The Deal
Thursday, October 2, 
6:24 am

[Posted on April 4, 2008 - 5:22 PM]

In a post today on his blog, entrepreneur Hank Williams laments on the difficulty of launching small-scale advertising-based media startups while competing against venture-backed companies that can afford to provide content and services for free while building an audience. It's a similar argument to the one traditional retailers made 10 years ago about venture-backed e-commerce companies effectively selling dollar bills for 95 cents while figuring out how to eke out other revenues.

The difference is that the e-tailers were subsidizing their growth by underselling products with actual value, while would-be media entrepreneurs want to leverage the free distribution capabilities of the Internet, while providing something of little or no value and charging for it.

Silicon Alley Insider's Henry Blodget correctly points out that the movement toward free content is natural, but that if a provider offers something of real value they still are able to charge for it and not rely on ads. Whether it is money spent on producing the content or subsidizing accelerated distribution, the addition of venture capital to the equation simply adds to the scale, which still pales in comparison to the resources existing profitable companies can put into launching new properties.

Williams's opening thesis--"I believe it should be possible to start a small business and to have a small number of profitable customers, and to earn a living"--would be absurd if applied to traditional areas of venture investment such as semiconductor manufacturing or biotechnology. But operating in an industry where distribution is essentially free, he seems to be arguing that development and manufacturing should also be free. --Clifford Carlsen

See April 4 post from Why Does Everything Suck
For more see Matthew Ingram, Mark Evans and Profy.com


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