Why CNet is a good match for CBS

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@Michael Arrignton: The reason CNet didn’t explode into an even larger business is not because of its acquisition strategy. It was because of its economic model, quite visible in its advertising.

Roll the clock back to 1999. CNet click through rates were ridiculous. I can’t recall the exact numbers, but they were absurd. Part of the problem was bubble think. Part of the problem was old school thinking. CNet enjoyed the money for a while and tuned its business around a certain group of advertisers that could afford the rates–wise or not.

And then came not just the crash, but more importantly Google as an advertising company with a model that challanged online ad rates at first by a magnitude. It followed a new pricing model that other companies built on ads either had to figure out how to compete with or had to suffer the inevitable slow slide of diminishing “customers.”

It’s not exactly right to say Google capped the value of CNet, because in many respects CNet did it to themselves. However look at how advertising is so different on Google Search or TechCruch for that matter. It’s like too different pools of advertisers.

CNet still has the old school advertisers. The Microsoft’s. The HPs. The companies so large that they have to have ad buyers who for many pragmatic reasons can’t think small, nor from a process standpoint manage small accounts. They can’t scale down.

So it was much more comfortable for CBS to buy CNet let’s say than TechCrunch. In part because much of CNet’s ad content and business model for the ad rates are consistent with what CBS is already doing. It’s a good companion. TechCrunch would require a classic-style acquirer to expand its advertising, to augment its ad model. That’s not necessarily a bad thing, it’s just one that I can see companies not eager to do. It’s human nature.

Let me flip this into another direction: This ad issue is one reason why I argue that Microsoft, for instance, should really think hard about its advertising. It shouldn’t just try to clone Google think and let’s say match its ad rates within 10 or 20%. If it wants to take over the hill, it needs to blow Google’s ad rates by a factor of 10.

There’s good reason to do this. Google has tons of huge advertisers that are a pain to growing companies as well as to readers. It’s about relevancy. It’s about targetting. My best advice to Microsoft in this sense is to figure out how to build a sustainable business model around ad rates 1/10th the cost that scale down and reach to smaller customers. Do this in a way where the business model can scale up and you have a winner. I’ve blogged my suggestions on how I can see working, but there are many other obvious and non-obvious solutions.

To me CBS is making a reasonable choice by acquiring CNet–well, actually, as Simon Cowell from American Idol would say, it’s a predicatable, boring choice.