Robert Niles is one of the sharpest commentators about digital journalism and the business of journalism. So his tweet last night caught my eye:
Deal with it – There is no new revenue model for journalism.
He linked to his latest post at OJR: The Online Journalism Review. He makes a lot of excellent points, as I would expect, and I will review some of them later. But I believe he is wrong on his central point:
There are three ways – and only three ways – that publishers can make money from their content:
1. Direct purchases, such as subscriptions, copy sales and tickets
2. Advertising
3. Donations, including direct contributions and grant funding
Robert laments that people in this business are wasting time and energy in a “doomed quest to look for their revenue model Holy Grail.”
I couldn’t disagree more. Other businesses (Amazon and eBay, to name two) are thriving online by selling products directly to consumers. If a news organization developed an easy, efficient way of selling products and services directly online for business customers in its community (or businesses from elsewhere wanting to reach its community), I think it would develop a digital marketplace for its community that would bring new revenue for the media organization and a fundamentally new revenue model.
Perhaps Robert includes this in advertising (though he did not mention direct transactions in his three-paragraph discussion of advertising). This model does rely on the media organization’s ability to build an audience and sell access to the audience, which Robert correctly identified as the essence of advertising. But advertising is an expense line in the budget of a business customer. The business has to decide that the potential return is worth the investment. And, unless coupons are involved, the business has difficulty measuring the return (Did business boom that week because of the ad or because of nice weather or the new sign you built? Or would business have been even worse in a bad week without the ad, and how much better was it because of the ad?). But a business model built on conducting direct transactions for business customers brings them measurable revenue. The media organization doesn’t send the business customer an invoice. We send a check (after subtracting our fee). Yes, the contact point may be an advertisement, but that’s a new revenue model.
Robert also might have thought he covered this aspect in direct purchases. He did mention tickets, one of the items a news organization could sell for business customers, in the three ways, in the “direct purchases” category above. But the six paragraphs elaborating on that point focused entirely on direct purchases of the media company’s content. That is thoroughly different from creating a digital marketplace for businesses in the community.
If a media business has pursued the digital-marketplace revenue approach (part of my Complete Community Connection model) to any serious degree, I am not aware of it. Robert should not lump it in with direct purchases of the news content or with advertising and should not dismiss it as a fictional Holy Grail. It is a possibility we have not fully explored and need to.
Robert is fully aware of the C3 revenue approach, by the way. He invited me to write about it for OJR last year. I am not sure whether he has dismissed the transaction focus of C3 as impractical or whether he sees it rolling in with advertising and direct purchases of content. I will be writing Robert to ask his response to this (it’s about 7 a.m. on the West Coast and I don’t want to wait to post, since his original piece will be generating discussion already today. It’s already been retweeted more than 25 times).
I think we may have other revenue sources as well. I explained in three posts about my mobile-first strategy that I see great opportunity in helping local businesses connect with mobile customers in ways that go beyond advertising. Some of these ways might be mobile versions of conducting direct transactions, as I’ve described above. But we might generate significant new revenue by developing and promoting mobile applications for business customers.
And I don’t think those are the only revenue sources. I encourage others to continue the search for new revenue models to support journalism.
That said, I still recommend reading Robert’s post. Even though we disagree on this, he makes some excellent points:
- “Allow me to suggest that much of what has passed for advertising has been, in fact, donation funding.” He is absolutely right about this. Advertising had (and still has) benefit for the business that buys an ad, but part of the historic advertising relationship that newspapers (and local broadcasters) used to have with local businesses was that they supported each other out of a sense of shared commitment to a healthy local business community: You buy your tools at my hardware store and I’ll advertise in your paper. Robert insightfully notes that as media consolidated and as national chains came to dominate the retail sector, “the personal relationships that news publishers used to have with advertisers have been severed.”
- Robert correctly notes the folly of looking for salvation by charging for digital content: “No one is going to be able to craft a paid content model that elicits significant payment from more than a handful of readers for commodity news.”
- Robert calls for greater effort and investment in “cultivating and studying innovation in news gathering and production.” We agree about that. He says funding for research on business models should be diverted into that quest. I say they need to proceed together.
I just posted this response (to Steve’s response) over at OJR, but wanted to include it here, since Steve was so gracious to devote a post on his blog to me piece:
As to Steven’s response on his blog, direct sales to consumers was the first of the three methods of making money that I listed. Direct sales includes not just subscriptions and single copy sales, but any form of selling information directly to a customer, including datasets and directed research. (I should have included that line in the piece. Apologies.)
Again, though, I submit that most news organizations vastly overvalue the commodity information that they produce.
General assignment reporters, without formal training or professional experience in the beats that they cover cannot hope to create content of great value than then professionals now blogging on those beats.
I do believe that there is a market for information, as Steve writes about, but that it cannot be served by current newsroom production models. To create content of enough value to be sold in that market, news publishers need to employ (or be run by) experts with greater experience in these fields. But that change needs to happen on the production side. Asking marketing or sales to make it happen won’t work.
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Ugh, “my” not “me” in first graf. It’s not yet “talk like a pirate day,” is it?
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Robert, thanks for your response, but you misunderstand me: When I talk about direct sales, I am not talking about selling what our company produces. I am talking about brokering sales for our business customers: Instead of selling them eyeballs, we help them sell their products, which is what they really want. In addition to publishing engagement announcements, we host a bridal registry, so we are actually selling wedding gifts and collecting the money for local merchants. In addition to publishing coverage of the local sports team, we sell tickets and sweatshirts and those ridiculous flags people fly on their car windows on game day. In addition to developing apps to help mobile customers access our content, we develop apps to help local businesses sell pizzas. And so on … I have detailed these approaches in other posts: http://bit.ly/RtJO7 and http://bit.ly/70dwFz
This is genuinely a different revenue model than selling your data or the information you gather. To lump it in with direct sales of content is to undervalue its potential.
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I’ve been beating my head against the “direct sales” model for a number of years, trying to wrap my brain around how to do it.
It’s important to recognize that Amazon started with no affiliate sellers. It was a shop online, no intermediary between its ability to ship efficiently and cost effectively and the consumer. Also both Amazon and Ebay benefit by scale. They can make a lot of money off of nickles and dimes.
Those models don’t scale down to a local level, and I don’t think there is a newspaper company in the world big enough to achieve enough scale to get sufficient ROI.
I saw Dave Chase’s comment on a project he’s working on, so maybe he’ll prove me wrong. He’s just the man to do it.
However, have looked at lots of ways on how to implement it — I don’t see how you shave off enough revenue as the fourth link in the chain (manufacture; warehouse; local shop; add in news site; consumer, as the five links). The local retailer has a hard time justifying slicing its own profit to share; you can’t increase the price, and PROBABLY you even need to discount to entice online consumers).
It would be foolish for a local news site to go directly into product sales, knocking the local retailer’s link from the transaction chain.
There is probably some there there to transactional advertising, but I’m finding that at the local level, the traditional models still work best.
Final thought: what local businesses need is not a way to sell online (though there is some of that and some place for that, but not necessarily the news site taking a slice) — what they need is help competing more effectively in a world where they are increasingly hemmed in by Walmart and online shopping. They need help most getting feet through the door of their B&M stores. That is a critical need for the communities local publishers serve.
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Thanks, Howard. The scale issue is valid, though I think a news organization serving lots of local businesses would have scale opportunities that the businesses themselves would lack (we’re talking here about truly local businesses, not the local branch of the big chain).
As for adding a fourth link in the cost chain of the product, local media companies have lived for years by taking a piece of the local retailer’s link through advertising. Direct sales offer us a more meaningful way of doing that (and by being more meaningful, a way to reclaim some of the ground we’ve lost). And if all we get from that is the revenue we used to get from advertising, we’ll be happy.
If you know of someone who’s tried this to any significant degree, I would love to learn from their failure. But I believe this is an approach still waiting to be tried.
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The other aspect of scale is the amount of work involved.
Let’s say you sell ball caps for the local team — what’s your monthly take, maybe $50 per month?
Who tracks and stocks and ships inventory? Now you’re going to deal with that 100s of times over? (and can you even come up with enough unique products in your online store so that you’re not directly competing with international online sales shops such as Amazon and Walmart?)
Or are you proposing you sell the cap and the consumer goes to the ballpark to pick it up? Well, what’s in it for the consumer then? Cost savings? Convenience? I don’t think so.
So do you have the local shop ship the product? How do you handle inventory control then? And who is responsible for the consumer relationship when the product isn’t shipped (you will have shops that don’t respond to orders, I guarantee it). Your brand gets tarnished with consumers and the local shop owner resents “being put in the middle.”
I’m not trying to be a naysayer, but these are the kinds of problems that need to be solved.
We were talking about these ideas in Ventura in 2002 and I’ve never stopped thinking about it. I would love to get more transactional with The Batavian (something we do with Deal of the Day, and even though we’re not dealing with direct products (though I’ve also tried selling direct products with no sustainable success), I’ve learned a lot that further reinforces some of my doubts about the viability in small scale (and it would be small even for a major metro) basis.
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Howard, those are excellent questions. If/when I have the answers more than hypothetical/speculative, I will be blogging about them in detail. Of course you would not make the buyer go to the ballpark to pick up the hat. Perhaps you engage with a local company that handles fulfillment of all orders. Perhaps you launch a fulfillment/inventory startup. Perhaps you process an order that the baseball team (and other local businesses) fulfills itself. Those are important details we need to work out and I don’t pretend to have them all worked out. I am sure the media company that works them out will be in for a lot of headaches. And I am confident that company will have a better shot at a prosperous future than those that rely on the old advertising-based model.
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Picking up on the direct-sales question, while I’m no expert, I do know that at least one classified front-end system vendor is offering a “retail store” module to allow local businesses to put their inventory online and sell it through the newspaper’s Web site. Don’t know how the pricing works, who has deployed it yet or what their experience has been, but I’ll try to find out; please stay tuned. Anyway, it is out there.
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I’m sorry I have to be obtuse on the project I’m kicking around. It’s not my idea alone so I need to respect the others involved but I’ll share what I can.
Howard raised an important issue on inventory that is avoidable. Let me give you two examples of where one can do a direct sale and not have to take physical inventory.
1. Groupon (before it I think there was something called DeliveringQC or something like that at a paper in the midwest) isn’t part of a local site but there’s no reason it couldn’t be and the local site has a huge benefit of a built-in audience. It’s a clever and apparently highly successful model.
2. Study Ruelala and the Gilt Groupe. In many cases (but not all in Gilt Groupe’s case), they don’t take inventory. They put on the short-term sale, collect the money, and then at the end of the sale send whatever $$ to the manufacturer and the manufacturer drop ships the product to the consumer. Pretty dang efficient business model for Ruelala et al.
In both examples, the publisher collects the money and then doles out the money based on whatever was negotiated and never had to get into the logistics/inventory business. I like this as there’s no accounts receivable and a publisher, more than anyone, knows the value of their audience (or should). It’s not a generic e-commerce business which would have the issues Howard raises.
There’s much to learn from Groupon, Gilt Groupe and Ruelala (not the least of which is they have attained massive value in a short time).
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Thanks, Dave. I am a big fan of the DeliveringQC project (need to get updated on its Groupon phase). Will look into these others as well. Howard raises some valid issues, but they are not insurmountable.
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[…] Niles made the bold argument that there is no revenue model for journalism. Steve Buttry filed a point-by-point rebuttal, and the two traded counterpoints in the comments of each other’s posts. It’s a good […]
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Dave, I would be very concerned as a local site publisher about taking on selling direct from manufacture role.
On one side, I would have to be careful not to carry any of the same products sold by local businesses. That seems like a treacherous path.
But even if I successfully navigated my way to a non-duplicate inventory, I would still be concern about the _perception_ that I was going into competition with my advertisers, and that they would still view my efforts as taking dollars out of the local retail economy.
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Howard – That is a valid concern. The first thing to emphasize is that this isn’t about creating an Amazon.com that has complete inventory, etc. Rather, this is just one segment of the market that the Ruelala’s are tackling. The end-of-season excess inventory. From the manufacturers point of view, these private-sale businesses actually help the retailer as it’s quite contained and it avoids what normally happens. That is, the “bottom feeders” come in and are literally paying pennies on the dollar for product and then that product shows up at local flea markets, etc. If it’s competing with anything the retailer is doing, it’s the end-of-season closeouts they use to clear out inventory.
The other factor a publisher has to consider is whether retail is a big advertiser category for them. While it certainly has been for newspapers, it hasn’t been the case for us. Thus, this closeout/sample sale scenario is one small fraction of vertical that isn’t performing well for us. Thus, it’s not as much of a worry. That may not be the case for others.
The other longer-term consideration will be what the role of storefront retail is. I think we are at the front-end of a fundamental reshaping of the bricks and mortar retail business that is independent from media shifts but certainly has implications we must all consider.
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So obviously, I’m looking at this through my own prism.
16 of my current 60 advertisers are retail outlets.
Not only would I not want to ruffle their feathers, but several other advertisers I know might have a concern if I ruffled the feathers of some of their friends in retail.
To me, hyperlocal advertising is more than 50 percent reputation/relationship. I try to be very conscious of that in all I do related to advertising and selling.
I’m not saying, per se, it’s a bad idea, don’t do it, or even that I wouldn’t at least seriously consider it — these are the concerns that first spring to mind for me based on my experience.
And hopefully that perspective is useful to you in refining what you’re working on.
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I think the moral of the story is there are commonalities and lessons learned that are transferable but at the same time, it’s not a one-size-fits-all out there. I can certainly see why you’d have trepidation with that many advertisers in retail.
I wholeheartedly agree about the importance of relationship aspect especially the smaller the community one is addressing. The fact that one’s kids are on the same soccer team, etc. never hurts on building/maintaining advertiser relationships. If I was in your shoes and you ever got to the point of wanting to experiment with something like this, I’d be very proactive with the advertisers communicating what it’s all about.
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[…] Others might disagree with Niles and cite a plethora of other revenue streams (see: How to turn journalists into profit centers), but I don’t think we can outright dismiss Niles’s point of view by dreaming up other revenue streams outside of these trusted few. […]
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[…] might disagree with Niles and cite a plethora of other revenue streams (see: How to turn journalists into profit […]
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[…] > There is no new revenue model for journalism (source: OJR: The Online Journalism Review, 12/01/2010) / lire aussi ce contre-argumentaire […]
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[…] > There is no new revenue model for journalism (source: OJR: The Online Journalism Review, 12/01/2010) / lire aussi ce contre-argumentaire […]
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[…] Niles made the bold argument that there is no revenue model for journalism. Steve Buttry filed a point-by-point rebuttal, and the two traded counterpoints in the comments of each other’s posts. It’s a good debate to […]
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[…] Robert Niles says there is no new revenue model for journalism; I disagree (stevebuttry.wordpress.com) […]
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I think the moral of the story is there are commonalities and lessons learned that are transferable but at the same time, it’s not a one-size-fits-all out there. I can certainly see why you’d have trepidation with that many advertisers in retail
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[…] on the go and 4 ways to measure the local mobile advertising opportunity. I wrote about new revenue streams for journalism. I advised a blogger worried about Patch coming to her community that competitors can also be […]
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[…] in the week I came across this post by Steve Buttry and a link to an article about there being no new revenue model for journalism. I disagree too […]
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[…] them eyeballs, we help them sell their products, which is what they really want. Steve Buttry Robert Niles says there is no new revenue model for journalism; I disagree # And the way it makes money need not be in click-throughs on intrusive ads. That’s the old […]
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