Poor industry structure and web publishing

Many participant means low profits

[CrimsonGirl]

A major determinant of overall industry profitability in any industry is the intensity of competition. Too many competitors and profits are competed away to an economist's dream of perfect competition in which there are no economic profits (Economic profits or supernormal profits differ from accounting profits in that they subtract off the cost of capital.) In some industries – and web publishing is one – the situation is even worse because there is no incentive to exit the industry if your profits drop. Brick and mortar businesses shut down when they fail. The cost of rent and a skeleton staff means there is a practical level of revenue below which the business closes its doors. Failed websites, on the other hand - why shut them down? The cost of a domain name and basic hosting is so low that even a publisher who has given up on a site sees little motivation to remove the site from the web. Put Google AdSense ads on and even if you earn only a few dollars a month you break even on that web property. Why shut down?

The accumulation of thousands and millions of failed or underdeveloped sites brings down overall publishing industry profitability. These sites show up in long tail searchers and provide an outlet for low end ad inventory. Active publishers would be better off if these sites disappeared.

I suspect this unfortunate industry structure is often overlooked, partly because of the tournament nature of search engine success and the bravado of many in the trade. (I recently saw someone brag "I'll rank your site or out rank it. Your choice." Right.) While the tournament setup means that winners win big – traffic for the top few sites on a Google search is many times that of page 2 results sites – focusing only on success in the trophy or target keywords ignores the long-tail search which we all know is important and which many dead/abandoned/zombie sites end up competing for. Further, a big field of active competitors, even if they aren't as successful as you at SEO, degrade your profitability because they increase your costs. You need to spend more resources and attention building links and content to stay ahead of the competition, while the rewards for the top positions stay mostly unchanged.

The desire to compete against the best notwithstanding, we'd all be better off with less competition. By "we" I mean people trying to make money off websites. Internet users benefit from our dog-eat-dog competition – more good stuff on the Internet – and companies that facilitate web use (ISPs, search engines) also benefit.

Unfortunately the barriers to entry are so low (almost anyone can create a website) and the incentives to exit so weak that we are stuck with too much competition. And low profits,. These structural problems are the bane of the web publisher. The tournament nature allows some winners to prosper, but overall industry profit margins are doomed to be low.

Now you could blame Google [seobook.com] for the poor prospects for the web publishing industry, but I think these structural problems are the more correct proximate cause. Google should be of concern to us – their market share is too high and they know too much (all those Google Analytics installations!) But Google's alleged favoring of real world brands in their SERPs isn't so much the bugaboo for publishers as unfavorable structural conditions. Google has for sure contributed to this poor structure through their democratization of the web with free tools and low-end monetization opportunities (Google AdSense.)

I don't have answers, but I'm pretty sure that other industries where the participants do make profits are ones that somehow limit the number of competitors. How do we get people to quit building sites and to take down their old ones?

[edited by: httpwebwitch at 4:22 am (utc) on Sep. 22, 2009]
[edit reason] redirected link [/edit]

[Leosghost]

but I'm pretty sure that other industries where the participants do make profits are ones that somehow limit the number of competitors

Your evidence for this conviction ?

NB.
Culling is always considered to be advantageous by all members of the herd until the individual finds itself to be the sacrifice demanded ..

Be careful what you wish for ..

you may not get all the peer votes in favour of your own survival.

or be prepared fight for your "right" to survive or to rig a vote in your own favour ..which is essentially a tournament again :)

and so it goes ;)

[martinibuster]

You're overlooking the tendency of audiences/consumers to aggregate to the top twenty percent. Revisit the longtail theory [en.wikipedia.org] page on Wikipedia where they discuss the 80/20 rule.

Given a large enough availability of choice, a large population of customers, and negligible stocking and distribution costs, the selection and buying pattern of the population results in a power law distribution curve, or Pareto distribution. This suggests that a market with a high freedom of choice will create a certain degree of inequality by favoring the upper 20% of the items ("hits" or "head") against the other 80% ("non-hits" or "long tail").[3] This is known as the Pareto principle or 80–20 rule.

It doesn't matter how big the Internet is and how vast the competition is. I remember running a crawler several years ago and seeing URLs flash by that I'd never heard of and probably never will again. When you take in the vastness of the web, it's like looking into the Grand Canyon. You can make it bigger but that doesn't diminish the vastness of the canyon as it is today, it's still vast.

Likewise I don't think it matters if five years ago I had one billion competitors and today there are three billion. Do those extra two billion competitors really matter? No, they don't. In my opinion, after about the twentieth to fiftieth competitor everyone else pretty much does not matter. And out of those twenty to fifty competitors there are so many different ways of approaching the niche that there's enough lack of overlap to keep everyone satisfied with the way things are.

Before AdSense came around the big discussion used to be how hard it was to monetize with affiliate programs, back when it was pretty much the golden age. In other words, losers have always outnumbered the winners. It has always been a scrap to get to the top. Always. Nothing has changed. The playing field is still the same.

[piatkow]

I think the only "problem" is where a site that ranks well for a competitive search is allowed to become dormant but is still grabbing visitors who may not look further.

I have created sites for a couple of voluntary organisations in my time:
1. I handed over to a new webmaster earlier this year. He moved it to a new host but did nothing else. For key searches it is now at no 2 or 3 rather than 1.
2. Old webmaster came close to drinking himself to death and is still in rehab with no access to a PC. Site is linked to his web hosting and as the standing order for the contract is being paid the site is still up despite being dormant since February last year. My new site languished at around number 3 for a while with his at 1, now mine is top and his is at number 5.

The lesson that I draw from this is that the situation will correct itself in time but there is a distinct lag until the search engines recognise that dormant sites really are dormant. The answer isn't to blame the dormant sites but to keep your own topped up with good content.

[gpilling]

Thank you CrimsonGirl for the ever popular "now that I am in the club, lets not let anyone else in" argument.

Google has for sure contributed to this poor structure through their democratization of the web with free tools and low-end monetization opportunities (Google AdSense.)

I am not sure if you are aware of this, but a person can make a website with just a text editor and a "Website for Dummies" book. I made my first one in 1993 - for no cost. The democratization of the web existed long before Google did. It was built in from the start. That would be the point of HTML.

@leosghost @martinibuster - I completely agree.
@Piatkow - how can you tell the difference between dormant and evergreen? I dream of sites that I build once and earn from forever.

[Jack_Hughes]

Presumably an ever green site could be detected by the link profile or the degree to which it is still receiving links. Perhaps that what google does instead of detecting activity on the website itself, detect other peoples linking activity towards it?

[piatkow]

@Piatkow - how can you tell the difference between dormant and evergreen? I dream of sites that I build once and earn from forever.

Good question. All my sites and most of the associated outbound links have been related to events and so contain date related information.