Not Dead: The Paid-for Online Model

Death reports of paid-for models on the Internet have been greatly exaggerated. Granted: the network’s genome carries the “free” nucleotide.  As in both freedom and free goods and services. Like it or not, its publicly funded origins (universities and the Pentagon) led to the emergence of widely adopted services such as search engines or Wikipedia.  In turn, these have sealed the fate of the paid-for model as the dominant one. Right. I intentionally emphasize dominant. Because like everywhere else, hybrid forms are likely to emerge. More

Defining media moments in The election

What a ride! On December 24, 2007, for the customary but risky New Year prediction game, I wrote: “Barack Hussein Obama will be elected the 44th President of the United Sates of America on November 4, 2008. Why? Because he’s smart, he’s new, he’s clean, he’s authentic and because he is, by any measure, the antidote to the Bush era”… At the time — this was prior the bitter primary season — the outlook was grim. According to a CBS poll, Obama was trailing Hillary Clinton by 27% to 44% in the voting intentions, and only 41% of the registered Democrats considered the Illinois senator experienced enough against 83% who thought Hillary was ready to take the job. And she had the best chance to win the election by 63% versus 14% for Obama. More

What Now?

On November 4th, watching the election results at home in Palo Alto, I’ve seen tears in the eyes of reputedly and professionally cynical French people assembled for the momentous occasion.  We were proud of the country that hosts us and adopts us in its generous melting pot tradition.  Now, we are prouder, even, of its ability to stare at its old demons and to heed, instead, the invocation of its better angels.  One convincing, resounding vote ends eight years of appeal to fear, to mediocrity held up as virtue, of fake religiosity, of destroying liberties at home and lives abroad, of making the Statue of Liberty weep.  All this with a fittingly absurd coda: financial ruin and the socialization of the financial system by rigidly free-market ignoramuses.
So, Barack Obama (see the unusually good) won the 2008 election.  He raised hopes to heights never seen since … I’m not sure when.  I don’t believe JFK rode into the White House on such a combination of despair and hope, of war and recession.  Now, Obama (Barack for “blessed”, if we are to believe dueling Semitic languages) is cursed with winning and having to run the US government, with answering the sky-high expectations his campaign and his person have raised.
Can he deliver?
From a Silicon Valley, VC perspective in my case, there are reasons to see a light at the end of the proverbial tunnel — the light one local wag said George W. Bush had turned off to save energy.  I’ll start with the return of meritocracy vs. the self-defeating, falsely populist mediocracy of the W years. Even the Republican columnist at the NY Times, David Brooks, ended up chastising his fellow conservatives for their low pandering.
In practical, actionable terms, we’re likely to see an overt (and real, let’s not get confused) insistence on science education, high-tech investments in infrastructure, energy and, I’m not holding my breath, high-efficiency vehicles.  Of course, most of us in the Venture Investing biz will have to pay more taxes.  Personally, I want to pay more taxes my way: by making more money, that is by making investments in successful start-ups, that is young companies that sell a lot of their products. And, for this to happen, beyond good products, good entrepreneurs (and visionary but modest investors), we need customers with money to spend on our wonderful innovative products and services, we need a prosperous middle-class.
We tried the trickle-down trick: taking middle-class money to give it to the top 2% of the population. The theory was, you will recall, the 2% would both invest wisely and spend a lot.  As a result, more consumption, more jobs for the middle class. There are no guaranties the new (old, actually) theory will work better. There are plenty of reasons to fear a recession will make the new administration impotent or, worse, that an overly powerful Democrat Congress will keep at its old corrupt games.  Remember, Democrats voted for the catastrophic deregulation of CDS (Collateral Debt Swaps), the most likely trigger, not necessarily powder, for the financial explosion.

No, the real reason to hope was outlined to me at breakfast this last Thursday by an Apple insider. The individual gave money to Obama using the MyBarackObama social network.  Our Monday Note has already sung the praise of what is the most exemplary, most efficient, most grassroots Internet political campaign tool – so far.  What this person told me is the morning after the election, the network was already pinging him, sending him news, calling for action, asking for volunteers to help the Transition now and the new Administration later. Actually, if you want a job in the Obama White House or government, go to change.gov and fill a preliminary application.  I did.  I’m not holding out many hopes of being named Treasury Secretary or Internet Czar, but I’m curious to see what’s going on and if I could help.  Perhaps volunteering as a “good BS” teacher to high-school kids.
Even more seriously, the real point: Obama has built a direct democracy machine second to none.  He’ll have to make real decisions soon.  In plain English: he’ll have to disappoint some people, he’ll have to fight entrenched interests, some very legitimate ones, some richly “lobbied”.  In many cases he’ll have to fight his very own Democrat Congress if he is to perform effective surgery on the tax system and on the country’s spending.  For this, he’s built a network to speak to his supporters over the heads of heavily lobbied, I’m being polite, I won’t write “corrupt” Congress.
Let’s remember: according to Bloomberg, Obama raised the most money, $650M, from more than 3 million Web donors, with smallest average donation, around $200 per person.
I can’t wait to see the Internet Obama machine in action again. –JLG

Redefining journalism

With the violently agitated context of so many platforms and of a potentially unlimited supply of agents, how do we update the definition of journalism? Where do craft or trade begin, where do they end? Inevitably, the profession reacts by circling the wagons, hoping to hold its own against hordes of writers now fragmenting what used to be cozily monolithic, easily understood audiences.  This is the time, more than ever, to revisit notions such as news reporting and news treatment.  This rethinking can’t be centered around yesterday’s corporatism, or legal definitions.  Instead, we must look at the following three concepts:
-    ethics
-    practices
-    training
We could also mention types of journalism, nature of the players, media… But, for today’s discussion, these are just sub-chapters.
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The end of Motorola?

Once upon a time, Motorola was the king of cell phones. AT&T invented the cellular network, Motorola, already a leader in radio technology, designed the mobile devices and, in 1983, introduces the Dyna-Tac, the first of a long line of clearly superior products, all ending in Tac.  In the late eighties and nineties, MicroTacs and StarTacs were musts for Silicon Valley geeks and MBAs alike.  Motorola’s prowess was, in fact, much wider, ranging from NASA communication equipment to microprocessors (6800, 68000 and PowerPC families) and networking equipment.  The company even made yet another name for itself by inventing the Six Sigma quality improvement processes.  Motorola was a widely admired electronics giant.  Was. More

News websites: More bucks for the click

Here’s the tragedy of our business model: Swelling demand, shrinking revenue. News is much in demand in these turbulent days.  The number of viewers is on the rise.  And, at the same time, the money we manage to extract from these swelling audiences is shrinking inexorably. We are about to pay the price — so to speak — of our dependency on the advertising market, one that is highly sensitive to deteriorating economic conditions.   If, during 1929’s Great Depression, the cost structure of media had been what it is today, how many news organizations would have survived to report it? More

Android: First Impressions

Let’s forget, for a moment, the sublime irony at the end of the W years, the right-wing neocons’ parting gift: a socialistic, state-owned financial system. Too depressing.
Instead, let’s take a first look at Android, the latest entry in the most dynamic segment of the high-tech industry, smartphones.  (The nice folks at T-Mobile will immediately object, it’s their phone not Google’s, but tell that to users, it’s Android, it’s the Google phone.) More

Paid-for-free papers: the mirage of the hybrid models

In less than five years, major newspapers will be giving away more than 50% of their copies. We call this the hybrid model. It works like this: a paid-for newspaper (one posting a price on its first page) with a vast portion it circulation distributed in selected – that’s the key point — areas for free.
I started writing this column last Monday in the Copenhagen airport while waiting for my connecting flight to Oslo. I was able to grab a copy of the International Herald Tribune for free in an airline courtesy rack.   All the while, fifty meters away, a newsstand sold the very same paper for 20 Danish Kroner, approximately €2.68 Euros or $3.60 dollars. (Just for context: the New York Times charges $2.80 a week  for weekdays home delivery in Manhattan).
Where is the catch? Actually, the IHT does just what many other papers already do: selling papers to airlines to reach business travelers. And the higher you go in the air travel social ladder, the more free papers and magazines you get. Business hotels do the same.  But for airlines, the deals are well structured, mostly for logistics reasons: putting the right number of copies in airport gates and on-board is way more complicated than dumping stacks in a Hilton. Numbers are closely held but, usually, airlines buy newspapers for a fraction of the face prices. For the International Herald Tribune, it must be around 10% of the official price while others get around 20% of the same. But, in many cases, cross advertising deals and logistics billing end up offsetting the entire price of the paper. Then, we can safely say that any paper you find while boarding your plane is 100% free from the publisher’s perspective.
Why are publishers paying such a high price to have paper delivered on airlines? Two reasons: reader attention and demographics. In this context, there are no official studies for daily newspapers or news magazine.  But we can derive a few trends from the in-flight magazines industry. According to a survey made in 2006 by Arbitron (PDF here), 80% of travelers have read an in-flight magazine in the past month. During each flight, the time spent reading is 31 minutes — that’s about the time spent daily by a reader of a national newspaper in Europe. Again, this is for a magazine, nice and glossy, that just happened to be “in the seat pocket in front of you”, but with a rather shallow content. For a newspaper you actually choose to pick-up at the gate, the reading time and emotional engagement is likely to be higher, especially on long-haul flights.  Now the demographics: 72% of such readers have an annual household income higher than $100,000 and 27% higher than $200,000. An attractive target indeed.
How big is the airline free distribution? That’s a good question. Free or almost free distribution is buried deep into audit circulation data. Let’s have a look at the International Herald Tribune figures. As a Paris-based newspaper, the IHT files its circulation data to the French audit bureau of circulation (OJD) even for its global sales.

Here are the key figures (rounded) for the full year 2007:
-    Total circulation: 242,000 copies
Breakup per zone:
-    Europe: 57%
-    Asia: 38%
-    Middle east:  2.5%
-    Americas: <2%
Breakup by type of circulation
-    Individual sales: 44%
-    Third party paid circulation: 38%
-    Non paid circulation: 18%
Now, the OJD report shows that in the “Third party circulation”, airlines account for 60% and various “hosting” (than includes hotels and corporate sites) for 36%.
Well, you get it: more than 56% of the circulation of The Herald Tribune is actually free. (That is all third party, 38% + the 18% admittedly non-paid). And if we apply the same calculation to the French press, we get, as a real free circulation:
-    17 % for Le Monde
-    27 % for Le Figaro
-    37 % for Les Échos (France’s main business daily)
Hence the question, how to implement the idea on a much larger scale? How to reach a bigger chunk of high value audiences using the same technique?  “Than can be summed up in one idea”, says Bruno Patino, former CEO of Le Monde Interactive, who likes to pitch the concept of paid-for-free newspapers: “The audience I do want, as a publisher, gets the paper for free; the rest have to pay for it”. This principle is applied by an increasing number of newspapers such as La Repubblica in Italy, El Pais in Spain, Le Figaro in France and, of course, the Herald Tribune (eventually to be merged with the New York Times as their websites will soon be). These papers currently give away about a third of their circulation.  My prediction is this proportion will reach the 50% mark in three to five years.
The hybrid model bumps against two limits, though. The first one is the fit of the product to the target audience(s). OK, giving away a business newspaper to a business reader on a flight between London and New York or in Sheratons makes sense.  But for most general news publications, the goal is to cultivate three types of demographics: young, women, and “urbanites” (those who live in big cities and spend well). Problem is: reaching them with mainstream newspapers doesn’t work, even (or especially) free ones.  In France or in Spain, in places such as universities where several newspapers stand side-by-side, the ones who go first are the quality free papers such as 20 minutes, Metro, or Qué, which are designed precisely for young urban people of both genders. (Having said that, it is probably somewhat worrisome that student don’t pick-up newspapers with heavy world affairs or economics coverage, but that discussion is for another day). Fact is: we know that the “one-size-fits-all” doesn’t work in the media sector — especially as audiences become increasingly segmented). At least it won’t fly without a major product adaptation and segmentation.
The second limit is the social approach of the news business. Giving away a quality paper in affluent universities, trendy places, while, at the same time, asking a young person leaving in a below-average neighborhood to go to the newsstand and pay for the paper, is to say the least, disturbing.  Of course, there is the option of “you do it, but don’t say you do it”. This is even more cynical. Some will retort that free newspapers have been doing audience selection by optimizing their distribution maps for a long time. Right, but it was done for a much wider audience: in the greater Paris area for instance, the free quality daily 20 Minutes reaches 1.57m people, the second free Metro 1.37m,  compared to 0.8m for Le Monde, 0.5m for Le Figaro and 0.3m for the business daily Les Echos). Plus, free papers are mostly read by commuters, so their social penetration is unparalleled.
There is no argument: newsmedia are not philanthropic institutions. But it is also undisputable they carry out a social function in their community. This function remains more important than ever as media become more interactive, more conversational. And it is part of the monetization process. By making a caricature of the audience selection process, this social function will wither away. –FF

Software: how do you compete with free?

That’s the question Steve Ballmer, Microsoft’s CEO, is trying to answer every morning when he goes to work. On the server software side, Windows Server is doing well, especially with the Exchange e-mail server and the unheralded but very good collaboration server, SharePoint.  These products have matured, they’re relatively easy to set up and manage by IT organizations.  The Exchange component  is a spectacular success: it manages e-mail, contacts, calendars for hundreds of thousands of organizations all over the world.  Even Apple finally embraced Exchange: the iPhone now syncs well with Microsoft’s server and the next version of OS X promises “native” Exchange support.  In plainer English: Apple’s Mail, Address Book and iCal programs, for example, will sync with Exchange “out-of-the-box” just like the iPhone does.  (This will be a relief to suffering Entourage users.  Entourage is Microsoft’s own Outlook sibling on the Mac, but it is a poor relative and lacks Windows’ Outlook depth and polish.)  Seeing that Windows Server generated more than $20 billion last year, one is tempted to think everything is going swimmingly. More