Consume This: On AOL Time Warner and Real Market Value

Watching whales mate might be
interesting, but it isn't pretty.Not many people are going to rent
the video.Craig BurtonAOL is now a much more interesting company and a much less
interesting stock.Roger McNameeWho is the fool that would piss on a rose and call it to
grow?Stanfield GrayEvery company has two markets: one for its goods and one for
itself. Over the past several years, the market for
Internet-related companies has gone nuts. The first sign of
insanity was Netscape's IPO in August 1995: a new company, known
mostly for a free product, was suddenly worth billions. Amazingly,
this was no aberration. Yahoo, eBay, Amazon.com and others rolled
up multi-billion-dollar stock valuations while sales of their own
goods numbered in the low millions. It still doesn't seem to matter
that Amazon.com has never shown a profit.AOL, on the other hand, has shown
profits. It used its own free product--countless floppies and
CD-ROMs--to hook millions of customers into spending 20 bucks a
month to get on-line and stay there. Today, AOL has an astonishing
54% of the Internet access business in the U.S. For this, the stock
market valued AOL so highly that the company was able to buy Time
Warner for $156 billion, even though AOL's sales are just $4.8
billion and Time Warner's are over $20 billion.It is tempting to say these high stock valuations are not
"real" because they don't derive from bottom-line performance, that
stock itself is just "paper money", and that the market can devalue
these companies to nothing in a heartbeat.But stock sells for real money. In the first three quarters
of 1999, venture-capital firms poured over $10 billion into Silicon
Valley startups--nearly all of it cash money made on sales of prior
investments. There is nothing "paper" about any of it. As for risk,
the stock market hasn't had a real crash since 1929. The '87 drop
was a doozy, but the losses were erased in a matter of
months.What's behind this boundless buoyancy? Is it the genius of
guys like Jeff Bezos and Steve Case? Is it the low-friction
efficiencies of e-commerce? Is it the intoxicating sense that the
Net plainly changes everything? No, it's the people who gave us the
Net, Linux and every other technology that is good because it's
free.It's the hackers.AOL didn't invent the Net. Hackers did. And they didn't
invent it as yet another way to pump out "content" and suck back
credit card purchases. They invented it so nobody could own it,
anybody could use it, and nothing could threaten it. And no mating
of whales on the supply side of any market--including the markets
the Net transforms--will do anything to change that fact."All the significant trends start with technologists," Marc
Andreessen told us back in 1998, when we interviewed him about the
open sourcing of Netscape's Mozilla code
(Betting on Darwin, Linux
Journal #52). In the same interview, he added, "Technologists are
driving progress, and it's easier to drive with Linux than with
anything else."So let's savor this irony: while Netscape now belongs to AOL,
and Mozilla (still funded by what's left of Netscape) famously lags
behind Microsoft's Internet Explorer in the consumer market, Intel
is quietly building its new home Internet appliances--TV set-top
boxes and thin network clients--with Mozilla code running on Linux.
If these babies catch on, they'll bypass AOL and every other
mass-market megalith that continues to regard the Net as yet
another one-way shipping system between a few suppliers and a
zillion consumers. These appliances will prove yet again that the
connections that matter most are the ones between human beings. And
that includes the human beings who do e-business with each
other.From the day the first packet moved across a TCP/IP network,
economic power has been shifting steadily from supply to demand.
Wars and marriages between giant suppliers still make great
stories, but those stories have little or nothing to do with what's
really going on. Hackers--the programmers, inventors, developers
and architects who are building out this new world--have been
trying to make sure the stuff that matters most is what works for
everybody because it belongs to nobody. They do it by making
markets what they were for thousands of years before industry
turned "market" into a verb: places where
people gather, talk about what matters to them and do business
together.Demand will win, because it is equipped to win.
Mouse-to-mouse, link-to-link, page-to-page, email-to-email,
voice-to-voice, customers are going to come out on top, along with
the companies who make it easy to do business with them. Those
companies will know that the best way to relate to customers is as
human beings, not as abstract populations to attack, control,
capture and herd like dumb beasts.The real war is between markets and marketing. For decades,
marketing has been the military wing of business, working
"strategically" to "attack", "capture" and "deliver impact" to
populations it calls "eyeballs", "seats", "end users",
"demographics" and "consumers" (which Jerry Michalski calls
"gullets that live only to gulp products and crap cash"). The
problem with marketing is that there is no demand--no
market--for its insults. That's why markets
will win.Is the AOL/Time Warner deal a bet on markets or on marketing?
Credit where due: AOL has done a terrific job of equipping demand
to deliver clues (as well as money) to supply. But the "consumers"
AOL wants to "aggregate" and "deliver content" to will only become
better equipped to screen out unwanted content, and more
significantly, to converse with its sources.What happens when the mute buttons on remote controls send
"we hate this" messages directly back to the advertisers who pay
for the media? What happens when consumers turn into real customers
with real names who express no desire for "messages" mostly
intended for somebody else? The business model for mass media
advertising falls like a bad tent, that's what.There's an old advertising adage that says, "I know half my
money is wasted. I just don't know which half." In the advertising
tradition, even that's a lie. Direct mail, one of the most
efficient forms of advertising, counts a 3% response rate a
success. The dirty truth about most advertising is that it has
always been woefully inefficient, especially in mass markets. But a
lot of it has been successful, which is why
it's still around.That success, of course, came in the absence of alternatives.
Worse, it came in the absence of demand from consumers. But
consumers were never advertising's real market. They paid nothing
for advertising's goods, and exerted no direct influence over it.
As a result, countless marketers and "creatives" in advertising
agencies (including the hip new "interactive" agencies) still labor
over screens and keyboards to come up with "messages" to "deliver"
to people who have little or no interest in it.The notable exceptions, of course, are classifieds, yellow
pages and trade publications like Linux
Journal, which are not only sources of useful editorial
content, but of relevant additional information, paid for by
companies, that is interesting to readers.So here's a clue for mass marketers who think AOL's customers
are going to sit still for the kind of heavy abuse that television
has been delivering to its addict for decades: there is no demand
for messages. There never was. When that clue finally arrives, it
will be like a fist through the screen.Provided, of course, that hackers keep doing their good
work.The fight is far from over. The good guys will win the OS war
and the browser war. But there are other enabling technologies that
still belong to suppliers with controlling intentions. Streaming
media is one. Instant messaging is another. Both could be far more
useful than the bait-for-advertising vehicles we see today. Look at
the differences between AOL's Instant Messenger and what's starting
to come from the Jabber
people. Better yet, join the movement.Let's start to show these guys what's
really valuable.Doc Searls is Senior
Editor of Linux Journal and co-author of
The
Cluetrain Manifesto.

email: doc@ssc.com