To say that P&L was virtually invented in New York is one of those innocent exaggerations that only true New Yorkers can appreciate. Profit & Loss and the record-keeping thereof were clearly invented elsewhere, long ago, but in the world of media at least, New York has treated the concept with much more respect than, say, San Francisco. In comparison to west coast financiers, New Yorkers have at least not treated the age-old business profit motive as a matter of scorn… which, see here and here, for example.
For this reason, “Sand Hill Road,” that San Franciscan variety of “Wall Street,” has eaten New York’s lunch, as it were, during the various bubbles and other heady times in the venture capital market. But when you live by the sword you sometimes also suffer by it. Venture capital, which in digital media and related technologies has become identified mainly with San Francisco’s funding sources, has lately suffered by the sword. The lack of P&L may be acceptable for YouTube, or rather, the abundance of “L” gets snug inside the cushion of Google’s plentiful “P”. And who knows if Twitter will ever have any P at all, but soon enough that too may become unimportant, as, presumably, a strategic exit can’t be too far off. But for every industry darling, as illustrated, there are about a thousand non-darlings, similarly unprofitable but dissimilarly popular. And with M&A and IPO routes both still narrower than in prior years, for VC backers of these platforms the sword suffering may continue.
Some say this to themselves almost derisively across the continent in the east, where we remind each other that P&L is our purview, our forte, to which for the most part we adhered even as Sand Hill Road was thriving. Out here in the east, media models based on advertising and subscription revenues have lived happily for decades and decades. No?
Except that, wait a second, these models are not living happily in this decade, in the east. Madison Avenue is suffering, not even by some sword of its own making, and by extension so are its many dependents. In fact, as Facebook merely dabbles around with advertising by way of trial and error, the New York Times can’t get it straight for trying, and the former could probably buy the latter much like the act of mercy shown by Bloomberg towards Business Week. As for the subscription revenue model, this more and more appears to be going by way of free stuff, and how could it be otherwise when there is free stuff everywhere…
The lesson in all this, is that the traditional ways of value, and even the traditional ways of P&L, have been distorted in the ever evolving sector which is digital media and its related technologies. Granted, Madison Avenue has gone through a slump which in due course will reverse, but it seems unlikely that the advertising business will really follow the old model again. Not with behavioral analytics that are becoming more sophisticated by the day, lead generation technologies that are always evolving, and search functionalities that allow consumers to be ever more resourceful.
The free stuff coming mainly out of San Francisco in the past decade, and more free stuff that is undoubtedly underway, may not constitute revenue or P&L in any direct or meaningful way, but is all part of an ecosystem in which value is likely to be measured by less direct means. The value is there, however, and is very real. It may even be more abundant than some currently realize. The economy may be in treacherous waters now, but the global population is growing, and greater subsets than ever use media in more quantity than ever before. The value is not only in the media and its usage, but in the means to aggregate users in ways that they may not even notice, and to analyze their usage in ways that we currently may not know.
