Wednesday, September 20, 2006

Commerce hubs and the future of advertising

I've learned three things of consequence since I set aside reporting to work on new-media development last November: first, if your news site sucks, upgrade your content management system; second, stop thinking about documents and start thinking about databases; and third, online advertising is primarily a form of information, and its most profitable future relies on packaging and delivering that information in increasingly useful ways.

I think we'll see some big changes in those first two items over the next couple years. Even smaller papers are starting to get more serious about their websites, and Adrian Holovaty recently drew attention to the value of databases in journalism, sparking a conversation that is long overdue. So there's movement on the editorial side, thank goodness.

Yet the advertising side of the industry still seems mired in a fatal illusion: That the online realm is, and will continue to be, an analog to print publishing. I don't blame advertising professionals for failing to spot the coming shift -- they've got their hands full with the here and now, and there is apparently no shortage of paid consultants to feed them status-quo projections. But the culture is shifting around us, and anticipating where it's headed isn't just marketing. It's the only way media companies are going to survive.

Earlier this summer, new-media pioneer Dave Winer summarized the issue and prescribed a course of action:
There's a big trend here, imho it's the difference between the 20th and 21st centuries. In the past the flow of ideas for products was heavily centralized, and based on advertising to build demand. In the future, the flow of ideas for products will happen everywhere, all the time, and products with small markets will be worth making because we'll be able to find the users, or more accurately, they'll be able to find us. "Targeting" customers is the wrong metaphor for the future. Instead make it easy for the people who lust for what you have to find you. How? 1. Find out what they want, and 2. Make it for them and 3. Go back to where you found out about it, and tell them it's available.
But that's a model for people who have something to sell, not a model for those of us who are in the business of helping people sell things. Since the thing that I do (journalism) is (in this country, at this moment) funded by that "help people sell things" role, imagining its future seemed like a natural role for a combination journalist/science fiction writer. By mid-2005 I was beginning to sense a series of developing patterns, concepts that seemed to embody the spirit of the new medium, ideas that I thought might have a future.

I began writing drafts of these concepts last fall with the intent of turning them into a series of posts on this blog, but in December, after accepting a temporary assignment working for our executive editor, I decided to rewrite those posts into one document for my bosses. I've been told that the ideas "sparked some discussions" at higher levels, and here's hoping that those discussions someday lead to something profitable.

Last fall I thought my concepts were extremely obvious, perhaps (as Ed Cone likes to say) "just 30 seconds ahead of the curve." But ten months later, they still read pretty fresh -- particularly on the subject of what the new online media business model is going to look like. So, in the interest of "sparking some discussions" on a wider basis, here's my December 2005 take on the new business model for media, lightly edited back to toward the original blog-oriented version:
Readers, buyers and users
The print-newspaper business model is contradictory and more than a little confusing: We attract readers by covering news, which they pay to read. But the heart of our business lies with sellers, for whom we deliver the attention of buyers via advertising. This is a conflict. For our brand to be valuable, readers must see it as independent of advertiser interests. To keep that reader trust, traditional newspapers have long erected “firewalls” between their news and advertising and editorial departments.

But we have a secret: Those firewalls come with built-in doors and windows. For all our talk about independence, no newspaper wants its editorial department to go around casually angering advertisers. Sure, we do it, but we don’t do it lightly. Not for long. And when we do, even for the best of reasons, we hear about it from those advertisers.

There’s another flaw in this model: Because the firewall isn’t really what we say it is, we’ve developed this odd tradition about covering commerce. Instead of acknowledging that buying and selling and consuming are among the most important activities in our readers’ lives, we pretend that these topics are really of interest only to businessmen. Why? Because writing about products and businesses from the reader’s perspective is a great way to irritate advertisers. This absurd-but-inevitable position creates the market for Consumer Reports, a relatively expensive magazine that actually covers these subjects with authority. Consumer Reports, of course, accepts no advertising, which means it costs the reader more.

So why do they buy it? Because Consumer Reports saves people money. It is, in the purest sense, what all news media aspire to be: Something so valuable that a subscription is considered an investment. Consumer Reports has no firewalls, because everybody at Consumer Reports is working for the same person: The reader. The buyer.

Which brings us to

I use to go to Amazon to buy books. Now I go there buy to books, movies and music, even gardening tools and college-logo stadium jackets for my parents. It’s where I’ll do the bulk of my Christmas shopping, because most of my family lives someplace else.

I’m a loyal Amazon shopper, because Amazon works for me. In fact, I’m its business plan.

It learns what I like. It remembers me. It suggests things, based on what I’ve looked at previously.

Amazon respects my time. It collects, organizes and displays information for me in ways that help me make decisions, and when I’m ready to buy, I don’t have to jump through hoops. I can do research, comparison shop, try a free sample of the book I’m thinking about buying. Even its suggestions are useful, tailored to my interests. It never wastes my time with an annoying pop-up ad for something I would never consider buying.

But there’s one other thing Amazon lets me do: It lets me talk about what I’ve bought and read what other buyers have written. If you think about that from a newspaper perspective, that’s a pretty radical idea. We won’t even let reporters write about the relative merits of one furniture brand over another, or the friendliness and honesty of the staff at a particular used-car lot. Would we just open up a forum for readers to pop in and say critical things about our advertisers?

Of course not. That would be stupid.

But then there’s Amazon, making an awful lot of money by being stupid that way.

And when I really sit down and think about it, I could use a lot more Amazon in my life. I need it saving me time, helping me to make smart choices, connecting my needs to products and services in intelligent, adaptive ways.

I need this concept at work in my community. Not just an Amazon for the same-here-as-there world of books, but a similar concept that connects me to the businesses in easy walking distance or a short drive.

When I’m going out to dinner, I’d like to know what’s on each restaurant’s specials board. I’d like see their price for fresh fish, read our restaurant critic's most recent review and check to see what other diners had to say about their experience. Sure would be nice if I could make a reservation online, too.

When I want to go to the movies? Same thing. I don’t just want to buy a ticket online – I want to interact with other movie fans. I want to read what others think, but maybe my tastes are special – maybe I only want to read reviews from people with similar viewpoints. I want a site that helps me filter out the clutter and find the things that are relevant to me.

I need other things, too – like, say, a mechanic I can trust. Actually, I need two – one for a domestic sedan, the other for an import van. I need plumber and a guy who can repair the plaster in my ceiling. I need a lawyer and a built-in dishwasher. Ads give me a clue about who to call, but it’s not generally high-quality information. Sure would be nice if I could do my research, price my job, schedule my service, check references from previous users and conduct my business all in one place.

I think the future of our online business lies within that example. Why not use our unique position in the local media market to build online marketplaces that integrate all the research, interaction, information and commerce functions of smart, 21st century commerce in one, easy-to-use site? Not an advertising section with stories in it. Not a story section with ads on it. An integrated commerce hub where readers will research, locate, compare, price, discuss and buy – all in one place.

It’s a product that generates revenue for us before we sell the first ad, but I have no doubt that ad sales will follow. Why? Because by bringing interested, motivated buyers to a single virtual marketplace, we will have created a location where sellers want to be.

It’s hard to even imagine such a thing today, but it’s worth doing. Imagine, for instance, a site that combines all our golf coverage with all the stories we’ve ever written about local courses, all the relevant external links (no pun intended, but hey…), columns and blogs by golf writers (both professional and amateur) … and then, at the end, a service that lets the user find available tee times, compare costs and features, and then book a round for his foursome, all without having to leave our site. Everyone benefits, and we get our cut as the middleman.

Now imagine you’re an ad salesman. Why would a local golf course want to advertise online anywhere else?

We need to get in the habit of imagining such relationships.

Could you apply such thinking to automobile maintenance? Getting your house painted? Buying stock online? Could you build a hub for tourists, integrating all the things tourists need to plan and enjoy a trip to Charleston?

So where’s our money in this model?

Everywhere – depending on the type of transaction we’re assisting. Sometimes we’ll sell upgrades from our standard free listings – a detailed restaurant menu, maybe photos or maps. Sometimes we’ll sell services: Perhaps a blog-like “blackboard” where business owners can talk about their specials or chat about whatever’s on their minds. We might charge some vendors a flat fee for providing e-commerce services that lets shoppers buy their merchandise through our site. Others might list their products and services for free, but pay us a commission when we connect buyer and seller. A car dealer might pay us a finders fee. We could even put a Pay-Pal button on some of our sites and ask for tips!

Other types of companies could do this – and, if news organizations don’t do it, these competitors likely will. But nobody else starts with the local advantages we enjoy. They would have to create the content that would give such hubs their depth and value. We already own it. It’s called our electronic archive. They would have to hire writers, set up business, I.T. and advertising staffs. They would have to spend money on marketing just to introduce their brand. But everybody knows about the local paper, and every day thousands of people wander through our website. How might that number change if we made our online brands and their affiliated products significantly more useful?

Coordinating our efforts
The key concept here – the thing that makes the whole idea work – is that because a commerce hub doesn’t require advertising to generate revenue, the traditional firewall between advertising and news becomes purely elective.

Sure, a restaurant might protest a negative review by threatening to pull its ad from our online dining hub – but if that hub is the single spot where the majority of local diners go before going out, that ad won’t stay gone for long. What’s more, the interactive features of a truly integrated hub change the dynamics of a bad review. In print, publication is the end of the story (except for the angry phone calls and occasional letter to the editor). Online, publication is just the beginning of the conversation. Some readers will come to the restaurant’s defense. Others may take the reviewer’s side. Restaurants that participate in the debate – or at least follow it – will learn valuable information about how to improve their business, and would-be diners will get a much more detailed picture of whether or not a restaurant suits their tastes.

As an advertising market, a hub also offers the advantage of being far less susceptible to competition from our traditional media rivals. Smaller publications have been able to take some of our ads by promising downtown bars and restaurants better bang for their buck. While these generic-content competitors won’t go away, the self-selecting nature of a commerce hub audience makes the hub a naturally focused and efficient advertising market, something far more similar to the Yellow Pages than a typical newspaper section or website home page.

Some businesses will be happy to be part of our free listings but may pass on the functional upgrades we’ll offer them for a price. Others may choose to buy tradition online ads and ignore the new products we have to offer. Whatever. Hubs offer businesses a greater ability to customize their presence, and that’s a very Web 2.0 concept. This new medium rewards customization and punishes one-size-fits all inflexibility.

To offer that flexibility, our approach to online business must be equally fluid. Gone are the days of the all-encompassing revenue source, and that means we must learn where we can add value in each transaction. That observation will determine where, and how, we get our cut.

This means changing the way we think about our web operations. It is no longer enough to bundle our multiple products under a single brand, with built-in firewalls between departments. We must begin thinking about every meaningful subcategory of reader/user/buyer interest as the focal point of a new product. We must organize our new-media efforts via interdisciplinary teams rather than by traditional departments.

This last step is only possible when we align our focus to serve one goal: The needs of each individual reader.

Almost a year later, those ideas remain left-field visions, easily derided and ignored. We'll see how it all looks five years from now, and compare notes. See ya in the future, campers!