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.

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.

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.

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!

Evolution, not Revolution in the Newspaper Business

As we talk with partners, prospective investors, and other folks on the periphery of our business, we hear a consistent theme -- folks are skeptical of the future of the local media business.

Certainly, local media faces big challenges as we approach 2010.  Advances in the Web have taken away a number of core businesses like classifieds and personals, and a variety of new advertising opportunities have come about to dilute the importance of local media for reaching local audiences.  As such, many local media businesses are reducing staff, focusing on core competencies, and aggressively working *with* new technologies instead of against them to modernize.

One such trend that I think we'll see repeated is the move by the Dallas Morning News to reorganize around business segments.  Quoting further, "collaboration is expected to 'bring new products that consumers want to the market more rapidly.'"

Wow.  Think about that for a moment -- journalists and their management are now not just charged with producing good journalism, but also with thinking of their product more expansively and with more agility.

At one time, journalism as field was both closely guarded and sacrosanct -- it was defined as something very specific with rigid guidelines for what was and what was not permitted.  Perhaps social media, link sharing and the blogosphere have, as many have suggested, redefined journalism.

What I like about this reaction from the Dallas Morning News is that they've recognized that their product is more than just traditional journalism.  I'm sure we'll see a number of interesting advancements come out of this -- and I suspect other newsrooms will evolve similarly.

Many folks assume that the local media business is dead.  But remember, they do have great brand assets in every city.  They remain a primary and important influence in each community, and they're leading the way in keeping citizens of every local city and metropolitan area informed.  They're in flux right now, but they're going to emerge better, stronger, and much more competitive as they evolve in coming years.  Don't count them out.

Transforming Media - Part 2: Building a Technical Advantage

Last time, I presented the idea that media companies need to consider restructuring by offloading their internet business to a smaller, more agile company. Then what?

The second major piece of the restructuring puzzle is to develop a technical backbone that takes advantage of the company's strengths.

Media companies have two great advantages - local knowledge and local readership. Internet giants like Google and Yahoo are not going to develop first hand knowledge of your local area. They are in the business of organizing information, not understanding local culture. Learning what the people of Austin, Texas, like and want is not something you get from a computer. You get it by living and working in Austin.

Serving that local market in the Internet age will require different cost structures. Not everything that used to work will continue to work. Every dollar made from print adversing will not necessarily be replaced by a dollar of online advertising. In some cases, it may be a quarter, or a dime.

All hope is not lost, however. There will be new, innovative technologies that enable local businesses to connect with their customers. It started with simple banner and text ads, but innovation is not even close to stopping there.

Every twist on online advertising will require creative, quick thinkers who can develop software at breakneck paces. Some ideas will work. Most will fail. As a media company, youÕll need to place bets on new technologies early and often.

But how? Creating a strong technical team capable of cranking out advertising products at a pace more normally associated with a silicon valley startup is a massive challenge. I'd go as far as saying it's almost impossible for a large media company.

But what internet media companies can do (that most do very poorly today) is build a technical framework into which they can plug innovative products created by partners, whether those parters are Internet giants like Google, or 2 guys in a San Jose basement.

Some keys to successfully creating a flexible technical backdrop for a local media company:

• Forget about building websites and design. Extremely talented web-oriented graphic designers can be outsourced project by project. You'll get high quality, fresh designs without the overhead of full time employees.
• Concentrate on the boring stuff. The back-end systems are what matter. The goal is to make it simple and easy for your advertising and content product partners to integrate with your websites.
• Hire Internet people, not media people. Make no mistake - this technical transformation is not trivial - you will need lots of people on the cutting edge of technology to pull it off. Find a way to get them on board. Learn what motivates them and let them run. Hint - it's not money or ping pong tables.
• Single sign-on. It's a requirement - don't just ignore it and pretend it isn't. Nobody wants to sign into your newspaper website, and then also sign up with a different username for one of your partner's sites (which, by the way, might look just like yours). It's confusing, unnecessary, and a difficult problem to solve. But solve it.
• Manage your data. User lists and contact info will be fragmented throughout your organization if you follow this strategy. Things like opt-in status, unsubscribes, and mailing lists will be a nightmare to integrate manually. Automate this data integration. Again, it's a challenging task, but it has to be done. Data is too important and valuable to keep sectioned off in silos because "the system" couldn't handle it properly.
• Remove hurdles with flexible technology. Suppose an advertising product vendor wants to ask a consumer to sign up for a newsletter on your newspaper's signup page. Not only should this be possible, but the end result should be a disciplined flow of data, not a haphazard collection of incongruent lists. The answer to a request like this should always be "Yes, you can do that, but here are rules.",  not "The system can't do that." or "yeah, but we'd have to keep separate lists".
• Provide an API. Any reasonably competent software developer should be able to figure out how to build a product that integrates with your platform without talking to anyone at your company. That includes, signup, authentication, payment, permissions, unsubscribes - the whole nine yards.

The theme here is to be the glue that collects and stores the content and information that makes a media company valuable and outsource the details of the rapidly changing internet marketing world. If you do this, you will be able to create a process of rapid experimentation without having to bet the company on any one technology development effort.

It's going to be challenging, but whoever does this well will build a winning media company in the years to come.

Is Local the next bubble?

With today's announcement of Gowalla's $8.4 million Series B investment, I think you can qualify "local" as the new "black" in the tech field. 

Clearly the opportunities are significant -- the newspaper business is being modernized, old business models are failing and being replaced by new ones, advertising is becoming increasingly mobile and social, and the long tail of local services has not yet been modernized & put online to the point that it will in coming years. 

Mobile GPS is spawning location-based services that will likely be a critical part of the portfolio of products and services for the tech giants moving forward.

So the trend continues -- who knows what is next?  All I know is that it is an interesting place to be, and it's where the action is at the end of 2009.  We're having a great time with it at Notice Technologies, and we'll have some very interesting things to announce at the start of 2010!

Transforming Media: Part 1 -- Financing Creative Destruction

The future of the news industry, both print and television, is online. That doesn’t mean that people will not consume news while sitting on the couch or at the breakfast table. But that news may be displayed on a TV-like display or a digital print device like Amazon’s Kindle - not on paper or broadcast TV.

Traditional print and broadcast television will soon be relegated to the past. The writing is on the wall. You need not look any further than the financial statements of the major newspapers to see that this transformation is underway. Subscription revenues are falling, and internet ad revenue is a growing percentage of total ad revenue.

There is also good news in those financial statements. Internet revenues are today only a small percentage of total newspaper revenues. The lion’s share of the “creative destruction” is still ahead of us - and local media companies are sitting in a perfect spot to take advantage of that fact. But how?

Online advertising is an immature industry and changes rapidly. Old line media companies, often saddled with debt, do not. That has to change, and there are two components to that change - corporate transformation, and technical focus.

Many major media companies have lots of debt. With hard assets like printing operations and broadcast infrastructure, this debt makes sense. It maximizes the return on investment, and traditional print and broadcast media have been stable enough to support fairly aggressive financial leverage. That is about to change.

The online world is laden with risk - it is rapidly changing and unstable. This is not a good time to build up debt. Flexibility is the key to success.

So what is a media company to do? One strategy would be to spin off Internet related assets into a debt-free company. This is great for the newly created Internet media company- you get a smaller, more risk tolerant organization that is primed for growth into the new Internet media industry.

But what of the other side? The old broadcast and print company, now stripped of it’s higher growth Internet components, will be left with all of the pre-split debt. Unfortunately, this company will have to be managed as if it were going to disappear (or at least shrink dramatically). That means aggressive payment of debt and reduction of workforce as the market shrinks. It will be painful, but it’s the only choice. The alternative is bankruptcy and eventual liquidation.

Fortunately, there is still time for this. Broadcast and print are still producing significant revenues. There is still hope for an orderly contraction of a traditional media company, debt and all. I do not believe this window will remain open for very long. The more traditional advertising revenues decrease, the less likely it will be that a split like this will be viable. Once that window closes, it will be gone for good. Keeping the businesses together would exact a toll on the online business unit as it would be forced to operate in a print-dominated world as the company would be forced to cling to a declining  print-heavy revenue stream just to survive. 

The important concept here is to take the small and growing piece of the media business and put it into an environment where it can thrive while the option is still on the table.

Coming up next - part two of the transformation: building a technical backbone.

Newspapers as Local Tech Resellers

Much attention has been given to old business models as folks in the local media business struggle to figure out how to make newspapers economically viable.

I have an idea that I'd like to throw into the ring -- turn newspapers into resellers of technology products to the local market.

Newspapers have a large local sales force that understands the need of local businesses.  Sure, in some cases, the sales force at your local newspaper is nothing more than a group of semi-qualified "order takers", but if that remains the case then it would behoove each local paper to get rid of everyone on staff and outsource sales to a call center in India.  "Order takers" have to become more economically viable, or they'll be replaced or eliminated over time.

Local businesses need help navigating technology.  Even in 2009, a lot of people don't understand the value of technology and how it can (and often is) harnessed to help businesses be more productive, advertise better, or provide better products and services to customers.

Yahoo has tapped into this to some extent with their Newspaper Consortium.  But I'm thinking of something bigger with a lot more potential.  I'm thinking of something akin to Microsoft's partner channel.  Microsoft doesn't sell directly to customers as a focus of their business.  Instead, they employ a variety of resellers to serve as front-line help, sales, and support for Microsoft products.

It's a radical idea, but it makes a lot more sense to me than hanging on to an old way of doing business.

On a less radical front, I do think that newspapers could be an effective reseller of products that help local businesses reach customers.  Just about all local businesses need help advertising themselves in their local market.  Local media can help make that a reality.  That's why we're beginning to offer our products MinutesNotice to select local media families.  I think it's a model that can help newspapers and local television companies find margin where there simply wasn't any before.  More to come as we progress.  For more information, check out our recently improved web site.