Modernize Newspapers

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.

Murdoch, et al to Google: "We don't want you here"

Over the last few weeks, the idea of banning Google from crawling newspaper web sites has gathered steam.  It started with Rupert Murdoch who suggested that News Corp web sites would be blocked from Google's index.  Now MediaNews Group and A.H. Belo (which collectively control 11 of the top 100 newspapers in the US & other major media properties) are considering the same move, with rumblings that many more may follow suit.

At issue is a fundamental question that industry observers have asked for many years -- "is the traffic provided by Google a net positive or net negative for the newspaper business?"

But the question behind the question is more about monetization.  Should Google provide a free index of available news for given search terms... and should Google benefit on the backs of content and news providers?

Local newspaper and television web sites provide a service to the local community -- journalism that informs the community and provides a necessary check on government and other local authorities.

Similarly, Google aggregates news for the convenience of consumers.  It also provides local news outlets with traffic and exposure to people all over the world.  This traffic can be great for raw page view numbers and other metrics, but it's conversely also difficult for a local media outlet to monetize.  If a significant portion of traffic for a newspaper web site comes from other parts of the country or the world, it is bringing a wealth of people to the web site but very few of them are likely to respond to a local advertisement.

Therefore, it is good for reach but it also dilutes the advertising product that is intended for the local audience.  The numbers are there, but the performance of the advertising suffers, and local online ads are thus that much harder to sell.

I am personally torn on this one -- I see both sides of the argument.  I'm sure I'll comment more on this as time progresses.  But this move does tell us a few things today:

1. Newspapers want to take back control and ownership of their content.  Google is the first target, because they are generating obvious economic value from indexing news site content likely at the expense of newspapers.
2. Inclusion in search results has reduced newspaper and television web sites to dumb content machines, and leadership at major media outlets has taken notice.
3. Continued commoditization of newspaper content can't work long term for the media business.
4. New technologies, if not properly utilized and harnessed, will present a real threat to the media business.  Therefore, it is the job of big media to figure out where to limit new technologies and where to partner.

We've all heard the saying "if you can't beat 'em, join 'em."  I'm not saying this strategy can't work, but it's certainly a possibility that as a result, the news business will ultimately think opportunistically about working with Google.  This move is a first step towards one of two conclusions -- success or partnership.  Who knows where this is headed.

How Newspapers & Local Media can "Out-Google" Google

 

Google's financial success can explained fairly simply. When people are searching for something on Google, they have a certain mindset. They are looking for something - some sort of knowledge. They are actively pursuing it, not passively consuming it. Some people, it turns out are searching for something to buy or a place to buy it.  Those people are perfect targets for the ads that appear on the right side of the screen. Google calls these ads the "Search Network" So perfect, in fact that it's not uncommon to see those ads clicked by 3-7% of all Google users.

 

Contrast that with a different situation. Google also shows ads on other websites - they call this the "Content Network". Message boards, news sites, online magazines. They're exactly the same ads that show on Google's search page, but they get click through rates closer to 0.05% than 5%. Why? Because someone passively clicking around the internet is not actively looking for anything at all. The difference in consumer behavior is striking. 100X increases in click through rate are not uncommon between the Search and Content networks.

 

So how can newspapers be more like Google's Search Network and less like the Content Network?

 

By reaching users when they are in a search mindset. No, newspapers should not, and frankly cannot, compete with Google's search functionality. But they do have something that Google does not. Local knowledge.

 

Newspapers can use that local knowledge to drive search-minded traffic to their sites. For example, you might be at the office and wondering where to go eat lunch. You know all of the places within a mile or two, and have eaten at most of them. It would be handy to know which ones had specials running today to help break the indecision. Without a lot of effort, a specialized hyperlocal site could be created with the sole purpose of aggregating lunch specials by neighborhood. People who go to that site will be actively looking for a place to eat. The local paper knows whom to approach to sell ads on the site, and can do so effectively with a knowledgeable sales force. The result? A massive increase in advertising effectiveness.

 

Another example: Here in Austin, we have two major music festivals each year. South By Southwest and Austin City Limits. You can bet there are specific industries that are just begging to get in front of the festival attendees. Many of those concert goers are from out of town and need  help with basic things. Where to eat? Where to stay?  Where are the best local bars? These are all questions that newspapers can answer - both with content and with intelligent advertising.

 

The goal is to reach a consumer who is asking a question, not a consumer who is killing time.

 

With a little imagination and planning, newspapers can find ways to drive search-minded traffic to their sites. It's not an overnight solution, but it is durable solution with lots of growth potential.

 

This is one area where newspapers can and should out-Google Google.

A Few Interesting Articles

I thought I'd share a few interesting links from last week about the future of newspapers.  Enjoy.

Google's Eric Schmidt's commentary on newspapers -- clearly Google has taken a lot of grief for the troubles of the newspaper industry.  Certainly, Google has wrenched economic value from newspapers not to mention a lot of other types of businesses -- but local media folks would probably do a lot better listening to Google than fighting Google.

Clay Shirky pointed out that a lot of "local newspapers" don't really have a lot of truly local content.  Yep.  You'll get no argument here.  This is why I've suggested before that a lot of newspapers can get unique content through crowdsourcing and other lower cost methods than they've perhaps used for many years.  Newspaper problems are fixed if you solve both the top and bottom line, and that's going to be painful on a few levels.

Finally, Fred Wilson mentioned something that we've seen for the better part of a year -- if local media is to survive, it needs to take advantage of its current (and possibly fleeting) local advertising sales force advantage.  Local media companies may very well survive as resellers of third-party or proprietary technologies that further monetize their local news audience.  More on that later!

Why Google, Microsoft, IBM, Oracle Solutions to NAA Problems All Miss the Mark

I thought I'd share a few quick thoughts today on responses to the NAA's request for information from the technology/internet industry on monetizing local media.  I've reviewed proposals from Google, Microsoft, IBM, and Oracle and a few new entrants so far in preparation for sending the NAA an unsolicited proposal of our own specifically around local advertising.

Microsoft did the best job IMO of translating "techspeak" into a workable vision for the future, although it appears to be as others have suggested somewhat of a ripoff of TweetDeck.  Interestingly enough, Microsoft's response suggested that the newspaper business utilize 15 products in unison to make their ambitious proposal a reality.

Quick sidebar -- in my 3 1/2 years at Microsoft, we occasionally ran across opportunities like this.  We similarly responded because there were two benefits for our business:  1) revenue, 2) case studies.  There is no case study quite like solving a contemporary problem (like "saving" local newspapers w/ Microsoft technology in this case.)  So when something like this would happen, we'd eagerly participate.  Granted, we really couldn't offer "true innovation"... Microsoft really doesn't innovate all that much... but we could enable things to happen with a great Web tools and technologies platform.

This effort by Rainer Kellerhals and the team at Sobees (a Swiss startup as far as I can tell) is about as good as Microsoft can do IMO without reaching out to a broader range of startups to build a truly innovative and effective solution.  Microsoft needs a handful of other "Sobees" for other parts of a solution for it to be truly effective -- more on that in a bit.

But my point is that big companies like Microsoft, IBM, Oracle, and to some extent Google have conflicting goals.  Sure they want innovation, but first and foremost they want adoption/sales/increased revenue of existing tools and technologies.  Innovation is a justification for using their offerings.  Innovation is not central to their existence or participation.

The startup community, on the other hand, is always pushing at the edges to find new ways of doing things.  This typically involves finding new opportunities, cutting costs where possible, and working with new technologies to become more efficient.  I would venture to say that the startup community has very few peers when it comes to the clever & inventive utilization of real-time, social media, and mobile technologies.

Similarly, innovators like the Huffington Post, Mashable, Craigslist, Digg, Stocktwits, Fark, and others have built very profitable businesses utilizing Internet technologies in interesting ways.

If the NAA and the newspaper business truly wants to innovate, it needs to look to the future.  Microsoft, IBM, Oracle, and Google are great companies that have done great things in the past -- and they can certainly be part of a solution.  But these companies can't do it alone.  The NAA must actively engage the startup community and new entrants, or the it will continue to create rivals with the wherewithal and motivation to compete.

Microsoft & Newspapers/Local Media - more alike than you'd think

A few weeks ago it occurred to me that, at least conceptually, I have seen the problems faced by the newspaper industry before... at Microsoft.

Both face classic Innovators' Dilemma challenges.

Microsoft is trying to hang on to huge annuity streams from client software, which is a tougher business than ever in 2009 and one that isn't getting any easier.  So Microsoft is forced to straddle the fine line between hanging on to the client and "Modernizing" with Web business models, which I've argued for some time are at least a mildly deflationary force thanks in large part to Google.

The newspaper/local media business is in exactly the same place.  Old advertising models, which are today characterized by inefficiency and questionable effectiveness, are becoming less and less popular with advertisers.  Everything is moving to the Web, where monetization is similarly questionable.  Better monetizing the Web is critical to the future of the newspaper/local media industry, yet it can't quite replace the revenue provided by the old business model.

I suspect that Microsoft and Newspapers/local media businesses will find that the easiest path to success is in being aggressive... by devoting a meaningful but not overwhelming % of available resources to experimentation.  Take two examples I am very familiar with for example:  work done by the Austin American Statesman around Twitter, and alternative Web properties and the Dallas Morning News around "big media" hyperlocal.  These are organizations that place a premium on learning and experimentation -- two major keys to getting the Web.  Veterans in the Web business know that experimentation pays off with serendipity.  You don't know where your experimenation will pay off, but you commit to the process because you know that it will eventually create business opportunity & create shareholder value, even it isn't immediately apparent.

So if you're looking to see how things will go for these incumbent businesses challenged by disruption, pay close attention to signs of experimentation and innovation.  Typically, a success story or two are right around the corner.

Facebook v. Twitter -- it's war

I don't think it's hyperbole when the folks at Techcrunch say that Facebook and Twitter are now at war.  I do think that the stage has been set for quite some time - each company has made sufficient progress that they have now collided.  There is no going back.

What can we take away from the latest news?

Twitter has experienced meteoric growth for two reasons IMO:

1. Simplicity -- everything about Twitter is easy, as you'd expect from an interface with 140 characters,
2. Brilliantly executed developer strategy -- the developer API is similarly simple; integration is easy.

Facebook is decidedly *not* simple, but I'm sure they are very, very jealous of all the third-party Twitter applications that have been created over the last few months.

As a third-party startup, I have to tell you that I think the value proposition for Facebook is very, very strong.  Who wouldn't want access to data on 200m+ users.  But I also suspect that the Open Stream API will not be truly open... i.e. developers won't have access to all data they want/need to build third party apps.  The big question is "will Facebook be able to offer enough data to be successful with this approach while keeping the truly valuable data for their own ad targeting purposes?"  If they get this right, they'll remain the dominant social OS powered by ridiculous revenue opportunities.

From my vantagepoint, it can still go either way.  Twitter's advantages in simplicity from both the User and Developer perspectives don't change in light of the recent Facebook announcement.  Similarly, Facebook's advantages in Installed Base & breadth of data collected won't change if Twitter adds 50m users.

Other random reactions:

• I'm glad the game for developers has moved to social platforms.  But all this news does is guarantees that developers will need to be capable in *both* Facebook and Twitter.
• Along those lines, I think Facebook and Twitter strategy just sortof became the same thing for many corporations eager to connect with consumers.  You can't do one without at least considering the other.
• I think this is ultimately a proxy war for Google v. Microsoft for what it's worth.  Maybe not today, but soon.
• Internet marketing is dying in lieu of social marketing.  I'll elaborate on this in a later blog post.
• Friendfeed and Yahoo! sure feel similar to me -- valuable properties/companies who do great things but are nonetheless stuck in "RC Cola land".  Friendfeed will need to change the game somehow, some way to get into the debate.

More pleasure reading:

http://blogs.zdnet.com/BTL/?p=17068

http://www.readwriteweb.com/archives/despite_new_openness_facebook_remains_fundamentall_1.php

http://www.briansolis.com/2009/04/social-os-battle-between-facebook-and.html