Business models built around the needs of companies don’t work

By | Apple, News | No Comments

It seems trite and obvious to write that the best products are designed around what customers need and want, yet it is still surprisingly common for companies to make decisions based on what’s important for themselves.

Digital magazines are a great example. Physical magazines have been suffering from declining circulations for a while now and their owners have mostly struggled to charge for their content online. When the iPad arrived they and Apple saw an opportunity to reverse the trend by selling magazine subscriptions through the Newsstand app. Unfortunately they were solving for their problems rather than what users wanted. Magazine publishers saw a chance to start charging for digital content and Apple saw an opportunity to take a cut. Neither stopped long enough to realise that the great free content was still out there and would inevitably find a way onto people’s tablets.

I’m writing this post today because I’ve just read an article about the impending death of tablet magazines. It describes how many people are getting free realtime content in magazine format from apps like Flipboard whilst very few people are subscribing to digital versions of traditional magazines. Moreover, Apple has now made it so that the Newsstand app can be buried inside a folder whereas previously it had the prominence of a guaranteed home page spot. A lot of time and money was wasted by Apple and publishers in bringing the Newsstand model to market because they were thinking about their own needs rather than what consumers wanted.

The area where I most often see this mistake of putting the business model ahead of what consumers want is subscription ecommerce. Subscriptions are great because they bring predictable revenues and higher customer life time values (LTVs). High theoretical LTVs in turn make it possible to justify high customer acquisition costs (CPAs). For managers and shareholders in ecommerce companies the combination of high and predictable revenues, and justifications for  high CPAs is intoxicating and often results in a lack of discipline in questioning whether customers really want a subscription product.

You should be able to justify your business model by reference by what’s good for your customers,

A balanced view on news

By | News | No Comments

There’s a Guardian article titled News is bad for you – and giving up reading it will make you happier which has been retweeted a lot this morning. It makes some good points, but for me the conclusion is wrong. News isn’t bad per se, it’s just over-consumption of news is bad. Let me explain.

The opening sentences from the article set the scene nicely:

In the past few decades, the fortunate among us have recognised the hazards of living with an overabundance of food (obesity, diabetes) and have started to change our diets. But most of us do not yet understand that news is to the mind what sugar is to the body.

I love the analogy with sugar. We have a part of the brain known as the amygdala which has barely evolved for tens of thousands of years that keeps a constant watch for danger. When we lived as wild animals a well developed sense of danger was critical to survival – seeing the small signs early and running or fighting was the best way to stay alive, and being over-sensitive was way better than being under-sensitive. The amygdala lives on with us today, and it loves to look for those signs of danger in the form of bad news – aeroplane crashes that could catch us next and terrorist threats are good examples. That’s why bad news sells and why our newspapers average a 90:10 good news:bad news split, and it’s also why scanning headlines is so compelling. We’re hard wired at a deep level to keep looking for danger.

This is bad news because scanning negative headlines increases fear and paranoia. Public perceptions of technology are a good example of how this pans out in a bad way. To me it’s evident that on balance technology has had, and will continue to have, a profoundly positive impact on our lives, from decreased infant mortality to more meaningful work the good outweighs the bad. However, if you ask most people about the impact of technology they recall horror stories about Facebook or chemical warfare and start thinking about Terminator style armageddon scenarios. Worse still, confirmation bias comes into play. Headline writers intuit that people want to read headlines that confirm their fears and then we naturally screen out or dismiss the 10% of stories that paint a positive picture.

The advent of social media and news aggregators, especially Twitter, has heightened this problem in recent years by making it easier to quickly scan headlines. I think that’s why the backlash meme expressed in the Guardian this morning is now gathering steam.

However, contrary to what the Guardian might have you believe, the answer isn’t to stop reading news altogether. Returning to the food analogy – the answer is to figure out the appropriate level of consumption. The obesity epidemic engulfed the planet when food costs plummeted after the Second World War and for the first time a large percentage of the population had the possibility of consuming more calories than they needed. Our natural wiring, again dating back to the days of pre-civilisation, is to eat as much as we can when food is available because there might be none available tomorrow and it has taken us a few decades to collectively get to the point where many of us have learned to eat appropriately. Similarly, it will take us a little while to learn to regulate our news consumption.

I also think our collective use of email and messaging systems is following a similar pattern.

My routine is that first thing every morning I scan the last 12-24 hours of Tweets on a couple of Twitter lists I’ve curated and then save the interesting headlines to Instapaper so I can read them at work. Crucially, I then rarely look at Twitter again before the next morning. I probably average 30-60 mins per day checking the Twitter lists and reading the saved articles and I’m pretty happy that’s the right amount of news for me.

Moblie and social news consumption has crossed the chasm and is well into the mainstream

By | News | No Comments

Research out from Pew Internet shows just how far the use of mobile and social to access news has penetrated into the mainstream. As you can see from the chart above radio and newspapers have been the losers so far. TV has held up OK so far but the writing is on the wall. Around a quarter under 30s regularly watching news on TV, down from over a third six years ago, and less than half the average figure for all Americans. Unless these kids radically change their behaviour as they age TV is going to decline rapidly.

Other interesting tidbits from the survey include:

  • Mobile news access has doubled since 2010, with smartphone users leading the charge. This will continue to grow as smartphones improve (welcome to the blindingly fast iPhone5) and smartphone penetration increases from its current 48%.
  • Around half of those who regularly read heavy weight newspapers like the NYT and Washington Post now do so from their mobiles
  • Social media news access is up 3x in two years. 20% of respondents regularly go there for news.
  • Twitter is on the up, but is still surprisingly insignificant as a channel for news. Only 3% of respondents regularly going their for news (up from 2% in 2010).

Mobile and social are big trends in many industries now, but news is in the vanguard.

The FT doesn’t see much future for newspapers

By | News | 2 Comments

It was interesting to read the quote below in the Financial Times’ Lex Column’s commentary on News International’s plans to launch a new paper The Sun on Sunday:

The venture fills a hole in News Corp’s publishing business that only Mr Murdoch, an old man in a hurry, can see.

When even the FT doesn’t see the point in launching a new paper, especially one it concedes ‘may even be profitable’ then we are getting close to the point when there will be widespread consensus that there is no future for paper based news products.

The next step will be that newspaper companies become undervalued and canny private equity investors will step in, hoping to make a killing buying them on the cheap. Whether they succeed will depend on whether their models predict a fast enough decline in circulations. It is easy to underestimate the speed with which early adopters and even the bulk of the mainstream switch to new products and formats, but it is equally easy to underestimate how long it will take for the laggards to switch.

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Facebook increasingly seen as competitor to content companies

By | Content, Facebook, News | 8 Comments

I have seen two comments in the last couple of days making the point that whilst content companies of all flavours are happy for the traffic they get from Facebook they are increasingly conscious that time spent on Facebook is time not spent on their own properties, and hence generating ad revenues for Facebook rather than the owner or publisher of the content.

The first was a comment on this blog from Nicholas Lovell:

TV companies are beginning to view Facebook as a competitor, not a partner. If a TV company builds a major brand (say Downton Abbey) that generates a lot of likes on Facebook, then advertisers can pay Facebook to advertise against that audience. The TV company invested in the IP, took the risk, but Facebook got the reward.

The second was a post this morning on Forbes:

Is Facebook a friend of news companies, or is it a rival? No matter how much success publishers have piggybacking off its traffic, they can’t escape the cruel math: The more of their time consumers spend on Facebook and other social networking hubs, the less they have left over for news sites.

This is in some ways a repeat of the argument Google had with the news industry which initially welcomed traffic from Google search, but later began to see Google as a threat, largely because people could read the headlines in Google’s search results and then had no need to go to the news site at all.

My feeling is that Google has effectively won that battle, mostly because news publishers can’t live without its traffic (would welcome thoughts here though).  I think the Facebook vs content industry showdown will play out differently because it is less of a zero sum game.  News and TV producers can improve their products by making them more thoroughly social whilst Facebook will improve its data assets (increasingly their key asset) if they do so.  The consumer experience can then take place either inside or outside of Facebook.  The big question will be the extent to which they share revenues.  Google refused to share, but Facebook is both asking more of its partners and getting more in return, so I think they will cut deals.

According to the Forbes article mentioned above on Tuesday the WSJ is launching a news product that lives entirely within Facebook which sounds very cool:

it’s … about reimagining newspaper reading as an inherently social experience. Users choose whose streams they want to follow — the official ones produced by the paper’s, and each other’s — and that determines what stories they see. The most-followed users can compare their rankings on a leaderboard and earn prizes — possibly including their own WSJ-style stipple portraits. “It’s really about the users being elevated to editors,” says Maya Baratz, the Journal’s head of new products.

And apparently it will look like this:


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Details of the NYT scheme suggest paywalls won’t save the news industry (on their own)

By | News | One Comment

image The New York Times released details of their paywall last week and they are a) complicated, and b) full of holes that people can exploit to avoid payment.  I’ve been saying for a long time that paywalls aren’t the answer and the fact that after a year of work the NYT have come up with a solution that is inelegant and has enough holes that most people will avoid payment has only strengthened my conviction.

How the paywall works:

  • Users will get free access to up to 20 articles per month, to get more they will have to become a subscriber
  • Of that 20 no more than five can come direct from a search engine referral in any given day
  • But links from social media (including blogs, Facebook and Twitter) will always be open.  They will count towards the 20 per month limit, but users clicking on a social media link will be shown the article even if they are over their limit of 20 for the month.

On top of that the pricing is complicated, with different prices for different regions in the states as well as different bundles of offline and online, and as Daring Fireball says and Apple and others have shown, pricing should be simple.  As an interesting aside, NYT have decided to sell through the Apple App Store and swallow Apple’s 30% take, but they won’t sell through the Android app store.  So the only places you will be able to subscribe are iTunes and the NYT websites.

I’m guessing that the ease of exploiting the social media loophole is pretty obvious to most of you.  Techcrunch does a good job of listing different ways of doing so, but amongst the most obvious are create a blog that links to every NYT story, or create a Twitter account that collects all the NYT feeds in one list (already in existance at @FreeNYT, one week before the paywall goes live).  It is also possible to hack through the paywall, e.g. by creating a browser extension that fakes referrals from other publications or pretending to be a Googlebot (details of how here).

The reason that the NYT have created such a tortuous scheme is of course that they realise that without wide distribution the value of their brand and business will fall quickly.  Wide distribution means people need to be able to find them on Google (at least to an extent) and know they can share links that people will be able to access.  However, these are precisely the reasons why a paywall is the wrong way to go, and why I can’t see news companies making much money out of them.  Paywalls could be a useful revenue stream, but only to compliment advertising on their free properties and other schemes to make more money from their biggest fans and heaviest users.

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The New York Times adopts gaming monetisation strategy–exploit the whales

By | Content, News | One Comment

My friend and co-author Nicholas Lovell regularly sets out his belief that the future of digital media is a tiered business model where the majority of users get the content for free and heavy users pay, with very heavy users paying heavily.  The games industry has made this model work with free to play games supported by virtual goods and/or subscriptions for true fans – companies like Mind Candy (Moshi Monsters) and Bigpoint stand out as having made this work really well.

Whilst the games industry has figured out a way to make this model work, the same cannot be said for the news, book, TV, movie or music industries, not yet at least.  Part of the challenge is the absence of an equivalent to virtual goods.

That said, it seems the New York Times is now thinking along the lines that Nicholas suggests.

Peter Kafka of MediaMemo recently interviewed Ken Doctor, the Digital Czar of the New York Times (I think the New York Times website has the largest revenues of any digital news organisation) and Ken said the following:

But I’d just remind you that we’re still very much in the advertising business. It’s our core business. We don’t expect the vast majority of our users to see the paywall, and we expect to remain a very very large player on the web.

That sounds like the beginning of a ‘whale strategy’ to me.  The next step would be to offer these core users opportunities to spend even more money – maybe for conferences, access to celebs, or even early access to news.  Bigpoints biggest customers spend tens of thousands of dollars a year on virtual goods, and the New York Times can get something similar going it would reduce their dependence on advertising and drive up the amount they can spend on generating quality content.

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Business Insider announces results – shows small(er) news companies are the future

By | News | 5 Comments

Henry Blodget’s Business Insider network of news blogs revealed yesterday that their 2010 revenues were $4.8m and they made a small profit.  Their revenues came from advertising on their sites and a conference that they ran.  Most were from advertising.

I’ve been saying for a long time that their model of free news supported by ads and conferences/other brand extensions is the way forward for news in the digital age and it is great to see another company making it work.  There is a lot of handwringing from traditional newspaper businesses who are losing money and don’t want to embrace/can’t embrace a future where content is free and their businesses need to be much smaller, but that shouldn’t obscure the fact that companies like Business Insider are delivering a high quality news product and making the economics work.

As well as announcing his results Henry cited a couple of other digital news businesses that are making the model work, from a revenue perspective at least:

  • Huffington Post revenues were $30m in 2010, projecting $50m this year
  • Gawker Media is a ‘nicely profitable’ $25m turnover business with aspirations to get to $100m
  • New York Times digital business is turning over c$150m, which wouldn’t support their $200m newsroom, but could still support a substantial news operation (Business Insider employs 48 people and is break even at an average revenue per head of $100k)



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More problems with closed systems – newspapers warn Apple

By | Apple, News | 7 Comments

Last week we had the news that Apple blocked Sony’s book application from the App Store and now today the BBC is running a story describing how newspaper publishers are complaining about Apple interfering with their business models.  They want to be able to offer free electronic versions of their papers to print subscribers and to allow people to subscribe from their own websites but Apple won’t let them, insisting that everything goes through iTunes and they get their 30% cut.

Once again Apple is leveraging the fact that they control the ecosystem from end to end to advance their own interests at the expense of their content partners and ultimately the consumers who buy their devices.  This is the danger with closed systems like the one Apple operates and why I hope and believe that more open models will come to dominate – probably led by Android, with Apple maybe following suit under competitive pressure.  At the moment Apple’s lead in device quality and market share allow them to get away with this sort of behaviour, but those leads will come under threat this year. I haven’t seen anything about the forthcoming iPad 2 which makes me doubt that prediction (we heard today Apple has started production of the iPad 2).

The irony of this story is that the newspaper industry has been hoping that the iPad will allow them to charge for content online and Apple will be their saviour.  I wonder where they are looking for hope now, particularly given that there is little indication that paywalls are working – see here for an analysis of the results released back in November by the Times in the UK and pause for a moment to wonder why they haven’t released any data since then.

As I have often said (including yesterday) I think the future for news lies in low cost journalism published only on the web and monetised via advertising and offline exploitations of the brand, e.g. conferences.  Good examples of this type of news company include Techcrunch, Huffington Post, and Resident Advisor here in the UK (a new one on me last week).

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AOL and Huffington post – models for big news media in the digital age?

By | News | One Comment

By now you may well have heard that AOL has acquired Huffington Post for $315m.  Looking at HuffPo and now AOL there are three elements which show how large news businesses might look in the digital age:

  • HuffPo has achieved revenue scale (forecast $60m this year, up from $31m in 2010)
  • They have combined a low cost journalism model with a reputation for quality – a small core staff complimented by over 3,000 guest bloggers including Barak Obama and Madonna (I don’t have information on their profitability, but the capital raised to date is only $20m)
  • AOL now has a portfolio of sites – HuffPo, Techcrunch, Engadget etc. – which maybe a model for real scale in this industry

Regular readers will know that I’m bearish on the prospects for traditional news businesses like News International.  Print media circulations are falling fast, their classifieds revenues have collapsed and they are mostly failing (and will continue to fail) in their attempts to charge on the web.  I have often cited Huffington Post and Techcrunch as models for the future, with their lower cost approach to journalism, but the question I have struggled with a bit is: how does this scale, and how will quality journalism get funded?

HuffPo and the AOL strategy of combining multiple niche sites in one house might provide part of the answer.  Of particular interest is their strategy of taking posts from a large number of guest authors (a strategy they share with Techcrunch) which allows them to get quality contributions on a wide range of topics from individuals with strong personal brands, who in a symbiotic relationship with HuffPo both contribute to the site and get their status enhanced by the association.  Along with the broad fact coverage coming from the resurgence of news agencies like Thomson-Reuters and the AP this might be the way we get quality coverage of war zones (and similar) in the digital age.

There is a lot to prove before we can say that this is definitely the answer, not least profitability and whether AOL can successfully keep the individual brands alive and wring out some synergies on the back end, but I have a feeling that we will see others copying these models.

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