About Frédéric Filloux


Posts by Frédéric Filloux:

Trying a Simple Model

Advertising still dominates the newspaper revenue model. Depending upon the particular country, it is not uncommon to see print dailies getting 70% to 80% of their revenue from advertising. In the early days of the digital era, when business plans were driven by “eyeballs”, everybody hoped to replicate the tried and true print advertising revenue model. Now, the collective hallucination has dissipated; a more down-to-earth vision prevails: publishers willing to preserve high quality (read: costly) journalism recognize they have no choice but getting their users to pay for it, one way another. The pendulum has swung back.

It’s a chicken-and-egg problem. You’ll be able to charge readers if you put yourself in a position to propose exclusive, unique contents. To do so, you’ll have to put together an strong line-up of professionals, as opposed to a blogger army whose output no one will ever pay a dime for.Next questions include: how much to charge ? Is it 10 (dollars euros, pounds), 20 or more?  What free-to-pay conversion rate to aim at? Can we shoot for 5%, 10% or more of the overall audience? How does a full digital operation look like?

Let’s dive into numbers for a back-of-the-envelope exercise.

First, assumptions: The following is based on my observations of markets in Europe (France, UK, Scandinavia) and the United states; numbers may vary but I trust none are widely off the mark.

In the print world, costs break down as follows:

Production, printing............25%
Marketing promotion.............20%

Now let’s move to a fully digital operation derived from a traditional one in terms of journalistic firepower and standards.

To produce it, we’ll settle for a 200 staff newsroom, with writers, editors, data journalists, information-graphic designers, videographers, etc. We removed the staff working on the dead-tree model. With 200 dedicated people working for an online operation, you can really shoot the for stars. Such a setup costs between $25 and $30 million a year, all expenses included. Let’s settle for a middle $27 million.

Production costs fall sharply as the carbon-based version is gone. The old 45% production and printing line morphs into a conservative 15% for serving web pages and applications. We’ll assume all other costs (marketing, promotion, administrative) remain at the same level.

The cost table now looks like this:

Newsroom...............27M$......40% of the total
Production, technical..10M$......15%
Marketing promotion....20M$......30%
Total Costs............67M$ 

Now, let’s turn to the revenue side.

First: advertising revenue. We assume a real audience of 5 million Unique Visitors per month. By real audience, I mean no cheating, no bogus viewers, reasonable SEM and excellent SEO. People come to the site, stick to it and come back. Each user sees at least 20 pages a month. That’s on the high side. By comparison, Google Ad Planner gives the following page views per UVs:

NYT.........15 pageviews per user and per month (distant paywall)
WSJ.........14 (some paid-for section)
FT.com......11 (strict paywall)
Guardian....14 (free)

20 pages is therefore an ambitious goal. I’m convinced it can be achieved through high-performance recommendation engines (look at what Amazon does in terms of its ability to get people to click on related items).

5 million UVs multiplied by 20 pages views gives (thank you) 100 million PV. Now, let’s assume each page generate a CPM (for several modules) of $20. That’s an average as not all pages yield the same amount: parts of the inventory will go unsold, but pages served to high value, paid-for subscribers will generate twice that amount. This translates into a yearly revenue of $24 million, that is around 5 advertising dollars per visitor per year.

Again: it will vary, but it is consistent with what we see on the market for high quality, branded, publications. (By contrast, even the greatest blogs only yield one or two dollars per user).

Two, subscription revenue. Since our audience is solid and loyal to the brand, we will assume 10% of all readers will be willing to pay. Make no mistake: that is the transformation rate a newspapers such as the New York Times is aiming at (it is currently at 1%, still a long way to go). My take is a general news operation will be price-sensitive, meaning the transformation rate with a $9.99 a month price will be significantly higher than with $15 or $20 per month; by contrast, a specialized publication is less rate-sensitive and can be pricier.

In my model of a general news product, I set the price to $10 a month, which makes the one-tenth conversion rate more realistic. Then, I factor in two items:
- 15% taxes (it ranges from 8% in the US to 20% in France)
- a 13% cost of platform including transaction, database, etc (that’s should be a goal as Google OnePass charges 10%); this line is distinct from the technical costs applied to the entire digital operation.

All of the above taken into account, a digital subscriber paying $10 month will generate a net ARPU of $89 a year for the company. Multiplied by 0.5 million paid-for users (i.e.10% of the global audience), this translates into a revenue of $44 million for digital subscribers.

The revenue table now looks like this:

Advertising......24M$...35% of the total

$68 million in revenue for a cost of $67 million (all numbers rounded), leaves a mere 2% operating margin. Nothing to brag about. It could easily translate into an accounting loss, especially since it will take a while to reach several of these goals: a 10% free-to-paid transformation rate, a high number of pages per viewers, both are several years (of losses) away for many publications.
But these are the only dials I set on the ambitious side; the rest (subscription price, audience), is rather conservative; for instance if you simply set the subscription rate at $12 a month instead of $10 — that is fifty cents per weekday — the operating margin jumps to 13%.
And I also set aside many things I firmly believe in, like keeping some print operation in the form of a compact, high-end weekly for instance (with a staff of 200, it sounds feasible), developing ancillary products such as digital book publishing, etc.

Once again, while I feel my numbers are well-grounded, others will find this little model simplistic and questionable. The simulation is aimed at showing there is a life after the death of the daily print edition. Success is a “mere matter” of persistence.


Cracking the Paywall

(This version corrects an error in the percentage for the price increase of the FT)

Every newspaper, magazine or website is working on a paywall of sorts and closely monitoring what everyone else is doing. In almost every news company, execs are morosely watching advertising projections and finding numbers that are not exactly encouraging. For digital media, there is no way around this year’s weak outlook: the bad economic climate only adds to the downward price pressure exerted by the ever growing inventory of web and mobile pages. In a best-case scenario, volumes and prices will remain flat. On the print circulation side, Western newspapers are likely to witness a continuing readership erosion at a rate of several percentage points.

But here is the interesting point: The strongest players don’t just bow to the inevitable, they accelerate their transition to digital. This week, I was struck by the fact two such leaders made the same move: The New York Times and the Financial Times both announced serious price hike for their newsstand price (respectively 25% and 13.6%) :
- The NYT moves from $2.00 (€1.57) to $2.50 (€1.96) from Monday to Saturday, with no change for the Sunday edition still priced at $5 (€3.92) in New York, and $6 (€4.72) elsewhere.
- The FT goes from £2.20 ($3.39 or €2.66) to £2.50 ($3.85 or €3.03) on weekdays, as the weekend edition moves from £2.80 ($4.32 or €3.39 ) to £3 ($4.62 or €3.63).

Those numbers are really meaningful: a 10% increase every two years or so can be seen as an inflation adjustment — a generous one considering the inflation rate in those countries to be about 2.5%-3.5%. At 25% increase is a strategic decision aimed at accelerating the switch to digital. (The paper version of the FT now costs 25% more than it did last October).

Interestingly enough, for a New York Times addict, reading the paper online with the cheapest package ($15 a month), is now 40% to 50% cheaper that the home-delivered version and 70% cheaper than buying the paper each day at a newsstand. As for the FT, the standard digital version is now 21% cheaper than the print subscription and 68% less than the newsstand price.

Both are working hard at converting readers to the digital paid-for model. The FT is heading full steam into digital, furiously data-mining its 4 million subscribers base to convert them into paid-for subscribers (250,000 according to the most recent count). The FT’s tactics is simple: readers are relentlessly pushed toward the paywall thanks to a diminishing number of stories available for free: from 30 free articles per month in 2007 it is now down to 8 articles; the other bold move is making registration mandatory in order to access even a single story.

Last year, the New York Times came up with a less readable strategy: the adjustable paywall. And it seems to work. The NYT has been able to collect 324,000 paid-for digital subscribers in nine months. Considering the NYT has about four times less non-paying digital registered users than the FT (therefore a lesser conversion potential), this is not bad.

The Times builds its paid-for strategy on three key factors:

1 / The uniqueness of its content. Let’s put it this way: The New York Times has no equivalent in the world when it comes to great journalism, period. This valued content helped collect 34 million uniques visitors a month in its domestic market, and 47 million worldwide. More than any other newspapers in the world, the NYT has a huge base of loyal users. If it manages to convert only 5% of its global audience, say 2.4 million people, and extracts an ARPU (combined subscription and advertising) of $150 per year, it will gross €360 million, which largely covers the cost of its newsroom ($200 million a year, by far the largest in the world).

2 / The managed porosity of its paywall. One key requirement in building the digital subscription system for the Times was keeping as many of its readers as possible. There are two main reasons for this: high audience numbers are critical for advertising revenue; and the visibility factor is crucial for a news brand. This led to a system that targets the heaviest users. But even those can easily game the system (by using several browsers on several devices, I never bump into the paywall, with no particular desire to avoid it). Similarly, prices vary from $15 to $35… for exactly the same content — this is typical of a price structure aimed at audiences with flexible purchasing powers (it is widely established that richer people tend to opt for the most expensive package, regardless of its true value).

3 / Getting in bed with Apple. Since the early iPad days, The New York Times has been working closely with Apple for applications, subscriptions, and the nascent Newsstand. Again: thanks to its unique brand and the trust it carries, the NYT experiences no trouble collecting the precious customer data the app’s default settings fail to provide. In doing so, the Times benefited from Apple’s huge promotional vortex. The Apple system is highly beneficial when it comes to building an audience. But it does so at the expense of the essential customer relationship, and at a huge cost of 30% when the goal should rather be in the 10% range.
That was the Financial Times’ rationale for breaking the Apple leash. Last week, the FT went even further: it acquired the software firm Assanka, well-known for the development of the FT.com’s remarkable web-app that insured its crucial independence from Apple (story in PaidContent). In itself, the move demonstrates the FT’s commitment to mobile products: HTML5 development remain difficult and the FT decided it was critical to integrate Assanka’s development tools.

Of these three factors, the uniqueness of content remains the most potent one. With the inflation of aggregators and of social reading habits, the natural replication of information has turned into an overwhelming flood. Then, the production of specific content — and its protection — becomes a key element in building value. As for price structures, there is no magic formula. Usually, the simpler the better (as Apple demonstrated) — especially for businesses that start from scratch. But, with pre-existing and different audience segments such as an individual and corporate users, pricing decisions become more complicated and a diversified price list can prevent cannibalization. As for the Apple vs. independent app issue, my personal take is that sleeping with Apple is a quick short-term win, an easier strategy. But, in the long run, the independent way (which, after all, is an article of faith for Apple itself) will yield better results.


My 2012 Watch List

When it comes to cracking the digital media code, 2011 involved more testing than learning. Media companies seem to be locked in a feverish search mode. Their sense of urgency is reinforced by the continuous depletion of worldwide fundamentals: digital advertising’s encephalogram remains flat (at best); and when audiences grow, revenues do not necessarily correlate. As for legacy media such as large quality newspapers which still draw 70-80% of their revenue from print, they are still caught in a double jeopardy: losing circulation plus looming downward price pressure on ads. We see an unforgiving mechanism at work: on mature markets such as Europe or North America, print media currently absorbs about 25% of ad spending while time spent on newspapers falls well below 10%. On digital media the balance is just the opposite: the web takes roughly 20% of ad investments for 25% of time spent; as for mobile devices, there is almost no ad money spent (<1%), but people spend about 10% of their time on their smartphones — and the growth is exponential.

Last year, we saw many efforts in the “right” direction—”right” being a rapidly redefined. Below is a subjective list of moves, trends, innovations, attempts that burgeoned in 2011 and are likely to become more sharply defined with this coming year.

#1 Paid-for news. Many are trying, but no one has cracked the code—yet. Part of the problem is we are in a model that’s just the opposite of one-size-fits-all. We are likely to witness the emergence of many different ways of charging readers for quality content. Variables in the equation are many and sometimes hard to quantify:

- National vs. local
- General news vs. specialized
- Typologies of contents
- Most Likely Prime time reading
- Most Likely Prime device use
- Target group structure.

Go figure a reliable business model with a so many factors in the formula…

Paywalls come in different flavors. The prize for complexity goes for the New York Times’ Digital Subscription Plan launched March 17. According to the Times, its crystal-clear equation can be summed-up as follow:

Once readers click on their 21st [in a 4 weeks period], they will have the option of buying one of three digital news packages — $15 every four weeks for access to the Web site and a mobile phone app (or $195 for a full year), $20 for Web access and an iPad app ($260 a year) or $35 for an all-access plan ($455 a year). All subscribers who take home delivery of the paper will have free and unlimited access across all Times digital platforms except, for now, e-readers like the Amazon Kindle and the Barnes & Noble Nook.

Weirdly enough, this overly complex and pricey scheme seems to work: by the end of Q3, the Times had harvested 324,000 paid digital subscribers. This has to be viewed in the context of a site getting 47 million Unique Visitors per month on average, and 33 million in the US alone. As for mobile access, 11 million iPhones apps and 3 million iPads have been downloaded.

To watch in 2012: how fast the NYT will recruit new paid digital subscribers. To get a good view of the key elements in NYT’s digital revenues, see Ken Doctor’s analysis in Newsonomics. Plus, after the sudden resignation of its CEO (Janet Robinson), the NYT might be entering a new era; she could be replaced by a predominantly digital person.

#2 The Web App Movement. The boldest move of the year was made by The Financial Times: in June, it unveiled a web app for iPad and iPhone, independent of Apple’s closed ecosystem. Among its many advantages, the web app allows the FT.com to foster a close relationship with all its customers. In five months, the FT.com has collected over 250,000 paying digital subscribers. Its entire digital operations now accounts for 30% of its revenue. (More on the FT.com’s economics in this PaidContent story.)

To watch in 2012: The outlook seems quite good for the FT.com. Its marketing division is working hard to tap into a huge database of 4 million registered users, including 1 million for the independent web app, half of them putting it on the home screen of their device.

#3 The Apple’s Newsstand is another item of the 2012 watch list. The project responded to publishers’ wish to see their prestigious titles rise over the crowd of garage apps, and to be able to propose long term subscription plans. In October, Apple came up with its digital kiosk, which is essentially a shortcut for publishers apps displayed in a wooden shelf. For good measure, Apple added an exclusive feature: automated downloading. In short, it is a success for magazines who register massive hikes in their digital sales, but much less so for dailies which remain a bit shy. (We been through this in a previous Monday Note)

==> To watch in 2012: the key issue for a massive move to Apple’s Newsstand remains customer data. Either Apple and the publishers will be able to work out a scheme in which about 70% of the customers will agree to provide their coordinates (see Apple’s Newsstand: Wait for 2.0), or the independent web app movement (FT.com-like) is likely to gain traction.

#4 The switch to Digital Editions, as opposed to dumb PDF, might play a critical role in the development of tangible revenue for the industry. Here, I spoke highly of great examples of tablet-specific applications such as BloombergBusinessWeek+ or the Guardian’s iPad version.

To watch in 2012: the adoption of Digital Editions will depend on three factors: 1) The publisher’s willingness to invest significantly on projects not profitable in the short-term, 2) The advertising community’s ability to understand that digital editions will bring their clients much higher benefits than PDF versions or even web sites will do, 3) The acceptance by various Audit Bureaus of Circulation that reader engagement is incomparably higher for designed-for-tablets editions (for more on the subject, read our recent column Unaccounted For Readers.) If these three items are checked, 2012 is likely to be The Year of Digital Editions.

#5 The Huffington Post contagion. Its acquisition by AOL for $315m has propelled the HuffPo to new highs. The content—largely based on unabashed aggregation and legions of unpaid bloggers—remains mediocre, but no ones really seems to care. As in the pre-bubble era, only eyeballs and hype count. The HuffPo has plenty of both. (OK, when you look at the numbers, as Ken Doctor did in this piece, you’ll see a HuffPo visitor brings 3.5 times less money than the NYT does…).

To watch in 2012: This is the year where the Huffington Post will go legit. Everyone is now kissing Arianna’s ring. Including large media company, such as Le Monde, ElPais, DieZeit and a couple of others in Europe that will help Arianna to go global. As appetizing as an alliance between Alain Ducasse and McDonald’s. Sometimes the search for strategy goes haywire…


The Best of Curation

I love talking about the things I enjoy using. The emerging ecosystem in which a bunch of smart people curate long form journalism is definitely one of those things. The companies are called Instapaper, Longreads, Longform. I love the material they find for me and I’m in the debt of developers who wrote neat applications that help me manage my very own library of great stories.

My reading selection process for long articles (say above 2500 words) goes like this. It starts with installing the Read Later bookmarklet, developed by Instapaper, on all my internet browsers. When I stumble on something I have no time to dive into, I hit the ReadLater tab in the by browser’s bookmarks bar (below):

This causes the piece to be stored in the cloud. (There is another service/app of the same kind called Read it Later. I just got it this weekend and haven’t had much time to use it yet.)

Then, I loaded the Instapaper app on my iPhone and my iPad, it works just fine. The stories I don’t have time to read at work are now available on my two nomad devices for my daily commute, my chronic insomnia, after-dinner relaxation or long flights. Unsurprisingly, topics center around business stories, medias, tech; but they also extend to neurosciences, and in-depth profiles of creative people in a wide range of fields. In doing so, I have re-created my own serendipitous environment; as I open the app, I always find something interesting I put aside a couple of weeks earlier.

My second source of good stories is the Editor’s Pick on three long forms curation sites. Instapaper has it own Browse section and my two favorites are Longreads and Longform. There are two other such sites I use less often: The Browser and Give Me Something to Read. They’re all built on the same idea: a self-organized community of thousands people (see graph below) who pick up articles they like and put them on Twitter (and also on Facebook and Tumblr); the feeds are then re-aggregated and curated by the sites’ editors. The process looks like this :

This system combines the best of Twitter (gathering a community that selects relevant contents) with the final responsibility of human editors. Just as important, Read Later and Read It Later rely on hundreds of third party applications that use their APIs (a piece of code that allows apps to talk to each other).

Then two questions arise :
– Does this model benefit publishers ?
– What kind of business models can the aggregators hope for ?

To the first question, the answer is yes and no. From their respective sites, these companies play a referrer role as they send traffic back to the original publishers. But when it comes to apps for smartphones or mobiles, these services become value killers: their content is displayed in the apps without advertising. See screenshots from the iPhone Instapaper app below:

As for Read it Later application, it proposes (below) a web view and a reformatted text-view. No need to be a certified ergonomist to guess which one will be used the most:

For good measure, let’s say Apple is not the last entity to add features that kill value by removing ads; below the same NYT web page in normal and “Reader” mode:

For now, publishers don’t seem to care much about this type of value hijacking. The rationale is such apps are still limited to early adopters. In a study released last week, Read it Later said it recorded a total of 47 million “saves” between May and October 2011 (and 36% growth between the first and the last month.) Weirdly enough, most of the “saves” recorded involve tech-related stories from blogs such as LifeHacker, Gizmodo (both are part of Gawker Media) or TechCrunch. Long form journalism appears too small to be accounted for. Equally weird, when Read it Later gives a closer look at data coming from the New York Times, we see this:

Great writers indeed, but hardly long form journalism. We would have expected a predominance of long feature stories, we get columnists and tech writers instead.

Similarly, Longreads.com gets about 100,000 unique visitors a month, founder Mark Armstrong told me. For this last week, publishers altogether got 21,230 referrals form Longreads’ curated picks. Despite this modest volume, Longreads’ 40,000+ community of referrers is growing rapidly at the rate of a thousand every two weeks or so.

Let’s talk business model. The Longreads team includes former McCann Erickson creative director Joyce King Thomas (story in AdAge here). She seems more interested in good journalism rather than in loading the elegant Longreads with a Christmas tree of ads. In short, Longreads’ business future lies more in a membership system than in anything else — maybe some sponsorship, Armstrong acknowledges. The contents Longreads promotes through its links addresses a solvent audience, one that knows great journalism comes with a price and so do good tools to mine it. It shouldn’t be a problem to extract €10 or $20 a year, directly or via an app.

Having said that, I remain a bit skeptical of Longreads’ avoidance (for now) of the classic startup venture capital mechanism. Because barriers to entry into its type of business are low, Longreads ought to quickly build on its momentum and on the undisputed quality of its product. This means promotion and also technology to extend the reach of the service and to secure control of the distribution channel–and to make it more mainstream.


Datamining Twitter

On its own, Twitter builds an image for companies; very few are aware of this fact. When a big surprise happens, it is too late: a corporation suddenly sees a facet of its business — most often a looming or developing crisis — flare up on Twitter. As always when a corporation is involved, there is money to be made by converting the problem into an opportunity: Social network intelligence is poised to become a big business.

In theory, when it comes to assessing the social media presence of a brand, Facebook is the place to go. But as brands flock to the dominant social network, the noise becomes overwhelming and the signal — what people really say about the brand — becomes hard to extract.

By comparison, Twitter more swiftly reflects the mood of users of a product or service. Everyone in the marketing/communication field becomes increasingly eager to know what Twitter is saying about a product defect, the perception of a strike or an environmental crisis. Twitter is the echo chamber, the pulse of public feelings. It therefore carries tremendous value.

Datamining Twitter is not trivial. By comparison, diving into newspaper or blog archives is easy; phrases are (usually) well-constructed, names are spelled in full, slang words and just-invented jargon are relatively rare. By contrast, on Twitter, the 140 characters limit forces a great deal of creativity. The Twitter lingo constantly evolves, new names and characterizations flare up all the time, which excludes straightforward full-text analysis. The 250 million tweets per day are a moving target. A reliable quantitative analysis of the current mood is a big challenge.

Companies such as DataSift (launched last month) exploit the Twitter fire hose by relying on the 40-plus metadata included in a post. Because, in case you didn’t know it, an innocent looking tweet like this one…

…is a rich trove of data. A year ago, Raffi Krikorian, a developer on Twitter’s API Platform team (spotted thanks to this story in ReadWriteWeb) revealed what lies behind the 140 characters. The image below…

…is a tear-down of a much larger one (here, on Krikorian’s blog) showing the depth of metadata associated to a tweet. Each comes with information such as the author’s biography, level of engagement, popularity, assiduity, location (which can be quite precise in the case of a geotagged hotspot), etc. In this WiredUK interview, DataSift’s founder Nick Halstead mentions the example of people tweeting from Starbucks cafés:

I have recorded literally everything over the last few months about people checking in to Starbucks. They don’t need to say they’re in Starbucks, they can just be inside a location that is Starbucks, it may be people allowing Twitter to record where their geolocation is. So, I can tell you the average age of people who check into Starbucks in the UK.
Companies can come along and say: “I am a retail chain, if I supply you with the geodata of where all my stores are, tell me what people are saying when they’re near it, or in it”. Some stores don’t get a huge number of check-ins, but on aggregate over a month it’s very rare you can’t get a good sampling.

Well, think about it next time you tweet from a Starbucks.

DataSift further refined its service by teaming up with Lexalytics, a firm specialized in the new field of “sentiment analysis“, which measures the emotional tone of a text — very useful to assess the perception of a brand or a product.

Mesagragh, a Paris-based startup with a beachhead in California plans a different approach. Instead of trying to guess the feeling of a Twitter crowd, it will create a web of connections between people, terms and concepts. Put another way, it creates a “structured serendipity” in which the user will naturally expand the scope of a search way beyond the original query. Through its web-based application called Meaningly, Mesagraph is set to start a private beta this week, and a public one next January.

Here is how Meaningly works: It starts with the timeline of tens of thousands Twitter feeds. When someone registers, Meaningly will crawl his Twitter timeline and add a second layer composed by the people the new user follows. It can grow very quickly. In this ever expanding corpus of twitterers, Meaningly detects the influencers, i.e. the people more likely to be mentioned, retweeted, and who have the largest number of qualified followers. To do so, the algorithm applies an “influence index” based on specialized outlets such as Klout or Peer Index that measure someone’s influence on social medias. (I have reservations regarding the actual value of such secret sauces: I see insightful people I follow lag well behind compulsive self-promoters.) Still, such metrics are used by Meaningly to reinforce a recommendation.

Then, there is the search process. To solve the problem of the ever morphing vernacular used on Twitter, Mesagraph opted to rely on Wikipedia (in English) to analyze the data it targets. Why Wikipedia? Because it’s vast (736,000 subjects), it’s constantly updated (including with the trendiest parlance), it’s linked, it’s copyright-free. From it, Mesagraph’s crew extracted a first batch of 200,000 topics.

To find tweets on a particular subject, you first fill the usual search box; Meaningly will propose a list of predefined topics, some expressed with its own terminology; then it will show a list of tweets based on the people you’re following, the people they follow, and “influencers” detected by Meaningly’s recommendation engine. Each Tweet comes with a set of tags derived from the algorithm mapping table. These tags will help to further refine the search with terms users would have not thought of. Naturally, it is possible to create all sorts of custom queries that will capture relevant tweets as they show up; it will then create a specific timeline of tweets pertaining to the subject. At least that’s the idea; the pre-beta version I had access to last week only gave me a sketchy view of the service’s performances. I will do a full test-drive in due course.

Datamining Tweeter has great potential for the news business. Think of it: instead of painstakingly building a list of relevant people who sometimes prattle endlessly, you’ll capture in your web of interests only the relevant tweets produced by your group and the group it follows, all adding-up in real-time. This could be a great tool to follow developing stories and enhance live coverage. A permanent, precise and noise-free view of what’s hot on Twitter is a key component of the 360° view of the web every media should now offer.


Unaccounted For Readers

Newspaper publishers need to quickly solve a troublesome equation. As carbon-based readership keeps dwindling, the growing legion of digital readers is poorly accounted for. This benefits advertisers who pay less for their presence.

Putting aside web sites audience measurement, we’ll focus instead on the currently ill-defined notion of digital editions. A subject of importance since digital editions are poised to play a key role in the future of online information.

First, definitions. The International Federation of Audit Bureaus of Circulation (IFABC) makes several distinctions that are adopted by most certification agencies around the world. The most straightforward is the “Digital Version” of a publication based on PDF. To be counted in the paid circulation of a newspaper or a magazine, a Digital Version must carry the same editorial content as well as the same advertising (volume and placement) as the paper version.

The second category, “Digital Edition”, is much fuzzier. Digital Editions come in different sizes and shapes, tailored for tablets or smartphones. Examples include The Guardian for iPad, Bloomberg Business Week+ and The Economist versions for iPad or iPhone (see previous Monday Note The Capsule’s Price). These editions have little to do with the print version. They are usually loaded with the same set of stories as their paper sibling, but add more pictures and, sometimes, animated infographics and video. The layout is designed to fit gesture-based navigation. Ads are different, too: far fewer modules, but with multiple screens and multimedia packages. The idea is less ads carrying more value per unit.

Here comes the absurdity.

Digital Versions (in PDF) are often hosted by digital kiosks carrying hundreds of publications, most often magazines in PDF facsimile. On many such kiosks, the best-selling product is the all-you-can-eat flat plan; for users, the 20 dollars or euros per month plan encourages indiscriminate downloading. I chose the word users on purpose. Readers would be presumptuous. On their first month, users will download about 60 to 80 publications. After a quarter or so, downloads stabilize to about 30 publications a month. Are those actually read? Maybe some, but the rest of the bulk is barely leafed through. As a result, the value of the advertising carried by these glanced-at publications trends to zero (the value of an ad being — at least in theory — a function of the eyeballs it will capture). It’s ridiculous to expect a “reader” who gulps down 30 publications to memorize a stack of 40 ad pages.

Nevertheless, such Digital Versions fall into the crucial “paid circulation” category which is still, unfortunately, the main gauge of market performance.

Noticing the absurdity of the open-bar kiosks, various circulations bureaus across the world have worked on ways to account for the behavior of this super-fly-by readership. In France, the OJD says that, in order to be counted as sold, the revenue derived from a digital publication must be higher than 25% of the single copy price, all taxes included. As an example, let’s take a user who opted for a €20 monthly unlimited plan, downloading 40 magazines in one month, each priced at €4.00 in a physical newsstand. To be counted as a valid sale, each magazine should bring at least €1.00. But a consumption of 40 magazines for €20 will only yield €0.5, half of the required minimum. Therefore, the OJD will only count half of the volume sold.

These audit agencies efforts are fine but, regardless of all the tweaks in the way copies are counted, they don’t solve the problem of ads that remains vastly inefficient.

Turning now to Digital Editions, their adaptation to the needs of tablets and smartphones much improves advertising performance. Modules will be fewer, but far more engaging. Interactive ads will lead to what marketers call transformation, which is when someone actually orders an item or interacts with a seller (by requesting a test-drive of a car, for instance). All such things are impossible with a static ad embedded in a PDF.

In addition, Digital Editions can point to an individual reader. When I subscribed to the iPad version of the Guardian, or of BusinessWeek, I actually gave permission to what I consider trusted editorial brands to get my coordinates from Apple. (For high quality publications, the rate of opt-in is said to be above 50%. Not bad.) Practically speaking, it means the publisher will be able to directly interact with me. And, in the near future, for my very own digital edition, that same publisher will inject ads tailored to my socio-demographic profile, my location, etc. (don’t rush folks, I can wait for this type of targeting).

Summing-up: We have Digital Versions that are basically PDF images of the original print publications and Digital Editions that are more sophisticated and built — for obvious reasons — on different structure.

And guess what? Most circulation bureaus segregate the two products; static ones are counted in the paid-circulation line — and consolidated with the paper’s global  circulation — but the tablet or smartphone-designed versions appear in a separate line.

No big deal, you might say. But it actually is.

Problem is, media buyers almost exclusively consider the aggregated figure. They tend to overlook the value of itemized lines. As a consequence, the most sophisticated products, the ones able to deliver engagement and value to advertisers are simply ignored.

Hence the publishers’ furious lobby to convince circulation bureaus to include Digital Editions in their global circulation numbers.

The British Audit Bureau of Circulation was quick to understand the importance of aggregating all forms of circulations on the sole basis of the editorial content. Probably because many UK publishers developed good tablet and smartphone editions. Just a year ago, they issued this unambiguous communiqué:

ABC announced today that it has agreed new Reporting Standards that will allow publishers to present both print and digital editions on one certificate. This offers more flexibility to publishers in how they can claim digital editions.

The new Cross Platform Certificate of Circulation enables publishers to provide a single view of their circulation figures. This includes the circulation of digital editions of magazines designed especially for mobile devices such as Apple’s iPad.

In many countries the issue is still on the table. To their consternation, newspapers and magazines publishers see the constant erosion of their paper versions; at the same time, they are required to serve the booming tablet and smartphone markets with dedicated digital editions that remain undervalued by the advertising community. Frustrating.


Apple’s Antitrust Problem (Part 2)

Last’week’s Part 1 column about Apple’s dominant’s position in the tablet market triggered an abundance of comments and emails, both on the Note’s blog and on the Guardian. All interesting, most well reasoned. But, for some people, it’s always funny to see how an Apple topic can turn religious. Question a few basic facts and you’re automatically labeled as a foe, as a member of the anti-innovation camp.

At the risk of repeating myself, here’s my perspective: my day job is to try and find sustainable news media business models in the digital world. No more no less. I set aside the fact that I’ve been a big fan of Apple products since 1986 and that I’ve always admired Steve Jobs. I don’t let such feelings impair my judgement or my ability to question Apple’s ways in the digital world…
And I’ll begin by reviewing the latest statistics documenting Apple’s dominance over the tablet market. The numbers are compelling: according to hosting provider Pingdom, which monitors global traffic, the iPad controls 88% of the tablet-based internet traffic worldwide; in the US, it’s 95.5%. For a device that represent only 1.2% of the worldwide web usage (desktop + tablets), that’s not bad. Then, setting aside the hectoring of zealots, we’ll examine what this position means for content providers and end-users.

Today, we’ll take a closer look at  two issues:
#1 Apple’s publishing business models
#2 Customer data

The 30% Fee

Let’s settle this one quickly: according to a lawyer I spoke with, regulatory bodies have nothing to say about how much a company charges its partners. Apple can charge whatever it wants to media providers willing to be on its platform, the market is supposed to regulate this, and judging by the number of apps and books in the iTunes Store, it has voted.

Ok, then, it’s legal. But is it fair and, more importantly, sustainable for Apple?

The 30% fee is part of Apple’s simplicity obsession. It undoubtedly played a key role in  the iTunes Store’s success. But this system essentially favors the vast market of small to medium-size companies unencumbered by legacy products and unwilling to bother with the tasks of distributing, marketing, and invoicing their customers. As for the news business, I keep telling my journalism school students who consider an e-publication based pay-for model: ‘Go for it! In your case, 30% is fair and convenient’.

It’s a very different story for large established companies. When probed about the 30% for online media, Apple cinder-block answer is: don’t complain fellows, we charge much less than you’re used to spend in the physical world.

Wrong answer, for three reasons: ad-related ARPU, retail price and distribution costs. On the Average Revenue per User side, we know that advertising revenue, as calculated per digital user, fall to a fifth or a tenth from what it is (soon: was) for print. Two, ask a twenty-something how much s/he’ll be ready to pay for the convenience of a digital edition landing on her iPad. I did it with my Sciences-Po students as I was showing a variety of digital products ranging from the precambrian PDF to brand new iPad design-for publications. They’d accept to pay no more 30-50 Euro cents per copy. Take 30% of this — actually, 39% with taxes — and you end up with 18 or 30 cents — again with a largely depleted advertising revenue. Plus, still worth mentioning, the cost of distributing a file is negligible compared to printing and shipping physical product to users’ doorsteps.

What about market trends? A good agency-model deal (in which the publisher sets the price) can land around a 20% commission fee and Google will be more like 10%.At some point, my take is Apple will have to adjust its fees to market conditions. Again, while 30% is fair for a startup with no marketing and distribution system whatsoever, it remains quite high for big companies who already have large infrastructures.

The same goes for its applications review system. $99 for a developer account wether you are the Wall Street Journal or some students e-zine makes little sense. Large companies should be asked to pay way more and to get different services, such as an interoperable transaction system instead of iTunes passage obligé. As long as it pays Apple for its apps-related service, the publisher should have the right to use the transaction system of its own choosing. If Google, PayPal, or some local system is cheaper, the content provider should be entitled to direct its customer to it — at least antitrust lawyers believe so. For Apple, the problem is it won’t collect precious customer data, which brings us to the next point.

Accessing the Customer

The genesis of this hot issue between Apple and the publishers is to be found in Walter Isaacson’s biography of Steve Jobs. The author recounts the meeting with Time Warner CEO’s Jeff Bewkes. The discussion focused on publishing Time Inc.’s magazines on the iPad. Bewkes had agreed on the 30% (this was early 2010, Jobs was not ready to yield anyway), then the main subject arose:

“I have only one question,” Bewkes continued. “If you sell a subscription to my magazine, and I give you the 30%, who has the subscription—you or me?”

“I can’t give away all the subscriber info because of Apple’s privacy policy,” Jobs replied.

“Well, then, we have to figure something else out, because I don’t want my whole subscription base to become subscribers of yours, for you to then aggregate at the Apple store,” said Bewkes. “And the next thing you’ll do, once you have a monopoly, is come back and tell me that my magazine shouldn’t be $4 a copy but instead should be $1. If someone subscribes to our magazine, we need to know who it is, we need to be able to create online communities of those people, and we need the right to pitch them directly about renewing.”

In fact, access to the customer could be another antitrust issue. Specialized attorneys I spoke with say Apple has no right to retain customer data the way it does and it should make the transfer customer information much easier. Today, you can’t engage into a direct relationship with a customer via the application. Furthermore, the opt-in system Apple sets up for apps-subscribers yields meager results and, when it comes to use the info, “some restrictions apply”. That’s a double jeopardy.

Some readers of the Monday Note liked to refer to Wal-Mart in defense of Apple’s position. First of all, I don’t see the comparison as particularly flattering. To me, Wal-Mart is one of the worst companies on Earth, built on below-poverty-level wages and third-world enslavement (I encourage the reading of this 2003 Pulitzer Prize winning series in the Los Angeles Times). Compared to Wal-Mart’s founder Sam Walton, Steve Jobs was Mother Teresa.

Except for one thing. Wal-Mart allows a box of corn-flakes sitting in its shelf, to be loaded with everything needed by the brand to engage a relationship directly with its customer: coupons, games, toll-free numbers, emails and web addresses, samples, all sorts of incentives designed to further tie the customer to the products whether or not they are sold in Wal-Mart stores. On the contrary, in the app-world, you can’t even have a link sending the user to a customer-relation pages. On this specific matter, Apple is doing worse than the worst retailer in the physical world.

Elusive Attitude

What’s next for Apple regarding the anti-competitive issue? Not very much. First of all because Apple is cornering only one segment of the digital devices. And, unlike Microsoft in the nineties, Apple is playing a clever chess game. “They have a well-defined elusive strategy”, said a European antitrust lawyer, “their goal is avoid the European Commission opening the case. They are closely monitoring the other players’ moves, and they will budge accordingly, one inch at a time. In doing so, they are buying time. And six months here and there is a big deal in the digital business.” On the publishing side and the customer relationships irritant, I bet the Cupertino guys will calm everyone down with minor adjustments in the coming few months.


Apple’s Antitrust Problem

(First in a series)

Will Apple face the type of antitrust issues Microsoft had to contend with in the 90′s? Possibly, but not with the same magnitude. Apple is by no means locking up its market the way Microsoft controlled the personal computer field with Windows. Still, the question arises for the iTunes Store, the App Store and their tightly controlled transaction and subscription systems.

Today, we’ll take a look at the issue from a news business perspective.

The fact that scores of publishers are flocking to the iTunes system doesn’t mean they are happy with it. For any publisher willing to access the burgeoning tablet market currently dominated by the iPad, a presence in the AppStore is mandatory. But I never met a publisher happy with his relationship with Apple. For most, what started as an enthralling partnership is slowly morphing into a feeling of servitude.

That perception is tinged with schizophrenia. Media people are usually fond of Apple products. From top bosses to tech reporters, they cherish their iPads and their iPhones. Then, each time Apple introduces a well-polished new device, it gets glowing coverage worth hundreds of million dollars if converted in media space.
Enjoying great products and admiring Apple for its many achievements does not prevent anyone from taking a stern look at the way the Cupertino folks do business. In a nutshell, publishers feel increasingly locked-in, and sometimes abused by Apple’s tight ecosystem.

As always, there are excesses on both sides. Difficult as it might be, let’s try and take a balanced view of three majors issues:
#1 the Application ecosystem
#2 the validity of a business model build on a 30% commission
#3 the issue of the customer data.
(We’ll start with #1 today, and address #2 and 3 next week)

The following is based on my ongoing contacts with publishers and conversations I had with lawyers specialized in antitrust and intellectual property. They spoke anonymously as they are quietly loading their guns for a possible legal action before the European Commission.

#1 The App Ecosystem

The context. Apple set up a huge technical and human infrastructure in order to provide tools to anyone, large of small, willing to build an application and yearning to make it available to any market. Amazingly, from the outset, Apple decided to provide all this machinery (software development kit, tracking system, testing) for free (let alone the symbolic cost of a $99 developer account).
Entrepreneurs voted with their keyboards and mice: there are 500,000 applications in the AppStore today, and counting. It created a huge new business. As Apple gives back 70% of the revenue for paid-for applications, by June 2011, the company had paid over $2.5B to developers, many of them individuals or very small companies.
Well, is there really a matter to complain about here?
Surely not for the developer working from a high rise in Seoul or a barge in Amsterdam. But for the large publishing company, it’s another story. Once it enters the system, two keywords begin flashing : “discretionary power” and “locked-in”.

Let’s face it, Apple has life and death power over the apps it harbors in its store. Its approval system it completely opaque, left at the discretion of an elusive army of people working at “undisclosed locations”. Welcome to the kingdom of the arbitrary. The same set of features that once raised a red flag triggering a rejection will be accepted the next time around — without explanation. Approval delays vary widely, making it difficult to plan the roll-out of a critical product. What is acceptable for a mom and pop operation becomes anxiogenic for large organizations.

The question of “choice”. To those who criticized its “black box” system, Apple’s retorts we evolve in a free market: if a publisher is not happy with its App Store it can: (a) go to the Android market, or (b) build its own web-app, i.e. an app that will live and function independently of the iTunes Store.

Antitrust lawyers don’t see things that way. Their argument: for someone controlling 75 % of the tablet market, invoking such a marginal alternative isn’t relevant. A publisher willing to join the tablet business has no choice but being available on the iPad. In practical terms, this means investing serious money to join a platform operated in a discretionary and opaque way, with unclear and changing rules.

As for the web app, antitrust attorneys suggest they represent a degraded and dangerously uncertain alternative to the iTunes Store. Degraded because a web app such as the Financial Times’ — the poster child of the “resistance” to Apple — doesn’t work as well as a native app. And this notion of “slightly less good” is absolutely critical. Given the sate of HTML5 (the programming language used for independent apps) and whatever the skills of its developers, a web-app will never be as fast, as fluid, as features-rich as a native application. As for the uncertainty, it lies in the fact that a web-app depends on features Apple can change without warning, such as the ability to use its browser (no choice here, it’s Safari) to store content. Put another way, web-apps are likely to work — no more than OK — until Apple decides otherwise. Again, it’s difficult to build a sound business upon such quick sand.

Evidently,  Apple is entitled to defend the integrity of its operating system by not giving independent applications access to critical layers of its iOS. This precaution provides better security against rogue code such as viruses and other malware; it is an indisputable justification for tight control. Agreed, said the antitrust lawyers, but: (a) for the native apps, rules could be more transparent and stable, (b) as for web apps, such rules should evolve within a framework of well-documented Application Programming Interfaces (APIs), a set of coding conventions used by programs to communicate with each other and with the underlying operating system. These APIs would be controlled by Apple on the sole basis of technical concern in order to protect the integrity its OS while creating a clear and well-defined framework for publishers.

Evidently, these suggestions sound a bit naïve. Apple has no business interest whatsoever in easing its allowance for independent web-apps. Most likely, it will carefully adjust the cursor to appear reasonably open while, at the same time, protecting its own ecosystem.

Things are likely to get worse before they get better: Apple is likely to unleash features that will benefit only applications and services of its choice in order to preserve its position. The best example is its Newsstand’s background downloading for publications (your iPad automatically wakes up to download the publications you subscribed to in the Newsstand, see a previous Monday Note on the matter). Lawyers says this is the perfect example of a feature that creates an unfair advantage favoring Apple’s own distribution channel.

Apple’s attitude towards competition epitomizes a often-seen scenario of the technological evolution: a company acquires a dominant position in a given market (in today’s case, several ones) thanks to superior products and services. As the company further gains ground over its competitors, the admiration for its quick success morphs into growing suspicion. Features that once were lauded as innovative market boosters begin to be seen as instruments of a market lock-down. At the same time, competition tries to imitate the leader as fast as it can. As it feels both unfairly copied and threatened, the market leader reacts by further tightening its grip on its business, using whatever it takes to buy time. In doing so, it triggers more hostility, etc. A vicious spiral begins.

Next week, considering market domination, we’ll see why Apple takes a different approach from the one Microsoft once used. Unless it becomes completely intoxicated by its own success, a clever “cursor adjustment” could preserve Apple’s lead and, at the same time, favor healthy competition.


The Discreet Shift to Twitter

You hear things about Facebook. You see things. As its audience matures, a subtle shift might be underway. Of course, numbers remains staggering. Facebook is heading toward the 800 million users mark, mostly by conquering new markets. The growth is distributed as follows : Middle-East Africa, Asia-Pacific and Latin America grow by around 60% per year; Europe by 35-40%; and North America by 25%. And demographics are shifting: older people are joining in Western markets while a younger audience grows in emerging ones. More changes are underway as the internet spreads on both landlines and mobile devices: over the last 3 years, China added more internet users than exist in the United States today. Furthermore, in the fastest growing markets, Facebook captures over 90% of all social network traffic. So, for the near future, Facebook doesn’t have a growth problem.

On mature markets, the future looks bright as well. In the United States, unique users grew by 22% between June 2010 and September 2011, reaching a total of155 million. Notably, the average time spent per person grew from 6:02hrs to 7:42hrs.


When you speak with grownups and young adults who used to be Facebook enthusiasts, you hear the following :
– Facebook’s interface, its features have become overly complicated. The result is it takes more time to do the same old things.
– Managing friends leaves you with two choices: spending a lot of time delicately pruning lists, circles and groups, or being swamped.
– Constant and insidious changes in Facebook’s privacy features keep taking people off-guard: all of a sudden, you find many things about your digital life, mostly mundane stuff such as what you read and listen, being broadly available outside your initial circle. Quasi-paranoid caution has become a must. And again, since “opening” is the default setting on Facebook, recovering your own privacy gets increasingly complicated.
– A rise in the advertising presence, which reinforces the impression of being tracked down: users don’t have the slightest idea of the breadth and depth of Facebook’s mining of their personal activities.

It now seems Facebook’s usage is undergoing a split. Active Facebookers become increasingly engaged, spend more time doing more stuff, while “reasonable” users (above 25) become more reluctant and careful.

Who benefits from such shift? Twitter, primarily. Globally, Twitter’s microblogging/social network is much smaller than Facebook, with a reported 200 million users, only a fraction of which are really active. Business-wise, Facebook is 30 times larger than Twitter and is expected to gross $4.27bn this year, according to eMarketer ultra-precise estimates; that’s more than twice last year’s revenue. As for Twitter, its advertising strategy is gaining traction: again, eMarketer expects Twitter to make $139.5 million, up 210% from the previous year.

Given the differences in size and reach, does it make sense to compare the two?

Let’s consider the news media sector. From a pure quantitative standpoint, Facebook remains a solid referral for news sites as people “Like” and link to stories. But Facebook encourages fly-bys, i.e. viewers that  won’t stay on the site. Twitter’s referrals to a news content is of a different nature. Tweets and retweeets usually come from people who have chosen to follow a given individual, a news organization or a specific subject. The referral is therefore much sharper, more targeted than the impulsive “throw-on-my-Facebook-wall” type.

For what it worth, let’s look at an essay published last Saturday in the Wall Street Journal. Titled Why Can’t Wall Street Handle the Truth, it is written by Mike Mayo, a long time banking analyst who made repeated calls to dump banks stocks.

The essay generated 795 Facebook “Likes” — which is small for a story that is freely available in the WSJ Social Facebook application:

In the meantime, the same piece (and the mention of Mayo’s book) has been indexed 140,000 times in Google, thanks to only 392 tweets.

Still using the Wall Street Journal as an example, let’s have look at Walt Mossberg’s presence. (He is the Journal’s world-famous tech writer.) On Facebook, his page got 874 “Likes”. On the WSJ Social application, where Mossberg appears as an editor, he got 252 readers as the app has been able to collect a total “23K Readers”

Not very compelling.

But, on Twitter, Walt has 264,000 followers.

Another key element in Twitter’s favor: the mobile factor. Twitter’s 140 characters format turned out to be a killer on smartphones: it is growing faster on mobile (+75% Year-to-Year) than LinkedIn (+69%) and Facebook  (+50%). That’s the privilege of simplicity and straightforwardness over feature-itis.


Proof by Mask

Web design is in bad shape. In the applications boom, news-related web sites end up as collateral damage. For graphic designers, the graphics tools and the computer languages used to design apps for tablets and smartphones have unleashed a great deal of creativity. The transformation took longer than expected, but great designs begin to appear in iPad applications (in previous Monday Notes, we already discussed Business Week+ and the new Guardian app). The best applications get rid of the print layout; they start from a blank slate in which a basic set of rules (typefaces, general structure of a page, color codes) are adapted to the digital format. Happily, we just stand at the very beginning of a major evolution in news-related graphic design for apps. And this new world proves to be a killer for the traditional web which, in turn, seems to age fast.

The graphic evolution of the web must deal with two negative forces: its language framework doesn’t evolve fast enough, and it faces the burden of messy advertising.

Less than a year ago, the potential in the latest iteration of the HyperText Markup Language a.k.a. HTML5 thrilled everyone: it was seen as the decisive, if not definitive, upgrade of the web, both functionally and visually. Fact is, it didn’t take-off — yet. Reasons are many: backward compatibility (not everyone uses the latest web browser), poor documentation making development uncertain, stability and performances issues. There are are interesting initiatives but nothing compelling so far. None of the large digital media have made the jump.

For advertising, the equation is straightforward. The exponential rise of inventories coupled to fragile economic conditions have pushed ad agencies to ask more (space) for less money. And, for the creativity, the encephalogram remains desperately flat.

The result is this:

This is the first screen of the French website 20 minutes’ home page. A good site indeed, doing quite well audience-wise, but which yields too much to advertising. In its case, the page carries an “arch” that frames the content; and, for good measure, a huge banner is inserted below the main header. If you mask the ad, it looks like this:

The weird thing is this: On the one hand, web designers seem to work on increasingly large monitors; on the other, the displays used by readers tend to shrink as more people browse the web on notebooks, tablets or smartphones.

The result is a appalling when you try to isolate content directly related to the news. In the series of screenshots below, I selected the first scrolls of pages as they render on my laptop’s 15” display. Then, I overlaid a red mask on everything but the news contents: ads, all sorts of promotions, large white spaces, headers and sections lists are all hidden away. More