)
• Florida Gulf Coast (15-seed): 3.3 percent chance of making the Sweet 16 — they made it
• Oregon (12-seed): 17.5 percent chance of making the Sweet 16 — they made it
• Minnesota (11-seed): 61.9 percent chance of winning its first game — it won (Bilas, SAP and Obama picked this, too)
• California (12-seed): 32.8 percent chance of winning its first game — it won (SAP picked this correctly)

And in my neck of the woods — Las Vegas — being smarter than the sportsbooks means big money. No. 12 Oregon and No. 13 LaSalle didn’t really sneak up on the oddsmakers (60-1 and 100-1 odds to make the Final Four, respectively), but No. 15 Florida Gulf Coast is paying out 1,000-1 should it reach the Final Four.

I wouldn’t count on that happening, though. Silver now gives those teams a 1 percent, 5.1 percent and 0.8 percent chance, respectively, of making the Final Four. Louisville, Florida and Indiana look like locks to make it, and one of them should win the tournament.

Men vs. models: Let’s call it a draw

If you’re looking at these selections as some sort of man-versus-machine competition, I don’t think you’ll find a clear winner. Although Silver comes out looking the best of the four brackets I analyzed, his projections aren’t that much different than Bilas’s picks. And although SAP’s picks fall apart in the end — two of its Final Four selections (including its national champion pick) are out — it did correctly pick a couple upsets. President Obama, well, he pretty much picked chalk. The jury is still out on SAP’s model, which has three Final Four picks alive but made what seems like a risky choice by choosing Michigan State over Louisville.

The better way to look at these results is probably as further evidence that man and machine need to work together more closely, something we highlighted heavily at our Structure: Data conference last week. Men create models, but men probably don’t crunch the numbers. And when there’s pride or money on the line, knowing which No. 15 seed has the best chances of making a run is probably what matters most.

Your chances of picking every upset without a little help: not good at all.

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He recently published a book called The Signal and the Noise that looks at the role data plays in our daily lives and the way we can use it to better understand the world around us. But speaking at a breakneck speed in front of a large audience in Austin on Sunday, Silver addressed some fairly random topics and questions:

1. Why the competition matters

“I’ve tried to work in fields like politics and baseball where the competition is not very good.” Silver said the lesson is important for startups, too: if you’re doing the same service that 98 percent of your competitors provide, there’s less room for growth.

2. On moving

“There were too many cool people moving to Brooklyn, so I had to move back to Manhattan.”

3. Who would play Nate Silver if they make a FiveThirtyEight movie

“I really hope they don’t make a movie about me. But I would think Brad Pitt. In terms of appearances.”

4. How he got his start

“Initially when I was a ten-year old I really wanted to build my fantasy baseball league. And I kept drafting … really crappy players and I didn’t understand why I couldn’t win. So with me it’s often been about competition, about wanting to win my NCAA tournament pool or my fantasy league.”

5. On fame

“Ironically I think I’m getting way too much credit now,” Silver says. “We’re very results-oriented as a society.” Silver said he’ll become uncomfortable if FiveThirtyEight ever discourages people from voting as the predictions improve, something he’s discussed before.

6. On the best way to pick a March Madness bracket:

“Travel distance matters a lot to performance.” Silver said that FiveThirtyEight does March Madness bracket predictions, but noted that people filling out their own should remember the correlation between travel distance and performance.

7. On one of the hardest things to predict:

“We had a formula that tries to predict the numbers and it’s only about 70 percent right,” Silver said of the Oscars. “That’s a field where you don’t have very good data available.”

8. Why he’s misunderstood by critics

“I think sometimes people mistake what I do as someone who’s saying everything we do is predicable…. Whereas really I’m more of a skeptic of prediction,” he said. “What I’m actually doing is taking polls and averaging them and the fact that it’s so surprising says a lot about where we have to go in terms of science and math.”

9. The strangest model he’s ever been pitched on

“I got pitched one time by a guy who works for a cricket team in India and thinks there can be like a Moneyball revolution in Indian cricket. I wasn’t too psyched about that.”

10. One piece of data he uses to make decisions in everyday life

“Don’t fly out of JFK in New York in the evening in the summer. If you fly out in the morning, and I’m not a morning person, but you probably have a much better chance of not having delays cascade across the system.”

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The reality is that individual brands like Sullivan and Silver now arguably have as much or more power as the traditional brands they used to align themselves with. The big question is how outlets like the Times and others will handle that re-balancing of power, and whether they will ultimately win or lose — and with the ongoing decline of print revenue, the stakes for traditional outlets are higher than they have ever been. (Note: We’re going to be discussing this with Sullivan and several other star bloggers at our paidContent Live media conference on April 17 in New York).

What does the NYT have to offer Nate Silver?

After announcing his split from The Daily Beast on January 2, Sullivan raised more than $300,000 for his new site in a matter of days, and was widely hailed as the harbinger of a new movement towards reader-supported independent writing. The pace of subscriptions has fallen off sharply (not surprisingly), but he is still signing up readers for his $20-per-year plan, with the latest total being $489,000 according to a recent update:

Silver hasn’t said much about his plans for the future since his emergence as a blogging superstar during the recent U.S. federal election, when his statistics-based blog — called Five Thirty Eight, after the number of members in the U.S. electoral college — got so much traffic that at one point it accounted for more than 20 percent of all the visits to the entire New York Times website. But he has hinted that he is considering whether to remain with the NYT or strike out on his own.

And why wouldn’t he consider it? With a book just published to some acclaim, Silver arguably has the kind of personal brand that could be successful as a standalone property like the one Andrew Sullivan is trying to build. And despite the attention the New York Times got from his content during the election, there has been some tension between the newspaper and Silver — including a reprimand from the paper’s public editor over a humorous wager that the blogger wanted to offer to MSNBC host Joe Scarborough on the outcome of the election (a bet that the NYT said was unseemly for a journalist).

Silver said this incident wasn’t a big deal, and that he appreciates being part of the New York Times. But how much does he really need the NYT, and how much does the NYT need him and others like him? That’s the question at the core of the Sullivan model: at what point does it become more of a hindrance than a benefit to be associated with a traditional media brand?

If Sullivan can do it, who else might be able to?

There are a number of other bloggers and columnists who could arguably pull off a standalone, Sullivan-style model: New York Times foreign correspondent Nick Kristof, for example, has a huge following through social media like Twitter and Facebook and is a popular author — although whether he would get access to the people and places he needs to access if he were independent is a question mark. Other columnists at the NYT and similar mainstream outlets like Tom Friedman or Ezra Klein could probably make a go of it, as could some writers such as Felix Salmon at Reuters.

New York Times executive editor Jill Abramson told a media panel on Friday that the newspaper wants to work closely with high-powered writers like Silver, and in the past has used DealBook blogger Andrew Ross Sorkin as a model for what the paper wants to do by building events and other value-added offerings around individuals with star power. But at some point, writers like Sorkin and others are going to ask whether they wouldn’t be better off running such businesses on their own.

In a sense, this is just the latest evolution of a tension that has existed between traditional media and the web since blogging was invented — writers like our own Om Malik gain a profile in traditional media and then go off to start their own media entities, and some high-profile bloggers like Josh Marshall or Mike Masnick manage to turn their blogs into standalone businesses like Talking Points Memo and Techdirt. It’s a little like the music industry: labels try to nurture star talent, knowing full well that in some cases that talent will leave and go independent.

And as the music industry has discovered, there is even less incentive for talent to stick around now than there ever has been, and the barriers to entry for those who decide to leave are lower. Sullivan may have been the first over the wall in this latest iteration, but he is unlikely to be the last.

Post and thumbnail images courtesy of Shutterstock / ollyy and Shutterstock / Allies Interactive

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Apple and the horrible, no good, very bad Maps app

The Amazing iOS 6 Maps Tumblr

The September launch of the iPhone 5 was marred by the disastrous reception Apple’s new Maps app received. Parody social media accounts popped up within hours, as disappointed users complained of poor or missing location data. CEO Tim Cook felt compelled to make a public apology, and it’s thought that the episode was the last straw that caused Cook to send SVP Scott Forstall packing. To rub extra salt in the wound, Google’s own Maps app for iPhone was greeted with the Twitter equivalent of a Hallelujah chorus when it arrived last week – and was downloaded 10 million times in 48 hours. – Erica Ogg

Google’s media player that never got a chance to play

Google surprised many in June when it announced the Nexus Q, a wireless digital content player dubbed as “the first social streaming media player.” But not all surprises are good ones. The small orb-shaped device launched at an introductory price of $299, triple that of the more capable Apple TV. And aside from the high price point, the Q offered no media services save Google’s own Play store for movies, television shows and music. The unique DJ function — allowing anyone’s Android device on the same network to mix the music — was hardly enough to justify the Q, which Google suspended indefinitely in July. — Kevin C. Tofel

Facebook’s troubled IPO

The initial public offering of the world’s largest social network was supposed to be the tide that lifted all technology boats, but the IPO instead turned into a stock-market train wreck and crushed the hopes of many other tech-stock hopefuls in the process. Thanks to a combination of mismanagement by the NASDAQ stock exchange (which used a new trading system for the issue) and a misreading of the initial demand by Facebook and its brokers — which resulted in an over-supply of stock — the company’s share price tumbled by more than 50 percent in the days and weeks following the offering. The company still wound up raising more than $16 billion, but the episode gave the tech darling a black eye as far as some investors were concerned, and likely set the market for tech-stock issues back by months, if not longer. — Mathew Ingram 

Two words: HP and Autonomy

The $11.1 billion purchase of Autonomy by Hewlett-Packard may have been announced in 2011, but the enormity of the screw-up didn’t fully surface till 2012. In May, HP management booted former Autonomy CEO Mike Lynch, and in November the company asked authorities in the U.S. and U.K. to look into Autonomy’s accounting practices prior to the buyout. That process is ostensibly now underway. Nevertheless, after airing all this dirty laundry in the November earnings call, HP CEO Meg Whitman asserted that HP remains “100 percent committed to Autonomy.” For the record, HP took a loss of $6.85 billion for the full fiscal year ended October 31, 2012 — most of that from an $8 billion writedown related to the Autonomy business. — Barb Darrow 

Nate Silver’s an idiot and Romney wins in a landslide

Except…Nate Silver isn’t and Mitt Romney didn’t. Silver, the founder of the New York Times‘ popular FiveThirtyEight politics blog, and several other notable statisticians mathematically predicted Barack Obama’s reelection with perfect or near-perfect accuracy. Meanwhile, Karl Rove sputtered through election night on Fox News, futilely defending his prediction like a child trying to convince a teacher a dog ate his homework. Maybe there’s something to this data analysis after all. Go figure. – Derrick Harris 

Amanda Palmer crowdfunding fubar

Alt-rock fave Amanda Palmer experienced the downside of social network savviness in September after she raised $1.2 million on Kickstarter to fund her new CD — then solicited musicians to play for free on her subsequent concert tour. Reaction was heated and Palmer quickly regrouped, saying she would pay more than beer, hugs and “merch” for the help. The alternate theory is that this was all a massive publicity stunt — in which case, it was hugely successful. (Palmer has since cancelled her 2013 tour to help a friend deal with cancer.) — Barb Darrow 

Twitter gags NBC Olympics critic

What do you when someone says mean things about your friends? You shut them up; at least, that’s what Twitter did during the London Olympics when it suspended the account of journalist Guy Adams, who tweeted snarky things about the TV coverage of Twitter’s corporate partner NBC. Twitter blamed an internal communications snafu and restored the journalist’s account two days later. Still, the incident became Twitter’s first full-blown PR crisis and a reminder of its growing shadow over our media lives. — Jeff Roberts 

The Western Mail’s caption fail

Tweeters celebrate epic #fails on an almost minute-by-minute basis. And for digital media aficionados, ye olde newspaper sub-editing and caption errors rank high on that dreary list. But there was none more epic in 2012 than Welsh newspaper the Western Mail, which committed what was labeled “the worst caption fail of all time” when it identified a photo of an airport manager, who died when the plane he was travelling in hit a mountain, with “LOL.” Although British prime minister David Cameron may think the acronym stands for “lots of love”, everyone else knows not to “laugh out loud.” The internet was not amused. Nor was Western Mail publisher Trinity Mirror, which responded, “We apologize for any offense this error may have caused.” – Robert Andrews

AT&T’s face-off over FaceTime

Trying to convince your customers, the public and your regulators that you’re just a big, cuddly carrier without an anticompetitive bone in your body? Maybe blocking a wildly popular app that happens to compete directly with your core service isn’t the best way to score points. Oh, but wait, AT&T didn’t block FaceTime over its cellular networks. You could use Apple’s video chat app to your heart’s content if you signed up for one AT&T’s (more expensive) family share plans. It’s not every day that a carrier stifles competition and jilts its customers for more money in a single brush stroke, but Ma Bell is a very efficient painter. Eventually consumer protests and the threat of the FCC involvement caused AT&T to backtrack. It offered FaceTime over cellular to more subscribers, and sheepishly claimed it was just protecting its customers from the inevitable network overload FaceTime would bring. Okay, but if AT&T’s new fangled 4G networks can’t handle video, what was the point in building them? Email and Twitter updates? — Kevin Fitchard

Bravo’s Silicon Valley startup trainwreck

Silicon Valley has been abuzz with Randi Zuckerberg’s Bravo reality show “Start-Ups: Silicon Valley,” which attempted to portray the craaaazy lives of startup founders and their companies in the Wild West. However, the show has been widely panned by techies and journalists in the Valley, who are obviously underwhelmed by shots of people in the pool with iPads and dialogue like ”Silicon Valley is just…balls to the wall.” Of course there’s an element of hilarity to the shenanigans associated with tech startups in the Valley, but it doesn’t appear that Zuckerberg’s show will be the one to effectively dramatize it. And now that the final episodes are being downgraded to a 4 PM PST time slot, looks like the show’s on its way out. – Eliza Kern

J.K. Rowling’s unreadable book

Getty Images

J. K. Rowling fans who’d preordered the ebook edition of her hotly anticipated new novel, The Casual Vacancy, were in for a surprise on September 27: Thanks to improper formatting by publisher Hachette, the ebook was literally unreadable, with a choice of two type sizes — microscopic or massive. Hachette pushed out a new file later in the day, but this was one of the biggest books of the year, and in 2012 there’s no excuse for failing to test an ebook before you release it. – Laura Owen 

VeriFone copies Square’s user agreement

VeriFone launched its mobile payment acceptance system Sail to compete with Square. But it went a little too far in emulating Square when it copied big chunks of wording from Square’s user agreement. When called on it by GigaOM, VeriFone cut about a third of its user agreement out to eliminate the copied text. – Ryan Kim

So who didn’t suffer a data breach?

Shutterstock/deepspacedave

So much for consumer confidence. In 2012, several of the biggest names in tech were forced to ask for users’ forgiveness after hackers gained access to customer records. In January, Zappos CEO Tony Hsieh apologized after hackers accessed names, email, billing and shipping address and scrambled passwords for potentially 24 million customers. And, in June, Yahoo, LinkedIn , Last.fm and eHarmony followed up with confessions of their own after a spate of hack attacks that compromised user passwords. In April, electronic transaction processing provider Global Payments also confirmed a data breach of 1.5 million credit cards. – Ki Mae Heussner

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It’s worth mentioning that Silver wasn’t the only statistician to perfectly predict the presidential race, either. In terms of Electoral College votes, Simon Jackman of Pollster did so, as did Josh Putnam of Davidson University. Save for Florida, Sam Wang of the Princeton Election Consortium fared very well, too, and actually nailed the popular vote split. Slate has a nice interactive chart showing how various statisticians and pundits fared in their predictions; there certainly are more predictions and models floating around that haven’t been included.

The important takeaway, however, is that the people who nailed the outcome didn’t achieve their results by cherry-picking data that served their political interests. They did it because they’re professional statisticians whose success depends on accurately predicting the outcomes of events, not on cheerleading for the outcome they might personally desire or that will drive the highest ratings. Even if the data they’re working with is somewhat biased — as some individuals and organizations suggested to me is the case — the science comes in being able to take the data sources for what they are and accurately weigh their relevancy.

Wrong. Data ALWAYS does, starting w/ collection | Data doesn’t play politics & says Obama win is.gd/piGdIb by @derrickharris

— Liberationtech (@Liberationtech) November 6, 2012

In business, this is the shift in thinking that’s driving the movement toward big data and advanced analytics. Forward-thinking companies want to use data to make the right decisions, not to back up their predetermined decisions based largely on gut instinct. But there’s an unprecedented amount of data at their disposal — some good, some bad — which is why data scientists who can figure out what sources to use and how to use them are in such high demand right now.

So in 2014 and and 2016, pollsters are going to keep polling, statisticians are going to keep analyzing those polls (and whatever other factors they choose to include) and, maybe, pundits and the media will pay some attention to what they’re saying. Probabilities aren’t promises etched in stone, and a vote either way can change the face of close elections like this one. But no one should be surprised when someone whose only job is to get it right does just that.

Feature image courtesy of Flickr user Carolyn Coles.

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That was the counterintuitive thing about last night: If you were watching a major news network or following Twitter, you were pretty sure that Barack Obama was your next president by 11:15. If you were instead relying on NYTimes.com and 538.com for the news, you might have gone to bed thinking the election was still up in the air.

The networks began projecting Obama had won a little before 11:15 p.m. as the votes from Ohio rolled in.

NBC News declares Barack Obama as the projected winner of the Presidency of United States. More at NBCNews.com #NBCPolitics

— NBC News (@NBCNews) November 7, 2012

Fox News projects #Obama re-elected president fxn.ws/Svj9UI via @foxnewspolitics #election2012

— Fox News (@FoxNews) November 7, 2012

That was also Obama tweeted the following…

This happened because of you. Thank you.

— Barack Obama (@BarackObama) November 7, 2012

…and tweeted and Facebooked the photo that has now become the most-retweeted tweet ever.

Four more years. twitter.com/BarackObama/st… — Barack Obama (@BarackObama) November 7, 2012

Yet the New York Times — and Nate Silver’s FiveThirtyEight, which accounted for a massive amount of traffic to the New York Times this week (with 71 percent of visits to NYTimes.com’s politics section also including a stop at Silver’s blog) — were silent, with the NYT’s homepage headline alternating between reporting Obama’s win in Pennsylvania and saying that the networks projected Obama had won the election. My husband was working late, and when I called him at 11:15 p.m. to discuss the Obama win, he said, “Are you sure? The Times doesn’t have anything.” At the same time, people outside on my street were cheering. The New York Times did not project that Obama had won the election until 12:03 a.m.

Breaking News: President Barack Obama Wins Re-election, The New York Times Projectsnyti.ms/TvricB — The New York Times (@nytimes) November 7, 2012

At that point, this was happening in Chicago, per the NYT’s own election blog:

Romney supporters were clearing out:

Nobody tell Rove, but the Ohio GOP has conceded and gone home. twitter.com/daveweigel/sta…

— daveweigel (@daveweigel) November 7, 2012

And the Empire State building had turned blue.

#BREAKING: The Empire State Building is BLUE. #ObamaWins

— The Daily Beast (@thedailybeast) November 7, 2012

Nate Silver has built his reputation on accurately predicting elections, and it looks as if his model got all 50 states right last night, though votes in Florida and Virginia are still being counted. But if you were looking for commentary from him last night, particularly after the networks announced an Obama win and the Obama campaign started celebrating, he and the NYT were not the place to get it — even though readers were seeking him out.

Instead, a lot of discussion of the results was coming from Karl Rove, who was arguing on Fox News with the network’s own anchors that they’d called Ohio too early.

The delay makes some sense: Silver has to be cautious, and the New York Times has to protect its own reputation. It can’t call the election too early and it doesn’t want to risk a Dewey defeats Truman moment. But Nate Silver is the man of the hour, the NYT’s top brand and probably traffic driver yesterday, and he could have brought even more traffic to the site between 11:15 p.m. and 12:03 a.m. if he’d been saying, well, anything.

@fivethirtyeight Little slow, eh?

— Tyler Hicks-Wright (@tghw) November 7, 2012

He, or another Times writer, could have written about why the Times hadn’t called the election yet and explained to readers what they were waiting for. But last night the paper was too slow to get in on the action, and readers who wanted a really good sense of how the election was unfolding had to turn to other sources.

Update, 4:19 p.m.: The NYT’s recently appointed public editor Margaret Sullivan commented on the NYT’s slowness on her blog. “Journalism history is full of cautionary tales about ill-fated instances of jumping the gun – whether the famous “Dewey Defeats Truman” headline in The Chicago Tribune or, much more recently, the many newspapers and cable networks who got the presidential results wrong in 2000,” she writes. And “unlike the television networks, which depend on their combined exit polls in calling elections, The Times prefers to look at real numbers in addition to exit polls, said Janet Elder, an associate managing editor who is part of The Times’s election ‘decision desk.’”

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99 bottles of beer on the wall 99 bottles of beer

— Drunk Diane Sawyer (@DrnkDianeSawyer) November 7, 2012

im not drunk u gusys r dunk — Drunk Diane Sawyer (@DrnkDianeSawyer) November 7, 2012

While tiredness rather than tippling likely caused Sawyer’s condition, the Twitter account provided a fun way to record a micro-meme that sprung up on election night. Sawyer wasn’t the only source of fun. Nate Silver, whose 538 blog overshadowed his employer The New York Times on election night, became a target too. Here’s how a satirist cleverly mocked the pollster’s portentousness and the public’s sudden fixation with data driven reporting:

Now is the nowcast of our forecasts, made glorious projection by this mean of polls.

— Nate Silver 2.0 (@fivethirtynate) November 6, 2012

I grasp from the beak of a silver dove a laurel wreath of finely-wrought permutations. The Signal has come at last.

— Nate Silver 2.0 (@fivethirtynate) November 7, 2012

Drunk Diane and fake Nate are fleeting by their nature — they cause a chuckle and then vanish in days or months. But one day they may also carry historical significance in the same way that newspaper cartoons serve as a vital tool for political scholars. Consider how well these spoof tweets sum up a central narrative of the 2012 election — the Republicans lost because they couldn’t broaden their demographic base:

We were going to retake the Senate, but Republicans have a way of shutting that whole process down. #Akin #Mourdock #election2012

— Willard Mitt Romney (@MlTTR0MNEY) November 7, 2012

Wait! Wait! Stop everything! We found the Whitey Tape!! #4moreyears

— Willard Mitt Romney (@MlTTR0MNEY) November 7, 2012

(Image by  jbor via Shutterstock)

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We do — that was that state of digital media when paidContent launched in 2002. Other weird things were happening back then too: People still got much of their news from television and newspapers, and they learned about major events after they had already happened.

There have been some huge shifts since 2002: Tablets and smartphones are now ubiquitous, lots of people read on their digital devices, and just about everyone is part of a social network or three. This summer is the tenth anniversary of our launch. In an effort to gain some perspective on the past decade in digital media, I’ve been reading back through paidContent’s archives — a collection of over 80,000 posts.

Since I was only a freshman in college when paidContent came to life, I often didn’t know, as I read through the stories from the early days, how things had begun or how they turned out. As I watched them unfold, I wanted to grab our readers’ arms and give them advice (“Don’t buy that Zune!” “Invest in Facebook!” “Go for the good Twitter handle now!”). But I also realized how difficult it is to predict success.

Some takeaways from my trip through the archives:  Some companies — AOL and Yahoo come to mind — have been consistently bad at predicting what consumers want. And a couple of companies, namely Apple and Amazon, have been very good at it. Also, being a native digital company helps, but it’s no guarantee of success (what up, MySpace?). And after all these years, it’s still not clear what content customers will pay for, or how much they’ll pay.

Streaming and Moviebeaming

What do analysts, CEOs and bloggers have in common? None of us can predict the future. Roger Ebert joked in 2002 that “on-demand streaming movies on the Web, like HDTV, are five years in the future — and will be for at least another 10 years.”

If Disney’s Moviebeam had been the only game in town, Ebert probably would have been right. When it launched in three cities in 2003, customers paid $6.99 a month to use a device that could hold 100 movies and plugged into the back of a TV set. They also had to pay for each movie they watched– billing was done via the phone line. The company went through various unsuccessful iterations before India’s Valuable Group bought it in 2008. It was never heard from again.

Netflix almost went down the same road. It had a plan to release a Moviebeam-like “proprietary set-top box with an Internet connection that could download movies overnight.” But instead, it decided to forge ahead with streaming — starting with a complicated “quota hours” system in 2007 and moving to unlimited streaming in 2008. By 2010, the majority of subscribers were streaming something, and the company began offering streaming-only subscriptions, though CEO Reed Hastings said that same year that the company would keep shipping DVDs until 2030. (We’ll see about that.)

ABC was the first network to sell episodes of its shows on iTunes, back in 2006, and to stream shows free with ads on ABC.com — and later on AOL. But by the time premium subscription service Hulu Plus launched in 2010, the platforms getting the attention were devices with built-in access, like Internet-enabled TVs, Blu-ray players, and tablets.

Return of the living dead

Speaking of AOL: It’s something of a miracle that the company still exists. In 2000, when it merged with Time Warner, it was valued at $350 billion, and the next year, more than 24 million people in the U.S. were paying for its Internet access service. By the end of last year, that number had dwindled to just 3.3 million subscribers. Here’s a quick recap of some of AOL’s miscues over the years:

• AOL Voicemail ($5.95 per month)
• A teen service called Red (featuring “a talking head—using the image of an actual employee—that uses software to answer users’ questions”)
• A digital music partnership with Burger King
• A reality show called “Gold Rush”
• Social networking site AIM Pages
• Going free
• The hyperlocal Patch blogs

Though AOL was once a high flier, no other company ever liked it quite enough to buy it. Google bought a five-percent, $1 billion stake in AOL in 2005, leading analysts to wonder if Microsoft missed out. That resulted in a $726 million writedown in 2009. Time Warner bought back Google’s stake and finally spun off “the albatross” in December 2009.  AOL is still promising a bounceback. “The executive team expects a profitable content business by next year,” CEO Tim Armstrong said in May 2011.

Yahoo hasn’t fared much better. The company launched Yahoo Platinum in 2003; for $9.95 a month, subscribers got access to audio and videos.  The program was dead by October of that same year. It later tried a Twitter-wannabe microblogging service (“Meme…where you share everything that you find that’s interesting,”). Perhaps the smartest move Yahoo ever made was not buying AOL.

Where did these companies go wrong? In 2010, former Time Warner CEO Gerald Levin pondered that question in an interview with the New York Times . The AOL-Time Warner deal was “undone by the Internet itself,” he said. “I think it’s something that no one could have foreseen, and to this day, whether Apple is going to dominate entertainment or whether Amazon is going to dominate publishing, all the old business plans are out the window. How do you get paid for content?”

Know what’s cool? A billion dollars

In 2006, an RBC Capital analyst estimated that a certain social networking company would be worth $15 billion in a few years, based on “raw, unprecedented user/usage growth.”

Six years later, Facebook went public with a valuation of $104 billion. Too bad the analyst wasn’t talking about Facebook but about MySpace. The social networking company that Rupert Murdoch acquired for $580 million in 2005 sold for just $35 million in 2011.

Why did Facebook soar while MySpace — and other social networking services like Friendster — sank? It allowed people to build real connections using their actual personal information, and rolled out a product that was ready to scale and had good technology. Other companies realized sharing was important too — in 2005, Yahoo SVP Jeff Weiner called sharing “the next chapter of the World Wide Web” — but Facebook was able to implement it in a way that kept users coming back. The site surpassed Yahoo and AOL for “stickiness” in 2009, when Nielsen found users spending an average of four hours and thirty-nine minutes a month on Facebook.

Social has already disrupted some industries — witness the rise of Twitter and the way it has changed the way news is reported, with stories like Osama Bin Laden’s assassination breaking there first. In a sign of the importance of these emerging platforms, newspapers like the Wall Street Journal and New York Times are launching “Everywhere” initiatives to deliver news to readers where they are already hanging out.

Fast food and music don’t mix

Hard to believe it now, but there was real skepticism that iTunes’ 99-cent songs would be able to compete with peer-to-peer file-sharing services. “According to academics who’ve studied the economics of digital music distribution,” we wrote in 2003, the year iTunes launched, “the cost still seems too high to attract users of peer-to-peer file trading services.” The piece cited an economist who believed “the appropriate price of a downloaded song is 18 cents.” In fact, Real Networks dropped its song prices to $0.49 in an attempt to compete against Apple.

In the end, consumers choose selection and convenience over P2P networks. We called iTunes “a kickstart for the micropayments industry.” Was it? While Steve Jobs said in 2004 that Apple wouldn’t hit its one-year, 100 million songs downloaded goal, global digital music sales crossed $1.1 billion in 2006. In April 2008, Apple surpassed Walmart  as the largest music seller in the United States.

The company that arguably started the digital music revolution — Napster — didn’t survive. Once it no longer offered “free,” it was done, though it tried to reincarnate itself: launching a mobile music service, “Napster To Go,” with AT&T in 2004 (the one smartphone that supported it could hold up to 6 songs), partnering with Circuit City on a digital music store, getting itself acquired by Best Buy in 2008 ,and then being bought back by Rhapsody in 2011. Unfortunately, Rhapsody was already losing out to newer (and free) streaming services like Pandora and Spotify.

The partnerships with Circuit City and Best Buy, though, were probably the kiss of death. One of the big trends of the past 10 years has been brick-and-mortar retail stores’ consistent failure to compete effectively against digital-native companies. Best Buy wasn’t the only retailer to try to crack the digital-content business — and fail: Target and Sears both took a shot. And McDonald’s sold digital content over its WiFi network and even tried DVD rentals in its restaurants.

Do you like the feel of paper?

Just as digital music didn’t really take off until Apple introduced the iPod, the ebook revolution didn’t take place until the arrival of the Kindle. In paidContent’s early years, ebooks were written off as a failure in part because publishers couldn’t figure out what to do with DRM. (In 2003, “temporary electronic ink” that would disappear after a few months was floated as a possible solution.) Barnes & Noble decided to stop selling ebooks in 2003, and Yahoo stopped selling them in 2004.

Meanwhile, Amazon and Google were pushing forward. Google launched Google Print – now called Google Book Search, and still besieged by lawsuits seven years later. Amazon tested two now-defunct programs: Amazon Pages, which allowed customers to buy access to digital copies of select pages from books, and Amazon Upgrade, which bundled print books with online access to the complete work.

Customers weren’t biting. Then Amazon came out with the Kindle in 2007 for $399. Less than two years later, Amazon was selling more Kindle books than print books, and ebooks now make up over 20 percent of some big-six publishers’ sales. Barnes & Noble has had some success with its Nook e-reader and digital bookstore, but bankrupt Borders shuttered all its stores in 2011. Meanwhile, the Department of Justice suit against Apple and five big publishers for allegedly colluding to set e-book prices drags on.

Good thing Steve Jobs looked beyond ringtones

A Forbes survey back in 2002 found that “business professionals” would be willing to pay for “news content to be delivered to their cellular devices,” and some media companies tried early mobile experiments. Verizon offered a cell phone version of the Yellow Pages — which, at $19.95 per year, gained 15,000 subscribers in three months. But starting in 2004, everyone decided the future was in ringtones. A $4 billion global business by the end of the year, one company projected.

So, so many ringtones. You could buy them from Rolling Stone or from an ATM-like device called E2Go. A fall 2004 marketing campaign let you mix your own ringtones on Levi’s website. Billboard launched a top ringtones chart.

Could ringtones “prove to be a passing fad”? we wondered late in 2004. Luckily, yes — a new technology came along to shake up the mobile market. No, it wasn’t the $500 ESPN phone, but the iPhone, which came out in 2007. And by opening its platform up to third-party app developers, Apple got users ready for its next ecosystem-changing device, the iPad, in 2010.

Monetizing mobile

Advertising has always been a fuzzy business — how exactly do you measure engagement and success? Well, that’s still the big debate about advertising in the digital era.  ”If here’s anything that’s really holding back ad spending on the web, it’s the lack of good measurements,” Tim Armstrong, then Google’s VP of national sales, said in 2007.

Mobile advertising has also faced obstacles. In 2006, mobile carriers began allowing advertising despite fears of annoying customers. Customers were indeed annoyed – 79 percent of them found mobile advertising annoying, according to a 2007 Forrester study — but they could “see the potential benefits of mobile advertising and marketing to themselves,” particularly if they could get a useful special offer or coupon.

Further complicating matters for advertisers: The smartphone market is fragmented among different brands — marketers don’t want to spend the money to create different ads for Android and iOS — and there are two mobile ad universes: mobile browser and apps.

Nevertheless, mobile advertising has gained ground, crossing  $1 billion in the U.S. for the first time in 2011, according to the Interactive Advertising Bureau, totaling $1.6 billion for the year.

The next opportunity is social media advertising. And once again, it will be a challenge to figure out some standardized metrics. What’s a retweet worth, anyways?

Back to where we all began

Though micropayments worked well for music when Apple launched iTunes, the path to payments for written content has been rockier. In 2004, we wrote that “micropayments today are still characterized by a large number of competing transaction types” – including direct-to-bill, merchant aggregation, prepaid accounts and direct transfer – and “each of these face the current incumbent in digital content distribution: the flat-fee subscription model.”

Eight years later, it appears that the subscription model has won out. The iPad opened the door for magazine and newspaper publishers to create new revenue selling content on that platform, but the results have been mixed. When Rupert Murdoch’s “The Daily” iPad newspaper launched in early 2011, the company called it “the model for how stories are told and consumed.” We wrote, “The bet here is that while consumers are less and less likely to reach into their pocket for a few quarters to buy a newspaper, they might not care about the 14 cents on their credit card for a copy of an e-newspaper.” A year and a half later, The Daily has over 100,000 paying subscribers — but it’s living on borrowed time and may not get through the five years its publisher has said it needs to break even.

Writing for the web, of course, has been around for awhile. At the beginning of the decade, blogging was called “nanopublishing,” and the question was how blogs could support themselves doing it. All sorts of models have arisen. For example, Gawker tried a licensing deal with Yahoo, but that relationship ended a year later. The deal “garnered way more attention than we expected, but less traffic,” Gawker CEO Nick Denton said in 2006.

Some bloggers have stayed independent and make a living from advertising (or from their day job); others write their blogs under a newspaper, website or larger magazine’s umbrella — see the Dish’s Andrew Sullivan, FiveThirtyEight’s Nate Silver, WaPo’s Ezra Klein. Or, they go to work for the Huffington Post!

Magazine companies have grappled with whether to bundle digital editions with print subscriptions or charge for them separately. Time Inc. — which first put digital editions of its magazines behind AOL’s paywall in 2003 — started out charging separately, but today Time Inc. and Condé Nast print subscribers get the digital edition free. Hearst, meanwhile, is charging separately, and it said its digital business in the U.S. became “solidly profitable” for the first time in 2011.

Could there ever be a Netflix for magazines? Time tried it for print versions with its 2008 Maghound service. It failed, due to a lack of marketing and reader interest. Magazine publishers are trying again with joint venture Next Issue Media.

Many newspaper publishers, most notably the New York Times, tried paywalls at the start of the decade and then abandoned them – only to return to the model in the past couple years.  In its most recent earnings report, the NYT said it has 454,000 digital subscribers. Is that enough to sustain the newspaper in its 21st-century transition?  Probably the best answer to that came from  Vivian Schiller. But it was in response not to the NYT’s recent digital subscriber numbers, but to the NYT’s decision in 2004 to close the paper’s first paywall, known as TimesSelect. Schiller, then the SVP and general manager of NYTimes.com, was asked whether TimesSelect had worked.  “It did work,” she said. “It’s just a matter of as compared to what.”

Birthday cake photo courtesy of Shutterstock user [Robyn Mackenzie].

TV photo courtesy of Shutterstock user [Somchai Buddha].

Zombie hand photo courtesy of Shutterstock user [lineartestpilot].

Piggybank photo courtesy of Shutterstock user [cardiae]

Fast food photo courtesy of Shutterstock user [Sergio Martinez].

Book photo courtesy of Shutterstock user [TrotzOlga].

Ringtones and apps photo courtesy of Shutterstock user [violetkaipa].

Cash register photo courtesy of Shutterstock user [titelio].

Magazines photo courtesy of Shutterstock user [bernashafo].

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