First, publishers need cutting-edge technology to hook an audience through today’s digital media channels of the Web, mobile, social, and search.

And, second, the breakthrough technology can’t just be about product design — it’s got to go beyond to create distribution advantages on the new connected Web.

One Question
Okay, now that we have the truth out of the way, let me ask you a question:

“Is your company a media company, or a technology company?”

I love getting asked this question. And every digital media leader I know hates answering it.

Discomfort, Uneasiness, Anxiety, Fear
The uneasiness begins with the mistaken idea that the two are separable. And they were — back in the 15th century, when Gutenberg first worked his printing magic, and up until a few years ago. But we all know digital technology has inserted itself inextricably into the guts of publishing, replacing ink with bytes and paper with pipes. And now, over the last two years, technology has transformed the basis of publishers’ relationships with their audience, by connecting them through social operating systems, as we discussed last month.

And yet, our uneasiness escalates to anxiety when we realize we still don’t fully understand the new technology’s potential or impact on our business.

That is a scary thought.

Technology Drives Media
I think we all need to collectively swallow our fear. We know every media company must be a technology company today.

In the first generations of digital media, it was easy. In AOL’s past, technology’s key role was simply to provide basic Internet access over dial-up lines. Today, while that access provides cash flow, it no longer has any strategic value in media. Similarly, Yahoo’s early technology prowess was applied to create significant products like Yahoo Mail. But while Mail still drives 73 percent of the audience to Yahoo’s media properties, it won’t secure Yahoo’s future ability to be a great media destination.

These two companies — as well as the rest of us — need to use technology for something more advanced than access and ancillary products. We need to put it right into the heart of media so that we can create breakthrough user experiences and new connections with audiences.

Millions of Ways to Engage
To do that, let’s start by recognizing what’s changed about the medium itself: In analog days, publishers’ products were two-dimensional; and all we had to work with was ink and some paper. And similarly, distribution was mostly two-dimensional; a subscription list and newsstand sales was all there was to it.

But now, consumers have access to millions of sources at their fingertips, and each one can be rich and interactive, reaching us through several different digital channels. Both our product experiences and our distribution can be much more intricate — and much more valuable. And combining the two gives media the chance to do something it’s always aspired to but has never been able to do.

The Future Will Be Personalized
We have recently become ready for a whole new vision for media.

And that’s giving every audience member the right content in the right place at the right time.

To do this takes a combination of data — from the social operating system — coupled with media’s greatest power, that of creating experiences and distributing them.

To achieve this, though, we need technology to do more than output HTML pages; instead, it has to chaperone customized content to every individual.

This is a big change from the original Internetization of media, which was, like generations of offline media before it: “If you publish it they will come.” That worked when directories like Yahoo and search engines like Google matched consumers to content. But that attitude was passive, and today’s social Web is anything but. So publishers now have the opportunity — and the challenge — of taking charge of their distribution.

The key is using the emerging social Web to get signals from, and connect to, the audience. And when we do this, we are putting technology in the role of relating uniquely to every consumer in order to create the ultimate experiences they crave.
Now that’s a refreshing concept for media.

Three Ways to Get Ahead
But what does this mean, practically speaking?

I believe the role of technology in media success must embody these three things:

• Use technology to determine the right content: The social Web offers a wealth of real-time data. Use it to see what matters to your constituents. Tools like Newsbeat are helpful moment by moment and article by article. But you have to go further. The great breakthrough of digital media is being able to connect to your audience as individuals, not just in aggregate. No longer do you have to create for a persona or prototypical user; instead, you can create for real users. Media companies need to develop technologies that give them a proprietary edge when it comes to understanding the specific needs of their potential audience; that way, they can serve consumers better. And the opportunities abound. At Wetpaint, my company, for example, we process Twitter, Facebook, Google, and our own site’s data, all in real time to know what content matters — and to whom. And yet, we can go much further, to ask and intuit feedback from each user individually. The future is a completely personalized experience from every publisher. It’s not far-fetched; in fact, it mirrors what consumers already patch together with all too much difficulty.
• Take control of your distribution: Reach consumers with the right content at the right time and place (via Web, mobile, video, social, and search). Don’t just have your social media team pump the same content from your Web CMS through Facebook and Twitter. Instead, use technology and research to understand the secrets of what works. Truly engaging your potential audience can improve your results by a factor of two or more. We’ve already seen this at Wetpaint, and the results are still getting better each week. Our database of everything we publish tracks all the distribution causes and effects, so we know what works. We also pay attention to who the influencers are, with technology that identifies them as well as who their influencers are; and now we’re building a “CRM”-like system to help us know more about these individuals and win them over.
• Package it into the right experiences: Print is static and flat; but so are too many digital media properties. That’s why I applaud the New York Times for continually looking at how to repackage into mobile apps; and that’s why I like Flipboard, which takes a data-rich, but visually cacophonic, content feed and packages it into an immersive experience. AOL’s riff of ultimate personalization has impressed me even more: they’ve recognized that every consumer should get their own Edition — nailing the concept of personalization better than any media approach before. This is the opportunity for each of us now, as we connect with audience members and try to offer them more compelling experiences in return for loyal usage.

Technology Changes Businesses
Let’s circle back to the discussion of whether you’re a media or technology company.

By its very nature, digital publishing is a technical medium. But, beyond that, what makes technology interesting isn’t its ability to carry bits; it is its ability to change businesses. And we need to change our own by updating our sense of audience, distribution, and experience creation to provide thousands of times more precision than media ever has before.

When we do that, we’re making the content thousands of times more relevant. And I believe that’s how you build a thriving digital media business in the next decade.

Ben Elowitz is co-founder and CEO of Wetpaint, a next-generation media company that is reinventing the media model on the social web. The company has more than nine million unique visitors monthly on all its web properties combined. Ben is also a thought leader on the subject of next-generation digital media publishing and the author of Digital Quarters, a blog about the future of digital media and the steps the publishing industry must take to become profitable.

Online video is exploding, with annual user growth of more than 45 percent. Mobile-device time spent increased 28 percent last year — with average smartphone time spent doubling. And social networks are now used by 90 percent of U.S. Internet users — for an average of more than four hours a month.

None of this is a newsflash. Every venture capitalist, Web publisher, and digital marketer is hyper-aware of these three trends.

But what’s happening to the rest of the Web?

The Web Is Shrinking. Really.

When you take these three growth areas out of the picture, the size of the hole left behind is staggering: the rest of the Web — the tried and true core that we thought would have limitless growth — is already shrinking.

Here are the facts:

When you exclude just Facebook from the rest of the Web, consumption in terms of minutes of use shrank by nearly nine percent between March 2010 and March 2011, according to data from comScore. And, even when you include Facebook usage, total non-mobile Internet consumption still dropped three percent over the same period.

We’ve known that social is growing lightning fast — notably, Facebook consumption, which grew by 69 percent — but now it’s clear that Facebook is not growing in addition to the Web. Rather, it’s actually taking consumption away from the publishers who compete on the rest of the Web.

And just what is the rest of the Web?

I have been calling it the “document Web,” based on how Google and other Web architectures view its pages as documents, linked together. But increasingly, it might as well be called the “searchable Web” since it’s accessed predominantly as a reference, and navigated primarily via search.

And it’s becoming less relevant.

In the last year, Facebook’s share of users’ time online grew from one out of every 13 minutes of use nationwide, to one out of every eight. In aggregate, that means the document Web was down more than half a billion hours of use (that’s more than 800 lifetimes) this March versus last March. And in financial terms, that represents a lost opportunity of $2.2 billion in advertising inventory that didn’t exist this year.

The Creation of a New, Connected Web

The change in the Web’s direction is a clear indication to me that we aren’t just in the midst of a boom for new interaction modes, but rather in a generational overhaul of the Internet.

What replaces the declining searchable Web is a new and “fully connected” digital life. You may have heard this before. After all, the promise of the Web was to connect pages with hyperlinks. Well, this time, “connected” means much more. It means the Web connects us, as people, to each one of the individuals online; and those connections, ultimately, extend from one of us to all of us.

Just as significantly, this all happens in real time, and at nearly all times.

And here’s what’s different when you connect people, as opposed to pages: Now, the Web knows who we are (identity), is with us at all times wherever we go (mobile), threads our relationships with others (social), and delivers meaningful experiences beyond just text and graphics (video).

The connected, social Web is alive, moving, proactive, and personal, while the document Web is just an artifact — suited as a universal reference, but hardly a personal experience.

The Social Web Versus the Searchable Web

Analytical explanations — increasing smartphone penetration, bandwidth availability, and technology sophistication — fill in some of the gaps as we try to understand this sea change, but they fall short.

Something larger is afoot, and it’s not about science or technology. Rather, as human beings, we have changed how we fit the Internet into our lives.

And the nature of the Web is changing to match. The old searchable Web is crashing; while the new connected, social Web is lifting off.

The implications for publishers are massive.

The last decade has been defined by the rise of Google as the nearly limitless supplier of traffic to digital media properties. And so a generation of digital media publishers developed and followed the same playbook: create lots of content around top keywords, engineer for search engine optimization (SEO) and expand the surface area in search engines to reach more users. The objective was to catch visitors in their net; expand reach — as measured by ComScore — look more impressive to advertisers and capture more demand.

The landscape is changing, and fast.

SEO’s strategic value is quickly fading as Google’s growth slows and its prominence in distribution slides away. In its place, Facebook has become the wiring hub of the connected Web — a new “home base” alternative to Google’s dominance of the last decade. Facebook began receiving as many visits as Google in March 2010, and already garners more than three times as many minutes as Google each month from users, according to comScore. Looking ahead, the best projections of U.S. online reach indicate that Facebook will surpass Google on that metric in less than a year, too.

And with this change, the nature of the relationship between users and publishers is being altered fundamentally — and perhaps forever.

Search offers a utility relationship, connecting users to content for the briefest of transactions; typically, it provokes users to just one pageview so they can find a piece of information, and then they move on.

But social discovery builds a relationship. Leveraging social endorsements and an environment of serendipitous discovery, consumers meet publishers in a meaningful context. As a result, the relationship that forms is stronger — and, more importantly for publishers, it’s branded.

Unlike the ecosystem set up by Google, where the search engine ironically intermediates between users and the objects of their queries (so that users reinforce their loyalty to Google, far more than to the publisher), in the world of social publishing, the Facebook hub enables a direct, if constrained, relationship between users and media brands.

The results — at least for my own company, Wetpaint — are that social media brings more qualified eyeballs and retains them. People who come via social media stay longer on the first visit; and they are more likely to come back sooner and more frequently. Overall, our visitors from social networks have a relationship that’s several times stronger — and several times as valuable when measured in engagement, pageviews, and revenues — than the relationships people form when then arrive through search.

The Human Connection

But it’s not just a change in mechanics. It’s a change in our human relationships.

Lewis D’Vorkin, the Chief Product Officer at Forbes, speaks of it when he and Alex Knapp talk about “live” media, quantum entanglement and mutually rewarding relationships that bind authors and readers on the new connected Web. It’s a sense of the Web moving from static published reference to living digital companion.

But there’s even more, and this vast change foreshadows bigger and better impacts on our lives. The greatest innovators in social media are driving exactly along that edge today. As one friend commented recently on the full potential of connected lives, by being joined more closely together, we can increase empathy and meaning, while decreasing isolation.

Toward a Fully Connected Future

Admittedly, we’re early in the replacement cycle when it comes to the connected Web. Even for strong connected Web performers like Huffington Post, Wetpaint, and others, the sum total of traffic from Facebook, Twitter, video, and mobile may add up to only half the total, or less.

But the trend has tipped, and with that tip has come both the business necessity and the human impact potential of elevating the relationship.

As the document Web of old shrinks, the new connected Web expands and delivers experiences that make our time online more effective, efficient, and enjoyable.

And that changes the role of companies on the Web from mere content publishers or providers to truly connected digital partners for real people.

Ben Elowitz (@elowitz) is co-founder and CEO of web publisher Wetpaint, and author of the Digital Quarters blog about the future of digital media. Prior to Wetpaint, Elowitz co-founded Blue Nile (NILE). He is an angel investor in media and e-commerce companies.

Until now, Elowitz has been in the business of helping other publishers build sites with wiki-based tools. But now he’s opening up his own shop at Wetpaint.com, which should be working by the time you read this. (If not–take a look at the sample screenshot at the bottom of this post.)

Elowitz is presenting Wetpaint as a sort of upscale, thinkier version of content factories like Demand Media. Like Demand, Wetpaint uses technology to help it figure out which stories to assign–in Wetpaint’s case, via an “ingestion engine” that is supposed to crawl the Web looking for spiking stories on discussion boards, Twitter, Facebook, etc.

The difference is that Demand is primarily interested in finding lots and lots of stories that will appeal to a relatively small group of searchers, which is how it ends up with search bait like “How to Donate a Used Car in Dallas.”

But Wetpaint is trying to create a destination site for a large number of eyeballs, and says it will use its tech to get them more of what they want, produced by a core group of 10 editorial employees and a freelance squad of 20.

“We don’t care about Google,” Elowitz says. “We’re not trying to get long-tail, we’re not trying to get search traffic.”

Okay. So that’s a bit of hyperbole–Elowitz would like some Google (GOOG) juice as much as the next publisher, which is one of the reasons he’s using the existing Wetpaint name for his site.

But he’s clearly set on exploiting social networks, too. He says Wetpaint.com, via its focus on Facebook-friendly TV shows, has already garnered 500,000 fans on the social network.

Elowitz is also positioning himself as a competitor of pop/gossip Web sites published by old media brands, specifically Time Warner’s (TWX) People, TMZ and Entertainment Weekly sites. But the people who read that stuff online don’t limit themselves to a handful of brands, which is why big Web players like Microsoft (MSFT) and Yahoo (YHOO) are there, too.

Add in freelance upstarts like Perez Hilton and millions more you’ve never heard of, and it’s a very, very crowded field. Elowitz will need a very clever tech team to make this work.

Over the last two days, BoomTown has been enjoying the perfect Pacific Northwest summer weather, visiting several Seattle-based Internet companies and also Microsoft HQ in nearby Redmond.

Seattle is still essentially Silicon Valley North, except a lot more laid back and with much less of an egregiously opportunistic, what’s-the-next- hot-start-up tone one feels any day of the week in Palo Alto.

I used to come to Washington state a lot about a decade ago, while covering Microsoft’s MSN, RealNetworks (RNWK) and Amazon (AMZN)–which continue to be the major trio of digital bigwigs here–as the Internet beat reporter at The Wall Street Journal.

I plan on coming back a lot more over the next year, focusing more closely on Microsoft’s (MSFT) still uncertain Web efforts and also on a wide range of other companies here.

So far, it seems to be off to a good start.

While here I had a blabby dinner with RealNetworks’ Rob Glaser, where we talked about online games and music and Sen. Barack Obama (Glaser is a big supporter).

I also went to see Delve Networks (or, as I like to call it–Not-Brightcove), social networking facilitator WetPaint and the music social networking service iLike (which I really like).

Also on the agenda was a day-long visit to Microsoft, to get updated on some thankfully non-Yahoo products and services and what the company’s research and Live Labs units are working on.

Of course, there was Yahoo talk too, but–even up here–it’s hard to avoid.

All this and more will be part of postings and videos next week in this column on what the geeks in this coffee-inundated city are up to.

While Wetpaint‘s $25 million new round of funding was leaked to one and all under embargo until 12:01 am EST today–including BoomTown, so don’t assume any of us report our little hearts out on all these bits of news–what the press release did not disclose, sources said, was an intriguing new investor: Fidelity Investments.

What’s interesting about this wrinkle is that it is yet another validation in the Web 2.0 world from a large traditional institutional investor.

Fidelity, with T. Rowe Price, already plunked down big bucks to invest in widget king Slide in January.

Seattle-based Wetpaint, which allows users to make wikis and social-networking sites easily, has raised about $40 million in total so far. New investor DAG Ventures led the current round, which included investors from two previous rounds (Frazier Technology Ventures, Trinity Ventures and Accel Partners).

BoomTown could not determine exactly how much Fidelity kicked in to Wetpaint in this round, although it did pony up almost half the new $50 million Slide investment.

Wetpaint, which also announced a new embeddable product called Wetpaint Injected today that sounds cool, says it will use the additional funds to goose its collaborative–or as we like to call it: wikified–social publishing platform.