The internet is killing traditional media revenue streams – and not replacing them: Kohler

What if the collapse of the credit bubble is not the only reason capitalism is under threat?

Today’s Business Spectator interview with the CEO of Craig’s List, Jim Buckmaster, is a must-read for anyone interested in the future of the media – and the future of capitalism itself for that matter.

Craig’s List is a classified advertising website that employs about the same number of people as Business Spectator – 28 – and gets about 15 billion page views a month. Obviously they are rather different creatures: Craig’s List is an automated bulletin board; Business Spectator publishes original content, and doesn’t rely on classified advertising.

But most of the great newspapers of the world do, and for them Craig’s List is incredibly destructive. It’s almost entirely free and, according to Buckmaster, always will be.

In fact none of the big new global websites, apart from search engines like Google, make money and they don’t look like doing so. All the dreams of huge wealth from accumulations of internet traffic have come to nothing so far.

The owners of Facebook, MySpace, YouTube, Wikipedia and Twitter are all either struggling to make any money or not trying to, even though hundreds of millions of people around the world use them every minute of every day.

MySpace’s owner, News Corporation, has failed to turn its 106 million active accounts (increasing at 230,000 new ones every day) into serious revenue and the business has consistently run behind budget. Instead of making a fortune on the internet, Rupert Murdoch has returned to newspapers and the Wall Street Journal.

In the past few days the other big social networking site, Facebook, which is still mostly owned by venture capital and staff, has come up with what it thinks might be a way finally to make some money out of its 150 million active users. It says it will allow multinational companies to selectively target members to research new products.

It’s not advertising, but it might produce some money. But the founder and CEO of Facebook, Mark Zuckerberg, said a few months ago: “I don’t think social networks can be monetised in the same way that search was.”

The same applies to Twitter, a much more immediate social networking site on which users constantly “tweet” each other. Google will probably have more success monetising YouTube because there are signs that online video advertising is going to take off.

Google’s success in monetising its search engine and then floating at a market cap of $US23 billion, enriching its founders, encouraged online entrepreneurs everywhere to think the internet was the road to vast riches.

But it has not turned out to be that easy, partly because of people like Craig Newmark, the founder of Craig’s List, and its CEO Jim Buckmaster.

As Buckmaster explains in the interview mentioned above, it is an astoundingly simple but subversive idea – a classified bulletin board that users basically operate themselves. The company charges $25 each for job ads (and $75 in San Francisco for some reason) and they charge for “erotic services” ads (all of which goes to charity), but that’s it – everything else is free.

eBay bought 25% of Craig’s List, having also bought Skype in 2005 for $US2.6 billion, but there is no sign of the investment ever paying off.

Buckmaster says Craig’s List does absolutely no marketing and has just one office – in San Francisco. The people in it are not going to work each day trying to meet sales targets. And the company doesn’t need to open new offices in order to expand into new markets because the service goes everywhere all at once and can be managed from one place.

It is not as well known in Australia yet as it is in the United States, but Australians are beginning to use it to list their houses, jobs, items for sale, and themselves. For example, seven Sydney houses were put up yesterday.

In the US, Craig’s List is the silent newspaper killer, and is undoubtedly one reason why newsrooms in that country have been cut back more dramatically than they have been here.

More broadly, the internet is bleeding away the traditional media’s monopoly rents, without replacing them with new ones.

The key exception is Google, a money-making machine that uses constant innovation to stay ahead of the hounds of competition and maintain its market power.

Perhaps the other big sites will one day do the same, but there’s no sign of that yet. And even if they do, it’s unlikely that the great family fortunes that were made by newspaper and television owners will ever be repeated.

Online advertising is too accountable (there is no wastage) and the barriers to entry are too low.

So while the threat to the foundations of capitalism from the credit crisis are noisily occupying the public debate at the moment, there is another quieter one going on – the hippies are back and they’re taking over the internet. Craig’s List even has a peace sign as its symbol.

This article first appeared in Business Spectator.