Posts about greatrestructuring

The future of business is in ecosystems

November 11, 2009 by Jeff Jarvis
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Last week, I said that the future of news is entrepreneurial (not institutional). Today, a sequel: The future of business is in ecosystems (not conglomerates or industries).

At the Foursquare conference last week, I was struck by the miss-by-a-mile worldviews held by the chiefs of big, old conglomerates and the entrepreneurs starting new, nimble companies. The conference is off the record, so I won’t quote anyone by name. And in truth, these are the same conversations I hear often elsewhere. Having these different tribes conveniently in the same room merely focused the contrast for me.

In one moment, a very successful mogully man was slack-jawed in amazement at how little money – “$50,000!” – one of three entrepreneurs had used to start another fast-growing enterprise. The big man thinks big – that’s what made him big. The small guys think small and get big by using existing platforms and depending on their users to like and market them. To the new guys, it’s so obvious.

Here was the key moment for me last week: In a discussion about the importance of distribution, some start-up guys – each the creators of new enterprises that took off like gun shots – were asked by a representative of the big, old club which company they would most want to do distribution deals with. The start-up guys cocked their heads like confused puppies. Why would we want to do that? they asked. What was unsaid: Doing a deal with one company would be so limiting. We get our distribution through customers and developers, through embedding and APIs and social connections. That’s how we grew so big so fast for so little. Don’t you see that?

No, they don’t.

This week, we see this contrast, too, in Rupert Murdoch’s threat – he thinks it’s a threat – to cut off Google. Nose. Face. Cut. Spite. Murdoch – whodoesn’t use the internet – does not see how distribution works today. He does not understand that being open to the link economy brings him free distribution, free marketing, great benefit. That’s because he, like his fellow old machers, won by taking control rather than giving it up. This new world is utterly inside-out from the world they built. It breaks all their rules and makes new ones (which is what I tried to analyze in What Would Google Do?). That’s what makes it so damned hard for them to understand it.

In our New Business Models for News at CUNY, we saw quickly that a big, old newspaper company was not going to be replaced by a big, new newspaper company but that instead, news would come more and more from ecosystems made up of scores of companies operating under different means, motives, and models, each dependent on the others to optimize their success. That is why we built in networks that enable separate sites to join, creating critical mass they can sell to advertisers. That is also why we factored in the benefit of platforms, cutting their infrastructure costs to near-zero.

And there, I believe, is the structure of the future of business in the new, post-industrial, decentralized, opened economy. Oh, sure, every economy has always been an ecosystem made up of interdependent relationships. But they were based on zero-sum arithmetic: take and control so others cannot. They work at arm’s length. They negotiate every relationship.

Sure, even in the huggy ecosystem, companies fight and compete. But in an ecosystem-based economy, companies benefit – they find efficiency and growth – by working collaboratively. As I see it, the new economy and its opportunities will be built in three layers:

1. Platforms. There’s tremendous benefit in building a platform and the more people use to succeed, the more the platform succeeds. Google, YouTube, Facebook, Twitter, Amazon, eBay – you know all the examples.

2. Entrepreneurial enterprises. Thanks to the platforms, it’s incredibly inexpensive to start new companies. It’s also a helluva lot cheaper to fail (and try again). This is why I believe that the future of news – and many other industries – is entrepreneurial: because it can be. It’s not just media and its bits. It’s manufacturing (because you can use others’ factories and distribution channels and your own customers as your platforms).

3. Networks. It is still necessary to gather the smalls together into bigs: audience brought together so advertisers can buy access to them more easily; purchasing brought together to get better prices. So there is business in creating and serving these networks.

For the sake a PowerPoint, a diagram of the three layers of an ecosystem-based economy:

ecosystemchart500

In our New Business Models for News Project, this is how I (crudely) drew the ecosystem for news.

ecosystemnews

How do you draw the conglomerate-based industry? With boxes, each separate, with arrows pointing to each other at a distance. Simplistic? Sure, but the change in the worldview of the new economy looks that basic when you hear the two tribes trying to understand each other.

And if you haven’t had enough of my silly charts, here’s another on video.

Did we ever pay for content?

September 19, 2009 by Jeff Jarvis
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In an essay that, on first blush, ranks near to Clay Shirky’s seminal thinking-the-unthinkable think piece, Paul Graham argues that we never paid for content:

In fact consumers never really were paying for content, and publishers weren’t really selling it either. If the content was what they were selling, why has the price of books or music or movies always depended mostly on the format? Why didn’t better content cost more?

A copy of Time costs $5 for 58 pages, or 8.6 cents a page. The Economist costs $7 for 86 pages, or 8.1 cents a page. Better journalism is actually slightly cheaper.

Almost every form of publishing has been organized as if the medium was what they were selling, and the content was irrelevant. Book publishers, for example, set prices based on the cost of producing and distributing books. They treat the words printed in the book the same way a textile manufacturer treats the patterns printed on its fabrics.

Information – Bloomberg terminals, stock newsletters – is a different business. Publishers flatter themselves when they argue they are in it.

What happens to publishing if you can’t sell content? You have two choices: give it away and make money from it indirectly, or find ways to embody it in things people will pay for.

The first is probably the future of most current media. Give music away and make money from concerts and t-shirts. Publish articles for free and make money from one of a dozen permutations of advertising. Both publishers and investors are down on advertising at the moment, but it has more potential than they realize.

I’m not claiming that potential will be realized by the existing players. The optimal ways to make money from the written word probably require different words written by different people….

The reason I’ve been writing about existing forms is that I don’t know what new forms will appear. But though I can’t predict specific winners, I can offer a recipe for recognizing them. When you see something that’s taking advantage of new technology to give people something they want that they couldn’t have before, you’re probably looking at a winner. And when you see something that’s merely reacting to new technology in an attempt to preserve some existing source of revenue, you’re probably looking at a loser.

Is journalism an industry?

September 18, 2009 by Jeff Jarvis
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Journalism is a business – that is how it is going to sustain itself; that is a key precept of the New Business Models for News Project. But is it still an industry dominated by companies and employment?

In the first part of his analysis of the news business, BusinessWeek chief economist Michael Mandel equates bad news about news with the number of journalists employed. He charts newspaper jobs falling from more than 450,000 in 1990 to fewer than 300,000 today and calls that depressing – which it is, if one of those lost jobs is yours. But it could also signal new efficiency and productivity, no? Looking at these numbers with the cold eye of an economist whose magazine and job aren’t on the block, perhaps it is nothing more than the path of an industry in restructuring. Perhaps it’s actually a signal of opportunity. Indeed, Mandel then laid that chart atop one for the loss of jobs in manufacturing and found them sinking in parallel, with newspapers just a bit ahead on the downward slope today. “Not good news, by any means,” he decreed.

But there is the nub of a much bigger trend: the fall news as an industry paralleling the end of the industrial economy. That’s not just about shedding the means of production and distribution now that they are cost burdens rather than barriers to entry. It’s about the decentralization of journalism as an industrial complex, about news no longer being based solely on employment.

A few months ago, I quibbled with Mandel’s BW cover story arguing that America has experienced an “innovation shortfall.” There, as here, I think he’s measuring the wrong economy: the old, centralized, big economy. In both cases, he misses new value elsewhere in the small economy of entrepreneurs and the noneconomy of volunteers.

I return again to the NewBizNews Project, where we modeled a sustainable economy of news at between 10-15% of a metro paper’s revenue – about as much as any of them bring online – with an equivalent amount of editorial staffing but those people are no longer all sitting under one roof; they work in – and oftentimes own – more than 100 separate enterprises. I return, too, to the Wikimedia Foundation calculating the value of time spent on edits alone with it adding up to hundreds of millions of dollars.

In both cases, tremendous value is created at tremendous efficiency outside of the company and in great measure outside of employment.

So is employment the measure of news? No. Is it the proper measure for every industry? Not necessarily. Is it the measure of the economy? Not as much as it used to be. Media is becoming the first major post-industry. Others will follow. You just have to know where to look.

* * *

It’s one matter when new value is created outside old companies in industries such as retail – in WWGD?, I cited $59.4 billion in sales from 547,000 merchants on eBay in 2007 vs. $26.3 billion in 853 Macy’s stores – but another matter when the employment is replaced in industries built around priesthoods: journalism, education, even government and medicine. Then not just economics but behaviors change.

Thus we see fretting about a “post-journalistic age” when new people perform some of the tasks journalism employees used to perform, whether that is advocates digging dirt or universities reporting their own scientific advances or sports teams funding their own reporting or volunteers organizing to report collaboratively. These are just a few of the latest examples from my pre-surgery tabs about voids being filled in new ways by new parties with new efficiencies. This is another reason it’s dangerous to calculate journalism’s size according to journalism’s jobs.

: LATER: Here’s Roy Greenslade still basing his analysis on staffing. Perhaps the better analysis is investment.

The real sin: not running businesses

August 30, 2009 by Jeff Jarvis
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Like priests looking for someone to sacrifice, Alan Mutter, Steve Buttry, Howard Owens, and Steve Yelvington have been on the lookout for the sin that led newspapers astray. For Mutter, it’s not charging; for Buttry, it’s not innovating; for Owens, it’s tying online dingies to print Titanics (my poetic license); for Yelvington, it’s inaction.

But I think Owens hit on it when he wrote this: “I realized I needed to flip the expense/revenue picture upside down. Instead of thinking about how to generate more cash, I needed to figure out how to create a news operation that could exist profitably based on a reasonable expectation for local online revenue.”

Right. In other words, the sin was not running a business. It was not creating a sustainable P&L.

Newspapers have been too busy trying to protect specific budget lines that protected specific interests – the size of the newsroom, the ego expressed in gross revenue that yields stock performance and salary bonuses, the size of unionized staffs (up or down), the rules that governed advertising relationships even as they disappeared. They made preservation their mission.

What they should have done instead is rethink the bottom line: How is journalism going to be sustainable in new business realities?

Said Owens: “In a market where the newspaper newsroom might cost $10 million, I knew how to make $1 million online, or even $2 million, but I didn’t know — and still don’t — how to make $10 million. So if I can make a million online, why do I need operate a $10 million newsroom, especially given the greater efficiencies of online publishing?”

He built a realistic budget based on new business realities. Now picture news executives across the country hitting themselves on the head saying, “Damn, why didn’t we think of that?” They should have. But to do so would have required them to completely tear apart their businesses. Witness Detroit, banking, retail, advertising, insurance, and every other industry undergoing upheaval – nobody wants to do that.

Just as the bloggers linked above took their share of blame, so will I. Owens suggests that the problem with tying old and new operations together. At Advance, where I worked for a dozen years, we created separate online companies, which had some benefits: enabling the sites to build what was right for online (that is, interactivity), creating real value for advertising (rather than throwing in online as value-added), creating smaller and differently skilled staffs. But it also created problems: sites that were dependent on newspaper content, rivalries that killed collaboration and limited the responsibility anyone would take for the future. In the end, everyone needed to rethink what they were creating and what value it had, how they were creating it, how they related to their communities, and how the business could be run. But I didn’t see that happening anywhere in the industry. Everywhere, I saw people looking for someone to blame and somewhere to hide. I don’t put all the blame on the individuals because that’s how companies and industries operate.

Individuals who want to succeed in this upheaval become entrepreneurs. That’s what Owens – and many others – are doing. That, I’ve come to see, is the basis of the future of news.

In our New Business Models for News Project at CUNY, we threw out the old business assumptions with the old business. That’s why we tried to answer the tough question people were asking: What happens to journalism if the paper disappears? (their implied answer was that journalism does, too). What we came up with was one entity being replaced by well more than 100 entities – 1,000 entities, perhaps – each run according to new opportunities and needs, each smaller, each contributing real value, each sustainable (some very profitable; some choosing no profit). Everyone in this ecosystem has to think about running a business rather than preserving one.

Someone else looking for sinners is James Murdoch, whose MacTaggart Lecture at the Edinburgh Television Festival excoriated the BBC for bigfooting the news market in the UK and the government for enabling it and for regulating everybody else. I agree with him to an extent, this extent: that profit, in his words, will make journalism sustainable, independent, and innovative.

Except I doubt that this sustainable, independent, and innovative journalism will necessarily come from Mr. Murdoch’s father’s business and its cohorts because they are the ones that even today are trying to maintain the scale and models for their old businesses rather than inventing new ones. Look, instead, to the entrepreneurs who are starting over and rethinking the business from the bottom up, as Owens is.

The death of snail mail & Sunday papers

July 25, 2009 by Jeff Jarvis
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The Washington Post reports that “in the past year alone, the Postal Service has seen the single largest drop-off in mail volume in its 234-year history…. That downward trend is only accelerating. The Postal Service projects a decline of about 10 billion pieces of mail in each of the next two years, going from a high of 213 billion pieces of mail in 2006 to 170 billion projected for 2010.”

No, physical delivery won’t ever die. (Like a good newspaperman, I lie in headlines to get attention.) Indeed, we’ll get more ever deliveries of more stuff that used to be on store shelves but are now ordered online. That’s what UPS’ and FedEx’ businesses are built for. But, as the Post says, we’re sending fewer messages to each other; we have much better means to do that now. And companies are trying hard to reduce their cost of dealing with us – billing, bank statements – by taking that online.

There is still a business to be had in distributing coupons and circulars (aka junk mail); this is why newspapers are holding onto delivery a day or two a week. But that’s transitional; it won’t last forever.

As volume decreases, costs to users will increase as deliverers try to cover fixed costs that just can’t be cut anymore. Newspapers like to think they, too, have fixed costs and that’s why they keep whining that readers “should” pay their bills. But they don’t; for their core business – content and advertising – papers have new efficiencies online that the Postal Service doesn’t have. Except for those trucks and presses. They are fixed costs and that puts them in the same sinking ship as the mail.

At some point soon, the couponers will desert both the Postal Service and newspapers because they’ll be just too expensive. But consumers still want coupons; they have real value. (I often tell the story of coming back from a strike when I was Sunday editor of the New York Daily News. We didn’t have coupons because our new owner, Robert Maxwell, was feuding with Rupert Murdoch, who controls coupons – aka FSIs or free-standing inserts – in the U.S. When we got them back, circulation went up more than 100,000. Those readers weren’t buying news. They were buying ads.) Coupons are creeping online but it’s still a pain to deal with them digitally. Mobile devices may be the solution, but they’re not there yet.

So physical coupons and circulars are still great business – if you can get them into consumers’ hands. And it occurs to me that someone will craigslist – that is, undercut – both newspapers and the Postal Service in the delivery business. It’s in the interests of Murdoch’s coupon empire to do so and work with large retailers that produce circulars to come up with an alternative. Or an entrepreneur could establish a network to make it happen. I see the return of the paperboy (oops, the world has changed since then; pardon me: the paperyoungperson): networks of small agents who can deliver this material, which isn’t wildly timely (get it there this week) without the cost structure needed for individualized delivery – the Postal Service – or with a time wrapper of expensive content – the newspaper. Again, it’s transitional, but it’s a nice business for some years.

Here’s what happens then: The cost of mailing an old-fashioned letter will become prohibitive as the Postal Service covers its fixed costs for a system we won’t kill.

And the economic benefit of distributing a Sunday newspaper will all but disappear and news organizations – the ones still standing – will have no reason to hold onto the presses and trucks.