Saving Newspapers? Amazon Introduces a New Kindle

Let’s get this straight right away.  The new Amazon Kindle DX has nothing to do with solving the root causes of the problems of newspapers.   The top 5 reasons the Kindle is not the solution:

  1. At a price of $489, this is a niche subset of what remains a niche category.
  2. Newspaper subscriptions are only available in areas where the paper editions are not available.  Yes, this is clearly early and is likely to change but that tells you what the papers are thinking about things now.
  3. The existing Kindle (cheaper and more broadly available) already offers subscriptions to 37 newspapers at $10/month.  Form factor is not the only reason keeping these versions from being a success.
  4. Amazon keeps 70% of the revenue from newspaper subscriptions.  It takes a LOT of subscribers at $3/month to make money.
  5. Articles on the Kindle do not display ads.  This too will/must change.

Let me note that the DX may be a revolutionary product for its other market, college textbookss.  I’m not going to cover that here.

I think all the discussion on the future of newspapers has missed a critical point.  Much of the discussion has focused on the broad availability of content from multiple sources and also mention the growth of “citizen journalism,” be it blogs or Twitter.  So what does this discussion miss?  There are two related issues which combine to fundamentally attack the business model, not the product or content.

First, how do people get their news today?  While some of us go directly to newspaper sites on the web or get their electronic summaries in our inbox, news is more commonly found via web portals (e.g., MyYahoo or iGoogle) or via a Google web/news search.   When this happens, the first monetization opportunity comes not to the news source but to the aggregator.  Google and Yahoo have seized the upstream revenue opportunity and have diffused the downstream opportunity by making the “choice” of news source less relevant.  You go not to the source you favor but rather the one that appears highest in the search rankings.  You may even never make it to one of the downstream sources, instead going to your portal’s newswire feed from a source like AP or Reuters.  Ultimately, a considerable portion of the audience never makes it to the newspaper site.  Newspapers, Google is not your friend.

At the same time, the core monetization engine of newspapers — advertising, not subscriptions — is under assault from many angles.  When the obituary of newspapers as we know them is written, the first major illness should be listed as Craigslist-itis.  Category after category of listings has moved on to the web where things are cheaper, more timely and more effective.  And if you think the bad news is over, you’re mistaken.  Another staple of newspapers — legal notices — will find its way to the web sooner or later, probably sooner.  Already some heavily regulated marketplaces (e.g., drug advertising) can use web notices in lieu of print lineage.  It’s only a matter of time before governments realize that web listings, while not universal, are every bit as “available” as print notices and are more “accessible”.  In other words, the affected audiences are more likely to find this information on the web than they are in the newspaper.

Are newspapers doomed?  In their current state, yes.  Period.  How would I reinvent the industry?  Here are a few thoughts:

  • Local is not your salvation.  Niche audiences are very hard to monetize.
  • Digital paper is important.  When the price point of a newspaper-like device falls under $100, you’ve got a market.
  • Look at what’s going on in the netbook space.  Not so much from the point of view of a cheap device — that’s obvious — but rather the emerging discussions with cellular carriers where, much as is the case with today’s cell phones, the carriers will subsidize the price of the device to drive network usage.  I’m not sure what Amazon’s revenue relationship is with Sprint, the network carrier for the Kindle, but there’s clearly money there to be divvied up.
  • Two models:  Hulu and The Week.  What these both have in common is aggregation.  Curiously, the best vision in this regard, The Week, is a weekly print publication.  I find it a compelling read as it looks at the top news of the week from the perspective of multiple newspapers.  A single story might give me regional US slants, a European snippet or two and something from an Arabic perspective.  What makes these two sources compelling is their aggregated nature.  From a consumer’s perspective, it’s a single destination where I’m likely to find what I want.  From an advertiser’s perspective, it’s an aggregated audience.  The bigger the audience, clearly the better the monetization opportunity.  If a site can achieve a critical mass (which I’ll leave undefined for the purposes of this discussion), it can broaden its advertising base and achieve some independence from Google or the advertising networks.  Newspapers have largely not done that.  Aggregation may be their only salvation.
  • eBay partnership.  eBay has its own challenges.  At some level, Craigslist has delivered an important localization the eBay hasn’t.  When the shipping price of a product is greater than the price of the product, you’ve got a market inefficiency.  By making things local, Craigslist has become the first destination for many products that otherwise would have ended up on eBay.  I know I said “local is not your salvation.”  However, it’s a start to monetization.  Leverage the eBay opportunity and combine it with the aggregated opportunity I talk about into a fundamental redefinition of your revenue model.  Much as bricks-and-mortar retailers have one-upped dedicated web retailers by offering physical pick up and return, so to can newspapers combine the benefits of local with the benefits of global.

 The newspaper is dead.  Long live the newspaper.  Digital paper, aggregation and savvy partnerships.  These three can redefine the newspaper.

Who is the Technology Bellwether?

On my news analysis blog, I posited that IBM’s strong earnings announcement this week cements the fact that IBM is no longer the technology bellwether.  On Twitter, someone asked me “if not IBM, then who is the bellwether?”  Interesting question.  To be the bellwether, I think you have to have exposure to a wide range of solutions — consumer vs. enterprise, computing vs. consumer electronics, etc.  These days, almost all of the largest companies have significant platform bets, narrow portfolios or are otherwise unbalanced when it comes to assessing the overall health of the total ecosystem.

I’d rule out Apple,Microsoft and Intelfor just those reasons.  Apple is obviously heavily consumer-focused and is at this point as much or more of a consumer electronics company than it is a “computing” company.  Microsoft has such an unusual set of arrangements, most notably its OEM arrangements with hardware manufacturers, that sometimes make its results an anomaly.  Intel is still so heavily wedded to the PC/Windows world that its results may hide the news of strength in other platforms.

If I had to pick a bellwether, I’m tempted to make the easy choice and say HP.  They have a reasonable mix of all of the above elements and are perhaps most representative of the overall health of the industry.  It’s also significant to note that they’re the largest computer company.  (I’ll bet most people, if asked, would still bet it’s IBM, but HP passed them a few years ago.)  However, let me also posit that a company like SanDisk is a good indicator.  Their storage solutions play across a wide range of devices and sectors.  Yes, they’re underweighted in the enterprise segment but that’s likely to change and, in fact, share gains they have in the enterprise would be a good indicator of a rebound in that sector because of the relative price premium you have to pay for these types of storage solutions in enterprise class.

So those are my two nominations:  HP and SanDisk.  Others?

What We Can Learn from Circuit City

With the announcement today that Circuit City has been unable to find a buyer and is therefore going to be forced to close its remaining stores, lost in their demise could be one of social media’s more significant lessons.  E-commerce is a sufficiently small piece of their business that no amount of success as an e-tailer would compensate for their shortcomings as a retailer in this gruesome economy, but don’t throw out the baby with the bathwater.

Circuit City was one of the early retailers to make what at the time was a highly controversial decision.  These retailers make big bets on inventory, stocking large volumes of products that they think are going to be successful and even going so far as to strike preferential deals with manufacturers to secure allotments of hot products.  Given these bets, you would imagine that it would be highly controversial to open up their corridors to dissenting opinions.  However, Circuit City was one of the relatively early brick-and-mortar retailers to host user opinions.

And what did Circuit City discover?  They found that people who read user opinions on their site were 2-5x more likely to purchase than those who didn’t read the user opinions.  Of course, this is a complicated equation that raises all sorts of cause-and-effect questions.  It isn’t a simple matter of getting people to read user opinions.  Those who read such opinions are probably already more inclined to purchase.  Whatever the relationship, however, Circuit City experimented with and capitalized upon the power of their user community to their benefit.

No, it wasn’t enough to save the chain but in these tough times, when retailers are questioning whether the hassle of user-generated content is worth the outcomes, it’s worth remembering the outcomes Circuit City produced.  Those would put their heads in the sand, pretending that if they don’t support engagement with their users and  buyers that it somehow doesn’t exist, are only kidding themselves.  If we all haven’t figured out the ultimate power of social networking and how to harness it in the advertising and selling cycle, early pioneers have already demonstrated that there are tangible returns to be achieved.  Let this perhaps be Circuit City’s lasting legacy.

Apple and Steve Jobs: Is There Another Emperor in the House

I’m hard pressed to come up with another situation like Apple’s.  Has there ever been a company where not only is the image of the company so closely associated with its CEO but also the company’s product strategy and even product details?  I can’t think of a remotely similar situation.

There might have been a time when you would have said “Bill Gates and Microsoft.”  Yet behind Bill was a cadre of senior executives (Ballmer, Raikes) who wielded significant product and strategy power.  It was convenient for Bill to be the face of the company — the friendly nerd — but when it was time for things to change, Microsoft was able to effect the change with minimal disruption.

Non-technology celebrity CEOs have included Southwest’s Herb Kelliher, GE’s Jack Welch and a long list, and in almost all instances, the company was able to transcend the personality of its leader, either sustaining his or her core values or seamlessly transitioning to a new stage in the company’s evolution.

So what of Apple?  Caveat:  I have long believed that many Apple products are a triumph of style over substance.  Yes, they’re beautiful products, well finished, and I perhaps consistently underrate how much that matters, even in technology.  However, Jobs has always had some huge blind spots that have influenced his product design often times for the negative.  For instance, why in the world would you design a phone/music player/web browsing/communicating device on power-sucking 3G networks without a replaceable battery?  Well, the added thickness to support a replaceable battery offended Steve’s aesthetic notions.

Perhaps only Jobs could pull this off.  He was truly a master showman without equal.  I had the interesting opportunity to speak immediately after him one time.  This was at the Gartner PC conference around 1990, when Jobs was at NeXT.  He was our lunchtime speaker and gave this amazing product demonstration.  Of course, large portions of it were smoke-and-mirrors but that didn’t really matter.  People had seen the future and wanted it now.  The only way I could get people in the room back paying attention to my session — which was about PC operating systems — was to ask two questions.  First, “how many of you want one of those?”  Virtually every hand in the room went up.  OK.  “How many of you are ready to standardize your company on those right now?”  Hands went (mostly) down and point made.  I hated to be the buzz kill but someone had to point out that the emperor had no clothing.

I’m sure Microsoft in particular but a lot of other players are hoping this is their opportunity.  Not that they’re wishing ill of Jobs, of course, but this is the opportunity to start the drumbeat “the (new) emperor ain’t the old one, and this one has no clothing.”  Can anyone continue the string of hits that Jobs has championed at Apple?  I’m not even sure Jobs himself could maintain this record.  Is COO Tim Cook the main to seize the mantle?  I don’t know Cook.  He’s clearly well regarded.  But to paraphrase Lloyd Bentsen of all people, “I know Steve Jobs.  I’ve been up on stage with Steve Jobs and Tim, you’re no Steve Jobs.”

This is clearly a pivotal time in Apple’s history.  They’ve been able to sustain above-market pricing in large measure because of the “Jobs factor.”  If their products receive greater scrutiny and are unable to sustain those price-premiums post-Jobs, it’s a new world.  And this, to me, is the likely scenario.  Welcome, competition.  Microsoft makes some inroads.  A few consumer electronics players (Sony?) are newly reinvigorated.  And we consumers benefit from new competition, more choice and freedom from the “Steve knows better” overhang.