Insider's View: How Grandstanding State Attorneys General Make Life Miserable For Law Abiding Tech Companies

from the it's-a-scam dept

For years, we've pointed out how various state attorneys general seem to focus much more on grandstanding against certain companies, rather than actually helping in certain situations. What was really amazing was the incredibly clear pattern every time it happened. It would involve an attorney general who was running for higher office, going to the press and threatening some company, even if there was no legal basis whatsoever for the threat. It's as if every AG running for higher office has taken a page out of the playbook of Eliot Spitzer who used this strategy for years to get him headlines that took him right into the NY governor's mansion (which, of course, he then left due to a different sort of headline a few years later...).

Among the current crop of AGs playing this game, there's been Pennsylvania's Tom Corbett (running for governor) who subpoenaed Twitter to uncover some anonymous critics. There's South Carolina's Henry McMaster (who tried to run for governor) threatening Craigslist management with criminal charges. But the two biggest users of this playbook have to be NY's Andrew Cuomo (running for governor) -- who has targeted social networks and ISPs for not censoring content -- despite no legal obligation to do so, and Connecticut's Richard Blumenthal (running for Senate) who has grandstanded with the best of them in going after tons of tech companies with almost no legal basis at all.

So, of course, I wasn't surprised when I heard, back in February, that Kentucky's Attorney General, Jack Conway, had started threatening local news/community site Topix. After all, Conway is running for the US Senate. Still, once Conway started the ball rolling, Blumenthal actually stepped in and led the ongoing gameplan. At issue? The company let people pay a small fee to "expedite" the process of reviewing comments for abuse. There is absolutely nothing illegal about this. A website has no legal obligation to monitor its user-generated content, and it doesn't lose its safe harbor protections if it does monitor such content. So I was a bit surprised to see Topix settle the charges and change its policies.

Thankfully, Topix's CEO Chris Tolles has written up a detailed post at TechCrunch, that is a nice behind the scenes account of how the whole thing went down, and what an incredible scam it is. It starts out, of course, with an attorney general (in this case Conway) going straight to the press, rather than to the company:

Through this press release, which accused us of requiring payment to review abusive posts, I discovered that the Kentucky Attorney General had allegedly sent a letter asking me to provide information regarding our terms of service and policies around payment for expediting reviews. (The letter to which the press release referred was put in the US Mail and post marked five days after this incident.)

Tolles tried to be totally upfront and open with the various attorneys general who jumped onto the bandwagon (23 in all at the time), explaining to them exactly how Topix worked, how they reviewed comments, why they did things the way they did -- knowing full well that nothing Topix did broke the law. How did that work out? Once again, the AGs went to the press and used the info he had given them (again, which showed how what they were doing was legal) to grandstand against Topix:

So, after opening the kimono and giving these guys a whole lot of info on how we ran things, how big we were and that we dedicated 20% of our staff on these issues, what was the response. (You could probably see this one coming.)

That's right. Another press release. This time from 23 states' Attorney's General.

This pile-on took much of what we had told them, and turned it against us. We had mentioned that we required three separate people to flag something before we would take action (mainly to prevent individuals from easily spiking things that they didn't like). That was called out as a particular sin to be cleansed from our site. They also asked us to drop the priority review program in its entirety, drop the time it takes us to review posts from 7 days to 3 and "immediately revamp our AI technology to block more violative posts" amongst other things.

Eventually, he realized this just wasn't worth fighting over. The amount of revenue from the prioritized review was minimal, and just not worth the fight. So he gave in to the demands just to make them go away, giving the AGs (now up to 34 of them) another "settlement" headline -- even though they never once claimed Topix broke the law:

Pissed off people, not illegality, is the issue to watch -- At no time during this process were we accused of breaking any laws. The Attorneys General have interpreted their mandate of consumer protections very broadly, and if a lot of people *think* you are doing something wrong, you are likely to be headed for a problem.

As Tolles notes, this has become such a successful practice for East Coast state AGs to attack California companies, that successful startups need to beware, because it's going to happen a lot more often, and even when they've done nothing illegal, it's often going to make sense for them to just settle. American politics at work.

Filed Under: chris tolles, grandstanding, jack conway, richard blumenthal
Companies: topix

Hey Newspaper Guys: Google's Not Making Money From News

from the so-wrong,-so-sad dept

It's become popular for old school newspaper folks to hate on Google and other aggregators for somehow "profiting" off of their content. This is wrong on many, many levels. First, the aggregators send traffic to newspaper sites. They're promoting the newspapers' content. That's a good thing. But much more important is that they're barely profiting from it, if they're profiting at all. That's why it's odd to see some newspaper folks like Howard Weaver think that the answer to the newspaper industry's woes is to create their own aggregator and start making all that cash.

Except, uh, someone forgot the part where Google and the others don't actually make much, if any, money in aggregating all of that content. At best, it's a loss leader for most such sites. Chris Tolles, who runs Topix -- which is an aggregator that tried to play that game and realized how little money there was in it, before changing business models, has a fantastic response to Weaver that should be read in its entirety, but here's a brief snippet. It starts off in response to Weaver's claim that Google, Yahoo, Microsoft and AOL make ("conservatively") $15 billion from "news and news-related content":

Uh. No. That's just wrong.

AOL annual revenue is $4.2B, Google $21.8B, MSN ~$2B, and Yahoo $7.2B

So, since the grand total is around $36B, Google news is pretty much a non revenue products, and Google was doing just fine with little or no news results in their main index until the last couple of years. Yahoo does put news ina lot of their products, but certainly, nowhere near 50% of their advertising is sold against news, as is the same for AOL and MSN.

(Oh and last time I checked the newspaper industry advertising revenue was $37.85B)

News is a crap search product, and a loss leader, which is a big reason why Google news was in beta for years, and unmonetized, and why many news-centric searches get no ads next to them.

News is an unprofitable search. Since we at Topix are an adsense partner, and I am a downstream beneficiary to what revenues there are here, I know what kind of eCPM news brings and how hard it is to make money on aggregated "news" content.

....

So if you built a news aggregator, powered by journalists, this would somehow unlock the value and get to $1.5B in annual revenues?

NO. YOU WOULDN"T.

If that was true, Daylife, Inform, newsvine and the myriad of other startups would be actually making a ton of money and chewing up the pop charts. Or Digg for that matter, or the Huffington Post.

BUT THEY AREN'T, ARE THEY?

Closer to home, I have some experience in running a news site here at Topix, and having talked to Howard while he was at McClatchy (and one of our investors), I am somewhat puzzled since I actually talked him personally about the economics of news search a few years ago.

We've built a site which is,according to comScore, the #2 "newspaper" site online. We actually had a program for a while where' we'd give 50% of all ad revenues back to publishers who wanted to syndicate content to us. Didn't work worth a damn.

Once again, as these newspaper guys struggle to recognize what business they're in, they seem to reach out and attack Google, without even recognizing what it is they're attacking. They don't want to take the time to understand their own business (hint: it's never been "selling content"), so perhaps it's not surprising that they don't bother to understand the business of those they compete against either. And, if anything is causing the industry to falter it's that simple fact. If they can't understand the business they're in (or how others are beating them) then they're not going to do a very good job fixing themselves, will they?

Filed Under: aggregators, business models, chris tolles, economics, howard owens, journalism, news
Companies: google