Forget “value-added journalism” — Think, disruptive innovation

The new buzz phrase for entrepreneurial journalism (itself a buzz phrase) is "value-added journalism."

We see it expounded upon in this post by Kevin Anderson. Kevin is a really smart guy who has said nice things about me, but I’m going to disagree with the business proposition of "value-added journalism."

Let me introduce two other terms first:

  • Disruptive innovation — which is innovation that attacks a competitor or competitive landscape by offering a product that is just good enough to find a market, to get a job done for consumers, and is under valued by the competition.  Here’s a video of Clayton Christensen explaining that in terms of the invention of the steam engine and how initially, ship builders didn’t value it, until it was too late.
  • Sustaining innovation is the kind of change brought to a product or service by incumbent companies.  When newspapers started putting classifieds online and charging an up sell fee, that didn’t change the marketplace or fill an unmet need, but added a new level of service for existing customers.  

The idea of "value-add" is fundamentally a "sustaining innovation" mindset.

We see that mind set in this quote, which Kevin provides, from Alan Kohler:

It doesn’t matter whether it’s free or online, to survive it must do more than just report what readers can find out for themselves but don’t have the time.

He says, according to Kevin, that journalism must “explain what events mean, not just report them”.

Actually, there’s a great market, as I’ve found, for reporting events.

In a market where we compete directly with a local newspaper that maybe (being generous) has 7,000 subscribers*, we routinely get 5,000 local readers a day (and well more than 6,000 on a big news day) to our web site.  That’s pretty good, I think, for a three-year-old pull technology to achieve competing against an incumbent 100-year-old push technology.**

We’ve found 90 local advertisers who believe enough in what we’re doing to provide us with sustainable revenue and a chance to continue growing and we’re looking forward to a good and growing 2011.

But I don’t think there is anything "value-added" about what we do.

We’re serving a market that wasn’t served before, and that market is the one that asked the perpetually unanswered question in most markets, "What’s going on in my community right now?"

We don’t always answer it perfectly — we miss stuff some times, we’re late sometimes — but we answer it "good enough" when compared by consumers to the alternatives.

It’s true that some of our success can be attributed to "community engagement," which in Kevin’s post is identified as "value added," and that might be, but what I’ve really found is there is an audience for "get me news of my local community quick and make it easy for me to find what is new since my last visit to your site."

There isn’t a lot of demand to explain it to them.

Our mindset is fundamentally a disruptive innovation approach to news.

While there is a place even in our model for bigger packages, lengthier stories, time-consuming investigations, more in-depth features, it is not foundational to what we do.  It’s important to surprise and delight readers with unexpected quality (or what I hope is quality), but it is not a fundamental business strategy, not now, not on the web.

Journalists who want to go into "entrepreneurial journalism" set themselves up for failure if they’re thinking about "value-added."  To achieve the kind of value-add people like Alan Kohler promote means to add expense, or it means taking time away from doing what I call "quick-hit journalism" — post fast and post often about what’s available now.

The web is fundamentally a disruptive technology. It’s made publishing dirt cheap.  One of the key ingredients that AOL’s Patch has right when it comes to online news publishing is that the expense ratio vs. print is about 4 percent.

To get going with a successful online news start up, all you really need is a scanner, a camera and a copy of Word Press (though, I’d recommend Drupal).  I guarantee you, you will be able to build an audience and build a business.  Start telling people everything you can about what’s going on in their community right now, from why the fire truck just screamed down their street to what’s happening at the American Legion’s chicken BBQ, and you will grow an audience and be able to turn it into cash in your pocket. I promise.

* The competition has a circ, last I heard of 10,500 over three counties. The Batavian covers only one of those three counties, so we bound our competitive market in terms of that one county.

** If you’re not familiar with the terms of "push" vs. "pull," push means, essentially, delivery, where "pull" means the audience has to take the initiative to come to you.

How to beat AOL’s Patch

First, this is not a bash Patch post. I have friends who work for Patch. I think they’re doing some good things.  If time proves me wrong about the advantage of local news site ownership, a Patch victory would be better than the alternative (which is the death of local news, or a win by a soulless aggregator).

Here’s a few of things I like about Patch:

  • They have a strong grasp of what the cost structure needs to be to win at this stage of local online news development. (By this stage, I mean, the current need to minimize costs won’t always be that way.) 
  • Related, Patch leadership gets that you can do a lot more coverage with a smaller staff when you’re strictly online.
  • Patch is putting the coverage emphasis on local original content rather than aggregation (though they do aggregation). They hire people to live and work in the communities they cover.  This is smart.
  • Giving away business directory listing to local businesses is a smart way to start building relationships with local business owners.

My pal Mel Taylor has written an important post about how local site owners could get steamrolled by Patch if they’re not savvy.

If you’re a local site owner — or an aspiring one — there’s lots of ways Patch could beat you.

But Patch also has weaknesses the local site owner can exploit.

If you’re a local publisher, two books you should read — and this applies even if your competitor isn’t Patch, but, say, a newspaper — Clayton Christensen’s Innovator’s Solution, and the first 50 or so pages of Michael Porter’s Competitive Advantage.

If you’re an online publisher, whether you know it or not, you’ve essentially decided to be a disruptor. The web is inherently disruptive to traditional media.

Patch is a disruptive innovation.  Their low-cost expense model and things such as free business directory listings are disruptive tactics against traditional media.

If you’re in business for yourself — whatever your business — you also need to understand the concepts of competitive advantage.  You need to be able to quantify your competition’s strengths and weaknesses and align your business strategies not to try and defeat your competition at its strongest point, but rather exploit your competitors weaknesses.

Because Patch is owned by a behemoth company, it has weaknesses that can be exploited by the the local site owner.

As good as Patch is with it’s cost structure, you can still keep your cost structure lower.   While AOL can afford to lose money on a specific Patch location to try and drive you out of business, if you’re savvy, you have some breathing room.  There’s a lot of infrastructure costs — executive salaries, HR, bookkeeping, legal, etc. — that you don’t have.  Your trick will be to hold on long enough to outlast what will be a growing demand by AOL for Patch to turn a profit.

Further, Patch is staffed by employees with fixed salaries.  If you’re a sole proprietor, you’re salary is what you happen to make this week.  Sure, you’d like to make more, but if you truly believe in what you’re doing, you’ll eat ramin for a week if you must to survive and stay in business.  Patch has fixed personnel costs that you simply do not have.

Which brings us to revenue.

Walmart has been able to reportedly use predatory pricing schemes against local competitors and drive them out of business because they had numerous profitable stores elsewhere.  As far as I know, Patch doesn’t have any profitable locations yet. 

Hold that thought for a minute.

Patch also has sales reps who expect to be paid by commission (I assume — I doubt their sales reps are pure salary — pure salary rarely works in sales).  Reps who are paid by commission are loath to discount, because that means less commission.

So there are two pressures Patch faces that make it hard for them to discount their ads (and I’ll grant, I’m speculating here).  First is, no profitable locations to buttress discounts in other markets; commissioned sales reps who really won’t want to discount.

You, however, as an independent, have neither of these pressures.

Depending on the growth stage of your business, you can afford to beat Patch on rate. In other words, you can disrupt the disruptor.

Of course, the biggest weakness Patch has is Patch isn’t you.  You are truly local. Your business is based in the community you cover, not New York.

You need to be sure your advertisers and readers know this.

If you feel that Patch is a threat, what you need to do as soon as you finish reading this is create a one-sheeter that brags about your traffic, what readers say about you, what advertisers say about you and proclaims your devotion to your local community and that your local business — like your advertisers — is locally owned.

Which raises the next issue: Do you accept only locally owned businesses as advertisers? If you don’t, you should.  You should make it part of your publicly known mission that your goal is to help locally owned businesses grow (another reading assignment, Stacy Mitchell’s The Big Box Swindle).  If your site currently has ad network ads, including Google AdWords, you need to remove that code from you site right now.  If you’re going to be beat Patch, you need to be all about local and only local.  And beat that drum as loudly and as often as you can.

It will never hurt to remind local business owners that Patch is based in New York, that revenue is siphoned out of town, and that you’re the local guy who will always be there.

When a chain shop stats to losing money in a particular market, the corporate CEO will just order the store closed. A local business owner who’s sole source of income faces that challenge, his only option is to figure out how to make money in another way.  That’s part of the local advantage.

Your fellow small business owners will understand that as soon as you start talking about being truly local.

Have you joined your local chamber of commerce yet? If not, do that today.  Part of your job is to be out in the community, even when you’re not selling ads, and be seen as one of the local business owners.

One other important point about advertising:  Right now, Patch’s advertising model appears to be what’s known as "limited inventory."  In that model, you put a few ad slots on a web page and rotate a limited number advertisers though those slots.

The limited inventory model sucks. Advertisers hate it and it limits both your revenue and your options.

I prefer what I call the unlimited inventory model — which consists of putting as many ad slots on a page as possible.  No ads rotate.  Advertisers love seeing their ads on every page view. They distrust sites when they can’t see their ads every time they visit.  

If you follow my example, you will have a tremendous selling advantage against Patch.

The Patch site design is also more newspaper like rather than web like. By that I mean, control-oriented newspapers use a hierarchical home page design with top stories, story blocks and lots of headlines and links.  A webcentric page design is blog-like so that readers can login and quickly see what’s new since their last visit.  This site design also opens up more ad positions that are adjacent to the content that readers are actually reading.

And if you find yourself actually in direct competition with Patch, and you’re savvy about the concepts of disruption and competitive advantage, you will regularly figure out other smart ways to beat Patch.

As I said, while I’m not anti-Patch, but as an independent publisher, I certainly want to offer encouragement to other independent publishers. 

Patch can be beat, but you will need to be smart and work hard to do it. But then, you need to be smart and work hard just to survive in this industry anyway.