I’ve been saying this for a while now: Websites can no longer rely solely on online ads to replace their shrinking offline revenue streams. What’s needed are smart acquisition and diverse partnering strategies.

One of the most powerful words in the English language is also a buzzword at this week’s O’Reilly Tools of Change conference in New York. That word is free, as in free content.

Free content, or audience expectation of it, is bedeviling all media, not just book publishers like those attending the conference.

O’Reilly Media founder and CEO Tim O’Reilly – you might consider him to be the host of the conference – took the stage to talk about how his company deals with free and how other media can.

The big fallacy in free, O’Reilly said, is that the advertiser-supported model of free content is too simplistic. Free, O’Reilly said, is complicated. He attributed the observation to Dilbert creator Scott Adams, the first cartoonist to go to the Internet in big ways.

O’Reilly said it is becoming increasingly important for media companies to develop revenue streams apart from advertising.

His company draws revenue streams out of the pools of users its products – technical manuals, originally – create.

“I’ve been thinking about this for a long time because publishing is my original core business.” O’Reilly said.

In a reconfigured word, he said, his company’s core products are more abstract qualities such as mission, brand and community.

These pour out revenue through sponsorships content, events like this week’s conference, subscriptions to online information and big-ticket premium services and products.

People are driven to those products by free, used as a strategic tool.

“I probably spend too much time on my blog,” O’Reilly said, “but I am actually driving my overall business with free.”

The way forward, O’Reilly said, will be diversified companies that provide a range of services – some of them for free. “Don’t be afraid of free,” he said. “Figure out how to use it.”