Tim O'Reilly on Free

I’m here at the O’Reilly Tools of Change for Publishing conference in New York this week and had the pleasure of hearing Tim, himself, speak about his own media business in a speech entitled Free is More Complicated than You Think.

Here are some excerpts and tidbits:

• Wikipedia has 5M articles and 6 staff

• The computer book market is basically stagnant over the past 3 years; forcing O’Reilly to re-think their business and innovate in growth strategies

• Tim was inspired by a blog post by Jeremey Liew from Lightspeed Ventures entitled Three Ways to Build a $50M Online Business. It forced him to start doing the math of online ad-supported businesses.

• For a long time Tim thought advertising support for free content was the right way to approach the Internet, but that he was just bad at doing it.

• The question he focused on was: could he / how could he replace his ~$50M book publishing business with a pure online model?

• Then he did some interesting math. Assume (hypothetical but probably close to his real business) that he sells 200K books/month @ $20 = $4M/month = $48M/year. Average book is 446 pages, which is equivalent to 90M page views per month. At a $1 CPM, that’s $90K/month. At a $20 CPM, it’s $1.8M — roughly half the size of the book business.

• But there’s a catch, Tim says that online readers view only 5% of the pages in book. All of sudden you down to a mere thousands of dollars per month. So he stopped thinking about a solely ad-supported book publishing business.

• So, Tim thought, if not ads then what? His answer: a mix of 5 things. (1) sponsored content (e.g., shows, sites), (2) subscription content (e.g., Safari, Make), (3) services, (4) e-commerce, and (5) advertising.

• He talked a lot about content and community, for example, speaking about their experience with Make webzine, the concept of “the maker”, and the Maker Faire event which attracted 45K people last year.

• To Tim, the events business is about: (1) community, (2) concept (e.g., the maker), (3) brand, and (4) a sponsor ecosystem.

• He talked about his own experience with the original paper that branded web 2.0, and how he leveraged that into the Web 2.0 Summit and Web 2.0 Expo conferences, and even into the venture capital business with O’Reilly AlphaTech Ventures. (At which the guy behind me mumbled: “he’s really a marketer at heart.”)

• “IP is not our core asset — it’s our mission / brand / community. Let the products flow from that mission and community. Then do the math on the business opportunity, and let the math pick the business model for pursuing it.”

Basically, Tim stuck to his core messages: engage the community, innovate, don’t be afraid of the Internet. Great stuff — especially when delivered in this unique “from a publisher to a publisher” format.

Final thought: who’d have believed that you could build a 800-person publishing tools conference that I’m sure is highly profitable? It all speaks to the power of focus and to focus on the audience (publishers) as opposed to technologies (e.g., ECM, KM).