The Dilemma Facing Internet Content Platforms


In a recent NY Times April 2017 article on Facebook’s content dilemma,, the author didn’t really hone in on what has led to this strange situation.  From day 1, newly established Internet companies always relied on one major component of their business models: let the users contribute the content at no incremental cost. As an example, Hotmail became a billion-dollar business that spent “0” dollars on marketing.  That is why Time Draper, of Draper Fisher & Jurvertson, always invested in these technology companies. Besides a few programmers and hardware engineers, this business model relied on the users to originate the content and the website was just the forum for that activity. Meanwhile, the founders reaped the financial benefits from a skeletal framework and the millions of eyeballs that monitored that content.

Many other Internet companies have pursued similar strategies. For example, ecommerce such as Amazon allows consumers, not by an employed expert in the industry such as Consumer Reports, to provide a five-star rating.  This rating system created a new approach for establishing ecommerce credibility by having the average consumer show his or her satisfaction or disappointment in a product.  Was there any cost to the Internet website for this system? No.  None awarded any personal contributor any compensation. In other websites, like Quora, the users, not experienced journalists or writers, originate their critical content. Contributors with putative experience or expertise add comments on a wide variety of subject matters.

Facebook became the social media icon by establishing sites that allowed users to contribute and collaborate.  Of course, the label being pasted on these sites as “peer” based.  As I see it, the reason behind this model: great profit margins. Virtually all Internet companies run a very profitable business staff with only programmers who support the software and infrastructure.  That is why their revenues per employee stand out among every other industry.

None bothered to monitor or even edit the content. Indeed many rely on the so-called Federal immunity laws for Internet hosts to avoid prosecutions from libel or any potential liability hosted in the networks. These companies let the users demonstrate traction. And they never bother to employ an “expert” in the field.  Even Theranos, the controversial healthtech company that raised over $740 million, believed that there was no need to employ a medical expert such as a doctor to evaluate the efficacy of their medical technology at their peril. It applied its own sense of review. That was their “business model.”

And with such great profit margins, these tech companies replicated their models internationally as if such 0’s and 1’s software can be reproduced anywhere and everywhere.  But can that future still valid for Internet media?

Contrast this profitable, peer contribution model against established companies. Retail stores such as Macys rely on thousands of salespeople. And apply standard consumer product ratings obtained from Consumer Reports or similar industry resources. Newspapers employ educated journalists, whose work is clearly vetted by senior editors.  For the NY Times, he/she must have certain credentials, one of which is holding a degree in journalism.  That written piece would be approved by senior editors.  Then these drafted articles are then scanned by attorneys prior to publication to avoid any libelous lawsuits.  All these quality controls don’t exist in the new Internet model.

Does Facebook or Reddit ever go that far? By looking at the cited NY Times photograph of Facebook’s content operations, that efficient model is eroding day-by-day, but not far enough. Facebook employs thousands of reviewers.  But are they journalists and fixing the content problems?  One Economist commentator is skeptical.  With 2 billion users, even several thousand reviewers, many of whom are not journalists, cannot screen the onslaught of content that fuels FB profitability.  That hiring only represents < than .000015% of FB users. Hiring a capable population of reviewers would definitely erode FB’s profit margins.

And what about their new approaches to screen content that supposedly incorporates A.I.?  Will it actually work?  I doubt it.  These companies employ college grads mostly with engineering degrees. Not qualified to the same journalism work expected at the NY Times.  And can the software screen for libel?  Can it differentiate a hallmark photo taken in the Vietnam war possibly the catalyst that brought down the war and former President Nixon and not treated that same picture as pornography? Can an image that might be passable in the U.S. not pass the prurient interest of an Asian culture?   I daresay I cannot foresee in my lifetime the development of a software algorithm that can successfully achieve that.

And notice the dilemma FB faces. The more personnel it employs, the margins will shrink. And this Internet freedom to publish anything is actually dangerous since there is no accountability. Anyone, who has access to a computer, can publish false content from any geographical location.  Whether it is true, or poorly written, etc., it doesn’t matter.  Then there is the geography dilemma – the Internet is borderless; languages and dialects and politics are not.

Internet Rating System Cost Structure INDUSTRY Operator Staffing Recurring Costs
Amazon 5 Star Choices US$0.0 Consumer Reports Salaried Experts Salaries, HR
Reddit Volunteer Contributors US$0.0 WSJ Professional Writers Salaries
Linkedin Contributors/Non-Confirmed content US$0.0 Michael Page Experienced Headhunters Salaries, Commissions

What about false content – fake newspaper stories?  Content juxtaposed against controversial imagery. And who are the final reviewers – masters of journalism?  Or recent college grads with backgrounds in technology?   And are there attorneys reviewing the content for libelous information? Of course not.   And the decision-making and youth based predilections are based upon of the average age of the hired staff The Internet content providers get a free “get of jail card” on any false and misleading content. Then they apply the so-called disruptor labels, or that they are legally free from ANY accountability to the veracity of whatever they published electronically.

One Internet provider once related to me that under the Internet regulations, no Internet provider is legally liable on how its content is used.  Nonetheless, that same Internet provider can make a fortune from false content.  And every Internet reader truly believes that the content originating from a brand name such as Facebook.

The irony for the hallmark content providers is that the technology industry, in its “technological” glory, wanted to control any content from any source worldwide. None ever worked in a newsroom or published a book – where legal restrictions applied.  Now Facebook has encountered a double edge sword in its conquest of social media with millions of downloads per hour with over 2 billion people. Yes, it has become a media behemoth.  Now FB finds it cannot control the very network content distributed worldwide. Zuckenberg claims that it will be able to vet the content with programming. Let me think: it must match the content with veracity and fact checking.  It must not be libelous.  It seems to suggest that Facebook is replicating with A.I. both the NY Times newsroom and the legal department. And even a greater hurdle will be the multiplicity of languages out there. But I have difficulty already in having a comprehensible translation of Hungarian into English. Imagine millions of content contributions every day.


About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP,, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy.; For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
This entry was posted in Capital and Management, Entrepreneurship, Management and Capital, Marketing, Strategy, Valuation. Bookmark the permalink.

One Response to The Dilemma Facing Internet Content Platforms

  1. Pingback: The Barbarians are at the Gates in Silicon Valley | Simple Advice for Entrepreneurs on Capital, Strategy, Legal Services, Management, Entrepreneurship, VC Funding and other things – Juan Ramon Zarco

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s