Info-tech

Whose site is it, anyway?

D. Sampath Kumar | Updated on April 24, 2011

How do you split the value pie? - BIJOY GHOSH



Here is a trick question. But wait, I am getting a little ahead of the story.

Let us say you are of the view that the quality of Indian art has degenerated in recent years. You attribute this to the invasion of corporate art houses that sign up talented artistes on long-term contracts to work on subjects/themes that, in their view, hold greater commercial potential.

You believe that artistic souls cannot be stifled thus. You construct a giant building whose walls would be available to artistes to give full vent to their creative talents. The paintings would be open for public viewing. You also extend a special invitation to the likes of MF Hussain and Jatin Das to paint the walls with whatever catches their fancy. This enhances the prestige value for someone wanting to showcase his/her talent alongside these big names. Inevitably, others not so famous too join in. Soon the building acquires a cult following among artistes and general public alike. In no time the huge mansion set on the beachfront, amidst expansive lawns and manicured gardens, attracts franchise offers from soda-popcorn, corn cobs and ‘aloo' and chicken tikka vendors.

A venture capital (VC) fund thinks that the property, with its reputation for attracting the right kind of clientele, can be expanded to improve its franchise value even further. So the VC fund offers to buy out the building complete with painted walls and franchise concessions at hefty premium. You assuage your conscience that your mission to free artistes from the stranglehold of the big Corporate Houses is accomplished. You accept the offer and pocket the cheque.

If you don't feel like someone snatching a candy from a child while no one was looking, consider this. On the one hand, it is those paintings on the wall that explain the premium on what was, after all, a plain vanilla real-estate proposition. Without those paintings there are no visitors and without them there is no franchise value either, for aloo tikka, chat masala stalls.

What makes the situation more poignant is this. The artistes may well own the paintings. But they would have to scrape the wall to remove them in which event there is no painting either. In any case he/she would have to commit trespass, not to mention a charge of destruction of property.

So, the trick question is: Do you owe anything of the proceeds of the sale consideration to the artistes who made it all happen? Sounds far-fetched? Not really. This is pretty much the moral dilemma posed by the act of owners of Huffington Post — a Web site devoted to debating/discussing serious issues by way of articles and commentaries as an alternative to mainstream media in the US.

The site's numerous bloggers and regular visitors made it a success story of alternative journalism; the site was sold by the promoters for a little over $300 million to American media company AOL.

A group of bloggers have now contended that the owners of Huffington Post owe them $105 million as the site would have been nothing more than a giant slab of semiconductor memory chips that make up its server. It is their contribution and those of many others like them that has made it worth the sum that AOL paid for the Post.

So it boils down to: Who adds value to a Web site? Is it the owners who market the site and attract visitors? Or, is it the writers and other visitors who make the site what it is?

A judge of the Southern District Court of New York would, in time, rule on the merits of the case. Whether people who voluntarily came forward to share their thoughts/ideas with others should be entitled to a share of the value that a site begins to acquire is something that would be debated in the days to come. But from a business model perspective, the issue can also be posed in a slightly more nuanced manner.

Is a Web site a commercial product offering content that people find useful in varying degrees or is it merely a platform for people to connect with one another? If a bit of both, what would be the proportion of the two that would make up the total value pie?

In fairness to the promoters of the Post, what they have sought to do is nothing more than what many others have done in somewhat similar situations. Social networking sites have succeeded in attracting huge following by promising primarily a platform for like-minded people to come together. But for these people to get to know each other, it is essential that they reveal their preferences, likes, dislikes, and so on. That becomes a valuable insight for a marketer who would be willing to pay a price for accessing that information. Never mind that some of them drop out of cyberspace leaving not a trace behind. Also it is entirely possible that some of them might fake interest in a particular subject or issue just to connect with someone with a genuine interest in it.

But those that remain professing to be genuinely interested in something are still too large for someone to pay a premium price to address their marketing communication. Viewed thus, it is nothing more than a platform for someone to pay top dollars to acquire what it holds within.

The founders of the Post could well be criticised for promising to be something of an enduring alternative to the mainstream media in the West. Even if they were guilty of deception, it is no more than that of a marketer of a face cream who promises to make your skin glow, remove warts and acne besides having you swept off your feet by a Prince Charming/Cinderella (it is unisex cream) as the case may be, with the price at Rs 35 a carton.

That apart, it can be countered by two other compelling arguments, as well. One, it would be a folly to claim that people who posted their comments did not derive any value from the platform that Huffington Post offered. As Adam Smith pointed out a few centuries ago, commerce happens because both buyer and seller think they have secured a winning bargain. In that sense, the compact between the founders of Huffington Post and the writers who posted their views stood fulfilled when the content was hosted leaving no residual obligation on the part of the promoters.

The second and the more compelling argument is this. The market for platforms hosting public views is well-contested with newspapers, TV channels and practically everyone with enough money to make the down payment on rentals for bandwidth and a host server, getting into the act. What is more, search engines today are continuously refining their algorithms to ensure that they zero in on the most relevant content for their users.

It is a harsh fact of cyberspace reality that an incumbent player has no serious first mover advantage. So an investor picking up a stake in a content hosting platform is doing so not for what it hosts today but for what it can bring in by way of new users tomorrow. AOL must be well aware of the fact that people who visit a Web site are not necessarily wedded to it for airing their views. The company, after all, has been in the new media business for too long to not recognise this. It may have been guilty of many strategic blunders over the years. You can be sure that it is wiser if not quite the richer for the experience.

> deeskay@thehindu.co.in

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Published on April 24, 2011
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