He who seeketh, findeth

August 12, 2007

The Economics of Blogging

Filed under: Thoughts and Reflections — Steve (Chessiq) @ 12:37 am

Assume a “click hour”: everybody in the world goes to every blog and clicks on the Ads. They click just one Ad at a blog and then they move on to another blog and they do that for an hour.
What would be the effect on bloggers? A lot of bloggers would become millionaires, assuming that computers didn’t crash. That’s the short-term benefit. However, in the long run, it would hurt them badly. Others, who are not good at personal financial management would be in deep trouble because of the unexpected surge in cash inflow could make them go on a spending binge that they would not be able to recover from.
What would be the effect of this on the advertisers? Since they are paying off a lot of money without gaining any sales at all (since the people were just clicking and moving on), they would consider online advertising a worthless and costly endeavor.
The domino effect: Advertisers would cut back on online advertising; blogger would have less motivation to blog and would produce relatively low quality product; the customers would not like the product; and demand would go down, and advertiser would …. (you get the idea!) So cheating advertisers should not work, in the long run.
What triggered this thought? I had Ads on my blog, and I was telling my friend how I didn’t like them, but they were potential money makers if visitors clicked them. She was like, oh, let me click and make you money! I was like, NO, NO and NO! I think it has been a while since she saw me that serious. My reason for saying no was not because I had thought about the economics of cheating and how it would impact everybody. The first thing I thought about was that “Google would know!” – They can see your IP address… and if clicks keep coming from the same computer and nobody is buying stuff. It seems very easy for them to figure it out. Second, I want to earn the money, honestly. It’s not that she wanted to cheat. She did not know how things work, and she thought it was fun. I guess it was done out of love! ;-) Hint, if you are reading this!

See, it is amazing how blogging ideas come into the mind from seemingly unrelated events.

I then thought about the blogsphere as an economy. What are its characteristics? It seems to be a free market economy. How about “-opolies”? Well, there are pretty much no barriers to entry, at least in the developed world. (No start-up costs etc.). There are very many players in the market. Everybody is free to compete (buy or sell). So, let’s call it a “monopolistic competition“. If it were a form of government, we would call it a meritocracy – if you are very good, you get rewarded for your efforts.
Marketing: How about product differentiation? There is and there isn’t. People can post/sell pretty much everything, but it seems people/buyers care about only so much. I am a seller. My product/expertise is Chess, but there are thousands of Chess blogs out there. Why would anyone come to my website? What would they get at my website that they cannot find anywhere else? I can choose to analyze games. I would prefer to do it the old way, no computer software. Hmn! Why wouldn’t anybody else do that – better and quicker with software? I can annotate the games? Hmn! Why wouldn’t all these Masters and GrandMasters do that? Why would people take my word for it? These questions/doubts are the barriers of entry if you are aiming at making some money off your blog. Other barriers are post-entry; motivation to continue once you are in, for example. Excuse me, economics and finance people. I am not sure if there is something called post-entry barrier. But it makes sense, doesn’t it? How about technical barriers? Not really, you can blog free of charge at places like http://wordpress.com (thank you WordPress!). You will learn other things as you go.
So, how do you make money if you are just starting up? A quick answer would be: You don’t! Remember, Meritocracy? Add to it something like first mover advantages. Brand recognition. Customer and brand loyalty. It becomes complicated for the start-up pretty quick.
My approach to it would be treating yourself like a start-up business and ask the same questions a real business would ask. What do you need to sell your quality product or gain market share? (Of course, you have to have quality product in your shop to prove it.) Okay, can they get your product anywhere else? By the way, what is this product? It is information: text, video and audio. If they can get it somewhere else, will it be of as high quality as yours, is it going to be as frequent as yours, etc. These are things in your control. You can control the quality and quantity. How are they going to know you exist? If you want, you can pay money to advertise. I would not.
My approach at the time of writing is to visit other bloggers, see what they write, if I like it leave a comment, and hope that they will pay me a visit at my website. Well, there is more to it than that. I have a list of 32 blogs that I will visit several times a week. I will leave a comment on all of them or most of them. For some, it will be detailed comments. For others, it will be “interesting, keep up the good work” or something. Just to let them know, somebody passed by. Their work is not in vain. The ones I really like, I will put a link on computer, to be reviewed regularly as to what they are posting, etc. I suspect that this will bring me 2 to 3 links from the other people. I will have these people for a month and then move to another 30 and I will do it for 6 months. I think that as people see my name often at their blogger’s site, and evaluate my comments – the detailed ones. They may click my name and see what I have on my site. They will leave a comment, or just read me and come back, or never come back again. That is reality. In 6 months, I will have visited over 180 blogs of interest to me, and I will have seen the quality and quantity out there to see how to adjust my game.
Big fish: Visit or not visit? I believe that information is good for you. If they are big, there is a reason why they got that way. They may have done something right along the way. They may have been blogging for a couple of years. By visiting several big name bloggers, you can sub-consciously learn what makes them tick. Hopefully, you will be able to differentiate yourself instead of just copying what and how they produce. For me, blogging is about all those freedoms: expression, association, pursuit of happiness, etc.For you to do your best work, you have to be you. People have to love you and your product for what it is. You. Is this economics? I may have digressed.
I didn’t finish answering the question about the big guys. You should know that they have been where you are now and made it there. They may have written pointers on how to make it as a blogger. Read it and pick what you are comfortable with (depending on what you want). Also, when you drop a comment there, if it is pointless, they will know what you are trying to do… you get the picture. I know this from playing Chess. When you are playing with a beginner, you almost don’t think, unless they show promise. It is the same with kids, you know all their tricks – most of the time. I think it is healthy to look at yourself that way. You are a beginner. There is no get rich quick way. Unlike a child, you have the advantage of a grown-up’s mind so you can learn, strategize, carry out your plan.
Back to my list-of-32: I will split them into 5 big-name, 15 mid-size, and 12 unknowns like me. I have described the importance of the big 5(! sounds like Public Accounting Firms way back when); the 15 are not as busy, or as ‘arrogant’, or whatever you call it. They will most likely visit your blog. If not, you will be able to see the difference between the big guys and the middle guys in quality and other stuff. You know how determined and ambitious middle managers are! Think of it as the difference between meeting the Cabinet and meeting the mayors. You will visit your own 10, to encourage, and find solace. Aw! Trust me, even though I have been doing this for a couple of days, there have been times when I just needed a break! In my Chess days, I know there were times when I just needed to play with somebody at my own novice level… until I had recuperated from the beating. It got easier with study, experience, and improvement. Lastly, you may wonder how long it will take me to visit 30 blogs. I am shooting for doing it in one hour or less. That’s 2 minutes a blog. If you do not what I am taking about, read “Getting Things Done”. I will be adding to this action plan as I read “THINK AND GROW RICH” and see how I can apply it to the blogger –ME! See sequels to Think and Grow Rich, Blogger!(Intro).

Your comments, ideas and suggestions on anything presented in this piece would be greatly appreciated.

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