Bloomberg News

Getting Rich From Others Was Never Easier: William D. Cohan

October 02, 2011

Oct. 3 (Bloomberg) -- One of the dirty little secrets of the current social-networking mania is that users of services such as Facebook, Twitter and Tumblr give away their content while the shareholders of the companies are busy getting obscenely rich.

Facebook Inc. seems to be clocking in these days at a valuation of as much as $100 billion while Twitter Inc.’s implied value is about $8 billion based on a new round of financing, the proceeds of which went to cash out the original investors. Tumblr Inc. also recently raised fresh capital, giving it a value of $800 million.

Not paying for content is a relatively new idea in the media business. It is understandable -- if not particularly admirable -- as long as these companies can continue to get away with it. If you could get wealthy through the work of others without having to pay them, who wouldn’t be tempted to try it? But can you imagine Walt Disney Co. giving away any of its content free?

At last check, according to Forbes magazine’s list of the world’s 400 richest people, Mark Zuckerberg, the co-founder and chief executive officer of Facebook, was worth $17.5 billion, up $10.6 billion in a year, and making him the youngest person with such a vast fortune. When Facebook goes public in 2012, he will be even wealthier.

But is this right, or fair, to the users of the services who get nothing but psychic income, while Zuckerberg and others get rich from their content, which amounts to the quotidian ramblings and musings of some 800 million uncompensated “friends”? And why in the world do the users of these services continue to participate in such an exploitative scheme?

Model to Emulate

Not surprisingly, others in the media business have tried to emulate this model, with some success. For instance, from its inception in 2005, the Huffington Post has, by and large, not paid the people who write for the online newspaper

Why writers agree to this arrangement isn’t exactly clear. Do they like the exposure and hope it will lead to a paying gig somewhere down the line, somewhere else? Do they have a point of view they want to unleash into the marketplace of ideas? Are they just altruistic? And how do they feel about former Washington Post media critic Howard Kurtz getting paid a bundle while they get nothing?

Regardless of the reasons, Arianna Huffington and Ken Lerer, the principal owners of the business, got even richer than they already were when they sold Huffington Post for $315 million, in cash, to AOL Inc. in February. Those who provided content to the site for free over the years got nothing (and still get paid nothing to write for the site).

Business Insider

Then there is the case of Business Insider, a business blogging site co-founded by Henry Blodget, who once upon a time was a leading Internet analyst at Merrill Lynch & Co. serving up “buy” recommendations on stocks even though he didn’t really believe them. Last month, Blodget said Business Insider had raised $7 million (and a total of $14 million since the parent company’s inception in 2007) from existing backers such as Allen & Co., RRE Ventures and Web browser pioneer Marc Andreessen, along with new investors Lerer and Gordon Crovitz, the former publisher of the Wall Street Journal. Blodget didn’t say what Business Insider is now valued at, but it is safe to assume he on his way to making his second fortune.

Blodget, understandably, also is a big fan of getting as much of the content on his site as he can by “mass aggregating” material from others without paying them. And to be fair to Blodget, he also has a staff of about 60 people, some of whom are paid to write original, often witty, analyses of our increasingly complex business landscape.

Aggregators at War

On Sept. 23, Marco Arment -- one of the founders of Tumblr and the founder of Instapaper, a mobile-device application that lets people save articles they find for later reading -- decided he was fed up with Business Insider “scraping” his writings for free and posting them on its blog.

After he read a Reuters article about the practice, Arment did some research and discovered that Business Insider had linked, without compensating him, to “nearly every significant article I’ve written for the last few years.” What’s more, Arment wrote, “is how their layout so strongly implies that I’m a Business Insider writer and I endorse my name and writing being splattered all over their site. It’s the same game famously played by the Huffington Post and many other ‘aggregators.’”

Willing People

Business Insider pushed back against Arment, of course, by saying that both Tumblr and Instapaper also harvest content they don’t pay for.

Regardless of the specific merits of the Arment-Blodget spat, what’s becoming clear is that any number of very clever people have figured out how to get very rich using the free labor of others. This exploitative behavior needs to stop. As long as people are willing to provide content free, Twitter and Facebook have a good racket going, even if it is deeply unsettling.

One possible solution is for people to challenge sites if they go beyond the “fair use,” which limits borrowed text to a few brief quotations unless the author or original publisher grants permission. Even a public shaming -- perhaps in the form of being tarred with the label of having “bad Internet etiquette” -- might work wonders.

(William D. Cohan, a former investment banker and the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. The opinions expressed are his own.)

--Editors: James Greiff, David Henry

Click on “Send Comment” in sidebar display to send a letter to the editor.

To contact the writer of this article: William D. Cohan at wdcohan@yahoo.com.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net.


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