The Pareto Principle is nonsense.

In response to the current discussion on Techmeme and TailRank hipmojo writes that the Pareto principle is in play on the internet and that no matter how much we want it to be otherwise 80% of online advertising will go to 20% of the web sites.

When the dust settles, the top 20% of websites will get 80% of ad revenues. It’s that simple. Portals might change in shape, form or nature, but whatever they represent loosely will still get the bulk of revenues and traffic.

With respect, that is nonsense. Since the advent of Google Adsense the shape of internet advertising spend has mirrored the flattening of traffic I speak of on the edgeio blog. Almost half of Google’s revenue comes from Adsense. And about 75% of the dollars earned through Adsense stay with the publishers whose sites the ads run on. Clearly the lions share of the money spent through Google is shared about 50-50 with the publishers in the “foothills”.

It may be worth listening to the Google Earnings calls on Earningscast to validate this.

That is why Google talks so much about “inventory”. That is, traffic from outside google.com. The size and cost of this inventory is a major variable and the need to grow it helps us to understand deals like the one with YouTube.

If you roll the clock back to the pre-Adsense days when DoubleClick ruled, and online advertising was only going to large sites, it is a huge change in monetization and traffic flows. Give Google credit for this.

One of the things my piece argues is that there is a new trend on top of this established one – publisher monetization of their own content through direct relationships to advertisers (job boards, sponsorships and Techmeme like ad units being examples).

Sure the portals are still big but the collective foothills are as big now, and will be a lot bigger in the future.

De-portalization and Internet revenues

Last week Fred Wilson did a post on a phenomena he called de-portalization. I think he is right on the money.

I just posted a piece on the edgeio blog that picks up on that theme and discusses the consequences of the trend.

The top 10 consequences are:

1. The revenue growth that has characterized the Internet since 1994 will continue. But more and more of the revenue will be made in the foothills, not the mountains.
2. If the major destination sites want to participate in it they will need to find a way to be involved in the traffic that inhabits the foothills.
3. Widgets are a symptom of this need to embed yourself in the distributed traffic of the foothills.
4. Portals that try to widgetize the foothills will do less well than those who truly embrace distributed content, but better than those who ignore the trends.
5. Every pair of eyeballs in the foothills will have many competing advertisers looking to connect with them. Publishers will benefit from this.
6. Because of this competition the dollar value of the traffic that is in the foothills will be (already is) vastly more than a generic ad platform like Google Adsense or Yahoo’s Panama can realize. Techcrunch ($180,000 last month according to the SF Chronicle) is an example of how much more money a publisher who sells advertising and listings to target advertisers can make than when in the hands of an advertiser focused middleman like Google.
7. Publisher driven revenue models will increasingly replace middlemen. There will be no successful advertiser driven models in the foothills, only publisher centric models. Successful platform vendors will put the publisher at the center of the world in a sellers market for eyeballs. There will be more publishers able to make $180,000 a month.
8. Portals will need to evolve into platform companies in order to participate in a huge growth of Internet revenues. Service to publishers will be a huge part of this. Otherwise they will end up like Infospace, or maybe Infoseek. Relics of the past.
9. Search however will become more important as content becomes more distributed. Yet it will command less and less a proportion of the growing Internet traffic.
10. Smart companies will (a) help content find traffic by enabling its distribution. (b) help users find content that is widely dispersed by providing great search. (c) help the publishers in the rising foothills maximize the value of their publications.

Discussion

Kevin Burton
Techmeme
Mike Arrington
Syntagma
Dan Farber at ZDNet
Mark Evans
Fred Wilson
Ivan Pope at Snipperoo
Tech Tailrank
Collaborative Thinking
David Black
Surfing the Chaos
Ben Griffiths
Dave Winer (great pics)
Kosso’s Braingarden
Dizzy Thinks
Mark Evans

PC Forum

I’m at PC Forum this week. Monday saw the pitches of 9 startups (including edgeio)

Here is the movie of their 2 minute infommercials.

Microformats at Mashup Camp

I’m at Mashup Camp. Tantek is moderating a session on microformats.

I just made an hcard. Here is is 🙂

photo
Keith Teare

edgeio
44 James Avenue

Atherton,
CA
94027

+1-650-331-1998

edgeio

I have been gratified to see all the coverage about edgeio since I demo’d it last week at SDForum’s Search SIG, and Rob Hof’s first post. Everybody seems to like the concept. You can track the discussion here and here.

Mike posted on Techcrunch and on the edgeio blog.

For those who like to know the background, just a few pointers.

Philosophically: tagging – it seemed to me – was the thing that could enable RSS to be leveraged as an application layer enabler. Basically, the idea of RSS carrying a payload for an application. Using the “listing” tag to enable a decentralized listings marketplace was and is, in my view, only a start. It can enable users to use their blog for listings. In future I would expect many more applications to be built using various tags as their starting point (podcast and videocast and photocast seem obvious ones). Indeed if you combine the “listing” tag with the “services” tag and one of those today you would be creating a subset on edgeio focussed on podcasts, videocasts and photocasts.

The exciting thing for me is the idea that edge content and applications can enable each other. But additionally that the applications can be a vehicle for the distribution of that content. edgeio – the name – is the word edge with an I and an O. The I stands for “In” and the O for “Out”. We will have API’s for all edgeio content and allow both individuals and other applications to re-publish our data in new and unpredicatable ways. Want listings on your gadget blog, just call our API (we will have a widget for this) and you can have gadget specific listings on your gadget blog. And so on..

How it started: I first came up with the edgeio idea in late 2004, whilst working with the Real Time Web team at VeriSign, as an external consultant. Mike and I began working on it almost immediately and then added Vidar Hokstad (back end engineer) and Matt Kaufman (product manager) to the team in early 2005. Fred Olivera has done front end work since last October. His role is more or less complete now (great job on the design by the way).

I’m looking forward to seeing how all this plays out. Thanks for the – so far – gracious and positive reception.

Update:

Good discussion on Pete Cashmore’s Mashable post.

Phil Sim disagrees with Pete. Has some critical points.

Note:

At some point soon we will try and aggregate the critical remarks on the edgeio blog. We’re pretty heads down on getting edgeio launched so this may take a couple of weeks but rest assured we are reading all remarks and will both be thinking about them and learning from them.

Teare’s theorem: The first law of RSS (updated)

Umair has a post about why the “Rise of the Edge“? is something highly disruptive to orthodox Internet companies. In “Umair Rocks”? Fred Wilson says he wants to understand better what Umair means here, and plans to spend the time doing so.

For me the key is to comprehend that “the edge”? is a concept that only makes sense in a networked world. In a network “the edge”? is “the people”?. And “the edge”? plays the role of both subject (consumers) and object (creators).Blogs are a great example of the edge. Multi-player gaming is another example. Of course the edge is not yet highly diversified. But with the emergence of AJAX and Tagging the diversity of edge content is set to explode. Inputs from the edge to the center and Outputs from the center to the edge (old fashioned IO where the center plays the role of a hub, not a destination) become more important than web 1.0 aggregators that primarily serve as silos of content.

The growing role of the edge – as the originating point of content and the end point of its consumption – forces the redefinition of the the role and meaning of the center of the network. Content hosting is now a peripheral function (at best a means of having an index). Content discovery and distribution takes over as the primary role of the center.

Googlebase isn’t yet getting this (it is so far based on too centralized a publishing model). Craigslist, with it’s centralized publishing model, and evidenced by its recent outlawing of Oodle from taking it’s content, also isn’t getting it.

Yahoo – which has made some smart acquisitions – also begins to look out of date in this world. It seems to have no concept of enabling the edge; it is a network center seeing the edge as merely a source of user generated (read cheap) content and of potential subscribers to it’s centralized system. Opeining it’s API’s is a move in the right direction, but then the limits need to be removed. Even Flickr is centralized from a publishing point of view, albeit with good feed api’s for that centralized content. How much better would it be if you could publish photos and albums to your own blog and have Flickr acquire them, organize them and distribute them.

In a few weeks Mike and I will launch edgeio (note: for geeks it’s meaning is clear – edge content consumed (The I) and then re-disributed (the O). For my mom it’s just a cool word, spoken with an Italian accent, edge^ee oh). edgeio may well help clarify the possibilities of the new edge based network we all now use and inhabit. At least that is one of its goals.
edgeio-base :-)

edgeio is founded on a law we believe in. This is the first articulation of the law and we may be able to improve on it. But for now (until Dave; Mike; Scoble; Jeremy or others gives feedback :-) )

…the first law of RSS is:

“The value of edge published data (say a post) is directly proportional to the velocity of it’s consumption and re-production, that is, the number of input and output operations it goes through each day”?

RSS has enabled data to be freed from the confines of it’s initial point of publishing and to re-appear, through an RSS or ATOM feed at another point in the network. This takes place in a p2p (I read your feed) and an edge to center (I republish your post) and then a center to edge (others read my version of your post and so discover you) manner. As a post is consumed and republished, it, and the links to the original that are generated, create growing awareness, attention and probably traffic value which may or may not have a $ value.

edgeio has been built as an enabler of a more diverisified edge, with a role as a hub in accelerating the velocity of data as it travels around the network. We can’t wait to show it. We are now on the final UI usability tests for a beta. Shouldn’t be too long.

Links

Bubblegeneration Strategy Lab
Umair Rocks
Techcrunch
edgeio

Beattie on RealNames

Russell Beattie ay Yahoo has a lengthy post about RealNames. It’s a generous and thoughtful piece. Thanks for the link Russell.

There are a couple of things worth knowing.

Firstly RealNames didn’t really crash in the bubble. At least not directly. We were profitable and growing fast (about 120% a quarter back in Q1 2002.

Secondly, we had an awesome business model. Resellers all over the world were selling Keywords. Most uptake was in China, Korea and Japan where we were the only way to make local languages useable as navigational addresses. We had pretty strict controls on ownership but we were able to segment nations into seperate namespaces. Today we would do local keywords too.

Thirdly, we were doing 1 billion resolutions a quarter in Q1 2002. That was page views that MSN lost to us because we were able to provide direct navigation to a web page from a keyword. Microsoft decided to close us down in order to regain those page views. Search this blog for the story.

There is a patent. You (Yahoo) own it through your acquisition of 3721.

I still own all of the code and the domain name. 🙂