Online media has got to cost somebody... right?

Scott Karp and Nick Carr in two pieces (linked below) summarize the problem with the "long tail" Web 2.0 economy and the nortion that we are experiencing a democratization of media. What's the revenue model for the independents? For the grassroots? Who benefits if services such as journalism - which costs money to produce and protect - have their revenue models decimated?

Scott Karp: The Long Tail of Revenue 2.0:

If the “long tail” is the organizing principle of web/media 2.0, why shouldn’t we expect revenue distribution to follow the same pattern, with a handful of companies (i.e. Google, Yahoo) controlling most of the revenue and the remaining online players fighting over the crumbs? When Google found a way to monetize the long tail through AdSense, it became the “head” of a new long tail. We shouldn’t mistake long tail economics to mean that everyone will get a share of the wealth.

...Long tail economics means that companies can make a lot of money off the tail, but it doesn’t mean that the tail itself can make any money.

This is of course why Web 2.0 long tail companies have only one strategy — get bought by the head. But unless this beast is going to eat its own tail, that strategy will work for a lucky few, and the rest of the tail will toil on in service to the head’s profits (see AdSense).

Web 2.0 has democratize the Web in terms of voice but not in terms of dollars.

Nick Carr in "Where the money isn't" puts it very clearly:

The problem - assuming you think of it as a problem, which I do - lies, I think, in the basic economic model that is emerging for online media. Which is this: provide free access to the content, and make your money through advertising and, in particular, click-based advertising. With a few important exceptions, the paid-subscription model doesn't work. By democratizing the production and distribution of media, the internet ensures that an overabundance of supply and the resulting competition will drive the price of most content down to its marginal production cost, which is zero.

At the same time, vast, automated ad-placement services, like Google's AdWords, make the ad market extremely liquid. Most ads become precision-priced at a fairly low per-click level. This means that, with the exceptions I've already noted, only the sites with vast scale can hope to make real money. A small, specialized magazine with 6,000 regular readers can at least hope to swing a profit through a combination of subscription fees and ad revenues. The abundance of the internet means that once that same magazine moves online, its old profit model is dead - and the new one is probably much less attractive.

The enforcers of the new model are the search-based ad-placement services, mainly, at the moment, Google and Yahoo. Their business comes down to scale - in particular, the overall scale of internet use. To expand the scale of use, they want to ensure that there's as much content as possible available on the internet for free. Think about it. Every piece of content - indeed, every service - on the internet is simply a complement to these companies' ad placement business (and the underlying search business). It's thus in their interest to drive the price of those complements down as far as possible, preferably to zero. Subscription pricing, and any other barrier to the free availability of online content and services, is anathema to them because it necessarily constrains the use of the internet. I am not criticizing these companies. I am simply pointing out that they are very powerful presences on the internet and that their core business turns all other web businesses into, in their view, complements that should be free. For Google and Yahoo, the so-called "gift economy" is indeed a gift.