This is the second in a 3-part interview with O'Reilly Media CEO, Tim O'Reilly. In part 2, we discuss business models for Web 2.0 and the future of RSS.

Business Models for Web Content

Richard: There's been a bit of discussion amongst bloggers recently about monetizing weblogs - making money off one's Web content. This of course has long been a dream for Website producers - content is king, but how to make money from it? Most commercial publishing businesses have used subscription models to do that, including your company (e.g. Safari Bookshelf). But with bloggers and other independent content creators, perhaps advertising and sponsorships are better avenues for them to explore. Where do you see the future of Web 2.0 for content creators, in terms of making money from their content? 

"In the early days, a publisher had to do there are lots of cooperating players, making the job a lot easier."

Tim: Back in 1995, in the early days of the Web, I wrote an article called Publishing Models for Internet Commerce. It was based on the idea that publishing can give us a lot of insight into how the Internet is going to play out. The lesson I drew from publishing is there's not a single business model. There are countless, overlapping business models - from marginal to very successful - in a really rich ecosystem. Take for example, in the US your kids may come home from school with this thing: "Hey, buy magazine subscriptions and you will support our school". There's some company that uses school children to market magazine subscriptions! And there's something else called Publishers Clearinghouse that has contests and giveaways to get magazine subscriptions. So there are these funny business models.

We have subscriptions, and direct sales to consumers and mediated retail sales, and advertising, and combinations of all of the above. We have people who make their money providing infrastructure or assistance in these models - ad agencies, printers, rack jobbers, distributors, retailers. It's a rich and complex environment.

After we sold GNN [Global Network Navigator] to AOL in 1995, I remember talking to Ted Leonisis about this idea - and he said: "Oh, I get it - you're saying where is the Publishers Clearinghouse for the Web?!"

"What we're seeing as the Web develops is that we're building a richer ecology of options."

In the early days, a publisher had to do everything, from generating the content to hosting and caching it, to acquiring customers, to selling advertising...and now there are lots of cooperating players, making the job a lot easier. What we're seeing as the Web develops is that we're building a richer ecology of options. So subscription is becoming a valid option. So is downloadable paid content. So is advertising - in fact there are new forms of advertising. You know, we used to think that it was only banner ads - and they got bigger and bigger and more intrusive. Then Overture and Google introduced this concept of context-sensitive text ads and that stuff really enabled what Chris Anderson is calling The Long Tail. But the story's not over - we're going to see more and more kinds of paid content. 

What's its Job?

"We often get blinded by the forms in which content is produced, rather than the job that the content does."

The other thing you really have to think about with all this is - we often get blinded by the forms in which content is produced, rather than the job that the content does. With eBooks, a lot of people got all hung up on the idea that an eBook was something that you put on a computer or a handheld device that allowed you to read a book. As opposed to thinking of an eBook as the answer to a whole set of different questions - OK, well what job does a book do?

So for example a fantasy novel does the job of entertainment. Using that analogy, I'd say an MMORPG like Everquest is an eBook. It's a very clear successor to Lord of the Rings - an exploration of how you would do a better fantasy novel on a computer. Just like movies grew out of stage plays. Originally they used to point a camera at the stage, then they realized they could move the camera and do all kinds of different things.

"What new technology does is create new opportunities to do a job that customers want done."

A lot of the publishing that I do really has two jobs: one is teaching and the other is reference. Safari is chiefly an online reference tool, so we're exploring new ways of putting our information in a reference context. For example we built a web services API so that Safari could be built into, say, a developer tool and become a help system. We're looking at it like this: what are we trying to accomplish here? Similarly, if you've looked at the O'Reilly Learning Lab, we've recently done online training - because, again, that's one of the things we do. We teach people.

So there's not a single business model, and there's not a single type of electronic content. There are really a lot of opportunities and a lot of options and we just have to discover all of them. 

Take music - the music industry was so focused on selling songs that they completely missed the ringtone business. What new technology does is create new opportunities to do a job that customers want done. 

"In the morning the milkshake needed to be thicker , to last longer, and in the evening it needed to be thinner so it'd get drunk faster."

There's a great talk that I heard Clayton Christensen give (he's the author of The Innovator's Dilemma). He was the one who I first heard using the "job" analogy. He talked about a study that Harvard Business School did for McDonalds, about milkshakes. They are apparently McDonalds' most profitable product, but the company wanted to figure out how could they make it even more profitable. What the Harvard researchers did was they went and watched people at McDonalds - and asked what job was the milkshake doing? And they discovered that the milkshake drinkers fell into two large groups. The bulk of the sales were in the morning and in the late afternoon. And they figured out that in the morning milkshakes were bought by a solitary commuter and the job was to while away the commute. And in the evening the milkshake was bought by the single parent coming back with a crowd of kids from a soccer game or whatever - and the job of the milkshake was to be a reward to the kids and the parent was always saying - hurry up and finish your milkshake! So in the morning the milkshake needed to be thicker, to last longer, and in the evening it needed to be thinner so it'd get drunk faster. So it was doing a different job at each of those times. 

And I think we have to apply that kind of thinking to electronic content - what are we trying to accomplish?

RSS and Web 2.0

Richard: A number of bloggers have noted that RSS was a common theme throughout the Web 2.0 conference. Russell Beattie said that "RSS was always mentioned [at Web 2.0 conference] in the context of Web Services in general". Where do you see RSS and other syndication technologies fitting into the "Internet as Platform" framework? 

"RSS is clearly, far and away the most successful web service to date."

Tim: RSS is clearly, far and away the most successful web service to date. And it kind of demonstrates something that happens a lot in technology, which is that something simple and easy-to-use gets overloaded (in the sense that object oriented programming uses the term). 

I mean it's the classic example of Clayton Christensen's innovator's dilemma. When HTML came out everybody said "Hey this is so crude, you can't build rich interfaces like you can on a PC - it'll never work". Well it did something that people wanted, it kind of grew more and more popular, became more and more powerful, people figured out ways to extend it. Yes a lot of those extensions were kludges, but HTML really took over the world. And I think RSS is very much on the same track. It started out doing a fairly simple job, people found more and more creative things to do with it, and hack by hack it has become more powerful, more useful, more important. And I don't think the story is over yet.  

"As happened with the web, the business models come later."

The fundamental idea of syndication and the ability to redistribute content via web services, is a very powerful idea and we're going to see more. There was this whole fascination with Push back in the late 90's with companies like Marimba and Pointcast - and they tried too hard to make that work and to build a business around it. (Although Marimba eventually did make a nice business in the enterprise, with software updates.) It was too early and too freighted with stuff that was good for the companies but not for the customers. As is often the case, it came back from the wilds as something not sponsored by companies with business models but by independent developers who were just trying to make stuff that worked for their own needs. As happened with the web, the business models come later. 

But this whole idea of people subscribing to content that they care about I think is fairly fundamental. We're basically dealing with a world of information overload and being able to tailor your personal portal is a pretty powerful idea. And I think we're going to see it increasingly used.