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Blendle Is Up To Something Big

business models, online publishing By October 5, 2015 Tags: , 260 Comments

The Dutch micropayment platform for articles is taking off in spectacular fashion. Its foray into the German market delivers another proof of publishers’ interest in the kind of business model Blendle embodies. But, down the road, Blendle sees itself as the main transactional infrastructure provider for quality journalism. In this first of two articles, we’ll look at Blendle’s key success factors.


The NYTimes could be worth $19bn instead of $2bn  

business models, newspapers, social networks, Uncategorized By February 15, 2015 Tags: , , , 21 Comments


by Frédéric Filloux

Some legacy media assets are vastly underestimated. A few clues in four charts.   

Recent annual reports and estimates for the calendar year 2014 suggest interesting comparisons between the financial performance of media (either legacy or digital) and Internet giants.

In the charts below, I look at seven companies, each in a class by itself:

A few explanations are required.

For two companies, in order to make comparisons relevant, I broke down “digital revenues” as they appear in financial statements: $351m for the New York Times ($182m in digital advertising + $169m for digital subscriptions) and, for The Guardian, $106m (the equivalent of the £69.5m in the Guardian Media Group annual report (PDF here).

Audience numbers above come from ComScore (Dec 2014 report) for a common reference. We’ll note traffic data do vary when looking at other sources – which shows the urgent need for an industry-wide measurement standard.

The “Members” column seemed necessary because traffic as measured by monthly uniques does differ from actual membership. Such difference doesn’t apply to news media (NYT, Guardian, BuzzFeed).

For valuations, stock data provide precise market cap figures, but I didn’t venture putting a number the Guardian’s value. For BuzzFeed, the $850m figure is based on its latest round of investment. I selected BuzzFeed because it might be one of the most interesting properties to watch this year: It built a huge audience of 77m UVs (some say the number could be over 100m), mostly by milking endless stacks of listicles, with clever marketing and an abundance of native ads. And, at the same time, BuzzFeed is poaching a number first class editors and writers, including, recently, from the Guardian and ProPublica; it will be interesting to see how Buzzfeed uses this talent pool. (For the record: If founder Jonah Peretti and editor-in-chief Ben Smith pull this off, I will gladly revise my harsh opinion of BuzzFeed).

The New York Times is an obvious choice: It belongs to the tiny guild of legacy media that did almost everything right for their conversion to digital. The $169m revenue coming from its 910,000 digital subscribers didn’t exist at all seven years ago, and digital advertising is now picking up thanks to a decisive shift to native formats. Amazingly enough, the New York Times sales team is said to now feature a ratio of one to one between hardcore sales persons and creative people who engineer bespoke operations for advertisers. Altogether, last year’s $351m in digital revenue far surpasses newsroom costs (about $200m).

A “normal” board of directors would certainly ask management why it does not consider a drastic downsizing of newspaper operations and only keep the fat weekend edition. (I believe the Times will eventually go there.)

The Guardian also deserves to be in this group: It became a global and digital powerhouse that never yielded to the click-bait temptation. From its journalistic breadth and depth to the design of its web site and applications, it is the gold standard of the profession – but regrettably not for its financial performances, read Henry Mance’s piece in the FT.

Coming back to our analysis, Google unsurprisingly crushes all competitors when it comes its financial performance against its audience (counted in monthly unique visitors):

Google monetizes its UVs almost five times better than its arch-rival Facebook, and 46 times better than The New York Times Digital. BuzzFeed generates a tiny $1.30 per unique visitors per year.

When measured in terms of membership — which doesn’t apply to digital media — the gap is even greater between the search engine and the rest of the pack :


The valuation approach reveals an apparent break in financial logic. While being a giant in every aspects (revenue, profit, market share, R&D spending, staffing, etc), Google appears strangely undervalued. When you divide its market capitalization by its actual revenue, the multiple is not even 6 times the revenue. By comparison, BuzzFeed has a multiple of 8.5 times its presumed revenue (the multiple could fall below 6 if its audience remains the same and its projected revenue increases by 50% this year as management suggests.)  Conversely, when using this market cap/revenue metric, the top three (Twitter, Facebook, and even LinkedIn) show strong signs of overvaluation:

Through this lens, if Wall Street could assign to The New York Times the ratio Silicon Valley grants BuzzFeed (8.5 instead of a paltry 1.4), the Times would be worth about $19bn instead of the current $2.2bn.

Again, there is no doubt that Wall Street would respond enthusiastically to a major shrinkage of NYTCo’s print operations; but regardless of the drag caused by the newspaper itself, the valuation gap is absurdly wide when considering that 75% of BuzzFeed traffic is actually controlled by Facebook, certainly not the most reliably unselfish partner.

As if the above wasn’t enough, a final look confirms the oddity of market valuations. Riding the unabated trust of its investors, BuzzFeed brings three times less money per employee  than The New York Times does (all sources of revenue included this time):

I leave it to the reader to decide whether this is a bubble that rewards hype and clever marketing, or if the NYT is an unsung investment opportunity.


How Many Laws Did Apple Break?

business models, hardware By February 8, 2015 Tags: 76 Comments


by Jean-Louis Gassée

Apple’s most recent quarterly numbers broke all sorts of records and, as we shall see, a number of laws.

Apple just released its numbers for the quarter ending last December, the first quarter of its 2015 Fiscal Year. The figures are astonishing:

iPhones:  Apple sold 74.5M, + 57% over last year’s same quarter. iPhone revenue was $51.2B, + 57%. That’s enough iPhones for 1% of the world population, 9.4 iPhones for every second of the past quarter. I hope to see some day a documentary movie on the supply chain heroics leading (parts manufacturing, assembly, transportation logistics) required to achieve such numbers. But I’m not holding my breath.

Overall company revenue grew 30% to $74.6B, with the iPhone representing a never-before 69% of total sales. This why some now call Apple the iPhone Company.

Profit (a.k.a. Net Income): $18B. This appears to be the highest quarterly profit ever achieved by a company:

Apple Largest Quarterly Profit Ever Edited

Record quarterly profits is becoming commonplace for Apple. The company has broken into the top ten list five times since Q1 FY 2012.

(The Wikipedia article on record profits and losses has Fannie Mae’s $84B in 2013 in the #1 spot, but Fannie’s categorization as a Government-Sponsored Enterprise puts it in a different race – not to mention the $77.8B and  $64.2B losses in Q4 2009 and Q4 2008 respectively.)

Cash: After generating $33B from operations, the company now holds $178B in cash and cash equivalents. To get a sense of the magnitude of this amount, $178B represents $550 for every US citizen, or $25 per human on Earth. The World Bank has more data here on income levels and other such numbers, and the Financial Times has a helpful blog entry, If Apple were a country…, that compares Apple’s “economy” to those of various nations.

If you’re hungry for more Apple numbers, I suggest you feast your eyes on Apple’s 10-Q (its quarterly SEC filing), especially the meaty MD&A (Management Discussion & Analysis) section starting on page 24. Management also discusses the quarterly numbers in its customary conference call; the transcript is here.

But not everyone thinks highly of Apple’s doings.

We have academics spewing sonorous nonsense under the color of authority, such as Juan Pablo Vazquez Sampere’s We Shouldn’t Be Dazzled by Apple’s Earnings Report, published in the Harvard Business Review. Sampere, a Business School professor, finds Apple’s display of quarterly numbers unseemly:

Announcing boatloads of money, as if that were point, makes us think Apple no longer has the vision to keep on revolutionizing.

John Gruber offers a reasoned retort to the professor, but it probably won’t sway the likes of Joe Wilcox, a Sampere defender who writes: Atop the pinnacle of success, Apple stands at the precipice of failure.

Or consider Peter Cohan, an habitual Tim Cook critic, who recently told us there are “6 Reasons Apple Is Still More Doomed Than You Think”.

Apple… always one foot in the grave. But in whose grave?

This last quarter hasn’t been kind to the Apple doomsayers. A bundle of their lazy, ill-informed or poorly reasoned — and often angry — predictions are offered here for your compassionate amusement. Or we can turn to the ever reliable Henry The iPhone Is Dead In The Water Blodget for morsels such as this one, from November 2013: Come On, Apple Fans, It’s Time To Admit That The Company Is Blowing It. One of Henry’s points was Apple prices were too high. It’s getting worse: Last quarter, the average price per iPhone rose to $687.

We now turn to law-breaking.

Law 1: Larger size makes growth increasingly difficult.
This is the Law of Large Numbers, not the proper one about probabilities, but a coarser one that predicts the eventual flattening of extraordinary growth. If your business weighs $10M, growing by 50% means bringing in another $5M. If your company weighs $150B, 50% growth the following year would require adding $75B – there might not be enough customers or supplies to support such increase. Actual numbers seem to confirm the Law: Google’s FY 2014 revenue was $66B, +19% year-on-year; Microsoft’s was $87B, +11.5%; Apple’s $183B in revenue for 2014 was a mere +7%.

And yet, last quarter, Apple revenue grew 30%, breaking the Law and any precedent. iPhone revenue, which grew 57%, exceeded $51B in one quarter — close to what Google achieved in its entire Fiscal 2014 year.

Right now, Apple is “guiding” to a next quarter growth rate that exceeds 20%. For the entire 2015 Fiscal Year, this would mean “finding” an additional $37B to $40B in sales, more than half a Google, and a little less than half a Microsoft.

Law 2: Everything becomes a commodity.
Inexorably, products are standardized and, as a result, margins suffer as competitors frantically cut prices in a race to the bottom.

Exhibit 1: The PC clone market. As mentioned, the iPhone ASP (Average Selling Price) moved up, from $637 in Q1 FY 2014 to $687 last quarter. Moving the ASP up by $50 in such a competitive market is, to say the least, counterintuitive. At the risk of belaboring the obvious, a rising ASP means customers are freely deciding to give more money to Apple.

We’re told that this is just a form of Stockholm Syndrome, the powerless customer held prisoner inside Apple’s Walled Garden. Not so, says Tim Cook in a Wall Street Journal interview:

“…fewer than 15% of older iPhone owners upgraded to the iPhone 6 and 6 Plus…the majority of switchers to iPhone came from smartphones running Google Inc.’s Android operating system.

This correlates with Apple’s 70% revenue growth in Greater China, a part of the world where, in theory, cheap clones rule.

Law 3: Market share always wins.
Why this one still has disciples is puzzling, but here we go. With the bigger market share come economies of scale and network effects. Eventually, the dominant platform becomes a gravity well that sucks application developers and other symbionts away from the minority players who are condemned to irrelevance and starvation. Thus, just as the Mac lost to Windows, iOS will lose to Android.

Well… As Horace Dediu tweets it, Apple’s loss to Windows hasn’t hurt too much:

Dediu Losing PC War

Apple has gained PC market share in all but one quarter over the past eight years — that’s 31 out of 32 quarters.

But even that impressive run isn’t as important as the sustaining number that really does matter: profit share. Despite its small unit share (around 7% worldwide, higher in the US), Apple takes home about half of all PC industry profits, thanks to its significant ASP ($1,250 vs $417 industry-wide in 2014, trending down to $379 this year). Apple’s minority unit share in the mobile sector (13% to 15%) captured 90% of mobile profits this past quarter.

Small market share hasn’t killed the Mac, and it’s not hurting the iPhone — which enjoyed a much happier start than the Mac.

Law 4: Modularity Always Wins.
This is one of Clayton Christensen’s worries about Apple’s future. In the end, modularity always defeats integration:

“The transition from proprietary architecture to open modular architecture just happens over and over again. It happened in the personal computer. Although it didn’t kill Apple’s computer business, it relegated Apple to the status of a minor player. The iPod is a proprietary integrated product, although that is becoming quite modular. You can download your music from Amazon as easily as you can from iTunes. You also see modularity organized around the Android operating system activity that is growing much faster than the iPhone. So I worry that modularity will do its work on Apple.”

This was written in May 2012. Three years later, the iPod is all but gone. The music player that once generated more revenue than the Mac and paved the way for the iPhone by giving rise to the iTunes infrastructure has become an ingredient inside its successor. With 400M units sold, Apple no longer even reports iPod sales. One could say integration won.

Christensen rightly points out that in the PC clone market, modularity allowed competitors to undercut one another by improving layer after layer, smarter graphic cards, better/faster/cheaper processing, storage, and peripheral modules. This led to the well-documented PC industry race to the bottom. But Christensen fails to note that the Mac stubbornly refused (and still refuses) to follow the Modularity Law. And, as Apple’s recent numbers show, the iPhone seems just as immune to modularity threats.

I have no trouble with the Law of Large Numbers, it only underlines Apple’s truly stupendous growth and, in the end, it always wins. No business can grow by 20%, or even 10% for ever.

But, for the other three, Market Share, Commoditization, and Modularity, how can we ignore the sea of contradicting facts? Even if we set Apple aside, there are so many “exceptions” to these rules that one wonders if these so-called Laws aren’t simply convenient wishful thinking, a kind of intellectual Muzak that fills an idea vacuum but has no substance.

As Apple continues to “break the law”, perhaps we’ll see a new body of scholarship that provides alternatives to the discredited refrains. As Rob Majteles tweeted: “Apple: where many, all?, management theories go to die?


News Heads Back to Intermediation

business models By November 30, 2014 Tags: , , , , , , 3 Comments


by Frédéric Filloux

Thanks to digital, news publishers thought they could build a direct relationship with their customers. Recent deals signal the opposite. 

Two recent deals between media and technology companies struck me as a new trend in the distribution of news. One involves the personal note management service Evernote and Dow Jones (publisher of the Wall Street Journal and owner of the giant database Factiva); the other involves Spotify and Uber.

The first arrangement looks symmetrical. Based on the Evernote Premium user’s profile and current activity, an automated text-mining system — “Augmented Intelligence” in Evernote’s parlance — digs up relevant articles from both the WSJ and Factiva. A helpful explanation can be found on the excellent quoting Frank Filippo, VP for corporate products at Dow Jones:

Factiva disambiguates and extracts facts about people, companies and other entities from the content that comes into its platform. With the help of Factiva’s intelligent indexing, “as users capture their notes, we detect if a company name is mentioned and dynamically present back a Factiva company profile with related news about that company” from any of its premium news and business sources.

The deal is reciprocal: WSJ Subscribers who pay $347.88 a year (weird pricing) get one year of Evernote Premium (a $45value); and Factiva subscribers are eligible for a one-year five-login Evernote Business membership (a $600 value). This sounds like a classic value vs. volume deal: per subscriber value is high for Dow Jones while it should allow Evernote to harvest more Premium and Business accounts at smaller ARPUs. At this stage — the service starts this month and for the US only — it’s unclear which company will benefit the most.

At first, the Spotify-Uber deal doesn’t look at all related to the news business. But it breeds a broader trend in the distribution of news products. The agreement provides that Spotify Premium users will be allowed to stream their music in participating Uber vehicles. In this case, respective ARPUs differ even more than in the DowJones/Evernote arrangement. A Spotify Premium is charged $10 while, according to Business Insider, the average Uber rider spends about $50 to $60 a month. To sum up, it looks like this:


In the these two deals, the advantage goes to the distributor. Without risking anything, Evernote get access to a valuable professional target group. As for The Wall Street Journal and Factiva, they push content that bears the risk of being more than rich enough for Evernote Premium users – without further need of a subscription to the Journal or Factiva. In this case, the key metric will be the conversion rate of users who are in contact with WSJ articles and opt for a trial subscription. (Based on past experience, publishers always overestimate the attractiveness of their paid-for contents.) This doesn’t mean Dow Jones should have passed on the deal; every new distribution channel needs to be explored. As for Spotify/Uber, it shouldn’t move the needle for either partner.

Except for the data issues.

This is the key point in which parties may not equally benefit. Having dinner with a business predator like Uber requires a long spoon — a strong legal one — to determine the accessibility of stats and customer data. To me, this is much more critical than the difficult to assess financial parameters of such deals.

What’s next? There is no shortage of possibilities. Among many:


Deciding wether it is an opportunity or a danger for the news media sector is, to say the least, chancy. One sure thing: Digital technologies have successfully reconnected news media publishers to their customers. Some media outlets such has The Financial Times have successfully removed the intermediaries in the path to their audiences– whether these are B2C or B2B.

Today, everyone is worried about the unfolding of Facebook’s ambition to become the essential news distributor (see a previous Monday Note: How Facebook and Google Now Dominate Media Distribution.) In such context, letting other tech companies control too many distribution channels might create vulnerabilities. Possible ways to prevent such hazards are: (a) bullet-proof contracts and (b) approach new distribution schemes in a collective manner. (That’s the science-fiction part of this column.)


Payment Systems Adventures – Part II: Counting Friends And Foes

business models By November 17, 2014 Tags: , 14 Comments


by Jean-Louis Gassée

It’s still too early to tell if Apple Pay will square the circle and emerge as a payment system that’s more secure, more convenient, and is widely accepted. MCX, a competing solution that faces more challenges than Apple Pay, helps shed light on the problem.

Apple Pay was announced on September 9th with the new iPhone 6, and rolled out on October 20th.

Where it works, it works well. The roster of banks and merchants that accept Apple’s new payment system is impressive, with big names such as Visa, American Express, Bank of America, Macy’s, Walgreens, and Whole Foods.

But it doesn’t work everywhere.

At launch, Apple Pay covered just a corner of the territory blanketed by today’s debit and credit cards. Then we had a real surprise. Within 24 hours of the roll-out, a handful of merchants, notably CVS, Rite-Aid, Target, and Wal-Mart, pulled the plug on Apple Pay. Apparently, these retailers suddenly remembered they had signed an exclusive agreement with Merchant Customer Exchange (MCX), a consortium of merchants that’s developing a competing payment system and mobile app called CurrentC. How a company as well-managed as CVS could have “forgotten” about its contract with MCX, and what the threatened consequences were for this lapse of memory aren’t known…yet.

We could wade through the professions of good faith and sworn allegiance (“We are committed to offering convenient, reliable, and secure payment methods that meet the needs of our customers”, says Rite Aid PR flack Ashley Flower), but perhaps we’re better off just listing MCX’s Friends and Foes.

Let’s start with the Foes: MCX hates credit cards. As Ron Shevlin of Snarketing 2.0 reports, the hatred isn’t even veiled:

“At last year’s BAI Retail Delivery conference…I asked Mr. Scott [Lee Scott, former Wal-Mart CEO] why, in the face of so many failed consortia before it, would MCX succeed? He said: ‘I don’t know that it will, and I don’t care. As long as Visa suffers.’”

This open animosity is understandable. When we look at Wal-Mart’s latest financials, we see that the company’s net income is 3.1% of sales. A typical Visa transaction costs them 1.51% of the amount that was charged. (See Credit Card Processing Fees & Rates for mind-numbing esoterica.)

For Wal-Mart and other big merchants, this 1.51% “donation” cuts too close to the bone, which is why they banded together to form the MCX consortium.

So we know who MCX’s Foes are…but does it have any Friends?

Not really. Counting the MCX merchants themselves as Friends is a bit of a circular argument — no sin there, it’s business — but it doesn’t build a compelling case for the platform.

What about consumers?

On paper, the MCX idea is simple: You download the CurrentC app onto your mobile phone and connect it to a bank account (ABA routing and account number). When it comes time to pay for a purchase, CurrentC displays a QR code that you present to the cashier. The code is scanned, there’s a bit of network chatter, and money is pumped directly out of your bank account.

Set-up details are still a bit sketchy. For example, the CurrentC trial run required the customer’s social security and driver’s license numbers in addition to the bank info. MCX says it doesn’t “expect” to have these additional requirements when CurrentC launches in early 2015, but I’m not sure that it matters. The requirement that the customer supply full banking details and then watch as money is siphoned off without delay is essentially no different from a debit card — but with a middle man inserted into the process. And while debit card use surpassed credit cards as far back as 2007, US shoppers are loathe to leave the warm embrace of their credits cards when it comes to big ticket purchases (average debit card charge in 2012: $37; credit card: $97; see here for yet more estorica).

What does MCX and CurrentC offer that would entice consumers to abandon their credit and debit cards and give merchants direct access to their bank accounts? The consortium can’t offer much in the way of financial incentives, not when the whole point is to remedy Visa’s 1.51% processing fee.

Now let’s look at Apple Pay; first, consumers.

Apple has recognized the strong bond between consumers and their credit cards: The average wallet contains 3.7 cards, with a balance of $7.3K outstanding. Apple Pay doesn’t replace credit cards so much as it makes the relationship more secure and convenient.

Set up is surprisingly error-free — and I’m always expecting bugs (more on that in a future note). The credit card that’s connected to your iTunes account is used by default, all you have to do is launch Passbook and re-enter the CVV number on the back. If you want to use a different credit card account, you take a picture of the card and Passbook verifies it with the issuer. Debit cards also work, although you have to call the bank…as in an actual telephone call. In my case, the bank had a dedicated 877 number. Less than 30 seconds later a confirmation appeared on my device.

Paying is simple: Gently tap the phone on a compatible, NFC-enabled point-of-sale terminal and place a registered finger on the TouchID button; the phone logs the transaction in Passbook and then vibrates pleasantly to confirm.


On the security side, Apple Pay doesn’t store your credit card number, neither on your  phone nor on Apple’s servers. Instead, the card is represented by an encrypted token; the most you can ever see are the last four digits of the card — even on an unlocked phone, even when you’re deleting a card from your Passbook.

Simplifying a bit (or a lot), during a transaction this encrypted token is sent through the NFC terminal back to your bank where it’s decrypted. Not even the merchant can see the card.

We can also count the banks and credit card companies as Friends of Apple Pay. For them, nothing much changes. A small fee goes to Apple (0.15%, $1 for every $700). Apple Pay isn’t meant to make money in itself, its goal is to make iDevices more pleasant, more secure.

Banks also like the potential for cutting down on fraud. In 2013, payment card fraud was pegged at $14B globally with half of that in the US. How deeply Apple Pay will cut into this number isn’t known, but the breadth and warmth of Apple Pay adoption by financial institutions speaks for their expectations. Wells Fargo, for example, put up a large billboard over the 101 freeway and promoted the service on social media:

What about merchants? This is a mixed bag; some seem to be fully on board, although, as ever, we mustn’t judge by what they say for the flackery on the left is just as disingenuous as the flackery on the right. Regard the declaration from pro-Apple Pay Walgreens: “Incorporating the latest mobile technology into our business is another way we are offering ultimate convenience for our customers.” Sound familiar?

Others, such as Wal-Mart are resolute Foes. Of the fence sitters, time will tell if they’ll jump into the Apple Pay camp or desert it. It’s still very early.

Questions remain regarding “loyalty” programs, a cynical word if there ever was one when considering the roach motels of frequent flyer miles. A quick look at in-app payments provides a possible answer.

One such example, no surprise, is Apple’s own App Store app where you can pay with Apple Pay after scanning an accessory’s barcode. The app triggers a confirmation email that shows that the merchant, Apple, is aware of the transaction. Other merchants can, and will, build their own apps, but there’s still the question of how a loyalty program will work for point-of-sale transactions where merchants can’t see your data.

In a clumsily worded comparison, MCX CEO Dekkers Davidson tries to imply that his company’s exclusivity requirement is much like AT&T’s arrangement with Apple in the early days of the iPhone, and arrangement that wasn’t permanent and that worked out well for both parties. In the meantime, one can visualize Apple engaging in an encircling action, patiently adding partners and features quarter after quarter.

We’ll know soon if this battle is won before it’s even fought.


How Facebook and Google Now Dominate Media Distribution

business models, social networks By October 19, 2014 Tags: , , , , , 13 Comments


The news media sector has become heavily dependent on traffic from Facebook and Google. A reliance now dangerously close to addiction. Maybe it’s time to refocus on direct access. 

Digital publishers pride themselves on their ability to funnel traffic from search and social, namely Google and Facebook (we’ll see that Twitter, contrary to its large public image, is in fact a minuscule traffic source.) In ly business, we hunt for the best Search Engine Optimization specialists, social strategists, community managers to expand the reach of our precious journalistic material; we train and retrain newsroom staff; we equip them with the best tools for analytics and A/B testing to see what headlines best fit the web’s volatile mood… And yet, when a competing story gets a better Google News score, the digital marketing staff gets a stern remark from the news floor. We also compare ourselves with the super giants of the internet whose traffic numbers coming from social reach double digit percentages. In short, we do our best to tap into the social and search reservoir of readers.


Illustration by Rafiq ElMansy DeviantArt

Consequences vary. Many great news brands today see their direct traffic — that is readers accessing deliberately the URL of the site — fall well below 50%. And the younger the media company (pure players, high-performing click machines such as BuzzFeed), the lower the proportion of direct access is – to the benefit of Facebook and Google for the most part. (As I write this, another window on my screen shows the internal report of a pure player news site: In August it only collected 11% in direct access, vs. 19% from Google and 24% from Facebook — and I’m told it wants to beef up it’s Facebook pipeline.)

Fact is, the two internet giants now control most of the news traffic. Even better, they collect on both ends of the system.

Consider BuzzFeed. In this story from Marketing Land, BuzzFeed CEO Jonah Peretti claims to get 75% of its traffic from social and to not paying much attention to Google anymore. According to last Summer ComScore data, a typical BuzzFeed viewer reads on average 2.3 articles and spends slightly more than 3 minutes per visit. And when she leaves BuzzFeed, she goes back to the social nest (or to Google-controlled sites) roughly in the same proportion. As for direct access, it amounts to only 6% and Twitter’s traffic is almost no existent (less than 1%). It clearly appears that Twitter’s position as a significant traffic contributor is vastly overstated: In real terms, it’s a tiny dot in the readers’ pool. None of this is accidental. BF has built a tremendous social/traffic machine that is at the core of its business.

Whether it is 75% of traffic coming from social for BuzzFeed or 30% to 40% for Mashable or others of the same kind, the growing reliance to social and search raises several questions.

The first concerns the intrinsic valuation of a media so dependent on a single distribution provider. After all, Google has a proven record of altering its search algorithm without warning. (In due fairness, most modifications are aimed at content farms and others who try to game Google’s search mechanism.) As for Facebook, Mark Zuckerberg is unpredictable, he’s also known to do what he wants with his company, thanks to an absolute control on its Board of Directors (read this Quartz story).

None of the above is especially encouraging. Which company in the world wouldn’t be seen as fragile when depending so much on a small set of uncontrollable distributors?

The second question lies in the value of the incoming traffic. Roughly speaking, for a news, value-added type media, the number of page views by source goes like this:
Direct Access : 5 to 6 page views
Google Search: 2 to 3
Emailing: ~2
Google News: ~1
Social: ~1
These figures show how good you have to be in collecting readers from social sources to generate the same advertising ARPU as from a loyal reader coming to your brand because she likes it. Actually, you have to be at least six times better. And the situation is much, much worse if your business model relies a lot on subscriptions (for which social doesn’t bring much transformation when compared, for instance, to highly targeted emails.)

To be sure, I do not advocate we should altogether dump social media or search. Both are essential to attract new readers and expand a news brand’s footprint, to build the personal brand of writers and contributors. But when it comes to the true value of a visit, it’s a completely different story. And if we consider that the value of a single reader must be spread over several types of products and services (see my previous column Diversify or Die) then, the direct reader’s value becomes even more critical.

Taken to the extreme, some medias are doing quite well by relying solely on direct access. Netflix, for instance, entirely built its audience through its unique recommendation engine. Its size and scope are staggering. No less than 300 people are assigned to analyze, understand, and serve the preferences of the network’s 50 million subscribers (read Alex Madrigal’s excellent piece published in January in The Atlantic). Netflix’s data chief Neil Hunt, in this keynote of RecSys conference (go to time code 55:30), sums up his ambition by saying his challenge is “to create 50 million different channels“. In order to do so, he manages a €150m a year data unit. Hunt and his team concentrate their efforts on optimizing the 150 million choices Netflix offers every day to its viewers. He said that if only 10% of those choices end up better than they might have been without its recommendation system, and if just 1% of those choices are good enough to prevent the cancellation of a subscription, such efforts are worth €500m a year for the company (out of a $4.3bn revenue and a $228m operating income in 2013). While Netflix operates in a totally different area from news, such achievement is worth meditating upon.

Maybe it’s time to inject “direct” focus into the obligatory social obsession.