Our virtual neighbourhood polarises us further

I was going through my inbox today and came across this gem from Ben Thompson of Stratechery on “The Real Problem With Facebook and the News“. Its about the virtual neighbourhood we create and the news we consume from Facebook. The point of the article is that Facebook’s “trending news” uses a combination of algorithms and manual curation. Is this a good thing?

Facebook’s content team has manual control over trending news and can inject stories in there. This is similar to a traditional newsroom. The issues are that:

1) They have the ability to manually curate and to intervene
2) They have been suppressing conservative news and promoting news with liberal views

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The cost of free

The internet has fundamentally altered the business models of many industries.

One of these is the content industry. We have seen recently that the Readers Digest filed for bankruptcy. News Ltd posted a $300m loss in the last financial year.

The World Wide Web can give you almost unparalled access to any kind of information that you want. Its changing the way that we read the news and how much we pay for it. If I can access information anywhere, will I be prepared to pay for it? Will users be prepared to pay for it? And how can publishers and content producers make money from it? How does this affect online services?

At the same time, it is also altering our view of online services.

I’ve just started reading Chris Anderson’s “Free” book which has inspired me to write this as well as the current debate around this topic. The problem is that everyone now expects everything to be free. Chris Anderson’s discusses this briefly, on the divide between the older generation (30+) who are skeptical about anything offered for free, and the younger than 30 (gen x & gen Y) who have grown up in this free era.

free-chris-anderson1

Free online services but at what cost?

We get email services for free – gmail, hotmail, yahoo, et al. And these are all really good email services. There’s almost an unlimited capacity of email storage now. Gmail offers 7GB storge for free (Seven! that’s right). Sidenote: You can actually upgrade to 10GB – 400GB for $20 – $400 USD.  Except the cost of free email is advertising. And most people are willing to put up with it.

Free wifi is available in many cafes, particularly in Starbucks in the US – but there is an expectation that you will buy a Starbucks coffee in exchange for the price of free internet access. Its really an economic cross subsidy. Give me one service in exchange for paying for another, which allows the provider to make a profit margin. Free internet means you will stay longer in the cafe, sipping more cups of coffee whilst browsing the internet.

Many internet services like Huddle.net, Yammer and countless others more offer you a good service for free. They try to entice you by giving you a basic version and hoping that a percentage of users will upgrade to the paid version (when the 80/20 rule kicks in). It forces these kind of companies to be innovative and their competitors as well. Because if I’m not using their service, I could easily jump onto their competitor’s service. 20% of the paid/enterprise customers are subsidising the 80% free customers.

This is the same thinking behind the next release of Microsoft’s office 2010. They’ll give you a web version for free, most likely stripped down. Because if your not using this, your going to be using Google docs which is free.

I use Huddle, a project management software and it gives you a certain amount of capacity for free. It’s quite convenient, and I am seriously considering paying for it to use in my church for project management. I just need to investigate how it would work with many users, etc… I would consider this, because I have used the free service and seen how useful it can be.

The CEO of Box.net, which offers a similar collaboration/storage solution, said this gem of a quote:

“Free is not a business model. It is a distribution and marketing tactic”.

I agree with this 100%. You cannot last in a business environment (especially in a harsh GFC climate like now) without thinking about how you will eventually monetize your business. Free can only last for so long. Really its for marketing purposes, to allow users to sample your services and provide stickiness. If your service isn’t good enough, I’m just going to go somewhere else. So it keeps these online service providers on their toes.

With Google, they provide such superior search services (bing who?), it keeps drawing you back. They surround the organic search results with paid advertising in the form of search engine marketing on the right hand side. And I am perfectly cool with this, as are many other people. It’s done in a way that is unobtrusive and occassionally offers relevant paid results. Not that I have ever clicked on them, but someone must. Right?

free-cover

I remember hearing one of the google maps engineers who was asked why does Google provide the google maps API? It’s really comes down to advertising. The more you use google services, the more advertising you are exposed to. However is the cost of free……… advertising? In relation to Google services, yes. Because Google typically starts its services with free and needs a way to monetise its services. It’s really a advertising/media company which also has a side business selling enterprise apps =)

You can provide a free service, but there needs to be something else which is making money. Anderson uses the example of King Gillete who gave razors away but made money through the sale of blades. Wow you with one hand, take your money with the other.

Its the same example for VCR’s/Playstations/Computers, etc… Subsidise the sale of hardware, so you’ll buy the software. Its the software / videos/DVD’s which have a higher profit margin and you’ll consume more of once you have the hardware.

I actually think that they could offer the iphone for almost free or heavily subsidised. And make the money back through apps. I know there’s a group of people out there that refuse to pay for apps. But there’s enough people (a minority) that will pay, and scaled over the millions that own iphones, its enough to generate significant revenues for Apple and the developers that create those apps.

So what’s the deal with online news content?

If I want the latest news, I can jump onto news.com.au and read any of the articles. If they build a paywall around it, I’ll just go to New York Times. I’m really only one click away. Or more likely, I’ll just search in google and end up reading an article from Google news, which is the king of all aggregators. They suck in content, strip it down and spit it out.

You can’t simply just aggregate content. Because you’ll just be re-aggregated by someone bigger or some other new service. It’s a continual battle. You need to produce original content which draws people in and they want to share.

The news industry is very different to many other industries because of its dynamics which focus on content, editorial standards, readership/subscription model, rapid distribution of news, classified advertising, etc…

I spoke about it with David Meerman Scott about it briefly this morning and he had some thoughts around creating customised content based on the user’s preference. I think this idea is worth exploring. As I’ve stated before, the business model of the  news industry needs to change. The question is – to what? What will people pay for?

You can’t just give stuff away for free. Their is a cost involved. You need a cross subsidy or some way to generate income back in return – whether through advertising ala google, or a freemium model.

But give me the news that I WANT, on demand and I might pay for that. I see BBC news and also news.com.au moving to this model. They allow you to rearrange the content based on what I want to read. Allow me to select my preferences. Perhaps they can build some intelligence around my behaviour. Understand what I like to read, what is sticky to me, what engages me, what I share with my friends. What conversations I am having on facebook, twitter, etc… about your news article.

Feed that loop back in. Know that I am interested in sports, particularly basketball & football. Hip hop music, international affairs, quirky news articles, etc… Make sure these kind of articles rise to the top. Create me an igoogle type portal or a popurl interface.

popurl

I would consider paying for this type of service. Would I consider paying on a ala carte basis per article? No. I would pay a monthly fee and consume as much as I could. If it works for Pay TV, this could work for news as well. Even though there is free to air tv, people pay for premium tv services that offer a greater variety of shows, and latest movies. Give me somethign superior to what is free, and I believe users will pay. It works for huddle, yammer and other online services. Why can’t it work in the news industry (despite its different dynamics)?

I don’t believe that the news industry should solely rely on advertising to monetise content despite the advances of advertising technology. Consumers are sick of pop-up ads, pop-unders, take over ads, pre-roll ads, banners. That stuff doesn’t work anymore.

If you know me, I’m a big fan of Mark Cuban’s blog, and he’s also got some ideas around this which are worth reading.

I’m out like free content,

Matt aka Inspiredworlds

The future of journalism

I have just completed reading the two speeches given by John Hartigan, Chairman and Chief Exec of News Ltd. I actually read the wrong speech – there is one from 2007, but the one I was really after was from 2009.

My current thoughts are:

1.  The availability and immediacy of online news is disrupting the traditional business model of newspapers.

In the past, newspapers used to rely on selling copies and classifieds – where the real money is made from the rivers of gold. Well that’s all changing. Although, sales of copies haven’t declined in the same manner in Australia as the US or UK, its going to eventually happen and follow the same trend. People, especially younger people are used to looking at news online now. I don’t even have time to read the paper these days, but I will access news websites during the day. The notion of reading a printed newspaper is dying since people are time poor. The only person that I know that has the time to read a printed newspaper is my dad because he’s retired.

Its comes down to convenience and accessibility. I can read whatever I want – I can check out NY Times, Chicago Tribune, Daily Telegraph, BBC news. All within a few simple clicks.

2. The rise of citizen journalism

Regular people (i.e. non-journalists) that blog, twitter, post youtube videos, flickr photos have created the notino of citizen journalism. And its growing in importance. When an event occurs, particulary an accident, regular people are there already on the spot, before the professional journalist. News breaks out immediately. People can post updates via twitter, take pics with their phone, shoot mobile videos and post to youtube etc… The raw eyewitness accounts can be terrifingly engaging and accurate. It happened with the Bart shooting which I blogged about, Hudson plane crash, etc..

newspaper

But of course we still need professional journalism, to vett the stories and break out the latest news. It’s a shame that  Australian journalism is at its lowest staffing levels in 25 years. Quality journalism is vital to a thriving democracy and must be maintained to have freedom of speech.

3. The multitude and breath of news available online has lead to the popularity of aggregation web sites.

Hartigan derides aggregation sites hard like Huffington Post, Crikey, Mumbrella. I’d also add in Digg and some of the other social bookmarking sites. The latter are probably not to the same degree, but in essence they are all content aggregation sites. Although he doesn’t like them and is basically calling them second rate journalism and killing the industry, they do have an important role to play.

We’re increasingly time poor people, with even shorter attention spans now. I find it incredibly difficult to sit down and read a book now, let alone a full newspaper article online. We scan articles. We look down the page and scroll and hit next. Aggregation sites like Digg and Huffington Post give you a short snapshot of the full article. If I am interested, I will click through and read the main article, which is written by a professional journalist. At the end of the day, if the summary and the article is relevant and good, the news website still gets the traffic.

When I have the option of reading a million news websites, its a buffet of choices. If I can get a 30 second takeaway, I’ll take it.

Aggregation websites syndicate content. Sure, if they weren’t available I would have went to news.com.au or nytimes.com. But aggregators still push traffic to news websites. Google News and the like should be seen as partners rather than competitive threats. And aggregators and the audience still need quality news.

4. Paying for online content

I’ve been reading the NY Times blog debate by several prominent media people and academics about this issue. In a online world where free seems to dominate, will people pay for news content? Is there a business model around this?

Hartigan thinks that people will pay for engaging, quality content and so does Joel Kramer, editor of Minnpost (Minnesota Post) in the NY times article. I would tend to agree with this.

NY Times Logo_250It is a pain when you try to read older articles on some websites and you are told that you need to be a paying member. I don’t have a problem with this model – latest news free and older content that is archived you have to pay for. Typically its 7 day old material is free, older stuff is paid. Or basic news free, premium content paid (more in depth articles or exclusive articles). There is a business cost involved to produce the content, pay the journalists wage, and to store it.

If the content is good, people will pay for it.

Its the freemium theory – basic version free, premium version paid.

Perhaps this is the online business model that newspapers need to adopt. It’s been adopted by a lot of content heavy websites now. ESPN has been doing it for ages with their “ESPN Insider” membership. However, sites like bugmenot help you get around it =)

The problem is as I have discussed with a friend, if people are currently getting it for free then they’re get used to it. They’re going to be quite annoyed once they have to pay. You need to set the rules early with your audience. However, if the value proposition is strong enough and explained well i.e. paying for premium online content & cost to the business of producing, it can work even if the audience is used to it being free.

One of the threats is that there are many subsititutes. That value proposition only really works if its quite good and they are not substitutes available. With so many news websites available, I can easily go somewhere else which is free. It’s almost as if the news industry has to work in tandem in oligopoly type fashion. Its a matter of survival.

The news industry HAS to evolve and adopt an online paying model. It might be the model that Hartigan described where they provide customised premium content based on what you are interested in, combined with print.

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More sporadic thoughts to come on this topic of the future of journalism and news.

I’m out like print,

Matthew Ho.