Author Archives: Kevin Anderson

09.10.13
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Clay Christensen @RSAInnovate: Why the spreadsheet is killing job creation

Clay Christensen at the RSA in London

Clay Christensen at the RSA in a talk titled “The Capitalist’s Dilemma”.
Photo by Kevin Anderson, Some Rights Reserved

Disruptive, or empowering innovations, create jobs, but they take time to pay off, while efficiency innovations eliminate jobs and free up capital (save money) in the short term, Harvard Business School professor Clay Christensen said in a talk entitled “The Capitalist’s Dilemma” at the RSA in London last night. The problem he sees is that management has become a conversation almost entirely focused on spreadsheet-driven financial targets and short term efficiencies rather than longer term value creation, which also creates jobs.

If you’re not familiar with Christensen, he sums up the focus of his work in the preface of The Innovator’s Solution, a book he wrote with Michael Raynor. He says:

It is easy to explain why poorly run companies fail; but many of history’s most successful and best-run firms have lost their positions of leadership, too. Why is so hard to maintain success?

Christensen looked at disruptive innovation, or what he called empowering innovation last night, and why incumbents were overthrown by upstarts. In some industries, such as the case with newspapers, they recognised the disruption but were still unable to adapt. I’ve written two pieces for The Media Briefing, looking at Christensen and his former Harvard colleague Clark Gilbert‘s advice for the newspaper industry and how they can adapt.

Last night, Christensen was talking about innovation in much broader terms and looking at the affect of focusing on short-term cost-saving innovation versus longer term empowering innovation.

What he wanted to understand was why unemployment has been taking longer to return to pre-recession levels since the recession in 1990. What was interesting is that he was looking not just at unemployment but more precisely the “lag from when real GDP returns to the pre-recession peak to when employment returns to the pre-recession peak”.

Clay Christensen at the RSA in London

Click to go to Flickr for the full-size image. Photo by Kevin Anderson

As you can see from the graph, looking at recessions in the US from 1948 until now, the average lag was six months, but then the lag began growing from 15 months to 39 months to the current lag after The Great Recession. Sixty months after it began, and we still don’t know when unemployment will return to pre-recession levels. What is causing these jobless recoveries?

To put it succinctly, he blamed a short-term focus driven by the financial models easily run in spreadsheets by “26-year-old analysts”. He summed it up the theories and the practice of finance that is leading to this short-termism in this table.

A theory of finance Tools of finance
pre-eminence of returns on capital spreadsheets – Visicalc, Lotus, Excel
calculus needs something to maximise measurement via ratios
Milton Friendman gave the target NPV (Net present value)
Guided by Delaware courts, not legislation ever since Management becomes the assembling, optimising and shipping of numbers.

Created with the HTML Table Generator

Just to look at the power of spreadsheets, he said that they were the biggest recent development, adding:

A 26-year-old can build the financial models of companies and effortlessly test the impact of different inputs onto outcomes that matter.

He said that business is now driven by “the church of finance”, in which finance becomes a religion both in terms of how it is taught and the level of belief of its adherents. With the true believers of finance driving management, decisions are boiled down to measuring the efficiency of deploying capital.

Christensen explained the effect of this finance-driven focus through his framework of innovation. He sees three types of innovation:

• Empowering, which make the expensive and inaccessible, cheap and accessible.
• Sustaining, innovation that simply replaces an old model with a newer model
• Efficiency, “These reduce the cost of making and distributing existing products and services,” as he wrote in the New York Times.

Clay Christensen at the RSA in London

Empowering innovations create jobs but they use capital, and they are longer term investments, often taking five to 10 years to see a return. “Efficiency innovations pay off in a year or two. Instead of using capital, they save it,” Christensen said, but instead of creating jobs, they eliminate them.

The problem he sees in the US (and the UK, although he wasn’t ready to say that will full confidence) is that he estimates there is now a third of the empowering innovations being created as there were in the 1950s, 60s and 70s.

Why is the US economy so anaemic? It isn’t weak corporate balance sheets. He said they were “pristine” and stronger than they had been in years. The problem also isn’t lack of capital, and he said over and over that the US is awash in capital, which is why private equity and hedge fund managers say that so much money is chasing so few deals these days. The problem is that the “finance mechanism hijacks capital and recycles it unto itself”, Christensen said.

That’s the problem, and he did point to a few solutions. For one, he said that capital needed the will to invest in longer term, empowering innovations. He pointed to the US tax code that punished short-termism by charging the personal rate of tax on investments of less than a year, which for top-bracket income earners would be 35 percent. However, if you hold that investment just one more day, 366 days instead of 365, then the tax rate drops to 15 percent. He said that 366 days is not the kind of long-term investment that will spur empowering, job creating innovations. Instead, he recommended low or zero taxes on money invested five to eight years.

He also criticised the solutions spun by the Democrats and Republicans, the two dominant parties.

I think the Democrats and Republicans are both wrong on this redistribution issue. In the US, the top 1 percent own 28 percent of disposable income. The Republicans say that we have to let them keep their money to invest in jobs. Most of them don’t invest in jobs but use their capital to create more capital.

The Democrats are wrong as well.

If we don’t have empowering innovations, the solution isn’t to redistribute wealth in the other direction, which is in line with the Democrats efforts to increase taxes on higher income brackets. I like how Christensen put this in the New York Times:

If the I.R.S. taxes their wealth away and distributes it to everyone else, it still won’t help the economy. Without empowering products and services in our economy, most of this redistribution will be spent buying sustaining innovations — replacing consumption with consumption. We must give the wealthiest an incentive to invest for the long term. This can create growth.

Of course, one of the great debates in our current politics is how to deal with rising debt in our societies. Christensen is pro-growth, and when asked whether “we can say definitively that austerity doesn’t promote prosperity”, he said very quietly, “yeah”. However, Christensen seemed to nicely get around the gridlock of the current debate on how to deal with the debt. However, he does admit in his article in the Times that the issues are complicated.

Innovation and journalism

For me trying to think about how innovation affects journalism, I had one take away. When a product becomes commoditised, it opens up opportunities both above and below the commoditised project. I do believe that the over supply of information has commoditised much of breaking news such that as Christensen pointed out in a 2011 study:

The wealth of information available almost instantaneously has lowered the value of the general interest news story such that it’s often less than the cost of production. General interest and breaking news reporting comprised of answering the “who, what, when and where” has become commoditized. It cannot create enough value to sustain a news organization in the long term.

The question becomes what opportunities exist above and below the commoditised “general interest news story”. What could those products be? It’s a good question, and it’s one of the reasons why I bought a copy of The Innovator’s Solution after the talk. I managed to get a few seconds with Christensen after his talk, and I thanked him for his research in 2011 and asked what he would recommend in terms of how to work within a traditional news organisation. His answer was sobering, but that will have to wait for another blog post.

09.05.13
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Journalism innovation: Asteroids and adaptation

This is a follow up to my piece or The Media Briefing looking at why integration might have been the wrong response to digital disruption. Like that piece, this originally appeared on The Media Briefing. 

After I challenged a lot of the conventional wisdomabout print-digital integration, Neil Thackraycompared digital disruption to “a sci-fi B-movie where Earth is threatened with destruction by an incoming asteroid”. I love the analogy.

He broke down the response of media managers to digital disruption like this:

  • Asteroid deniers, who don’t believe that digital is a threat.
  • Radio astronomers, who spot the asteroid at a distance and know the world is doomed but see the threat as so distant that they take no action.
  • Naked eye astronomers, who have only just spotted the asteroid and are making frantic but futile changes.
  • Rational scientists, who spot the asteroid early and invest in a rocket ship to carry them away to safety.

As Neil points out, being able to spot the asteroid doesn’t mean we’ll be able to save the planet. One of the major lessons of Clay Christensen’s Innovator’s Dilemma is that even once a disrupted industry sees the asteroid as a threat, they still too often fail to adapt successfully.

Kodak developed the first digital camera in 1975, but it couldn’t capitalise on that early innovation. It created an iconic, successful business based on its dominance in the film, chemical and paper business.  But as cheap digital products got better, Kodak was killed by its cash cow.

It has been much the same for print media. In a 2011 report, Christensen, working with Canadian journalist David Skok and Harvard Business review writer James Allworth explained how magazines and newspapers’ dominance in print became a weakness:

For many years, the systems and processes used to gather, distribute and sell the news worked well. And in most respects they still do. It is a marvellous sight to witness a newspaper brought to life or a newscast on air, 24 hours a day, seven days a week. Those systems were designed precisely for that process. But what was once an advantage has become an albatross.

The result is that much of print media finds itself stuck. Christensen, Skok and Allworth put the situation for news organisations like this:

Four years after the 2008 financial crisis, traditional news organizations continue to see their newsrooms shrink or close. Those that survive remain mired in the innovator’s dilemma: A false choice between today’s revenues and tomorrow’s digital promise.

At this point, if you’re a regional newspaper publisher in the UK or a print consumer magazine group, you know that your traditional audiences are declining, but you also know that your current digital revenue won’t pay the cost of supporting your traditional business. Yes, print media groups are all trying to grow their digital revenue as quickly as possible, but the big question still remains for most groups in this very different market: How to adapt?

The economist and writer Tim Harford has an entire book on the subject,Adapt: Why success always starts with failure. In the book, he lays out a three-part “recipe for successfully adapting”:

  • Try new things, in the expectation that some will fail.
  • To make failure survivable, because it will be common.
  • And to make sure that you know when you’ve failed”.

When I was digital research editor at The Guardian in 2009 and early 2010, my goal was to bring down the cost of experimentation down as close to zero as possible and try different things using low or no-cost third party services. It’s a rather simple strategy to increase experimentation.

These days if you want to try something editorially, there’s an app, a web service or a plucky start-up for that. To know whether I was successful or whether I had failed, I had a set of goals that ranged from higher user engagement, mining our own stories for data or a more efficient editorial process. In an ideal world, I would have worked with commercial teams to add revenue goals for some of the projects. Goals are important because if you don’t know where you’re going, you’ll never get there.

It is a model that increases experimentation, and for those projects that are successful, they can be deployed across the organisation.

Experimentation, especially editorial, is easier than ever, but organisational change is still really hard. In the next piece, I’ll look at how to scale innovation and create organisational change.

09.03.13
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Microsoft and Nokia: Death by management

When Steve Ballmer announced that he was retiring, I said on Twitter that the announcement was unsurprising but that Microsoft needed a surprise to replace him. Ever since Microsoftie Stephen Elop took the helm of Nokia, everyone has been predicting that Microsoft would scoop up the fallen mobile giant. The speculation only intensified when Elop decided that the only way to save Nokia’s burning platform was to abandon its own operating system and adopt Microsoft’s minority mobile platform. At a conference in 2011, I asked fellow speaker and media innovator Robert Tercek what he thought of a potential Microsoft-Nokia tie up, and he said, “Tying together two rocks doesn’t make them float.”

Now Ballmer has followed up his rather predictable decision to retire with a rather predictable acquisition, a big chunk of Nokia. I am sure that in Ballmer’s mind he was trying to demonstrate boldness. He has instead shown just how unimaginative he is as a leader. He’s run out of time to launch Microsoft into a new era of growth so instead he’s decided to build a bigger corporate beast.

Microsoft’s Windows empire is besieged by Google’s Android and Apple’s iOS, and Ballmer and his lieutenants knew they needed to boost their mobile efforts. But how does this acquisition help that? While Microsoft feels like it is just past its peak but still has its strengths, Nokia’s position is much more precarious.

In the PowerPoint explaining the acquisition, Microsoft said that this acquisition would accelerate growth. Pray tell how? Nokia has seen its smartphone share collapse in the last three years, from 34.2 percent to 3 percent. Looking at that slide deck, I see a company in denial. They say that success in phones will drive success in tablets and success in tablets will drive success in PCs. To achieve this, Microsoft would need Nokia’s Lumia line to take off like a rocket, and they also need to sort out their own tablet strategy. Writing off $900 m on their Windows RT Surface tablets means they need a tablet strategy. It doesn’t mean they have one.

Microsoft is facing The Innovator’s Dilemma. They have a couple of lucrative business lines that are under pressure – Windows and Office, but both face competition. PC sales are flagging, and many people are finding that tablets are good enough for most of what they do. In terms of Office, Microsoft is under pressure from cloud competitors such as Google.

Now there is a lot of talk of Elop replacing Ballmer at the helm of Microsoft? Really? He has done precious little to right the ship at Nokia, and most of his strategies have yet to show real results.

Microsoft and Nokia both needed a new vision, a coherent strategy to the relentless change in technology, but instead of inspirational leadership and a clear headed view of how the companies need to adapt, they have an uninspired tie up.

09.02.13
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My journalism job search: Patience grass hopper

The job search is starting to get interesting, and I am moving from conversations about opportunities to interviews. For that, I am very grateful especially to my friends in journalism who have provided me with the vast majority of solid job leads. I was speaking to a friend in the industry on Friday on sorting through the opportunities I currently, and he remarked, “You certainly do have a lazy Susan of options.” I’ve got options in journalism and in digital media both close to news and not so close to news.

First a few observations of the job market:

• There are jobs in journalism, especially digital jobs. Look at any journalism job listing site, and the number of online jobs dwarfs the number of traditional media jobs out there. (One piece of advice though is to look beyond the job listing sites to the listings for companies you are interested in working for.) The fact that there has been a steady stream of jobs to apply for has been a relief, but I will also say that there are not nearly as many for a mid-career journalist like myself as an entry-level journalist. And when I say digital jobs, I’m not just talking about web development or UX design (there are buckets of those jobs) but digital editorial jobs.
• Competition is fierce. I’m hearing that recruiters and HR departments are getting flooded with applications. Getting a human being to actually review your CV or resume is the first battle.
• LinkedIn has been very useful. I have now had two recruiters contact me with interesting positions via LinkedIn. Some employers now allow you to add your LinkedIn profile. If you aren’t on it, it might not be worth the effort with all of the other demands on your time during your job search, but polishing my LinkedIn profile has been a useful exercise for me.
• Contacts matter more than applications. At the moment, I’m getting most solid leads through contacts rather than applications. My gut tells me it is down to the level of competition out there. For those struggling with their job search, I’d recommend going to every networking event you can. Make contacts with people at the places where you would like to work, and I would also recommend that you keep your presence high on social media.
• Be patient. This is hard to hear, but, everyone I have talked to has said that the hiring process has slowed down. Employers are just taking longer to make decisions to fill positions. However, there are jobs out there, and everyone I’ve talked to has been bullish about my prospects while also preparing me to wait. I’m financially in a position to wait for the best position that I can find.

While Suw and I are financially prepared for this job search, I am starting to do some short-term digital media consulting and digital journalism training. If you’ve got a digital media or digital journalism project that needs to be done urgently, do drop me a line.

08.23.13
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Newspapers versus Netflix: Adventures in the attention economy

Newspaper circulation continues to decline at almost all of the national newspapers in the UK (with the notable exception of the ‘i’), with sales down 1.4 m over the past year, according to ABC. Pat Smith at The Media Briefing highlighted this and also drew attention that over the same year, Netflix added 1.5 subscriptions. Pat made this observation (emphasis his):

A coincidence? Maybe. On-demand TV and films are hardly substitutional for newspapers. But what this shows is there is a vast audience out there willing to pay for digital content. As desire for print media falls, enthusiasm for paid-for digital services grows.

It doesn’t matter to me whether people decided to drop their newspaper subscription and use that money to buy a Netflix sub instead. This isn’t about whether TV and films are a substitute for newspapers and journalism, but rather the staggering rise in choices for how people spend their time and where they spend their attention. In the digital era, content and entertainment choices are exploding, but the one finite resource is people’s time. My friend Mohamed Nanabhay, the former head of Al Jazeera English, put it this way:

My colleagues who work on the broadcast side of the business can easily say our competitors are CNNi and the BBC. But I don’t get that luxury, because we’re competing with everybody who puts up a webpage on the internet. And everybody who tweets, or posts on Facebook, or anything.

That might sound hyperbolic, but it isn’t at all. American journalist and digital pioneer Steve Yelvington broke down online attention when the news group he works for announced their “audience first” strategy a little more than a year ago. Look at the graph he created, and see the big slices of the pie that are Facebook and Google. Hell, Yahoo Mail even beats the local newspaper in the market he analysed.

I will take this one step further, which is why I think that Pat is right to compare sales decline in print with subscriber growth for Netflix; in the attention economy, journalism competes against everything that competes for people’s time and attention. What this means is that we’re moving from mass media to relevant media. Netflix created a model that killed the local video store by mailing DVDs without a hard return date and then pivoting to take advantage of digital delivery.

How does journalism compete against Netflix, XBox, Apple TV and YouTube? Mahendra Palsule said in looking at this shift that we should move from “information overload” to “filtered, relevant information”.

If you want this shift put more in a journalistic context, journalists need to add value. Journalists need to move away from thinking that it’s not old unless it’s told by me, to thinking about whether the story is relevant to their audiences and how they add value. In a world swimming in information, the who/what/where/when has become commoditised, Jim Moroney, the publisher and CEO of the Dallas Morning News, says. Now he adds that journalists need to provide PICA – Perspective, Interpretation, Context, Analysis. At the International Symposium of Online Journalism in Austin this spring, he said that the more relevant your content is the higher the value. Relevant, differentiated content is more valuable and more valued by audiences, he says, and people might just be willing to pay this content. (Special thanks to @cindyroyal for collecting Moroney’s comments on Storify).

It’s the editorial side of reach versus each, which Alan Mutter highlighted in terms of advertising earlier this year. Smart content sprinkled with a little technology can help deliver more valuable, more relevant content to audiences struggling to sift through all of the choices for news, information, entertainment and distraction.

I also believe that active social media strategies where journalists and editors engage their audiences help build loyalty. Relationship and relevance are key to rebuilding journalism’s relationship with the public. Competition is fierce in the attention economy, but I believe that journalism can compete and win.

Below is my full talk about how journalism can succeed in the battle for attention. I delivered this talk at Digital Directions in Sydney Australia in 2011.

08.21.13
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Clark Gilbert’s five business model ideas that are changing the news industry

After writing about how print-digital integration was absolutely the wrong response to digital disruption, I’ve been going back to more of the ideas of Clay Christensen and Clark Gilbert on how the news industry should respond to disruption. I would strongly encourage you to take an hour and a half of your time and watch Clark Gilbert speak at Harvard University’s Nieman Foundation. I had read his ideas, but he’s even more forceful and compelling in person (or via video).

http://vimeo.com/65150395

Clark Gilbert, Deseret News – April 25, 2013 from Nieman Foundation on Vimeo.

He quotes the president of an online newspaper division:

Overall, the newspaper industry’s involvement in the internet has been one where it had a lot to lose and it’s been trying not to lose it, as opposed to starting from scratch and having a lot to win.

Gilbert has created a disruptive division that is all about winning digital opportunities. About 47 minutes in, he lays out five business model ideas that are changing the news industry and are helping his digital division grow at 40 percent year-over-year.

  1. Digital revenue should a third of your business in 2012 and half of your business by 2015
  2. A digital buyer needs a digital seller
  3. New channels are the difference between Transformation A and Transformation B
  4. Digital marketplaces (Not Digital Publishing) will win
  5. Dual transformation requires new organisation

And he says that number 2 is non-negotiable, and watch the video at 51 minutes to see why Gilbert is even more adamant about that now. Your jaw will drop. Seriously, this is worth your time.

They have four digital advertising channels:

  1. Companies that want a legacy-digital bundle
  2. Large local digital only
  3. Small local digital only
  4. National advertisers that do a significant amount of targeting and re-targeting.

He said that he recently noticed that the legacy-digital bundle sales had plateaued, but one of his other channels (he didn’t say which one) is growing by 70 percent year-over-year, which is just one reason why they have 40 percent year-over-year digital revenue growth.

Number four will interest everyone who is in local media. He says that digital marketplaces are winning local.

Gilbert makes an even more forceful case than he did in Austin where I saw him in April that integration, especially on the business side, was absolutely the wrong idea. When the Washington Post integrated its print and digital, digital revenue growth stopped. When the Dallas Morning news integrated print and digital, digital revenue growth stopped, Gilbert said.

Contrast that with Gilbert’s company. In 2009, legacy revenue accounted for 90 percent of the business and digital came only from 10 percent. In 2012, he said that legacy revenue channels would account for only 33 percent of overall revenue. Digital revenue is now bigger than revenue at their TV station and their radio station, and it will soon pass print.

I’ll just finish with this comment from Gilbert:

News is not a business model. It’s a public good.

However, you can build a business around the brand that you create with this public good.

Fellow journalists, you should be fighting for this kind of thinking because Gilbert plows back a third of all the profit from the digital division to fund the newsroom.

08.19.13
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New Bloomberg Media CEO, Justin Smith, rouses the troops

Justin Smith has a great track record of repositioning great media brands for the digital era. His most recent media makeover, The Atlantic is only his latest success story. Jeff John Roberts at paidContent had a great interview and profile of Smith looking at some the secrets behind his success. Smith is a digital evangelist and more. Two-thirds of Atlantic Media’s advertising revenue is digital, and while other media companies have suffered over the last three years, Smith’s Atlantic has been in the black since 2010. 

if there is one thing I’ve learned over the last few years, building a solid media company isn’t just about growing digital as quickly as possible but building successful products regardless of the platform. Roberts puts it this way:

And this is what Smith understands so well about building a media company today: the challenge is not print vs digital or about paywalls, but about using brand power to grab revenue wherever you can. 

As Smith moves on to his next challenge, Bloomberg Media, Digiday has excerpts from an email to his new troops. Smith has always invested in talent, and that was key to his strategy at The Atlantic. As a matter of fact, if there was one thing that ties together a lot of disparate strategies, whether it is Smith’s Atlantic or the revitalised Orange Country Register, it is about about making smart investments to deliver a great product. 

I’ll highlight just a couple of other comments that Smith makes. He has called on the staff at Bloomberg to embrace change and entrepreneurship. In terms of change:

The media industry is bifurcated into two distinct worlds: the struggling traditional segment that longs for a simpler, more profitable past that will never return; and the vibrant, entrepreneurial segment that is reinventing the industry before our eyes. The simple act of choosing to live on the new, wide-open frontier is a powerful step toward success.

And his definition of entrepreneurship is about adaptation and speed:

One definition of entrepreneurship is the ability to evolve your product, business model, technology, or talent base to capture a changing market opportunity. Moving quickly is paramount: the faster you move, the more you learn, and the sooner you can optimize for success. 

Bloomberg was already a strong brand and a source of revenue that most media companies would kill for, the $24,000 annual subscription for its financial terminals. It will be fascinating to see how Smith supercharges Bloomberg. 

08.12.13
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Print-digital integration ‘sucked the life blood’ out of journalism’s future

This post originally appeared on The Media Briefing.

On both sides of the Atlantic, the newspaper business is experiencing its own episode of back to the future, reverting to a past when billionaire sugar daddies buy and prop up ailing titles.

The motivations sit on a continuum from a public service minded sense of noblesse oblige all the way to treating media as something akin to a US super-carrier, as the ultimate tool to project power. The new class of owners include former KGB agents, hotel developers, hedgies and, of course, this week, Jeff ‘Vishnu’ Bezos, the creator and destroyer of retail business models.  

Historians will simply say, twas ever thus, and point to the fact that we’re merely returning to an older model of ownership. But could newspapers have responded to the digital tsunami in any other way than they did?  

The newspaper industry had a clarion call on how to respond to disruption, but like most disrupted industries, the industry has failed to adopt these strategies.

Newspapers are only the latest in a long line of industries that have been rocked by technological change. Clayton Christensen has studied hundreds of companies across a number of industries that have faced disruptive innovations, and in 1997, he wrote the Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.

Clark Gilbert is former professor of entrepreneurial management at Harvard Business School and began working with Christensen to apply the Innovator’s Dilemma to newspapers more than a decade ago in 2002. Unlike other industries, which simply did not see the disruption coming, newspapers recognised the threat posed by the internet, but Gilbert said, “Unfortunately, threat-induced response also leads to very rigid behavior.”

He added:

We found that despite recognizing the problem, most companies aggressively “crammed” the new business into the old business model and sales processes. For example, most newspapers tried to force their online sites to make money by selling the same types of advertising to their traditional print advertisers. The early online advertisers were different and the type of advertising they sought was much more focused around the interactive and direct targeting attributes of the new media.

Threat had motivated action, but it was resulting in an aggressive replication of the newspaper business. Newspapers had spent a ton of money, with little to show for it. In an effort to defend their core market from attack, newspaper companies were missing the new emerging market altogether.

More than a decade ago, Gilbert also had statistical evidence that should have been a warning to newspaper executives that digital-legacy integration was not the answer to their problems. In fact, it was exactly the wrong thing to do. He said:

In our large sample study, sites that separate their online organizations from the newspaper were more than twice as innovative than sites that remained integrated into the newspaper. More importantly, these sites gained 60 percent higher market penetration!

Fast forward to 2013. Three years ago, Gilbert left Harvard Business School to become the CEO of Deseret News. While on average US newspapers earn 17 percent of their revenue from digital, The Deseret News and Deseret Digital media earns 45 percent of their revenue from digital, according to the American Press Institute (API).

In April, I heard Gilbert speak at the International Symposium of Online Journalism in Austin about how he has applied the insights from the Innovator’s Dilemma to the Deseret News in Utah, and he laid out why integration was absolutely the wrong approach to disruption.

“In industries that are being disrupted, 9 percent of companies make it,” he said. Of the 9 percent that made it, 100 percent had set up a separate disruptive business unit.

Separate means:

  • A separate physical location.

  • Separate profit & loss.

  • Separate direct sales.

  • Separate content product and technology teams.

  • Separate management structure.

However, it is important to understand that while Gilbert says integration is a mistake, potentially a fatal one for your company, he is not simply advocating a digital first strategy. Key to his strategy is a dual transformation, creating a new disruptive digital company while also transforming the traditional print product.

In his transformation of the legacy print and broadcast business, he said that it is important to understand that in the age of digital media, generalists are not as  valuable as specialists. Local media should excel in this age, but instead they have suffered.

To help the newspaper find its USP, Gilbert used detailed market research to identify six core coverage areas. Yes, they slimmed down the legacy product, but they ploughed savings back into covering these six core areas that allowed them to create a differentiated product.

For the disruptive digital business, they are creating a company that looks beyond the twin revenue streams of advertising and paid content that dominate the income mix of most media companies.

“Its divisions include, but are not limited to, e-commerce, marketplace services, digital consulting and other emerging revenue streams in which tablets, mobile and social are integral parts,” the American Press Institute reported.  

Instead of one struggling company, Gilbert is trying to create two dynamic companies. They do meet, but he keeps the interaction at a minimum. Otherwise, the legacy business often “suck(s) the life out of” the digital disruptive business, he told the American Press Institute, adding, “You don’t get excellent from either if they’re integrated.”

Of course, the US isn’t alone in examples where splitting the legacy and digital business delivered better results. In fact, one of the pioneers is Scandinavia’s Schibsted. In 1999, it decided to split its digital divisions from its newspapers, and it has gone to build one of the most successful media companies in the world by building one of the most successful digital classified businesses in the world. With operations in 28 countries, US analyst Ken Doctor reported in February of last year that Schibsted earns 36 percent of its revenue from digital.

Looking at the recent newspaper buyouts by billionaires, the real question should be whether they will do the same thing as their previous owners, sinking millions into a disrupted business or whether they will heed Gilbert’s research and create a separate disruptive digital unit. Maybe that’s where Bezos will breath new life into the Post with a resurrected Post Digital. 

08.06.13
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The Bezos Post: The Graham family’s honourable gamble

Jeff Bezos’ purchase of the Washington Post and its community newspapers caught me and just about everyone else by surprise, with the possible exception of the Graham Family, which has owned the paper for the last 80 years. They have been talking to a half dozen buyers since last December. As I said on Twitter when I found out, this was the most surprising deal since AOL bought Time-Warner, although I hope for Bezos and the Post that the result is different. 

Like a lot of media watchers, I was trying to make sense of this head scratcher. As Steve Yelvington said on Facebook:

Jeff Bezos’ purchase of the Washington Post is as interesting for what he didn’t buy as for what he did. It’s not a real estate gambit; he didn’t buy the Post HQ building (which is still on the market). He did’t buy @wapolabs, which seems to have gone dark anyway. He didn’t buy Slate. And he didn’t buy Kaplan, which operates in an industry (education) that seems ripe for disruption.

I got a chance to scratch my head in public on the BBC today. Thinking back on it, I think that the sale says more about the Graham family than it does about Bezos at this point. The Graham family vetted six different buyers, and they chose Bezos. In the New Yorker, David Remnick, who spent a decade writing for the Post, and he spoke to publisher Katharine Weymouth, a member of the Graham family. She said:

Don took this process extremely seriously. He would not have sold the paper to anyone who didn’t share our values.

Donald Graham, and the rest of the family, truly seemed to have come to believe that the newspaper would be better off under Bezos than under their stewardship. Graham told the Washington Post’s Ezra Klein this:

As we looked ahead, if revenues kept declining we’d have no choice but to keep cutting. Roughly 85 percent of stock in the Post Company is owned by shareholders not in the Graham family. So the money we’re losing isn’t our own. We didn’t feel good about that. Still we were quite certain that The Post could survive and have a long future, but we wanted to do more than survive. We wanted to be successful and expanding and financially strong. So for the first time in either of our lives we asked ourselves if we thought our small public company was still the best place for the newspaper.

One thing that wasn’t covered very much was the business terms of taking the newspaper private. However, one assumes that this isn’t a Sam Zell-Chicago Tribune leveraged-to-the-hilt buyout that assumes the worst case scenario is flat revenue just before the global economy almost takes a swan dive off a cliff. 

What will Bezos do to help the Post “do more than survive”? Bezos is bringing his customer-centric focus to the Washington Post, and he implicitly understands the relentless urgency of news in the internet age. In his letter to the Post staff he wrote:

The Internet is transforming almost every element of the news business: shortening news cycles, eroding long-reliable revenue sources, and enabling new kinds of competition, some of which bear little or no news-gathering costs. There is no map, and charting a path ahead will not be easy. We will need to invent, which means we will need to experiment. Our touchstone will be readers, understanding what they care about – government, local leaders, restaurant openings, scout troops, businesses, charities, governors, sports – and working backwards from there. I’m excited and optimistic about the opportunity for invention.

However, this is a man who also has not only the resources but also the mindset balance the impatience of internet time with a grounding in a long-term vision. As Matt Buchanan wrote in the New Yorker:

Bezos is a man, after all, who’s trying to build a clock that will run for ten millennia which is buried inside of a remote mountain in Texas, simply because he desired the existence of “an icon for long-term thinking.” 

The Graham family’s bet on Bezos is a brave, honourable gamble, and I hope for the Post, for their staff, for Washington and for journalism, that Bezos is the man for the challenge. It is going to be a great experiment to watch. 

Other interesting takes on this: 

• Alan Mutter riffing on the idea of Washington Post Prime in the Post’s Wonkbook blog.
• Megan McArdle’s look at the deal in Bloomberg. The most fascinating part of her post has nothing to do with the Washington Post and newspapers but the numbers of the decline in ad pages for major magazines. (The double-digit decline in ad pages in The Economist and The Week took me by surprise.)
• “Why Washington Post sale matters to you: scale and innovation” by Earl J. Wilkinson of INMA. I’ll be writing about this tomorrow. One of the best posts on the topic bar none if you’re a publisher or news executive. 

08.02.13
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Journalism and disruption: Change is easy and hard

With nearly 20 years of digital journalism experience, I’ve been through a lot of change in the industry and, editorially, 2013 reminds me a lot of the late 1990s. We’re seeing a lot of editorial experimentation – drones, Google Glass and all kinds of data journalism. I lived through an earlier era when editorial innovation exploded, and I hacked together a lot of projects using all kinds of technology and web services during my time as a field journalist for the BBC and digital editor at The Guardian. With the mobile, multimedia and web technology in 2013, these digital projects can seem easy and effortless (especially compared to the duct tape and spit we had to use in the early days).

However, it would be a mistake to think that just because it’s easier than ever to produce amazing digital editorial experiences that this makes organisational change easy. It takes an entirely different set of skills to get buy-in from stakeholders or to Jedi mind trick the empire builders of senior management. It is hard, and even I underestimated the size and nature of the challenge as I transitioned from young digital maverick field journalist to digital editor in the middle of the last decade.

While a lot is different in 2013 than it was in 1996 when I started in digital journalism, or even than it was five or six years ago, change still is hard. In some ways, it is even harder now as most newspapers struggle with redeploying diminishing resources carefully from the core business to new digital initiatives. The politics are fierce. Even when it is in an organisation’s best interest, even when it is an organisation’s stated interest to embrace digital, winning the political and cultural battles is hard, thankless work. I know people who stayed and fought these battles inside organisations, and I have deep respect for them and learn from them whenever possible. When I return to working for an organisation, hopefully soon, I will take lessons that I’ve learned from these friends.

If you want to know how hard it is, it’s really worth reading an article by David Cadogan at The Canadian Journalism Project. I love the piece because it takes me back to my own early days in digital journalism, the days of dial-up internet and lots of hacked together solutions, just with much, much more primitive technology. He writes:

In November of 1997, we put my flagship paper, the Miramichi Leader, online with a piece of off-the-shelf software our web press company manager found. By that time, our readers had 28k or 56k dial-up modems and access to Internet. Still, we could publish only stories, pictures and classified ads. A full-page colour ad would have taken more than a day to download.

I remember how exciting it was to push the limits of what we could do with the technology we had. For example, working on a video project for the BBC a year after the September 11 attacks I shot and edited video on my laptop, and then went out to dinner as my computer compressed the video to send via a very slow connection to London.

David talks about online subscriptions, message boards and even user generated story ides. This was in the late 1990s, about the same time I joined the BBC, and we were doing very similar work. I loved it. It played to my passion for journalism, technology and exploring news ways of storytelling. I still get excited thinking about what we achieved.

In the final section of the article, David says twice that he failed. “I failed abjectly at trying to get newspapers to buy into these opportunities,” he says. He was a publisher, investor and newspaper association director. He had industry connections and some of his own resources, and yet he couldn’t convince other publishers to embrace digital opportunities and get ahead of digital disruption. It was, and it often still is, incredibly hard to convince people to change, particularly when the full impact of new technology, in this case the Internet, isn’t yet obvious. I’ve heard stories like David’s from editors and managers across the industry, and I have a few of my own.

When I took the buyout from The Guardian in 2010, I felt sad because I knew that as a digital journalist with 15 years of online experience, that there was so much more I could have done had I been able to figure the secret handshake that unlocked resources and strategic support. I often joke that at The Guardian, anything was possible for me as long as it required no staff and no budget.

I do think that 2013 is a different era, because major organisations have stated that their goal is to focus on digital. There are news orgs that say they are digital first, and that was really rare in 2006. The direction of travel is, without doubt, towards digital.

A lot of young journalists will be like I was in the mid-1990s, able to work on exciting projects that push the boundaries of journalism and engagement. But move away from the coal face, and battles over digital, over change, are still happening. These battles are not unique to just one or two organisations, they are commonplace across the industry (and across many other industries too).

I’ve learned a lot during my work as a consultant about how to help organisations change. I can’t wait to take this experience to my next job. I’ve still got the passion and the fire for creating the future of journalism, but I have a few new tricks, beyond being geekier than the average journalist, to move the dial of organisational change in the right direction.

David’s article is also is important for young digital journalists to realise that there were a lot of innovators who fought, and sadly often lost the battle, to help newspapers respond to digital disruption. To believe that you are the first generation of digital guerrillas is to be ignorant of journalism’s history. I started in digital journalism in 1996, and I count true digital pioneers from a generation before me as mentors and friends. My work and the work of the current generation of digital journalists is built on their shoulders. All of us from those early days can look back and see points where we failed to bring about the change we wanted, but I salute David and so many others like him. They might not have achieved all of their ambitions, but they made this new era of digital journalism possible. You, sir, did not fail.