More on What Might Have Been
I promised more thoughts on this subject, and I think Tim Lee’s post on The Innovator’s Dilemma is a good starting point and also reveals that my thoughts were less original than I’d believed. But the basic problem confronting a newspaper manager in 1998 or so would have been the fact that his firm was probably way too successful for there to have been a serious option of throwing chunks of the business model out the window and doing things in a whole different way in order to position it for long-term success as a digital media brand. Even if you’d had the foresight to see that doing this would make sense, you’d never be able to sell the other stakeholders on it.
Big, successful institutions have a lot to lose and have a ton of stakeholders and fixed investments in this and that. Even if you can see around corners and recognize that everything’s going to change soon, it’s just very difficult, in practice, to change things up so things that look foolish in retrospect could easily have been all-but-inevitable at the time the decisions were made.
35 Responses to “More on What Might Have Been”
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December 23rd, 2008 at 2:25 pm
A very compelling point. But it’s also worth reiterating, once again, that the space was only large enough for a single dominant player. It could’ve been the Times; it could’ve been CraigsList. But there’s a reason why one player now dominates the classified market. So even if some newspaper had been bold enough to seize the opportunity, what of the hundreds of others whose revenues would still have disappeared?
Newspapers face a fundamental problem. Even after the advent of radio and television, they remained the most efficient means for advertisers to reach their audience. The high price of airtime and its limited availability constrained its utility. For most advertisers, newspaper ads delivered the largest audience of potential consumers at the lowest cost. The internet has forever destroyed that monopoly. It was inevitable that it would. No amount of strategic foresight could have prevented it.
A few news organizations will thrive in this new environment. They will become the internet equivalent of broadcast media – valued for their ability to aggregate enormous audiences, making their digital real estate unusually valuable. But what of all the others? If they’re not in the top five, what possible future might they construct for themselves, even if they recognized the inevitability of this transition a decade ago?
December 23rd, 2008 at 2:28 pm
But it’s also worth reiterating, once again, that the space was only large enough for a single dominant player.
You can reiterate it all you want, but it’s still wrong. Classified markets are local — NY Craigslist has all different ads than L.A. Craigslist. It’s way too late now, but even 5 years ago the LA Times and the NY Times could have come up with their own craigslist-like product and captured that market. Even other advertising is mostly local: real estate, autos, etc.
December 23rd, 2008 at 2:46 pm
That leads into the wider point that companies exist only in
order to serve the interests of their stakeholders – in theory
the stockholders, in practice also very much the interests of
their managers. There isn’t any definitive virtue in taking
decisions that ensure the long-term survival of a corporation:
the interests of the stakeholders may well be better served by
raking in big profits (and taking big dividends) for a few years
and then letting the company wither or crash (or selling it
at a good price to some other sucker).
It’s roughly the same as the problem facing a third-world
capitalist with a big chunk of forest: he can try to manage it
sustainably, or he can cut it all down as quickly as possible
and invest the cash elsewhere, possibly at a higher rate of return.
You might even argue that corporations *should* die. The
whole point of limited-liability corporations is that they
*can* die, without devastating consequences for the owners.
December 23rd, 2008 at 2:49 pm
It’s way too late now, but even 5 years ago the LA Times and the NY Times could have come up with their own craigslist-like product and captured that market.
I doubt it. Remember, listings on craigslist are free, except for job listings in the large metro areas and a few other types of ad. It’s pretty hard to imagine how any for-profit company could compete with that.
December 23rd, 2008 at 2:54 pm
too many steves:
And you can keep insisting all day and night that newspapers might have captured the market, but unless you explain how, it still won’t be convincing.
We have a single, dominant national player in the classified advertising space. You’re trying to make a case that that outcome wasn’t inevitable. And I don’t buy it. Even if newspapers had all offered free, online classifieds – and Matt explains why they didn’t – a single player still captures efficiencies in scale across multiple markets that no newspaper can accrue. We’ve seen the same thing play out in niche markets, too. Many newspapers moved fairly early into job listings online, because that was actually a service they knew they could monetize. And it still didn’t save them. When every segment of the listings market nationalizes, I have to assume that there’s something more there than bad execution on the part of the local players.
December 23rd, 2008 at 2:58 pm
Its also worth noting that Lord Yglesias has absolutely no experience running a large successful corporation. He has no idea what is involved with making a company of that scale run, and what can and cannot be done, and what can and cannot be avoided.
December 23rd, 2008 at 3:00 pm
Remember, listings on craigslist are free, except for job listings in the large metro areas and a few other types of ad. It’s pretty hard to imagine how any for-profit company could compete with that.
By making them free, too. You don’t get revenue from the ad itself, but you keep people coming to your site and reading your paper when they’re, say, looking for a job or a couch. The cost of placing that ad is very low if you’re not actually printing it. Then you charge for certain things, for better placement, for add-ons, for ads in the print edition. Even if you don’t make a ton of money, you wouldn’t lose the business you’ve lost by now to craigslist. Craigslist doesn’t make much money, but it costs newspapers tons of money.
cynic, I still don’t see the efficiencies of scale in classified ads. Craigslist ain’t eBay — all the ads are local.
December 23rd, 2008 at 3:03 pm
Its also worth noting that JimboSlice has absolutely no experience running a large successful corporation. He simply posts on every thread Yglesias makes to argue against that particular point while offering no actual ideas.
December 23rd, 2008 at 3:09 pm
too many steves:
The efficiencies are at least three-fold. First, site architecture. Craiglist gets to defray their overhead and development costs over dozens and dozens of local sites; newspapers carry all the costs for a single site (or, in the case of a chain, a relative handful). Second, publicity. On an annual basis, some 7-8% of the American population moves out of the county, or even further. Among those under 30, the average is closer to 20%. Per annum. And that younger demographic constitutes the core of early adopters of internet technologies. National brands almost always outcompete local brands, and nowhere is that more true than among mobile young consumers. People who like Craigslist in one city are more likely to stay loyal and use it again when they move somewhere else – that gives it a key edge. Finally, there’s the question of geographic scope. Newspapers are defined by their circulation areas. Classified listings long followed the same geographic contours by necessity. But there was always inefficiency in that arrangement, particularly along the borders, in communities that fall between major papers. Craigslist isn’t geographically bound; it solves that problem much more easily.
But in the end, I don’t feel the need to convince you of this. The facts speak for themselves. The sector consolidated.
December 23rd, 2008 at 3:12 pm
Hindsight is always 20/20.
December 23rd, 2008 at 3:15 pm
To try and get something interesting out of this discussion, I’ll reprise a comment I made over at Ezra’s place:
What’s more interesting and what I haven’t seen Shirky talk about (although I might have just missed it) is that the rise of the “click advert metric” is slowly eating advertising from the inside out.
When the newspapers do finally collapse, the advertising industry is going to shrink by quite some amount. As soon as you measure the effectiveness of advertising, the value proposition turns out to be a lot smaller than… well… advertised.
This has massive implications, long term, for the “eyeball economy,” but no-one seems to want to talk about it.
To clarify a little further… the reason internet ads are cheaper is because there’s proof about how well they work… and the answer is… not very well.
As more and more advertising moves into the internet space, the prices paid will stay low and in effect, there will be less income for content creators.
And, with the demise of newspaper ads, internet rates will slowly become the defacto for the industry, puncturing a lot of “ad-supported” product models that currently run off the fat fees…
December 23rd, 2008 at 3:17 pm
By making them free, too. You don’t get revenue from the ad itself, but you keep people coming to your site…
Mmmmaybe. The thing is: classified ads represented, if I recall correctly, fifty (50) percent of newspaper revenue in the pre-Craigslist era—revenue which was going to vanish no matter where the now-free online ads ended up appearing. I doubt that revenue from add-ons would’ve made much difference.
December 23rd, 2008 at 3:33 pm
Craigslist has efficiencies of scale that separate local versions of it wouldn’t, but it also has another big advantage: familiarity. If you move from Vermont to Virginia, you don’t need to create a new account to use it, get used to a new site layout, learn about what new features are available that you weren’t used to, etc. Theoretically little stuff like that is trivial, but it’s been an effective business model for McDonalds.
December 23rd, 2008 at 3:35 pm
James:
http://www.inquisitr.com/10201/understanding-the-fall-of-newspapers-in-revenue-numbers/
December 23rd, 2008 at 4:06 pm
Maybe I’m just overly impressed by my local paper, the Times, with so many large, glossy ads for expensive products. Then again, I seem to recall something about media consolidation demanding more and more unrealistic profit margins in a reasonably profitable business. There’s also the shift in consumer tastes between not just the Web but other media channels toward opinion and entertainment, as in all those who consider a blog like this or a TV comedian as a news source or investigative reporter.
But for all that, I find it hard to focus unduly on the fate of the classifieds. Maybe they really were incredibly profitable, and their loss is the key to a newspaper’s demise. Maybe it wouldn’t have mattered that these outlets faced competition better enabled technologically than Matt or Jon Stewart, when not just Craigslist but even one major paper in one city could compete with another. Maybe thousands of travel agents could have fought Expedia and Travelocity, too. Maybe.
Still, it seems odd to me to expect the papers to have made the classifieds the core of their business model. And even odder to think they then would have continued as papers, channeling the revenue into reporting. Probably Woolworth’s had an aisle for sneakers, but it didn’t reinvent itself as Footlockers in order to channel the proceeds back into brooms.
December 23rd, 2008 at 4:59 pm
it seems odd to me to expect the papers to have made the classifieds the core of their business model.
Slightly OT, but: that was just the way it happened. I’m not sure the top-down pre-planned “business model” has much meaning for how a business (or industry) will evolve. Like it says in the Bible, time and chance happeneth to them all.
December 23rd, 2008 at 5:00 pm
Probably Woolworth’s had an aisle for sneakers, but it didn’t reinvent itself as Footlockers in order to channel the proceeds back into brooms.
good point.
December 23rd, 2008 at 6:44 pm
Big, successful institutions have a lot to lose and have a ton of stakeholders and fixed investments in this and that.
I can’t help but think that part of the institutional sclerosis is caused by the fact that many of these companies are publicly traded. When the main focus of their shareholders is making sure that the ROA and revenue growth of the companies is as high as possible every year, taking time to retool and try “hrowing chunks of the business model out the window” is going to meet a lot of resistance. It should be noted that the WSJ, which did construct a viable, profitable online presence was privately held when it did so. And even then, the shareholders there decided to cash out and sell themselves to News Corp, which will probably cause its own host of issues.
December 23rd, 2008 at 9:51 pm
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December 23rd, 2008 at 11:32 pm
It should be pointed out that as recently as 2007 typical newspapers had rates of return of about 20% and that 30% was not unusual and at some chains was required. I myself was one of the infamous KR casualties in 2002 not because the paper was losing money but that it was $18,000 short of the mandated profit margin required by the chain’s shareholders. I’m not sure anymore, but I think the figure was 29%. It was a truism that a newspaper was a license to print money. If some of that money had been devoted improving the product and developing new products rather than propping up the share price, I believe newspaper companies would be in much better shape.
I also believe a related problem for media companies were the leveraged buyouts that began in the Reagan era and continued to the present day. Eventually, the debt servicing overwhelmed even the most profitable acquisition once stock prices started to falter.
December 24th, 2008 at 10:51 am
In the news:
That’s it in a nutshell. Circulation revenue is up. Traffic to the website is soaring. A paper once read by hundreds of thousands is now read by tens of millions. And yet ad dollars are down across the board – classifieds are the hardest hit, but even online revenue is shrinking. Now how would foresight have forestalled any of that?
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