A subtle but tragic thing has happened to local online media over the last decade.
It began 10 years ago, as we emerged from the dot-com bubble burst. The local online advertising landscape degenerated into a contentious battle between local media companies and the boogeyman – these internet pure-plays such as AOL’s digital Cities, Microsoft’s Sidewalk, CitySearch, Monster.com and others. Local media companies rushed to create fast-moving digital divisions that went head-to-head with pure-plays to meet the challenge. Remember Knight Ridder Digital, Tribune Interactive, Belo Interactive, Cox Interactive? They were staffed with dozens of employees, yet within four years, every one of them succumbed to the gravitational pull and pressures of their internal politics and core product demands. Some still exist, but only as malnourished servants.
The result? Legacy media companies went from holding a majority share of all local online advertising in 2005 to less than half – 6-point drop. Newspapers alone suffered a whopping 23-point drop in the five years since those operations were folded.
What happened? The classic mistake: The managers of a competitive product exerted their political influence and got control of their company’s digital initiatives. Before long, “convergence” ruled.
“I am certain that 2011 will be a year where the digital divide becomes impassable for a lot of local media companies…. These are companies who, despite 15 years of education, remain convinced that their existing broadcast or print staffs will carry their banner gloriously over the cliff to the other side.”
But don’t listen to me. I want you to hear the hands-down expert on this topic. That would be Clay Christensen, our keynote speaker and author of the best-selling “Innovator’s Dilemma.” Clay, a Harvard professor who also sits on the board of a local media company, has agreed to keynote our conference in New York in March. Clay will offer guidance us on whether – and more importantly how – local media companies might survive the digital future.
Here’s the question everyone seems to have already answered without knowing it: Is the Internet a sustaining technology to their radio, yellow pages, TV companies and newspapers, or is it a disruptive technology? The key to how companies think about that is the key to success or failure, and the key to why some companies in the local Internet space are succeeding so well, 10 years later. Look at New York Times Co., McClatchy, and Yellow Pages Group. Each has one-fourth of its ad revenue from digital sales. How many companies can say that? And some believe that figure will be 50% in three to five years.
I am certain that 2011 will be a year where the digital divide becomes impassable for a lot of local media companies. They will be caught flat-footed, gazing at the unreachable green landscape on the other side of the gorge. These are companies who, despite 15 years of education, remain convinced that their existing broadcast or print staffs will carry their banner gloriously over the cliff to the other side.
Last week I found a clue to what’s happening in our year-end numbers: Pure-play Internet companies are now equally sharing local online advertising with legacy media companies, and it seems to have stopped at that half-and-half point (see chart). We initially thought the pure-play companies would turn into Pac-Man, gobbling up the share of local online advertising that legacy media companies were getting. That no longer appears to be the scenario.
I think it’s a natural coming together of the Silicon Valley tech companies and the local feet-on-the-street media companies who have promotion, content and sales forces. This natural marriage, I think, is a key to survival. But I believe the organizational structure is a more important key. Convergence is, generally, a bad idea. We’ll explore that at the conference, and we have a fantastic lineup to open up the debate and settle the issues.
Spot on. 100 percent correct.
Gordon, this is great as far as it goes, but my concern is that important nuance gets lost whenever you get newspaper people talking about this issue.
Christensen never said digital media should be separate; what he said is that the pursuit of disruptive business models should be liberated and firewalled from the operational imperatives of the core organization. That’s not the same thing. It does not follow that core organizations should not adapt to and adopt digital technologies — but how I fear this gets played out. My fear is based on experience. In particular, two of the 20th-century examples you cited severely damaged themselves by taking the Internet “away” from the parent.
The argument against “convergence” is well-founded. There is an obvious danger that the parent organization adopts the tools but not the techniques, that it uses new technologies only to automate old business processes and serve old customers with essentially old products, perhaps incrementally “improved.”
But I’ve also seen the opposite happen, where the parent either feels relieved of responsibility for adapting to changing conditions (the Internet is somebody else’s problem), or is quite literally forbidden to do anything online, by corporate policy or even by contract. The parent is locked in time, and the child goes forth to perhaps do nothing more than the parent would have done anyway. Chip off the old block, and all that.
This should be an “and” maneuver, not an “or” maneuver. I’m all for the creation of independent new-business units — if they follow the full Christensen prescription, which includes being patient for scale but impatient for profitability, focusing on poorly met needs, being willing to experiment and learn through cheap failure, and (most importantly) creating new markets. Mere restructuring isn’t enough. We need to address our true underlying problem: inability to recognize and serve the real needs of current and potential customers.
Steve, having been through these battles in multiple venues, I’ve come to the conclusion that the only way to achieve the Christiansen model is a complete separation.
The core online responsibility needs to reside in a completely separate unit. That unit must be completely insulated from the legacy side of the business.
No newspaper company has ever done that — not Belo, not Knight-Ridder, etc., none of them. They all reminded tethered to the mother ship in some form or fashion, particularly on the content side.
This was a huge mistake and what ultimately led to the clueless legacy sides of the business absorb the online side, further diminishing their ability to meet the disruptive demands of the digital world.
Christiansen does in fact in Innovator’s Solution talk about the need for spin-off entities to handle disruptive innovation.
First-hand experience has convinced me, that’s the only way to go.
The legacy portion of any business will do its best to kill or mitigate anything it sees as a threat, and for online disruption to be done right, it’s a THREAT to legacy newsrooms and sales staffs.
If complete separation means that the legacy side of the business eventually dies, so be it, but at least the parent corp is left with a sustainable business on the digital side (assuming that digital unit is successful).
The minute you let any legacy manager have any influence over what the digital/disruptive operation is doing, you’ve planted the seeds of doom for innovation.
What I am trying to say, and perhaps wasn’t sufficiently clear about, is that it’s an error to conflate “online” with “innovation.” The Internet isn’t new. It’s been around as a commercial opportunity for 15 years now and it’s totally mainstream. As a toolkit, the “core business” should by now have internalized the changes it implies. Newsrooms should embrace social media, continuous updating, audio and video, and databases. Ad sales teams should be selling audience segments and adding value by packaging coherent marketing solutions, not just selling space or banners or whatever. Not all have fully embraced these changes, but many have. They should not be asked to retreat from them.
Innovation efforts should be separate, but they should be focused on actual innovation, not copying traditional business into a new toolkit. This is precisely what was recommended to the newspaper industry by Christensen’s consulting group, Innosight, which took pains to redefine “core” by its traditional business model, and not by its delivery technologies. The N2 prescription included a strong recommendation to “maintain and enhance” the core business, and that would include the smart use of the Internet in that core business. You don’t maintain and enhance the core business by ripping it apart.
The innovation opportunities keep falling on the floor because newspapers don’t understand innovation in the first place. Putting a newspaper into an iPad app isn’t innovation. It may be a smart thing to do, but in the big picture it’s incremental. Groupon, on the other hand, is actual innovation — not because of technology (its tech is pathetically simple) but because it’s a creative solution to poorly met needs of customers who tend to be ignored by the core business. That sort of initiative should exist at every media company, and it should be heavily protected from predatory mainstream managers, the crushing load of committee-consensus decisionmaking, and the protective reflexes of the core. That’s the right place to use the “separation” management technique. Let the new unit pursue new opportunities without having to explain itself in any way other than the delivery of results.
I fear that all of this will be misunderstood by people who misconstrue separation as “we need to take the Internet away from the newsroom and the ad department” and we’ll just repeat the mistakes of the past, returning to the self-destructive war between online and print. In the era of Knight-Ridder Digital and Cox Interactive Media, local newspaper managers were prevented from innovation because an entire set of technology “belonged” to another business unit. Those decisions seem really dumb today, but I’m pessimistic about our ability to avoid repeating them.
Steve, thanks for the thoughtful rejoinder. I’ll do my best to respond in kind.
First, let me define my conception of innovation. I see two types of innovation: Sustaining and Disruptive.
My definitions, I believe, come straight out of Innovator’s Dilemma and Innovator’s Solution. I was not involved with NewspaperNext and only quickly read the final report. I remember at the time thinking what came out of N2 did not go far enough and the projects fell more to the sustaining end of the spectrum. To me, that was a mistake.
Disruptive Innovation involves creating a product that fills an unmet need for consumers, usually by delivering a product at a new, attractive price point that is just good enough to meet the need sufficiently. A key to whether a product is disruptive is if it is a threat to a competitor and whether that competitor sees value in the innovation. For example, publishers were slow to react to Craigslist because they figured their core classified advertisers (particularly in jobs and auto) would not find value in the Craigslist market place. Another example is the reaction traditional newsrooms had to blogs, turning up noses the world over. Both of these innovations disrupted what newspapers did, filling unmet needs, but newspaper publishers did not value the consumers attracted to these products.
Sustaining Innovation is that which the incumbent does. The incumbent sees such innovation as to extract more revenue from its core customers. For example, when I was in Ventura, I was heavily involved in innovation around recruitment products. The innovations I either introduced or help build added value to the existing recruitment product and in turn, extracted more dollars per ad unit, eventually more than doubling per-unit revenue.
The lesson there for me in sustaining innovation is straight out of Christiansen — incumbents constantly improve their products in hopes of extracting more revenue from its core business. Eventually those products become more cumbersome or complicated for customers, which opens the doors to disruptors. At the time I was in Ventura, I felt our approach to classified advertising was not a long-term win, but within our corporate structure there was a mandate for ever more revenue. So we harvested revenue through sustaining innovations.
The things I really wanted to do to create new business around innovation, I couldn’t do because it was hard to make a case that such ideas would generate the kind of revenue we needed in our economic environment. Without going into detail — primarily because I can’t promise that I would have executed as well or that I even had the exact same idea — can be seen in some of today’s successful pure plays.
If I could go back in time and be given the power to reconstruct Ventura as I would like, we would have spun off a completely separate company for online — our own editorial and advertising staff. We would have been direct competitors with the existing newspaper.
The existing legacy group would be welcome to do whatever it wanted online, but in order to build a truly new business, we needed to be a completely new business.
And I’ve seen the need for that approach every where I’ve looked since.
If that approach damaged the legacy units, oh well. If it put them out of business, too bad-so sad. I wouldn’t really care. I feel in the past, I spent too much time worrying about the damage online innovation could to do legacy units and that was a mistake.
You write:
“It’s been around as a commercial opportunity for 15 years now and it’s totally mainstream. As a toolkit, the “core business” should by now have internalized the changes it implies. Newsrooms should embrace social media, continuous updating, audio and video, and databases.”
They should, but they haven’t. There’s some fine exceptions, examples of innovations in newsrooms, but mostly its been fitful and more sustaining than disruptive. It’s also been largely too little and too late and even to this day, not enough of it. I think what you say above does more to back up my case for complete separation from the mothership than support an opposite conclusion.
I can’t think of a single newspaper newsroom that in total is doing online what it should be doing. I know there will be people who object to that statement and they will point to this or that newspaper’s web site and say, “see, see,” to which I’ll say, “not enough.”
Newspapers, 15 years in, have failed miserably at the Internet business.
And in a large part, I think that’s because of a failure to completely grok that digital media is fundamentally a disruptive change.
I’ve been meaning to write a blog post on this very subject. Maybe some day I will.
Sustaining innovation, such as I have done in my past newspaper jobs and what I see going on in the industry now, is not a long-term winning solution to the fundamentally disruptive nature of the digital world.
Digital is disruptive is so many ways, beginning with the low barrier to entry, the empowering of social engagement and the infinite world of distribution.
If you really want to innovate in the online world, you need to be disruptive from the ground up. There’s very little room for sustaining innovation in a truly innovative shop.
And to be disruptive, truly, you’ve got to be able to kill sacred cows, even to the point of risking revenue from the mothership’s core customers.
There is simply no way to tether a truly disruptive operation to the mothership. If there is not a complete separation, so that the legacy managers have absolutely no power over the disruptor, the incumbent will always fight to kill that which might kill it.
At best, the legacy managers will always try to water down the disruptor so as to either lessen the threat or get it to conform more closely to their world views.
Your concern seems to be for protecting the newspaper. My approach now is more Darwinian. Either the newspaper adopts on its own, or it dies; meanwhile, the corporate entity fights on though creatures that have evolved from the muck on their own.
If corporate entities don’t take this approach, their legacy properties will almost surely eventually die and rather than be replaced by disruptive creations that they own, they will lose those markets to more independent innovators.
One thing I want to make clear — I used Ventura as an example from a business perspective. I have absolutely NO complaints about anybody in the newsroom there that I worked with. It was the greatest newsroom I worked with at any point in my professional career and the pros in that newsroom were very, very responsive to everything I wanted to try. To any extent we didn’t go far enough, that’s either my fault or the fault of the business structure, not the people I worked with, at any level. And I continue to be proud of what great work Ventura does when compared to its newspaper peers. I would do things differently now, but Ventura has always performed and continues to perform at a very, very high level. They’ve won two ONA General Excellence Awards for good reason.
“We need to address our true underlying problem: inability to recognize and serve the real needs of current and potential customers.”
Bingo.
This is the singularity at the heart of the industry’s black hole. Doesn’t matter if it’s print, online, mobile or some other product platform. Very few ever embrace disruptive innovation because they don’t see the opportunities until someone else has taken the lead.
Jumping in here only to add some additional information about the Newspaper Next project, in which I was heavily involved until this year. Howard is correct that the output from the project fell largely on the sustaining end of the spectrum, but I’d submit that was not entirely the fault of the project itself.
The first report laid out a new product development method that the industry used to generate many, many sustaining innovations but very little that was disruptive, something which we tried explicitly to address in the second report. The second report tried to articulate an overarching strategic vision for newspaper organizations that took them far beyond just “news” and “paper,” and it advocated heavily for development of very un-newspaper-like products and revenue streams as avenues via which newspapers might be able to reclaim their former positions as the nexus in their communities of information exchange, of conversation and of commerce.
The industry’s response to the second report was far less enthusiastic than to the first report — perhaps because the report tried to push so hard away from the traditional newspaper business model. But I think it’s not accurate to suggest that the project itself erred on the side of sustaining rather than disruptive. I would urge Howard (and anyone else interested) to take a look at the second report as well as the first; both are available here.
Interesting debate here. But I still see it clearly: The internet is both a sustaining and disruptive technology to newspapers, TV, radio and yellow pages. Their organizational structure allows them to execute the sustaining part just fine, but not the disruptive part. The latter statement is evidenced by early Web entrants like Britannica, Barnes & Noble and many individual newspapers. Their internal business prejudices blinded them to the opportunity that Google, Amazon and eBay saw very clearly. None of those three companies got huge by worrying about declining encyclopedia sales, fewer people coming into a bookstore, or falloffs in classified ad sales. The newspaper industry reminds me of Britannica, in fact. Fifteen years ago it was still the king of research for consumers, yet their management saw Britannica.com (very much like newspapers) as an opportunity to sell their content on CDs. The tragedy is that legacy media owners (I’m talking about the chairmen, CEOs and boards here) continue to place their hope in existing management to figure things out — and by their actions clearly miss a much larger opportunity. I am frankly tired of trying to point out the obvious to corporate executives who continue to believe their managers are leading them into a vibrant digital future when they are merely protecting their core business against it.
Would anyone who has been a portion of your program from the beginning mind sending me copies with the prior letters? I am signed up now but unfortunately did not hear of the until now. Many, many many thanks in advance.