Using the past to measure the future

Every time I’m asked to calculate online revenue potential, I run into the reality that the Web is a moving target and that “measurement metrics” is really a Media 1.0 concept. If only things would just sit still for awhile, so that we could all figure out how we’re going to make this thing serve our revenue needs!

This is why I suggest to clients and others that we must stay focused on the goal, not the process, for it is process-thinking that bogs us down in attempts to move the new media rock.

In my 2006 essay, Right Brain Renaissance, I argued that the essential problem media companies are having is in adapting to the creative juice that’s empowering true innovation:

New art forms are exploding. Whoever heard of photoshopping or other forms of digital art just a few years ago? We’re inventing whole new virtual worlds such as Second Life, and video games have taken on a life of their own. Nobody knows where it’s going. Nobody.

Who would argue that Chris Anderson’s brilliant discovery of The Long Tail and his exploration of new media economics isn’t inspired? The web empowers the long tail, so not only are we innovating new worlds but also new economies.

Institutional modernist leaders look at all of this and scratch their heads, because it’s taking place without their permission. Traditional rules and systems are being by-passed and with alarming speed, and the loss of (their) order is frightening and dangerous. It’s foolish, however, to think there is no order as the rules of the right brain world are being written.

This isn’t just true in media, either. Right brain thinkers are turning other industries around. Take the time to read this Canadian Press article about Bob Lutz of General Motors, the man who brought right brain creativity to the domestic auto industry.

“It was an overly rational approach to the business,” Lutz said of the old GM. “The feeling was, if we give them a nice car with lots of features, and we make it very roomy and very reliable and very functional, people will realize what a good, rational purchase this is and we will get great sales. And then it didn’t happen.”

I’ve provided all this background in order to get to the point of this post: that using rational measurements to judge the future value of products and services in the Media 2.0 world will halt more projects than green light them.

Bear Stearns analyst Spencer Wang falls into this trap in a new report calculating that the Wall St. Journal will have to increase traffic by a factor of 12 in order to make up for revenue lost by going free. Wang concludes that the best the WSJ can do is 6x. According to PaidContent.org,

WSJ.com revenue is currently pegged at $78 million annually, based on an estimated 989,000 subscribers paying $79/year. Including non-subscriber traffic, the company claims 122.4 million monthly page views. Based on an estimated CPM of $6 and a few other assumptions about sell-through rate and ad impressions per page, Wang arrives at the 12x conclusion.

There are a few problems with this projection, not the least of which is the attempt to calculate the future based on the past. The rational thinkers need metrics to do their magic, and the metrics Wang chooses are page views and CPM rates. These metrics continue to be used despite the fact that both Nielsen and ComScore have dropped them as a preferred metric for web advertising.

But the bigger concern in these types of calculations is that they disregard (or can’t see) the intangibles associated with moving the WSJ to a free online pub. As Chris Anderson points out this morning, the report misses the indirect benefits of going free.

For instance:

  • What about the new newspaper subscriptions that a 6x increase in web traffic will generate? (Print subscribers are typically worth five times what online viewers are worth, due to the higher effective CPMs of print media.)
  • What about the increased buzz and respect that the ability for bloggers everywhere to link to wsj.com stories will engender, bringing the paper back to the front of mind of media buyers and thus bringing in more ads?
  • What about the fact that, in a fierce competitive battles with its cross-town rival, the the New York Times, once nytimes.com went free, wsj.com had no choice but to do the same to maintain mindshare with an audience who are increasingly shifting online?

I don’t know how to quantify any of those factors, but I know they’re all non-zero, and in the case of second, at least, could be large.

The era of bean counter dominance in our culture is being disrupted, because we can’t solve all problems with rational thinking. That statement is heresy to modernists, but that doesn’t change the reality. The more I read, the more clearly I see the dividing line, and the more I’m convinced of the necessity of creativity in the development of solutions to the disruptive attacks on the very foundation of all media.

This doesn’t mean we discard rationality; we just don’t need it to be running things at this time.

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  1. […] Using the past to measure the future. Terry Heaton on the messy world of metrics and measurement, and the need for innovative thinking, in a new media age. Includes this: “The era of bean counter dominance in our culture is being disrupted, because we can’t solve all problems with rational thinking.” […]

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