The irony of capitalism is that profit is dependent on the absence of competition, and as Warren Buffet once explained. Where competition increases, profits goes down.

The Publishing 2.0 blog explains that this is having effect on the market for advertising. After citing recent studies, it offers the following comments:

“Media 2.0 is about the “the loss of control. Web 2.0 works great as an ideology, but maybe not so great as the basis for a media economy. Less control = less profit.

I’m intrigued by Andy’s suggestion that Google may lose control of its “simulated pipe” and thereby lose control of its profits. Already, Google can’t control the exploitation of its “pipe.”

Why did Google buy YouTube? Because they have to own it to control it, and they need to control it in order to monetize it. But on YouTube and other user-driven content platforms, the users control the network. If they don’t like the ads or other commercialization, they will just jump to another node in the network — or jump to another network.

Think of it like this:

Pipe = one way in and one way out

Network = infinite nodes, infinite entry and exit points

Why does everyone assume that MySpace and YouTube will eventually be wildly profitable? Because in the past, no who controlled that much attention failed to make money. The problem is that MySpace and YouTube don’t control anything. They are networks, not pipes. Many ways in, many ways out, many alternatives. Even worse (from a media economics standpoint), they are networks within networks (within networks).

No control, no profit.

Ceding control to consumers was the dominant theme of the Association of National Advertisers conference — but if consumers are in control of your brand, the best way to increase sales is not by advertising in the traditional sense, but by making better products and providing better service.

As far as I can see, Google is the only media company that has successfully profited from the new network paradigm, and only through the herculean effort of controlling the network (fighting search engine spam, click fraud, arbitrage, etc.).”