Web Publishing - Poor Industry Structure

A major determinant of overall industry profitability in any industry is the intensity of competition. Too many competitors and profits are competed away to an economist's dream of perfect competition in which there are no economic profits (Economic profits or supernormal profits differ from accounting profits in that they subtract off the cost of capital.) In some industries – and web publishing is one – the situation is even worse because there is no incentive to exit the industry if your profits drop. Brick and mortar businesses shut down when they fail. The cost of rent and a skeleton staff means there is a practical level of revenue below which the business closes its doors. Failed websites, on the other hand - why shut them down? The cost of a domain name and basic hosting is so low that even a publisher who has given up on a site sees little motivation to remove the site from the web. Put Google AdSense ads on and even if you earn only a few dollars a month you break even on that web property. Why shut down?

The accumulation of thousands and millions of failed or underdeveloped sites brings down overall publishing industry profitability. These sites show up in long tail searchers and provide an outlet for low end ad inventory. Active publishers would be better off if these sites disappeared.

I suspect this unfortunate industry structure is often overlooked, partly because of the tournament nature of search engine success and the bravado of many in the trade. (I recently saw someone brag "I'll rank your site or out rank it. Your choice." Right.) While the tournament setup means that winners win big – traffic for the top few sites on a Google search is many times that of page 2 results sites – focusing only on success in the trophy or target keywords ignores the long-tail search which we all know is important and which many dead/abandoned/zombie sites end up competing for. Further, a big field of active competitors, even if they aren't as successful as you at SEO, degrade your profitability because they increase your costs. You need to spend more resources and attention building links and content to stay ahead of the competition, while the rewards for the top positions stay mostly unchanged.

The desire to compete against the best notwithstanding, we'd all be better off with less competition. By "we" I mean people trying to make money off websites. Internet users benefit from our dog-eat-dog competition – more good stuff on the Internet – and companies that facilitate web use (ISPs, search engines) also benefit.

Unfortunately the barriers to entry are so low (almost anyone can create a website) and the incentives to exit so weak that we are stuck with too much competition. And low profits,. These structural problems are the bane of the web publisher. The tournament nature allows some winners to prosper, but overall industry profit margins are doomed to be low. Now you could blame Google [seobook.com] for the poor prospects for the web publishing industry, but I think these structural problems are the more correct proximate cause. Google should be of concern to us – their market share is too high

and they know too much (all those Google Analytics installations!) But Google's alleged favoring of real world brands in their SERPs isn't so much the bugaboo for publishers as unfavorable structural conditions. Google has for sure contributed to this poor structure through their democratization of the web with free tools and low-end monetization opportunities (Google AdSense.)

I don't have answers, but I'm pretty sure that other industries where the participants do make profits are ones that somehow limit the number of competitors. How do we get people to quit building sites and to take down their old