Business Model Innovation for News

We’ve talked quite a bit about the situation in which the news industry currently finds itself. It is interesting because it is an industry in the middle of massive disruption, which makes it a great case study. Consequently, lots of other people are talking about it as well.

This week I tweeted abougt two stories on this topic – Marc Andreessen’s interview in which he says that media companies have to “burn the boats” and fully commit to digital, and Hal Varian’s talk urging news organisations to “experiment, experiment, experiment”.

In another of his fine weekly reviews, Mark Coddington summarises this discussion and points to two interesting responses to Andreessen from Alan Mutter and Paul Gillin, who both think that it is a bit too early to burn the boats.

Here are some of the highlights. First off, Andreessen -

[he] was talking about print media such as newspapers and magazines, and his longstanding recommendation that they should shut down their print editions and embrace the Web wholeheartedly. “You gotta burn the boats,” he told me, “you gotta commit.” His point is that if traditional media companies don’t burn their own boats, somebody else will.

Mutter’s response:

some 93% of the industry’s $45 billion in sales were associated with the legacy print product. Even though ad revenues probably fell $10 billion in 2009, print-driven newspaper revenues sill are running at better than $30 billion a year.

It doesn’t take a certifiable Silicon Valley genius to see that no business can walk away from some 90% of its revenue base without imploding.

And then Gillin’s:

In their most recent round of earnings reports, most publishers stated that they are now deriving between 12% and 16% of their revenue from online advertising. Most of them have also not done nearly as much as they can to monetize other sources such as events, transaction fees and value-added and classified advertising. Once publishers reach the threshold of 20% online revenue, they can conceivably shutter their print operations while sustaining the business and the brand. They’re trying to get to that threshold gracefully, though. Lots of money can still be made in print if publishers can manage that asset down steadily while reducing costs in lockstep….

Burning the boats isn’t a wise strategy at the moment. But it’s a good idea to start collecting firewood.

Finally, here’s Varian:

In my view, the best thing that newspapers can do now is experiment, experiment, experiment. There are huge cost savings associated with online news. Roughly 50% of the cost of producing a physical newspaper is in printing and distribution, with only about 15% of total costs being editorial. Newspapers could save a lot of money if the primary access to news was via the internet.

New tablet computers like the Kindle, iPad, and Android devices may encourage people to read online news at home in the comfort of their easy chairs. At Google, we certainly don’t think we have all the solutions, but we are definitely keen on working with the news industry to help it attract bigger audiences and generate more ad revenue. Experiments like Fast Flip, Living Stories and Starred Stories may help pull together the at-work and at-home access to the news. Online news access on handheld device like cell phones and tablets is likely to be quite different from traditional newspapers reading, with much more multimedia content, interactivity and reader involvement. The transition to a fully online news will be difficult, but there’s a good chance that we will emerge with a significantly more compelling user experience.

My opinion is that it’s a diabolically hard problem. I agree with Mutter and Gillin that you simply can’t walk away from more than 90% of your current revenue. The print operations must continue as the news organisations follow Varian’s suggestion to promiscuously experiment – a recommendation that I strongly endorse.

The thing that bothers me about most of this discussion, however, is that the vision is still conservative. There’s no point in simply porting news online. These organisations must be experimenting with finding ways to create entirely new experiences around the news – the game must be fundamentally changed.

That’s what makes me at least partially sympathetic to Andreessen’s argument – the current news organisations have to find a way to psychologically move away from print, and they also have to move away from the idea of recreating newspaper on a website, or a smart phone, or a tablet. That doesn’t cut it. So here is my prescription – and I think that it is generic to all large, entrenched incumbents facing major disruption:

  • While maintaining your current core operations, you have to abandon them psychologically. This is what Andreessen is getting at – full commitment to the new model requires no safety net, at least in his view. I’m not sure this is entirely true. The main point is that one way or another, you have to come to grips with the idea that your core operations are on a death watch.
  • The second step is that you need to follow Varian’s advice and start experimenting. Try it all – big bets small bets, and everything in between. Prototype rapidly, get your new ideas out there, get feedback, and iterate. I believe that the future of news will look nothing like a newspaper that just happens to be online. I don’t know what it will look like, and the key point is that no one else does either. That’s why the rapid prototyping approach is great – it gives you a chance to shape the new future.
  • Forget focus groups or consumer feedback. In saying this, I’m certainly not saying ignore the customer. However, they don’t have any more of an idea of how they’ll use new technologies than anyone else does right now. It’s smarter to figure out what jobs they are trying to get done. That will help you figure out which experiments are the most promising to prototype.
  • The last suggestion is the tough one – in all turf wars between the current way of doing things and the experiments, you must support the experiments. You have to be willing to cannibalise your current strengths. Remember, your current model is dead, even though it’s still operating. Consequently, the way we’ve always done things can not be allowed to interfere with trying to make the new way of doing things. Arguments like “we’ve always done it this way” and “but that will take away revenue from our cash cows” represent capitulation and defeat. Ignore them.

These ideas are fairly easy to type, and a whole lot harder to execute. However, if you’re facing disruption, it’s your only choice. Try everything you can think of, see what works, do more of that, and learn from what doesn’t work. That’s the algorithm for business model innovation, and implementing it gives you your best chance at surviving the disruption.

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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6 thoughts on “Business Model Innovation for News

  1. I agree with you in the sense that the move towards digital has to be gradual, however the print business model is outdated and broken, for example the priting media depends heavely in a distribution mail system. As you know the US Postal Service functions like a goverment entity, not really caring about rendering the best customer service, keep loosing customers consistently, no wonder why now they quick-fix strategy is to lay-off people, as they go by Seniority level the old dinos will continue working, system no based on performance.
    This problem complicates the already weak business model of the media printing model; and they have to do someting about QUICKLY no tomorrow, no in the next future, they have to make changes NOW. The reality is somemany will not adapt and will die in the process. This is the reality. I am not willing to pay for the “daily” issue if I do not receive it daily, however I can go online and read all I want. Easy and Simple.