Thursday, March 11, 2010

Andreessen’s not-so-hot idea for publishers

Marc Andreessen had a really good idea when he invented the first popular browser for the web, but his latest notion – that newspapers should walk away from a business grossing more than $30 billion a year – is just plain nutty.

Evoking Hernan Cortes, the 16th Century conquistador who legendarily destroyed his fleet so members of his expedition to the New World would not be tempted to return to Spain, Andreessen said mainstream media companies summarily should abandon their traditional businesses so they can concentrate single-mindedly on new media. “You gotta burn the boats,” he told TechCrunch. “You gotta commit.”

If he applied the same intellectual rigor to this topic as he presumably does to his work as a golden geek (see 1996 Time Magazine cover at left), Andreessen could have used the web browser he invented to quickly discover the realities of the publishing business by viewing the sales data published by the Newspaper Association of America.

The data show that the $3.1 billion in interactive advertising collectively sold by newspapers in 2008 accounted for 8% of the industrys $38 billion in ad sales. If you assume papers generated another $7.5 billion in circulation revenues in 2008, then some 93% of the industry’s $45 billion in sales were associated with the legacy print product. Even though ad revenues probably fell $10 billion in 2009, print-driven newspaper revenues sill are running at better than $30 billion a year.

It doesn’t take a certifiable Silicon Valley genius to see that no business can walk away from some 90% of its revenue base without imploding. Andreessen should know this better than most, because he watched Netscape, the pioneering browser company he helped launch, go from supernova to black hole in a few short years.

Netscape kicked off the tech boom when its valuation as a public stock broke all kinds of records by climbing to $2.2 billion in its first day of trading in 1995. The company rapidly grabbed some 90% of the nascent browser market as the Internet rocketed from science labs into the mainstream. Within five years, however, Netscape was well on its way to becoming a footnote in tech history.

Why? Because it was forced to stop charging for its innovative software when Microsoft flooded the market with a free browser that did the same thing. With its business model mortally threatened, Netscape cleverly sold itself in 1998 for the implausible sum of $4.2 billion to AOL, which was besotted by its own early success and excessive market capitalization,. The Netscape name limped forward as an obscure and underfunded division of AOL until the plug mercifully was pulled in 2007.

The lesson is this: While there may have been no way to save Netscape after Microsoft changed the rules of the game – and there may be no way to fully defend newspapers from the countless digital competitors gnawing away at their audience and advertisers – you sure can’t transition a business to a new model by torching 90% of its existing revenue.

There’s simply nothing constructive – or amusing -- about this sort of thinking.


Blogger Unknown said...

I agree that it is ridiculous to abandon print revenue. But, I do believe that newspapers should be setting up separate digital divisions that act like true start-ups. As long as print and digital are tied together, protecting print revenues will trump digital innovation. That's not the way to prepare for the future.

6:13 AM  
Blogger mhnin said...

He's been saying this for a while. I remember it from a Charlie Rose interview from a year ago.

6:30 AM  
Blogger Matthew Terenzio said...

I fully understand that many print products are still very profitable but revenue numbers don't mean a hill of beans if cost of production is greater than them.

So, while print revenue is 90% of the revenue, it is also print production and circulation that is 90% of the costs.

Judy is right that the conflicts of interest are too great for most companies to innovate inline.

I don't say "burn the ships" but I do say "burn the ship to shore boats."

8:14 AM  
Blogger -30- said...

I think there may be some merit to Andreessen's idea, not in abandoning print fully of course -- that as you point out would be stupid -- but in abandoning some of the old print ideas that still permeate the online operations of newspapers.

Today a lot of newspaper online ops are still managed and even staffed by people that still have a decidedly print-centric mentality: they cling to a 24 hour news-cycle mindset where though the web may be updated first, the "real" story is only the one in the paper. Many still cling to their print subscriptions for the same reason, that they are the "real" fruits of their labor, even while they eschew the web as a source of news and information.

It is these attitudes that are the lifeboats that need to be burned. Maybe that's what Andreessen meant.

9:26 AM  
Anonymous Perry Gaskill said...

I wish someone could explain to me how Marc Andreesen's views on the news business should actually matter more than some random guy chosen off the street. It also strikes me as being easier to suggest betting the farm when it's not your farm.

That said, Andreesen does have a valid point but, at least it seems to me, not for reasons related to betting farms and burning boats. Here's why:

During the FTC hearings earlier this week, Google economist Hal Varian noted that the current print/online ad revenue split for newspapers put the online side at only five percent and not the eight percent indicated by the NAA. Martin Langeveld over at Neiman did a piece on the Varian presentation, and because the five percent sent up a red flag, did a followup comment in which he said that part of the problem with trying to put hard numbers to online revenue is that the online product is apparently often bundled with print as an upsell. Actual online revenue is a guess.

So Andreesen may be correct in a general sense of calling for a decoupling of print from online revenue for the purpose of keeping score, but such a move would seem to be in conflict with other trends such as print/online integration on the news side and one-stop marketing on the ad side. It's an interesting dilemma.

10:23 AM  
Anonymous Anonymous said...

The 90/10 revenue split is what hampers digital innovation, especially at small- and medium-sized newspapers where every employee has multiple roles (editors write stories, reporters copy edit, everyone has to blog, etc). No matter how much executives preach online as the future, the present is print and, at the end of the day, the loyalty is with print.

Google's Varian had the oft-quoted sentiment that newspapers should "experiment, experiment, experiment." Newspapers don't have time to experiment, however. They need money now, as is in weeks or, at best, months. Digital innovation happens fast, but not overnight, especially when nobody has come up with a rock-solid revenue plan for online news. The innovations and successful business models will happen with online-only news ventures. Then, and only then, will newspapers truly embrace digital news -- but by then, they will behind the times. Again.

1:13 PM  
Anonymous Clarence Cromwell said...

Remember that five or ten years ago it was considered impossible for anyone but Google to make money by online advertising.
The changes that people like Andreeson want to see is happening, but gradually.
It has as much to do with advertisers and readers as with newspaper publishers. The generation that today reads news only online will eventually become business owners who want to buy the majority of advertising online. And by then, the generations that only read on paper will disappear.

2:47 PM  
Blogger Dennis Robaugh said...

I agree with Judy Sims. Newspaper companies do need to set up independent entrepreneurial divisions, seed them with talent (innovative folks in print and folks from outside the biz) and financial backing, and cut them loose from the paper itself. Give them time to sink or swim, give them cash while there's still cash coming in to the print paper (before it all disappears). But most of all, give them independence.

5:53 PM  
Anonymous Rick said...

When the car came to its fruition some people still rode horses.

6:41 PM  
Blogger Steve Ross said...

I tried to get my newspaper clients to simply set up a separate agency to sell online ads and create new online ad products. No one bought in, largely because they did not want to change ad sales compensation schemes.

BTW, at 4Q 2007, all US internet ad revenue was about $40 billion; newspaper ad revenue alone, for the print product, was greater (even allowing, in my ad revenue trend model, that online really accounted for 15-20% of newspaper ad revenue at the time, while NAA was hearing 9%)

By early 2009, Google was collecting 55% of all online ad revenue but said to be controlling about 70% of all online ad insertions.

If you are wondering if all these data calculations can be reconciled, the answer is not exactly -- you have to fudge them to fit, and the fudges are 5-10% of the totals.

So newspaper online ad volume is about the size of the rounding error... and so is Andreessen's contribution to the debate. Being rich is not the same as being smart.

All he was when he "invented" the graphical web browser was a grad student working on a government contract at U of Illinois. And HTML was just a subset of print's SGML.

8:42 PM  
Anonymous DS said...

This is a corporate problem. Corporate headquarters wants one platform, one system, one easy-to-manage production system at all its chain papers.

So innovation is out, unless you are in the tiny corporate division determining the future course of technology.

This might turn out at times to be helpful, such as when tablet-apps are developed for disseminating news content and making money off of it.

The problem that I see at my paper is corporate execution. It sucks. They aren't innovating fast enough or making wise enough technology choices.

So while we would innovate ourselves, as we used to do, we can't. Not really. And corporate is doing a really lousy job at it themselves.

I agree that decoupling the online operation is a worthy goal to foster innovation, but extremely hard to do in practice. I, too, look to online startups as the future of our industry. I am still waiting for good results of decisions being made on high at my paper. Cost cutting seems to be the result, not innovation for the future.

4:42 AM  
Anonymous Anonymous said...

The idea of separating online from print has merit, as it is probably the only way that online can get a clear field to operate in. It's crucial to this strategy, though, that online be properly funded so that it has time to develop and mature. Hence the ultimate strategic question for newspaper companies is: can they operate print as a legacy business but at the same time generate what amounts to venture capital to sustain an online model to the point of profitability? My sense is that if the larger newspaper companies found a way to network together their online operations, creating a large audience and a large advertising network, there might be a chance to attract investment dollars from others to help fund the online side of this approach. That way the companies, which are currently burdened by too much debt, would have a financially viable way to run print and online separately and down very different paths.

6:44 AM  
Anonymous Anonymous said...

If I am reading the financial reports correctly, revenues from online operations actually declined in the last quarter apparently as advertisers cut back on what they are willing to pay for online ads. This is hardly auspicious for those who believe that newspapers can run their newsrooms from online revenues. Maybe in the future we can have a bonfire and burn the presses, but certainly not now, not this year, and not in the near future.

9:45 AM  
Blogger Frank Keegan said...

It's not how you output; it's what you output. All media are necessary. Right now news Web sites brag about thousands of readers a month and newspapers apologize for hundreds of thousands a DAY. Nothing pushes more traffic to a Web site than mass-distribution of daily print, IF you output good stuff. But that takes guts, which traditional news organizations lost a long time ago. And it takes professional journalists to go out and get the good stuff. We're losing a generation of those now.

9:59 AM  
Blogger Chris said...

The bottom line is that Andreessen has zero credibility as someone who knows how to maintain and run an ongoing, profitable business concern with any longevity.

He made a pioneering technology and got extremely lucky with respect to selling out to AOL, but that's it.

I think he wants to see validated the whole hyperbolic rise -to- sudden plummet most of his ventures characterize, in other industries and with other businesses.

"Disruption" isn't a business model. Now, or in the future.

10:33 AM  
Anonymous Anonymous said...

well, some questions.

1. how many years can the ad revenue fall 25% a year and there still be a business?

2. is the rate of ad revenue decline increasing or decreasing?

The real customers of the newspapers are the advertisers. The real business of the newspapers are ad sales. The news was just what used to bring the product (readers) in the front door.

In the next 3-6 years, do you think entrepreneurs will invent more or less places that are better to advertise than the newspaper?

Think hard because Facebook & YouTube & Yelp didn't exist six years ago, and Zynga/Huffington Post/Twitter & even iPhones didn't exist just three years ago.

The news business better invent a new product to sell to the advertisers. Or not. Either way that legacy revenue is going away fast(er).

9:56 PM  
Anonymous John Reinan said...

You've just named a bunch of businesses that, although wildly successful in usership, have failed to generate profits (Facebook, Twitter, YouTube). The iPhone is an exception, but that's a delivery mechanism for the unprofitable content providers, not a content provider itself.

8:30 AM  

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