Scott Karp got the discussion going with an interesting post on “Content Business Not Scaling” on his Publishing 2.0 blog. 

Karp essentially recaps Bear Stearns’ recent report which stated that the sweet spot in online content lies in aggregation of contextual verticals that can carve a niche in an otherwise cluttered content landscape. 

In his post, Karp does a good job of aggregating many of the points of view on the matter, from Tim O’Reilly, to WSJ’s William Bulkeley, Jack Shafer of Slate as well as Robert Young.  As you can see, I am trying to make a point: much like most technology companies rarely invent new platforms but rather simply innovate, rebundle or tweak them, content companies do not create original content per se, they simply take what is essentially out there, has already been done, and repackage it in a slighty novel way to strike a chord with an audience.  Sure, they want to grow that audience, but mainly, they want to keep that audience engaged and interested. 

The major problem with Karp’s analysis is that the companies (Weblogs, Inc., Gawker, TechCrunch, Paid Content) he uses as examples of content companies that have scaled are not representative of content firms: they are representative of blogs that have scaled. 

Surely we cannot reduce these to blogs (they use blogging software, or did, in Paid Content’s case), but they are not online magazines per se and definitely not traditional content companies.  Weblogs and Gawker, of note, generate 100-400 word posts that cover a large array of content but fail to exactly send shivers down the spine of editors at traditional magazines.  They’re fun to read, but they are aggregation companies, not content producing ones (further lending to Bear Stearns argument).  Tech Crunch is not a company that has scaled yet: when Michael Arrington’s other properties (Gear, Music, etc.) take off like TC have, then that argument can be made (this is not a knock, it’s in fact a recap of Arrington’s own admission in an Q&A with Guy Kawasaki).  Finally, to determine whether or not Paid Content has scaled requires a definition or clarification of the term scale.  Indeed, scale means different things to different people; and Rafat Ali of Paid Content - one of the examples Scott Karp points to as having scaled - explains what scale defines to him eloquently here.  To Ali, it’s influence.  This is a key consideration.

One anecdote to put things in context: Toronto is the most diverse city in the continent.  In a recent survey in the Globe & Mail, over 1,500 residents of Toronto (52% of the population to be precise) did not know what a blog was.  That can mean whatever you want it to mean, but there is a slight to major problem if we are to make conclusions about entire content companies based on “original content businesses like Weblogs, Inc., Gawker, TechCrunch, Paid Content,” the four companies Karp actually gives credit to for having scaled, who are derivatives of blogs.  We’re not knocking blogs, we run a blog network ourselves, but using a sample of four blogs to make a general case about content companies online is awfully simplistic to make a general comment about content companies.

Do not get me wrong though, the root of Karp’s argument: that platform companies have scaled and content ones have not, is an argument worth examining.

We’ll leave examples of content companies that have scaled for a different day (that’s a pretty lengthy list, and in all fairness I did spend 5 years working at an online publisher who defeated Conde Nast, Hearst Publishing, Dennis Publishing, eMap) and then got acquired by another content company who had scaled even more than us.  Podtech’s John Furrier also adds his two cents, arguing that he has scaled Podtech, and while we are at it, our own WatchMojo.com has scaled to 3,000 video clips in 11 months, which for original video content is not too shabby, though to me that is not scaling per se…

What we will emphasize is that a platform company like MySpace for example has a very different monetization reality than a successful publisher. 

MySpace can monetize a small percentage of pages and real estate, whereas a good online publisher needs, frankly, 1 to 5M unique users to be generating very healthy revenues.  A good online publisher will also not waste a lot of money so they can turn a healthy profit.  However, a company like MySpace is meaningless with 1 to 5M uniques, as is a search engine like Yahoo! or Google.  Thus, if scaling means reaching 50M uniques (for example), then sure, some companies are more prone to scale than others.

Furthermore, lumping Google with MySpace is simply misleading.  Google and Yahoo! are search, directory and navigation tools so they enjoy a better monetization rate.  Leaving MySpace in a separate category, the argument could be that “content companies have a better monetization rate than MySpace’s of this world,” though the flip side is that a MySpace can generate higher total revenues due to its larger size.

It’s a bit like comparing an ad agency’s business with that of a publisher; an agency can book $10M in revenues but might only take in 15%, or $1.5M in revenues… so if a publisher scales to say $2M in revenues, it might on the surface be a smaller company but in fact boasts higher actual revenues.

All to say, the sooner we realize that blogs are a tiny fraction of the content space, the sooner we can start to make observations that apply to the greater media space.

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