TheWayoftheWeb

Numerous newspapers and associations of publishers are discussing the topic of paywalls for specific content or entire sites in an attempt to ‘create value by beginning to charge for it’ in the words of the American Press Institute.

Sadly for that plan, it’s not 1998 or 1898, and I’m not sure how charging for something creates value. The value that should have been created was lost when sales teams bundled online advertising as a free or low cost ‘added value’ bonus to print advertising, at a time when online adverts were capable of getting a decent click-through rate – and then not investing in helping advertisers to utilise new opportunities to better connect with their prospective customers.

The end result is that display advertising is generally decreasing in direct effectiveness and value (although there can still be branding benefits), and attempts to offer more innovative solutions generally fail because advertisers find it too much of a leap from simply booking the biggest reach at the lowest price they can negotiate. Those advertisers that are more innovative, meanwhile, have already started learning that they can create their own content and interaction directly with customers.

And the paywall debate continues to ignore the problem.

Instead it’s simply gouging consumers instead of advertisers.

I already have a paywall around newspaper content – which is one reason why I don’t buy print content. Every day I walk past racks of printed content protected by a cover price, because I can quickly access a wealth of equivalent content online, tag it and save it, interact with it, and often interact with the authors of it – whether bloggers, or increasingly mainstream media employees.

Want an example of ways to monetise a piece of content effectively – this is probably my favourite example of making the most of it.

It means investing in the content creators in your company who can connect and leverage levels of interest – whether they’re a celebrity columnist or an editorial assistant. It’s easy to forget the passion people feel for their favourite title or writers when you’re stuck inside the bubble all day.

It means creating value worth paying for and then offering people the chance to invest in it. And people need to be able to judge and justify the value for themselves – not be forced. Think forcing people works? Bugmenot begs to differ.

And it means creating value for the businesses who are looking for new customers.
I’ve seen companies move advertising budgets because a commercial person switched companies after giving them great service and helping them learn better ways to connect and make sales. If that person was able to educate more businesses, the demand from competitors and other companies would follow.

The problem is that doing all this requires more work, which could reduce the profit margin – but I’d rather have a small profit that can grow, rather than heading for losses.

US print advertising sales

U.S print ad sales dropped 28.28% in the first quarter of 2009, losing more than $2.6 billion in ad revenue. There’s a lot more analysis on Alan Mutter’s Reflections of a Newsosaur, including breakdowns by category, but losing almost a third of the value suggests U.S. print ad sales are reaching terminal velocity, and the rest of the world isn’t going to be far behind.

Online sales also fell by a record 13.4%.

That doesn’t mean businesses don’t need to sell as many widgets and doohickies than ever.

It means they can’t see enough value in print or online newspaper advertising to use a recession-hit budget.

And those that survive the recession will have had a crash course in finding alternatives which are more cost-effective and justifiable. They won’t be rushing back.

Two stories on the Mediaweek site today perfectly illustrate the complexity and confusion in the publishing world.

At 7.30am it was suggested that Bauer Media (Disclosure – I worked for Bauer Media/Emap until earlier this year) would be reviving The Face, with an all-digital proposition one of the possibilities. While I’m not alone in wondering why The Face would be picked, considering the recent closure of Arena, any re-launch is a rare occurrence. And particularly a digital one. Bauer Media, by the way, has officially denied any such plans.

Then at 4.10pm it was revealed that John Menzies Digital has folded. Which means the end of magazinesondemand.co.uk and white label versions for WHSmith and Asda. The service had allowed readers to download over 100 magazines in digital editions. Paid Content has some more context around the decision, which closes the business after just 14 months.

So we’ve gone from a possible digital relaunch of an iconic title to the loss of over 100 digital editions in the space of a day.

What this hopefully illustrates better than anything is that the future of publishing or broadcasting any content is full of uncertainty at the moment. And there is no ‘right answer’ to how best to transform for the future.

Actually that’s a lie.

The right answer is to try various ideas, keep optimising them, and count a reasonable time span in years rather than months.

Following on from my previous post on networked business strategy – which was itself a response to a post from Dave Cushman) – I thought it’s a topic worth expanding upon in light of the constant debate over online publishing revenue.

Flicking through Seth Godin’s ‘Tribes’ reminded me of the work of Ronald Coase, the Nobel laureate in Economics.

Back in 1937 he wrote the highly influential ‘The Nature of the Firm‘ which looks at the fact that “production could be carried on without any organization that is, firms at all”, he sets out the transaction costs ( which means the cost of obtaining something through the market is generally more than the actual price, plus search and information costs, bargaining costs, keeping trade secrets and policing and enforcement costs) which mean that ‘firms will arise when they can produce what they need internally and somehow avoid these costs’.

Or as Seth says, ‘we start formal organisations when it’s cheaper than leading a tribe instead’.

This is where the kernel of your business is located.

Or for the flipside:

As my former boss at Bauer Media, Carl Lyons, wrote today ‘people will pay for digital content – if it’s easy enough‘. (Now I’ve left, I can say his blog is well worth reading, without sucking up!)

The flipside is this:

‘Consumers (Customers/users/whatever terminology you like) will accept using a firm for their needs when it avoids the transactional costs of circumventing it.’

By that I mean that I’ll happily pay for a Pro account on Flickr simply because it was a lot easier and more convenient than finding an alternative when I needed it, despite the fact I know I could find a reasonable alternative. I’ll happily buy books from Amazon (My recommendations are all here) or sell via either Amazon or Ebay because although I could find alternative routes to the market, they involve a cost of time, effort, organisation etc I’m not happy about paying at the moment.

So the key seems to be:

1. Figure out what people want to achieve when they are in the area of the market you serve

2. Figure out what you might offer which allows them to achieve what they want in a way which reduces their transactional costs (Time, effort, cost, etc)

3. Figure out how you might offer that service in a way which allows your service to benefit from an internal reduction/removal of transaction costs over/above/with the network.

Does this seem to make sense?

Applying this to a content model:

If we accept that there will always be free content available from somewhere, the transactional cost for a consumer is finding it, judging reliability, going into more background, possibly acting upon it, sharing it, discussing it etc (Any I’ve missed?)

As a content producer, the cost of content creation in many circumstances has already been hugely disrupted by online publishing, digital audio, video etc. The cost of a live broadcast for a major television company over recording it on a mobile and broadcasting via Qik? And the difference in terms of the technology gap will only reduce in line with Moore’s Law.

But the content curation (rather than aggregation) aspect raises big transactional costs via the network – what relative percentage of trust do you place in Wikipedia? Digg? Reddit? Is it cheaper to organise a network, build a system, or use a specialist journalist? And they have contacts to relevant industries which could come under Trade Secrets in transactional costs etc.

And this is also why I despair when online publishers only talk about display advertising revenue (or now subscriptions), as if they’re the only possibilities for revenue. (If a blogger puts Google Ads on his site and then claims he can’t monetise he gets a lot of feedback very quickly!).

The transactional cost for me of finding a product to buy is either in terms of locating reviews and hoping a relevant display advert is close by. Googling it and finding what I’m looking for. Or posting a message on Twitter. And the subscription model has the flaw of inviting/inciting the network to either reproduce content outside, or finding ways to beat the pay wall.

Although I already knew the difference in broadband speeds around the world, seeing the direct comparison in a BBC article on 100Mbps broadband really lept out at me.

‘The upcoming Digital Britain report is expected to outline plans to give the UK population universal broadband access at the modest speed of 2Mbps by 2012.

In South Korea, the government is aiming for speeds of 1Gbps by 2012, up from the current average speed of 15Mbps.’

Now I know that companies will be able to justify the additional cost for the faster speeds available, but in an online world where everyone is networked, what’s the cost for entrepreneurial individuals if they’re stuck on 2Mbps competing with someone on 1Gbps?

I’m thinking about people like my son, who will probably start using computers and games consoles around 2012.

And about businesses which will always aim for the majority market – globally in the case of the digital world. If you’re running a service in 2012, will you build it for those on 10Mbps? 20Mbps? Or the people on 2Mbps?

The other major problem doesn’t seem to have been mentioned anywhere – in the U.S. for example, there’s uproar about the introduction of data caps at 250Gb…in the UK I’m doing fairly well to have a data cap of 20Gb!

Competing with 1/12th of the information, data and capacity available seems like a bit of a handicap.