Having talked about the inefficiencies of the existing newspaper model, let’s look at the economics of what’s emerging in the Web 2.0 world.
A recent story in Business 2.0 magazine revealed the income of some popular bloggers. Read this article if you want to understand the emerging economics of blogosphere. They are vastly more efficient than conventional media. Michael Arrington is pulling in $60,000 a month writing TechCrunch. BoingBoing.net is on target to gross more than $1 million. Fark.com founder Drew Curtis says he’s on track to soon log sales of $600,000 to $800,000 per month.
“Blogs today benefit from what might be termed uneconomies of scale,” the Business 2.0 article says. “They are so cheap to create and operate that a lone blogger or a small team can, with the ever-expanding reach of the Internet, amass vast audiences and generate levels of profit on a per-employee basis that traditional media companies can only fantasize about.”
Take the Fark.com example. The site generates 40 million page views a month with a staff of one full-time person and two contractors. Its only real operating costs are bandwidth charges. It produces almost no original content and has no capital costs. Members contribute their own content, so no editors are needed. The site almost runs itself. Yet this could approach $10 million in revenue before long.
Craigslist.org is another example. This is the fifth most popular site on the Internet, with global reach and an estimated four billion page views a month. It is absolutely killing the newspaper classified ad business. I read one estimate that Craigslist had cost 
There are plenty of other examples. BoingBoing.net is maintained by five contributors, all of whom work on it part-time. Google Blogoscoped, which is the best independent source of information about Google, is run by one person in his spare time. It’s averaging four million page views a month. Gizmodo grew to become one of the top five blogs on the Internet with only a single contributor. Digg.com, which is barely two years old, is already among the top 25 sites on the Web. Its traffic outstrips all the largest media sites. It has a staff of 15.
None of these sites is making piles of money yet, but I think that’s only a matter of time. Companies like John Battelle’s Federated Media and Nick Denton’s Gawker Media are figuring out the business side. And it’s not like these blogs have to make a lot of money to keep going. Adrants generates over $100,000 a year in advertising and that’s plenty to keep Steve Hall plugging away at his one-man operation. He’s getting paid to do something he’s passionate about.
How do these sites generate so much traffic at such low cost? They outsource everything.
- Editorial content is outsourced to an army of individual enthusiasts and bloggers who find interesting information on the Web and feed it to the site operators. Editorial expenses, which account for about a third of the operating costs of a daily newspaper, are practically zero.
- Circulation is outsourced to Google and links from other sites. In fact, there really is no concept of circulation in social media because there’s no way to “own” the reader. This is a very different model from conventional publishing, which relies heavily on subscriber lists to validate advertising rates. The Web approach is much less controllable but also much cheaper.
- Production is outsourced to Typepad, Blogger or any number of other hosted services at minimal cost. There’s no need for designers because everything is templated. Some sites practically run themselves. Bandwidth costs can be steep for popular properties, but that’s true for newspaper websites as well.
- Sales is outsourced to Google Adwords, Federated Media or other sales agents. This may change in time, but for now, most Web 2.0 companies can’t be bothered with a captive sales force.