WaPo dings the ‘give-it-away-free approach’

A mess of a story on Facebook

There’s all kinds of irony about the Washington Post slapping a company for a “give-it-away-free approach” that has hurt share prices.

There’s the fact that the WaPo once had an option to buy 10 percent of this extremely valuable firm—a stake that would have had a return of 160,000 percent in seven years—but it gave it away free.

There’s the fact the WaPo is the most prominent newspaper still holding onto the give-it-away-free approach.

But mostly it’s that the WaPo, instead of looking in the mirror, uses an extremely profitable company to frame a story about how hard it is to make money without charging on the Internet.

The problems start in the lede:

The dizzying stock decline of Facebook, a wealthy company with nearly a seventh of the world’s population as users, has revived a key debate of the Internet age: Can anyone get rich while giving their product away?

Well, yes: Facebook can. First, and most obviously, lots and lots of people at and investors in Facebook already have gotten insanely rich giving their product away.

But more importantly, the collapse in Facebook’s shares has happened, not because the company is struggling to make money, but because those shares were far, far overvalued to begin with because of the social-media bubble that has finally been deflating. Investors were expecting, foolishly, far greater revenue growth than Facebook could reasonably deliver. It’s revenue growth has continued a slowing pattern it showed well before its IPO.

The Post only gets around to mentioning these things in passing far down in its piece. And it never mentions the biggie that would have precluded it from asking “Can anyone get rich while giving their product away?” in the first place: That Facebook made a billion dollars of profit last year. It’s net margins were 27 percent and operating margins were 48 percent.

Instead we get demonstrably wrong quotes like this:

“Facebook is in a pickle,” said Donna Hoffman, co-director of the Sloan Center for Internet Retailing at the University of California at Riverside. “The advertising broadcast model is dead wrong for this medium. . . . It can never work.

I’m far from being a “free” apologist, but Facebook is not the Washington Post. It has more than half a billion users on its site every day, and the average user, including less active ones, spends nearly seven hours a month on Facebook. The scale is breathtaking, and the company’s content is created, free, by its users. How could you not make money with those kinds of numbers?

That said, Facebook is an exception, not the rule. It’s scale is such that it’s nearly impossible to replicate. In other words, there’s only so much time in the day and only so many ways people will spend that amount of time on the Internet making content (whether they realize that’s what they’re doing or not) for a giant corporation to sell ads against.

That’s why the free model doesn’t work for the kinds of resource-intensive (read: labor-intensive) newsgathering that newspapers like the Post.

There was a story here, but it’s not about Mark Zuckerberg’s massively profitable social network. The paper should have subbed itself in for Facebook. That would have been a story.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,