Disruption and Newspapers

One thing I’ve done over the past few days is catch up on some business reading. Among the reading, a series of articles on disruption and innovation given to me by a friend in the industry.

During my reading, I highlighted a few things that I thought worth commenting on. I may or may not do posts on each of these items.

Flipping through the articles tonight, first up, “The Disruption Opportunity” by Clark Gilbert and originally published Summer of 2003 in MIT Sloan Management Review.

Second graph:

… established players have more time than they think, provided they take off the blinders that keep them from seeing beyond their current customers. Disruption is not an immediate phenomenon — it can takes years and even decades before the upstart business encroaches heavily on the established market.

Let me begin by saying, I don’t think newspapers have decades left before disrupters encroach on established markets. It is a matter of only years in this fast-paced digital era.

That said, any sense of panic some newspaper executives might feel is misplaced. There is time, and there are opportunities.

I want to talk about some commonly perceived disruptors to newspapers, but before I do, I want to reiterate a quick definition of two types of disruption: There is innovation that disrupts because it begins by serving unmet needs, and there is innovation on price (making something good enough to compete, but pricing much lower than established players).

I would contend that no real price disruptors have hit the newspaper industry yet. You might object, “craigslist,” with its free classifieds, but what makes craigslist successful, where it is successful, isn’t an issue of price, it’s an issue of meeting unmet needs — such as building community around finding an apartment or a job. Even Ebay isn’t competing on price — it’s competing on ease of transaction, another unmet need.

With that in mind, let’s step through common disruptors.

First up, Monster and Hot Jobs. A few years ago, the newspaper industry was full of angst about this threat to recruitment revenue. Everybody was trying to figure out how to beat Monster. Now, in 2006, Monster is largely beat (though no newspaper has fully recovered the lost revenue, as far as I can surmise), thanks largely the industry-owned CareerBuilder (Tribune, Knight-Ridder and Gannett) and strong counter measures by local newspapers. While it can be argued that Monster and Hot Jobs were competing on price (being cheaper than newspapers, but not necessarily cheap), they really tried to position themselves as some how more comprehensive and easier to use. Unfortunately for them, points for convenience go to the tool that delivers the best results. And for most jobs in most markets, that’s still newspapers.

If a disruptor exists on the job front, it’s craigslist. Craiglist is particular good for helping college students find jobs, and also is job-source extraordinar for the wired elite, which in a way were both unmet needs in the marketplace. Craigslist is worth watching as a disruptor because they have staked out turf by helping some people get jobs done that traditional classified advertising wasn’t doing, but going back the quote above, craigslist disruption is not an immediate phenomenon. Craigslist has done more to expand the market (with the possible exception of the Bay Area) than to take business away from newspapers.

We in the media tend to get all hyped up about things that much of mainstream America just hasn’t discovered yet, such as Craigslist and blogs.

Craigslist is also tapping unmet needs in the housing market by making it easier for wired, but lower socio-economic people (i.e., college students and recent grads) find housing in a way that better suits their needs, primarily because the housing ads in craigslist are less formal and more friendly. Or at least that’s my read on it.

Craigslist also succeeds because it is a social networking site. This may be where it is the biggest threat to newspapers, which is a topic I’ll get back to.

Another oft-cited disrupter is Ebay. Ebay has also filled a big unmet need — creating a way for people to sell single items cheaply to a global market. This has an enabled a whole industry to blossom — people who make their living selling lots of stuff on Ebay. While classified managers often look at Ebay and bemoan the loss of business to the auction house, typically most of what is sold on Ebay never would have made it to liner columns anyway. Ebay has expanded the market at an explosive rate, but whatever business Ebay has taken from newspapers has been marginal (at least on marketplace items). Of more concern is the growth of Ebay Motors, which points the way, potentially, for further encroachment on newspaper classifieds from what is now a well funded challenger with huge market share. That said, I think there is an opportunity for newspapers to leverage Ebay’s success by becoming affiliates. If you can’t beat ‘um (and you can’t beat Ebay) join ‘um.

I’m not so enthusiastic for a-joinin’ ‘um when it comes to Google AdWords, another digital innovation that is often looked at as disruptive to newspapers.

Here’s my problem with AdWords and AdSense — Google retains the relationship with the advertiser, not the newspaper. Also, when newspaper Web sites drop the AdWords JavaScript on their pages, even if they’re getting 70 percent of the revenue, they are still extending Google’s already sizable market reach and helping the strong get stronger. As a competitor to newspapers, Google is quite strong enough without us helping them grow. (Of course, I use AdWords on HowardOwens.com — why not? It’s quick, easy and as a small publisher, I don’t have the options afforded bigger players).

Clickable text ads are great, and every newspaper Web site in the world should have PPC ads, and if there were not alternatives to Google, and I don’t mean just Overture, then I would say, “go for it.” But there are alternatives. One of the strongest is Quigo, which many newspaper companies now use.

But how disruptive is AdWords? I would say, right now, not very. As I point out, AdWords hasn’t caught on with locally owned small businesses. But that doesn’t mean that it won’t. Google continues to modify and improve what it offers advertisers, and small advertisers won’t remain dense forever. Meanwhile, AdWords and AdSense continue to generate gobs of cash for Google, which pays for day-after-day innovation and invention. Google is a major threat to all media.

The last disruptor to talk about in this post is social media, such as MySpace and Facebook.

Newspaper executives should ask themselves every day, “Why didn’t we build a great search engine?” Or, “Why didn’t we create a great auction site?” Or “Why didn’t we come up with a better, Web-centric classified model sooner?” But more than anything, newspaper executives need to ask themselves — how did we miss the boat on social networking?

Of all the most obvious paths for newspapers to pursue, helping people connect with other people was far and away the most obvious. I’ve felt this way since 1995, when I got my first AOL account and plugged into the writers community. I immediately saw the connection between what newspapers do — binding communities together — and what digital communications could do.

Among the articles on disruption I’ve read recently is one detailing the history of Knight-Ridder’s digital efforts. In the late 1970s, KR pioneered Videotex. In a 2003 HBR article by Clark Gilbert is a quote form Bob Ingle, executive editor of the Mercury News, that is as enlightening as it is depressing:

We lost $50 million on videotex. We recognized the potential threat to our newspapers in 1978, launched, but found out that most of the user activity was not around the newspaper content at all. People were using the product more for e-mail, bulletin board discussions, and games than they were using it like a newspaper. This was no so compelling to the company because we were looking for newspaper ramifications and they weren’t there. So in 1986, we shut it down.

A more nimble company would have recognized the opportunity.

Of all the disruptors, social networking is the one that cuts the closest to the heart of the newspaper franchise — being the hub that holds communities together.

When newspapers stopped focusing on the communities they served, and instead starting paying more attention to big-J journalism, they lost a valuable part of their business model. Big-J journalism has its place and was an important development in the history of mass communications, but it isn’t what sells newspapers. People, community, connections is what sells newspapers, or any medium.

Sure, threats to classified revenue are worrisome, and we don’t want to see retail dollars slip to Yahoo! or Google, but revenue begins with people — people who make your brand a habit, whether online or in print. When a MySpace or a craigslist or a Yahoo! Groups becomes a habit for a reader of any age, newspapers have lost another battle.

So where are the opportunities? In social networking, first off. In user-generated content. In multimedia (newspapers can disrupt television). In directories (newspapers can disrupt phone books). And the battle is not lost on the classified front, by any means. Newspapers just need to fight hard. The digital era is one big ball of opportunities for newspapers willing to invest, think strategically and find the best course of action.

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