UPDATED 16:20 EDT / MAY 25 2011

The Bubble In Pretty Design: Flipboard Versus McClatchy Newspapers

Silicon Valley investors love a pretty face especially if it comes with free content. That’s what’s working for Flipboard, a hot startup with an iPad magazine app with a very pretty user interface.

Flipboard’s valuation has soared in just nine months since its launch and it now ranks with The McClatchy Company [$MNI] newspaper group, which publishes 20 newspapers, employs 7700 staff, and generates $1.4 billion in annual revenue.

Frédéric Filloux, writing at Monday Note, points out that Flipboard has just 32 staff and no revenues, but at $200 million its valuation is nearly the same as McClatchy.

It’s this disparity between the two media companies of nearly equal valuation, that shows where Silicon Valley investors see future business opportunities: in the design of the user interface and not the content.

This also sums up the business plan for nearly all Silicon Valley startups in the media space: find free content and organize it into a useful interface.

But if that’s where the value is today will it remain that way?

I’m a firm believer that content will be king, one of these days. After all, without new media content the Internet would be a dull place; it would resolve into a giant shopping mall littered with spam, and vacation photos from friends and family. You wouldn’t spend much time there. And there wouldn’t be much content for Flipboard to republish.

Without media companies producing lots of content every minute, hour, and day there wouldn’t be much to “like,” repost on Tumblr, or re-tweet — social media would shrink into insignificance. And online advertising would fail even more, since there wouldn’t much fresh content to keep people online.

Despite this vital role in helping to create a compelling Internet experience for the world’s 2 billion Internet users — media companies such as McClatchy are struggling — they can’t figure out how to make money online.

Their content clearly has lots of value because people seek it out, share it, and consume it online in tremendous numbers but how can it be monetized?

How can digital media generate sufficient revenues, that at the very least, equal the costs of producing that content?

What’s the value-recovery mechanism for online content?

It’s one of the most important and unsolved problems facing the future of the Internet, imho.

Online advertising earns too little for media companies, while subscriptions don’t pay enough. It’s understandable that Silicon Valley’s media startups stay away from producing content — it’s not a sustainable business.

Low labor costs and free content is a better business model for Silicon Valley’s media companies.

The McClatchy Company needs 7,700 staff to make and publish content. Flipboard has the same valuation with just 32 staff and free content.

– Craigslist also has just 32 staff, it gets free content and publishes one of the world’s top ten largest web sites, which displaced nearly $14 billion in newspaper classified ad revenues in 2009 alone.

– Google gathers free content and packages it into pages with advertising.

– Facebook gathers free content from its users and packages into pages with advertising.

– Twitter gets free content and packages it into pages with advertising.

This business model is repeated again and again, with the message that the value is not in the content, but in its aggregation and presentation.

How long will this situation continue where content has negligible value?

I believe that content producers will ultimately win out over companies that rely on free content. But it will not be traditional media companies but a new generation of media startups.

Silicon Valley companies such as Flipboard have some great publishing technologies but they have little that’s unique. A pretty user interface is not a barrier to entry for any publisher, and the data mining of user behavior is widely available from a host of third-party services.

A lot of powerful media publishing technology are available off-the-shelf or in the cloud. And this pushes the balance of power towards the content creators.

We’ll either get a new generation of media startups that are tech savvy and content-production savvy, fueling the production of compelling content; or the Internet will turn into a massive shopping mall littered with spam and vacation photos … and we’ll all be spending a lot less time with our heads in our screens. It’s a win-win.


[Cross-posted at Silicon Valley Watcher]


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