Modernize Newspapers

The Location-Based Backlash

Well, that didn't take long.

SXSW Interactive 2010 brought the hype, people sobered up, and now the backlash is beginning.

Mark Hopkins kicked it off on March 31 and yesterday Dave McClure jumped in.  They've observed a few things, most notably:

• Even the most successful LBS startups don't have a large enough audience to truly matter, especially for advertisers,
• There is no evidence of a mainstream consumer phenomenon around these apps yet,
• The only reality so far is that LBS apps are hot among the early adopter innovator crowd, and that crowd is serving more or less as an echo chamber and nothing more.

I don't have a problem with LBS startups.  In fact, I've talked with just about all of them in some capacity over the last year or so and there are good people in those companies.  But I do think as I've stated here before that I think the hype/reality ratio is way out of whack right now.  Valuations are in the stratosphere.  Yet, these folks have a lot of work to do to succeed in a way that justifies those numbers.

If you put me on the spot, I'd suspect that one or two will do very well but that there will be a lot of people left out as well.  Those will be the next iteration of a long line of over-invested, "next big thing", and hysterically overhyped companies like Webvan, eToys, DrKoop.com, Boo.com, and others whose biggest achievement was a massive fundraise.

Just my two cents... more to come on this topic that I just find way too fascinating.

Lasso: Press & Progress

Howdy everyone - I thought I'd share a few quick updates on our company while I have a few minutes on an Easter Sunday evening.

First, as part of our soft launch, we've renamed our platform to Lasso™ to better reflect what we do.  The idea is that we help local businesses and local media companies alike find new customers through offers, couponing, mobile/e-mail campaigns, and the effective use of social media.  A wide range of newspapers and local media companies love the approach we're taking with the product/platform, but almost all suggested that we change the name to better reflect what we do.

Second, at SXSW Interactive we talked with a number of different people in the press, the blogosphere, and in major corporations about our approach.  Check out these two articles from the MIT Technology Review and Lost Remote that do a pretty good job summarizing where we are.  As the article in Lost Remote suggests, we are launching in a top 10 U.S. city very soon, along with a variety of others that will get us closer to our vision for the Lasso ™ platform.

Things are going very well for us & we'll have more interesting news to share in coming weeks/months.  Everyone have a great week!

It's hype until we have a location-based services ecosystem

Location-based services were certainly the craze at SXSW Interactive this year -- there really *wasn't* another story told at the event.  Or maybe there were other stories, but you'd never know.

LBS 2.0

The funny thing is that we're really on LBS 2.0.  The first wave of location-based hysteria took place in 2008 as the first location-aware cell phones hit the market.  That wave resulted in the expected level of chaos --- some LBS providers went straight to the deadpool, some are today "living dead", and others survived and are redefining themselves.

Foursquare, Gowalla, and to a lesser extent MyTown are driving LBS 2.0 and all the hype today.  I'm going to go out on a limb and call it all "hype" right now because the numbers don't suggest anything else.  Facebook has over 400 million users today.  Twitter has well over 75 million (although it's hard to say how many of those are legitimate).  MyTown claims the highest number of users at just over 1.5 million.  Foursquare has half that.  Who knows exactly how many users Gowalla has attracted?

Why are people so crazed about location-based services?  My guesses?  Growth rates, the potential of a virtuous cycle, and new features.  And as innovators, most folks attending a show like SXSW Interactive all want to be part of something that will become ubiquitous.  It's congruent with our personalities and our reputations.

Weaknesses

It certainly remains to be seen whether or not any of these services can achieve mainstream adoption -- as defined by three things:  stickiness, adoption across early adopters/into an early majority, reaction by major tech companies.

• Stickiness - Is the concept of "checking in" a fad or is it something we'll continue to do long enough for that action to be automated?  Are game mechanics a lasting means of collecting checkin data?  If not, can the act of checking in be effectively automated?  And will privacy concerns limit the geodata they're willing to expose about themselves?
• Mainstream Adoption - Can growth continue and perhaps even accelerate so these relatively new services become interesting to mainstream users?  Will soccer moms use LBS?  How will LBS become valuable to a larger group of users?
• Reaction by big tech - We've already see Yelp, Twitter, and now Facebook announce plans to integrate location data into their applications.  How will these affect major LBS players?  And what happens when Microsoft, Apple, Yahoo, AOL, and Google jump in?

Characteristics of a Winner

If you think about it, there are many more questions than answers.  That said, I think that the hype can be made into reality if these LBS providers play their cards right.  Here are a few things I'd do if I were running an LBS provider:

• Enhance the user experience -- new features, new experiences, better connections, brand integration, etc.
• Partner -- seek large audiences and go get them as quickly as possible.  This is a race.
• Open the platform -- we know from crowdsourcing that the crowd typically has better ideas than any closed group of people.  Become a standard an open the platform to read & write access to make the platform more immersive.

I can understand concerns about allowing a ecosystem to grow up around a maturing product.  But that's what helps a product graduate into a true platform.  It's happened time and time again -- those who keep their platforms closed ultimately lose because they can't innovate as fast or as effectively as the crowd.

All the while, there are a wide range of interesting products and services that can be built atop location-based services.  A world of innovation awaits, but is held back to some extent by the fact that popular location-based services are still effectively closed platforms.

At a certain point, a baby grows into an adolescent and into a young adult.  Parents have a tough time dealing with the transition, because the illusion known as control slips away.  Startup LBS services that have emerged over the last 12-18 months have grown into adolescents very fast.  They have the potential to become adults.  It will be interesting to see how and if this transition takes place over the coming year, and whether or not openness has a significant impact.  My guess is that it will.

The Disruption of Publishers & uncool annuities

I'd like to think that I'm gaining a pretty interesting perspective on the disruption of the publishing industry.  As I've pointed out before, I was instrumental in the conversion of Stratfor into a web publisher in 1999.  I got a crash course in Internet Advertising in 2002-2003.  I've been the tech editor of one book and the writer of a second book over the last two years, so I've met a lot of folks in the book business.  And over the last year, I've been talking with folks in the newspaper business at a variety of families, big and small.

I think Marc Andreesen had some great yet unrealistic comments in the recent TechCrunch article, "Burn the Boats".  Sure, most publishers need to make their businesses more Web friendly today and without delay.  But put yourself in the shoes of an executive at one of these companies... can you honestly say you'd ignore cash flows from legacy businesses?  Especially when those cash flows are 1) admittedly declining yet significant, and 2) the only thing you really have?

Newspapers, television, and book publishers are all the same -- just with different challenges. Their businesses are being modernized, but each has put systems in place to maximize old revenue while experimenting with ways of bringing in new revenue.  Some prioritize the old revenue more, others are more adventurous.  Some put more investment dollars into new businesses, some less.  Some treat new technology with great enthusiasm, others with suspicion.  Some are quicker to analyze the impact of new technology on the old business, and others are quicker to experiment. 

Just about all companies that go through this transition have one thing in common -- they're woefully uncool.  They're uncool because they do a lot of things to preserve the old business that outsiders and tech early adopters simply don't understand.  I've made the case before on this blog that Microsoft is one such business.  Although I didn't make these decisions at Microsoft, I had a pretty good idea of the problem Steve Ballmer and other execs faced every year when prioritizing investments.

Here's a hypothetical example.  Say Steve has $1 billion in discretionary investment dollars that he can deploy across a variety of businesses.  So he decides to host leaders of a variety of business units so they make their investment ask:

• Office -- $400 million for an advertising campaign in the BRIC countries in 2011 that will generate an incremental $1.5 billion in company revenue over the next 5 years.
• Windows -- spending an additional $300 million on anti-piracy technology and an advertising campaign will result in $1.2 billion in incremental company revenue over the next 4 years.
• Office Live -- $250 million needed over 5 years to create a new Web-based Office integration product.  Product will be revolutionary but will be given away for the first 3 years, followed by an anticipated $200 million/year annual business.
• Server and Tools -- $500 million needed to accelerate development of additional Windows Server, SQL Server and developer tools features necessary to help enterprises build better client applications.  Total estimated impact to Microsoft across all businesses is $400 million/year starting in 2014, and is needed to also preserve other parts of the Client business.
• Azure -- $550 million in additional server capacity to support the growing business.  Impact unknown -- an additional $100-$400m/year in revenue is expected.
• Mobile advertising -- $800 million for new mobile advertising business unit, mobile provider partnerships, advertising campaign, and rollout of new location-based advertising initiative to advertisers.  $400 million annual business is estimated by 2015.

For those of you keeping score in our hypothetical example, that's $2.8 billion in new investment asks with only $1b to spend.  There are requests across old businesses and new businesses.  Some asks are inherently more speculative, while others are more certain.  All decisions are not made in a vacuum -- there are pressures to bring predictable returns to investors while modernizing the business at the same time.  Saying "it's complicated" would be grossly underestimating the problem.

I think my hypothetical example is a lot more real than most people would like to admit.  Most executives at publishing companies -- newspapers, book publishers, and television -- are dealing with similar issues every day.  

Disruptors are sexy because they don't have to deal with legacy annuities.  They have a business vision and they need to execute on it and it alone more or less.

What incumbents lack in agility (because of those cash flows), they make up for with... well... those annuities.  Even in decline, those annuities are significant and thus can't be ignored.

I am not saying anything new when I say that the best executives and the publisher incumbents that win will be the ones who effectively balance the needs of their organizations.  Jump in to new technology too fast, and you'll diminish those annuities prematurely.  Jump in too late or let process overtake you, and you'll miss the wave.

So should publishers burn the boats as Marc Andreesen suggests?  Maybe not yet.  But it's time to hunt in the jungle because you may just be here awhile.

Hal Varian on newspaper economics

Interesting blog post from Hal Varian, Google's Chief Economist, on newspaper economics.

http://googlepublicpolicy.blogspot.com/2010/03/newspaper-economics-online-and-offline.html

Hal points out a few things that I 100% agree with:

• special interest local advertising was the bell cow for the newspaper business,
• people consume news and information on social nets, mobile devices, etc. more and more today,
• experimentation is key to helping newspapers survive and thrive in the 21st Century.

Google has been demonized by folks in the newspaper business for making audiences mobile and destroying newspaper brand loyalty.  While this has in fact happened, I don't know that it's fair to blame Google. These are trends that were bound to be realized with Internet technology.

Now Mr. Varian is certainly not a "disinterested" party.  But he does make good points here.  Newspapers must continue to push the envelope and experiment with new models.  It's a cultural problem that must be overcome -- and it's tougher in some local media companies than others.

Automatically Writing the Story?

I found this article from The Sports Economist very, very interesting.

In a nutshell, researchers have found a way to automatically scan a box score from a sporting event and write a recap about the game.

Now that's interesting, although I'm sure a lot of people in sports journalism don't find it too funny.

Action-Oriented Advertising

We all know intuitively that advertising works - usually. Spreading the word about a product can demonstrably boost the level of attention that product receives from consumers. But do they buy or just look?

There is an age old tension in the advertising world between advertisers and publishers. Publishers view, rightfully, that they have a finite inventory of space on which to show ads. They reason that that space is valuable and its price should be set by the market. If that means small-time advertisers can't afford that space, so be it. This dynamic leads advertisers to prefer cost-per-impression advertising. After all, it's impressions their selling. Publishers can't be held responsible for the fact that an advertiser's marketing or product doesn't work.

Advertisers, on the other hand, would like their ads to be effective. They don't care how valuable a publishers space is. They want conversions. The internet has made measurement of advertising conversion effectiveness attainable. It's easier than ever to know that advertising on website X with ad Y will result in a cost per customer acquired of Z. If publishers can't produce a reasonable cost-per-action, advertisers will stop advertising. To some extent, the lack of "action" has deflated the once high cost of banner advertising and other impression-based advertising options.

Generally speaking, advertisers win this fight, as they can simply convert cost-per-whatever pricing into cost-per-action pricing on their own. Unless ads are effective publishers see less demand for their space. Advertisers miss out on an opportunity for new business.

The upside to the situation is that internet ads are pretty dumb these days. A text ad or a banner is just about the simplest form of advertising possible, and is a hold-over from the print days (when that was your only option). There is lots of room for improvement in online ad effectiveness.

Today, harnessing the interactive nature of the internet allows publishers to work with their advertisers to create action-oriented advertising. Today we can use the internet to help a consumer to take the first step in a chain of events that leads to a sale. Sure, consumers need encouragement, but you need more than that to hook them. You need a follow up action - something for the consumer to do right now that moves them toward a purchase.

A variety of services are emerging today to make online advertising more effective.  But doing this effectively is an art -- consumers just won't respond to any offer that is available.  Newspapers and local media companies need the following:

1. A motivating enticement. Offers must be good enough to motivate a customer to spend a minimal amount of effort that takes them closer to a sale.  This can come in the form of a huge discount, transparency into information from local vendors that makes a consumer's life easier, etc.

2. A commitment. Once the consumer buys into the enticement, there must be a commitment from the consumer. This commitment is a strong psychological motivator to follow through with a purchase -- be it a credit card transaction that takes place upfront or some other penalty for not following up on the commitment.

3. Consistent quality and/or relevance. Consumers have to find what they need quickly, and the advertising needs to be a consistent "value-add" for the consumer.
 
The key to action oriented advertising is to create enough incentive for a consumer to take a reasonable action towards following up on the offer. It can be as simple as sharing the offer on Facebook or Twitter, downloading a coupon, or as aggressive as requiring partial (or even full!) payment up front. It's the action that counts -- at least from the advertiser's perspective.  Local media can help with this.

Action oriented advertising systems are, of course, more complex than dumb banners. They require more thought and more technical expertise. But that's not a reason to abandon the idea - it's a way to generate a sustainable competitive advantage by creating advertising products that work for more businesses than alternatives.  In so doing, you're helping consumers as well.

Proposed Newspaper Resolution for 2010

Here's my proposed newspaper resolution for the next year/decade... put the best way I have ever seen:

Newspaper and local media companies need to embrace innovation by either incubating innovation or partnering with innovators.  Great developers are the key to the future.  It's the only way to stay relevant long enough for online business models to catch up.

Happy New Year everyone!

IT will set local media, newspapers free

Maybe I'm naive as someone who has built a career in the Internet, but I still don't understand a fundamental issue about local media.  IT departments at most local media companies are more often an afterthought than a strategic asset.  Local media has dealt with the Internet as a "necessary evil" instead of an opportunity for disruption.

The tech industry has examples of things that appear to be "out of left field."  Consider the case of Amazon -- originally founded as an online bookseller, they branched out into other retail products.  Then they did the unfathomable:  they launched Amazon Web Services to get into the application and data hosting/services business.  They didn't know where that business was headed, but they knew there was growth.  Google has launched a variety of experiments -- some fruitful like Google Docs and others not so successful.  But they're willingness to think expansively about their business is a major contributor to shareholder value and to serendipity that drives future growth.

I don't see similar experimentation yet in the local media business.  I am not sure if it is a lack of commitment, the lack of developer & IT business talent, or what.  But you'd think that there would be a few cases of major media companies tackling new challenges.

As a direct result, you've seen innovations from disruptors like Craigslist, match.com, eHarmony, Zillow, blogging, hyperlocal publications, Google (News) itself, and others.  None of them could take down a local media powerhouse, but collectively, they have the potential to take all the economic value once owned by the local newspaper.

So here's what I don't get...

If local media sees all this disruption coming from IT, why wouldn't local media treat IT as a STRATEGIC IMPERATIVE moving forward?

The Local Ad Sales Force of "Order Takers"

Pundits in/around the local media business have observed that local media advertising salespeople are "glorified order takers" who are not qualified, willing, or able to do anything more than sling print advertising.

Having met a few of these folks and their managers, I think it's a bit of a generalization.  Sure, a lot of people who have sold ads for many years are committed to doing business the way it has always been done.  But for every "old school" ad sales rep, there are probably 5 younger people in the organization who have the hunger to take on new products and services.

Why?  It's in some ways a generational gap.  Younger people are, by now, expert social media users unless they've been hiding under a rock for the last 4-5 years.  Many of their interactions are online.  Very few of them have the experience of getting news and information from print and not television and/or the Internet.  Remember, your 30 year old ad sales reps may have had the Internet for half their lives.

As time passes and we all experience media in new ways, we'll all gradually get more comfortable with modernized local content and advertising.  Advertisers and younger people in the ad sales force are already there.  When will you make the leap?

Merry Christmas everyone!