Beyond Web 2.

0
How new technology will change
everything about the media business

Beyond Web 2.0

You ain’t see nothin’ yet
By Alan D. Mutter

Abstract

As threatening as the many competing new media may appear to be to traditional publishers and
broadcasters, the disruptive businesses enabled to date by rapidly advancing technology represent
only one stage in a series of significant transitions likely to cause future audience fragmentation
and sales deterioration. Or, to put it bluntly: If publishers and broadcasters think the new media
have been challenging so far, they ain’t seen nothin’ yet.

In assessing their current business initiatives and future strategies, both traditional and new
media companies would be well advised to understand – and aggressively address – the trends
and issues described in this brief white paper. For all the challenges the new media pose to the
traditional companies, the established companies should be heartened to know that they will
continue for a time to enjoy many unfair competitive advantages over all but the very largest new-
media ventures. If they don’t use those advantages wisely, however, they will lose them.

Beyond Web 2.0

Although it has become increasingly popular for traditional and new media executives to believe
they are in the midst of a daunting but essentially finite migration from the first generation of the
Internet to a new paradigm popularly called Web 2.0, the concept is false and dangerously
simplistic. In fact, there is no Web 2.0. Never was. Never will be.

Rather, we are living in an age when media technology – a complex, interwoven infrastructure of
hardware, software and (fixed and mobile) networks – will remain in a state of relentless
evolution. Continuous dramatic technological changes will affect profoundly the way consumers
get – and, increasingly, give – news, entertainment and advertising.

A schematic of the ever-changing environment affecting the media business is illustrated in

Figure 1 on the following page. As you can see, it shows the media business is on an evolutionary
path that will take it through three foreseeable major phases described as Media 1.0, Media 2.0
and Media 3.0. It is essential for executives to understand these stages, if they are to manage the
transitions successfully.
______________________

This paper is the synopsis of a presentation delivered at Our Digital Future, a conference for senior executives hosted on
September 9-11, 2007, by the Media Management Center of Northwestern University. While the sponsorship of the Center
is gratefully acknowledged, this discussion – and any errors, omissions or unfulfilled prognostications it may contain – are
the sole responsibility of the author.

© 2007, Alan D. Mutter alan.mutter@broadbandxxi.com 415.519.2495 Page 1

Beyond Web 2.0
How new technology will change
everything about the media business

Media 1.0

Media 1.01, which commenced when Gutenberg printed the first Bible in the 15th Century and
continues essentially unchanged to this day, is the classic one-to-many model exemplified by
newspapers, magazines and broadcasting. The strength of this commercial model derives from
the fact that only a limited
number of operators in any
given market possess the
capital required to create,
produce and disseminate mass-
distributed media. In the pre-
Internet era, advertisers
(depicted in the green dots in
Figure 1) hoping to reach a
mass audience were obliged to
place their messages among the
few media companies (dark-
blue dots) capable of reaching a
mass audience. Consumers
(orange dots) had little alternative but to choose from the limited number of media offerings,
especially in the post-World War II period when the newspaper business began consolidating and
the number of early over-the-air broadcasters was restricted.

Media 2.0

The comfortable monopoly and near-monopoly businesses of the Media 1.0 companies began
changing subtly when cable television and home video recorders in the 1970s and 1980s
respectively gave consumers the ability to choose from an unprecedented array of programs and
shift the times they viewed them. But the Media 1.0 model was challenged far more forcefully and
fundamentally by the abrupt arrival of the Internet in the 1990s.

With hardware, software and networking technologies improving at a dizzying pace, enormous
amounts of capital and ingenuity flowed rapidly into new, technology-savvy Internet and mobile
media companies (depicted in the light blue dots in Figure 1) that can efficiently produce,
aggregate, index, host or otherwise deliver content on demand to globally distributed, virtual
audiences as small as one person. Significantly, companies like Google and Yahoo also have
devised automated systems to deliver just-in-time, highly targeted, verifiable advertising to a
single individual. After more than six centuries of dominance, therefore, the one-to-many model
of Media 1.0 has been overtaken in less than two decades by the some-to-some model of Media
2.o.

1Because the media business, of course, predates the Internet by centuries, it makes no sense to call the first iteration of
the media business “Web 1.o.” Because there can be no assurance that the Internet as we know it today will remain the
dominant media format in the future, it is more appropriate to think of the evolutionary continuum in a medium-agnostic
fashion. Hence, the labels Media 1.0, 2.0 and 3.0.

© 2007, Alan D. Mutter alan.mutter@broadbandxxi.com 415.519.2495 Page 2

Beyond Web 2.0
How new technology will change
everything about the media business

With consumers empowered to find information (generally for free) from a proliferating number
of compelling sources, Media 2.0 is an increasingly democratized, fragmented and inherently ill-
organized world. Users are largely agnostic about where they obtain content and barely discerning
with respect to such issues as accuracy, bias or commercial influence. They consume news,
entertainment and advertising interchangeably, choosing anything that interests them but quickly
moving on when dissatisfied with what they are reading, seeing or hearing. Advertisers pursuing
increasingly fickle consumers now sometimes attempt to connect with them through a Media 1.0
venue, sometimes try a Media 2.0 outlet, sometimes reach out to them directly and sometimes
even encourage consumers to make ads they can share among themselves.

In this disorienting environment, many traditional media companies are chasing their
fragmenting audiences by attempting to match the Media 2.0 competition with video, blogs, user-
generated content and the like. While the traditional media companies deserve credit for
attempting to refine their businesses to address the ever-changing expectations of their audiences
and advertisers, they generally have been too unimaginative, too technologically awkward and too
slow to keep pace with the quick-moving companies that are native to the ethos and technology of
Media 2.0. Thus, Media 2.0 start-ups over time have outflanked the traditional media on
everything from financial news to shopping to search to video sharing.

As challenging as Media 2.0 has been to the traditional companies, it is but the first stage of a
profound and prolonged transition away from their historic businesses. Because consumers and
advertisers will not use media in the future the way they do today, even mastering Media 2.0 is
not enough. To strength and sustain their franchises, both old and new media companies must
begin preparing for Media 3.0, perhaps the most dramatic paradigm shift of them all.

Media 3.0

Emerging as if in reaction to the cacophonous and unmanageable proliferation of content enabled

by Media 2.0, Media 3.0 will be characterized by intuitive “smart” technologies that acquire,
organize and uniquely present information in the precise time, format and medium chosen by
individuals. In due course, the some-to-some paradigm of Media 2.0 will yield to a world in which
news, entertainment and advertising drawn from many sources are custom-filtered into
individualized packages consumed by all but the most technologically recalcitrant consumers.
Thus, the media business likely will invert in less than half a century from the long-standing, one-
to-many model to a many-to-one paradigm.

Media 3.0 will evolve as the result of significant future technology developments in such areas as
artificial-intelligence software, database systems, media-compression algorithms, network
architecture, mobile platforms and nanotechnologies capable of delivering vast computing power
to more diverse and tiny platforms than we can imagine today. While it is not possible to predict
which technologies or media formats will become the mobile phones, TiVos, Googles, iPods or
Facebooks of tomorrow, the way forward is being pioneered by any number of known and stealth
development projects. The wealth created over the years by innovations ranging from Netscape to
You Tube all but ensures that ample capital will be available to support promising new ventures.

© 2007, Alan D. Mutter alan.mutter@broadbandxxi.com 415.519.2495 Page 3

Beyond Web 2.0
How new technology will change
everything about the media business

Media 3.0 obviously poses the most formidable challenge yet to Media 1.0 companies, whose
infrastructure and business models depend on efficiently delivering large audiences to
advertisers. But Media 3.0 also will challenge many of the leading Media 2.0 companies, which
ironically (and perhaps unwisely) have emulated the Media 1.0 model by aggregating enormous
amounts of traffic and revenue in their chosen genres2.

Business implications

The changes from each media paradigm to the next will be evolutionary and overlapping. That is
why a consumer on any given day might read a newspaper, check Digg for the latest news, buy a
song on iTunes, view a video on her mobile phone and post pictures of her new kitten at Flickr.
Nonetheless, it is useful to note the following trends, as are summarized in Table 1 below.

Media will move from (i) a centralized, one-to-many model to (ii) a distributed, some-to-
some model to (iii) an atomized, many-to-one model.

Media companies can succeed in the future only by enabling their content, as well as any
associated advertising, to be acquired on an individualized, ad-hoc basis by consumers.

Passive content consumption on fixed and wired devices will give way to active, customized
consumption on miniaturized, wireless and highly mobile platforms.

Consumers, as opposed to traditional media companies, will create a growing amount of

content. Indeed, early market research suggests that younger consumers narrowly prefer user-
generated content over fare produced by a traditional provider (Deloitte & Touche, 2007).

2 Perhaps the best example is Google, which controls 64% of search traffic and 76% of search advertising.

© 2007, Alan D. Mutter alan.mutter@broadbandxxi.com 415.519.2495 Page 4

Beyond Web 2.0
How new technology will change
everything about the media business

The technology used to deliver media will move from static formats like Hypertext Markup
Language (HTML) to dynamic delivery like Really Simple Syndication (RSS) to such intuitive
applications as Resource Description Framework (RDF) and its successors.

Content that historically was organized by human editors – and since has come to be indexed
by Google-like search algorithms – eventually will be organized intuitively by artificial intelligence
systems responding to the expressed preferences, as well as the past and predicted behavior, of
the individual consumer.

Mass-market advertising, which already is in the process of being supplanted by targeted and
verifiable keyword advertising, will migrate to contextual systems that deliver precisely tuned
messages to individuals on the verge of ordering a pizza, buying a car or booking a vacation.

As the large and “sticky” audiences traditionally enjoyed by Media 1.0 companies continue to
fragment, they will become increasingly devalued in the eyes of most advertisers. Media
companies must develop sophisticated systems to marry targeted commercial messages with
content wherever and whenever it is consumed.

As the mass media lose favor among most marketers, the volume and rates for advertising in
the least common denominator media will decline to the extent they may imperil profitability.

Media 1.0’s unfair advantage

The Media 1.0 companies can take advantage of the transitional Media 2.0 period to prepare to
migrate successfully to Media 3.0 and whatever lies beyond. Though weakened by an
unaccustomed degree of competition in the last two decades, most of the Media 1.0 companies
continue to be equipped to compete in this emerging world by virtue of the large audiences;
unparalleled content-creation resources; powerful marketing capabilities, and the estimable sales
and profits that they still enjoy. If they use them, they won’t lose them. If they don’t, they will.

About the author

Media-technology consultant Alan D. Mutter is the former CEO of three Silicon Valley companies
involved in online media technology and broadband media delivery; the former COO of a national
cable television company with more than $200 million in annual sales, and a former editor who
led the newsrooms of the Chicago Sun-Times and San Francisco Chronicle during periods of
record circulation growth for both newspapers.

He has consulted on media, technology and mobile strategies for Texas Pacific Group, the Sun-
Times Media Group, the Fox Television Network Affiliate Board, BASF and Kyocera. He devotes
significant time to investing in and advising private companies delivering Media 3.0 content and
advertising solutions. He has lectured at Northwestern and Arizona State Universities and
publishes a widely quoted online commentary on the technological developments challenging the
traditional media. His blog, “Reflections of a Newsosaur,” is at www.newsosaur.blogspot.com.

© 2007, Alan D. Mutter alan.mutter@broadbandxxi.com 415.519.2495 Page 5