Advertising, Business Models, Commerce, Marketing, Newspapers, Reading, Social Media, Technology, World of Tomorrow

The High Cost of Low Prices — Why Incrementalism Online Could Be Fatal

George S. Eccles Dinosaur Park

Image by sporst via Flickr

Emerging from robust print businesses, many publishers naturally fell into the habit of allowing their legacy print revenues to subsidize their online businesses, investing surpluses from print in online as part of a transitional phase — an incremental investment in the future. At the same time, the pressures to provide online at a lower price, or even free, has been matched by pressures within the print enterprise to lower prices in order to maintain sales — a scissors of pricing woes. Add in the wildcard of social media, which makes it harder to attract visitors to the navigational abundance of your site and related advertising and cross-selling opportunities, in addition to the expense of running even an acceptable Web site with mature email, e-commerce, and content hosting technologies — well, I’ll forgive you if you feel a little daunted and depressed.

A recent essay by Raju Narisetti from Forbes.com, appearing in the June 3 print issue of Forbes India, hits on many of these challenges from the perspective of the Washington Post, where Narisetti is managing editor. With refreshing candor, Narisetti reflects on many of the factors newspapers are struggling with, not the least of which is much greater readership creating far less revenue:

. . . in 2010, 29.3 million readers read some 270 million pages of Post journalism each month, a record. . . . So, what’s the big deal you might ask? Well, for starters, all 35,000 of the now former print subscribers paid us nearly $275 a year to consume the Washington Post. Our online readers pay zero.

He goes on to quickly analyze why the New York Times and Wall Street Journal are anomalies in the online news space, identify the black swan that social media represents for Web sites (“Readers do seem to be willing to pay for mobile engaging experiences and interaction with much of the same content that they are reluctant to pay for at a Web site”), and tackles the dilemma of creating expensive infrastructure to offer low price points to customers (“making the return on investment a clear challenge”).

The real challenge Narisetti sees runs deeper than arguments about free vs. paid, metered vs. open, or subscriptions vs. advertising:

. . . what the prolonged and knee-jerk debate about free vs. paid . . . shows is that we still have what led us here in the first place: An imagination deficit. Rather than apply an ‘all or nothing’ approach focused, perhaps wrongly, on our Web sites, we should be willing to make creative bets on our business model. . . . It is time we figured out how to make it easier, more engaging, and useful. Despite their soaring valuations, Facebook, LinkedIn, and Twitter don’t create much, if anything at all, by way of original content. And, for that matter, neither do Google or YouTube. They simply make it easy, useful, and engaging to their audiences. These are incredibly disruptive times and one thing is clear to me: There isn’t time or room for incrementalism . . .

For publishers, it’s hard to not indulge in incrementalism. Each company creates its own availability error, leading us to think our current staff contains the only experts we need, that the audience we have is as big as the one that’s possible, and that the processes and products on offer delimit those the market will respond to. Non-incremental approaches require new expertise, explore new domains, reach new audiences, create new products, and involve new ways to thinking. For the Washington Post Companies, you can look to Kaplan, the education company it acquired in the 1980s, which has since become a revenue behemoth, dwarfing the newspaper in revenues and allowing the company to cross-subsidize its newspaper business. Interestingly, Narisetti doesn’t mention this — whether owing to mental or corporate compartmentalization, which can also drive incrementalism.

For STM publishers, finding new lines of business with academic, mission, and long-term viability will mean doing more than incrementally polishing and honing what they have. It will mean knowing when enough is enough regarding what is, making investments in what will be, and having the nerve to be both agile and committed.

Enhanced by Zemanta

About Kent Anderson

I am the Publisher at AAAS/Science. Previously, I have worked as CEO/Publisher of the STRIATUS/JBJS, Inc., a publishing executive at the New England Journal of Medicine, and Director of Medical Journals at the American Academy of Pediatrics.

Discussion

10 thoughts on “The High Cost of Low Prices — Why Incrementalism Online Could Be Fatal

  1. Won’t these bold “new lines of business” with “long-term viability” have to be subsidized from the existing print business? At the beginning of the article I thought you were suggesting this was not a good plan, but it sounds like you just want bigger bets laid down. Is your alternative to incrementalism to bet the whole business? Here is an alternative possibility. On-line is a bubble that is going to burst and take a lot of people down with it. Avoid anything that doesn’t make money right away. Stay in the boat.

    Posted by David Wojick | Jun 15, 2011, 7:16 am
    • It’s not about online vs. print, either (or paid vs. free); it’s about finding and expanding into new sensible areas. Kaplan was making money when the Washington Post bought it, but they were able to grow it into something even bigger than what they initially had. There were not “subsidizing” it with the paper, but they used equity and savings to buy it. Now, it’s subsidizing their paper. Staying in the boat isn’t very good when the water’s draining out of the lake.

      Posted by Kent Anderson | Jun 15, 2011, 10:45 am
  2. our culture romanticizes the idea of the overnight success. the reality is that the magic “flipping of the switch” rarely happens. those who can figure out how to evolve along the curve will be left standing, even though they may look very different.

    Posted by meg white | Jun 15, 2011, 9:03 am
    • Put another way, very few people get rich in a gold rush. The idea seems to be that if you are not going to be the next Facebook or Google you are going to disappear. That just is not true. This is not to say that no one should place big bets, just that it is a specific business decision, with many alternatives to it.

      Posted by David Wojick | Jun 15, 2011, 10:34 am
  3. I believe it is Joe Esposito who has suggested that eventually the big STM publishers will realize that being in the content business is not working anymore and that their real future lies in supplying services that make the content more accessible and useful in a variety of ways. So, even if publishing itself goes “open access,” there will remain a business for support services of this kind. Maybe Joe would care to elaborate on this suggestion more.

    Posted by Sandy Thatcher | Jun 15, 2011, 12:34 pm
    • You already see this happening. This was the explicit business model for Blackwell, and John Wiley bought Blackwell to get at that service model. Now you have OUP offering distribution services to third-parties, and (for an example further afield) Amazon allowing direct competitors to use their online payments system.

      I would not say, however, that content businesses are not working any more. Rather I would say that it is meaningful to extend them in ways that makes it harder to tear the content out of the workflow. Content is becoming a platform.

      Posted by Joseph Esposito | Jun 15, 2011, 1:46 pm
      • um, i thought wiley bought blackwell for their content and society relationships?

        Posted by meg white | Jun 15, 2011, 2:26 pm
  4. Quoting Narisetti in Kent’s post: “It is time we figured out how to make it easier, more engaging, and useful. Despite their soaring valuations, Facebook, LinkedIn, and Twitter don’t create much, if anything at all, by way of original content … .They simply make it easy, useful, and engaging to their audiences.”

    Yes, I think it’s been clear for some time that the value equation for consumers of all types is utility-based. How does this improve my experience, my productivity, etc? That has to do with understanding the unrealized needs of potential customers, devising ways to meet them, and calculating how investment worthy the opportunities are. Publishers thinking like investment bankers, no?

    Posted by Alix Vance | Jun 15, 2011, 3:04 pm

Side Dishes by Stewart Wills

Find Posts by Category

Find Posts by Date

June 2011
S M T W T F S
« May   Jul »
 1234
567891011
12131415161718
19202122232425
2627282930  

The Scholarly Kitchen on Twitter

SSP_LOGO
The mission of the Society for Scholarly Publishing (SSP) is "[t]o advance scholarly publishing and communication, and the professional development of its members through education, collaboration, and networking." SSP established The Scholarly Kitchen blog in February 2008 to keep SSP members and interested parties aware of new developments in publishing.
......................................
The Scholarly Kitchen is a moderated and independent blog. Opinions on The Scholarly Kitchen are those of the authors. They are not necessarily those held by the Society for Scholarly Publishing nor by their respective employers.
Follow

Get every new post delivered to your Inbox.

Join 14,567 other followers

%d bloggers like this: