Thursday, October 25, 2012

The Paywall

One of Canada's most popular newspapers, "The Globe and Mail" has announced that its online edition will begin charging readers $20 every month. Close on the heels of that announcement, the Newsweek magazine announced that they will be stopping the publication of their print edition and go into an all-digital subscription model from the New Year Day of 2013.

Readers' reaction to G&M's announcement was swift and vitriolic. Barring a few exceptions, every one of them was derisive, dismissive and dire. In Newsweek's case, Reuters' Felix Salmon predicted that "The chances that Newsweek will succeed as a digital-only subscription-based publication are exactly zero".

It is unlikely that these organizations, whose professional perch is built on their ability to gauge the pulse of current affairs, would have fancied that even a significant minority of their readership will pay to get what they were receiving for free till now - while material of comparable or better quality continues to be available for free elsewhere on the internet. So what made them try this hazardous route? I guess it was the "memo from the boss".

The technology infrastructure that is required to implement and maintain an online publishing system, comes at a significant cost. One can safely assume, in G&M's case, that it involves at least 150 people (this is just for the publishing system, not to maintain an overall IT infrastructure for their  day-to-day operations). If one were to assume an average of $8000 per month in personnel costs (roughly $6000 in wages and $2000 in associated costs like real estate, hardware and consumable costs), that is a cool monthly expense of $1.2 million right there. Then there are several other costs - software licensing, server lease, data retention, legal, Internet Service (ISP), training, consulting and a whole slew of other establishment costs. And that's not counting the cost of the content itself, which, depending on where it is sourced from, can vary from day to day and month to month. Clearly, the bean counters would have routinely circled, bolded and underlined this huge drain on the corporate resources in their periodic reports to the boss.

Corporations and shareholders do not tolerate under-performing assets very long. The only time an under-performance is condoned is when it is used to gain market share. There is no such argument to be made in Globe's case.

For decades, the pulp-and-ink news media operated on a simple business model. The cost of material, content and operations were funded entirely through print-advertisements. The cost that the subscriber paid, was pretty much limited to the cost of transporting the material from the press to the door. With the advent of the internet, the news corporations were delighted to have a modern channel to deliver their product - and advertisements - directly to the consumer quickly and efficiently. This (among several other factors) prompted them to invest heavily in technology infrastructure.

To be fair, this model worked for several years. Until the advertisers realised that the online advertisements are ineffective, that is. Advertisements are generally of two types - ones which retain a brand or a product image in the consumers' consciousness and the ones which inform or push product information to the customer. While online banner and overlay advertisements did a commendable job of the former, it did a miserable job of the latter. Bandwidth considerations and available screenspace have always been barriers to conveying any significant amount of information unless the user was lured to click on the "teaser".  And savvy users have begun to block off online ads altogether, using browser extensions (AdBlock and NoScript for Firefox and Chrome comes to mind immediately). Even on the 'brand consciousness' front, the marketers must have found that the Return on Investment (ROI) was much greater for a TV ad  compared to a box ad online.

Once the financial crisis hit the world markets, the advertising budgets became tighter, 'analytics' factored into advertising channel decisions and focus shifted from retaining existing market share rather than hunting for more. And to add to that, the explosive growth of social networks afforded tech-savvy corporations dirt cheap (even free) options to connect directly with their target audience.  No wonder that "for every $7 lost in print ads, papers are only managing to secure $1 in digital revenue" as quoted by the Globe.

So, the print media, which already invested heavily into technology, was left holding the bill. They had to pay up or close down (mind you, even closing down comes at enormous costs). I can't blame G&M for trying ways to find money, but the writing on the wall is there for all to see. The 'paywall' for their online edition is not going generate enough money to pay for their online publishing infrastructure. And like Newsweek, sooner or later they are going to realise that in a world where mobile computers like smartphones, tablets and ultrabooks will be the norm, nobody is going to want to carry tabloid-sized pieces of loose paper containing yesterday's news on their subway ride to work, either.

So what would it take for information owners to get their consumers pay for their product? If entities like 'Consumer Reports' (an online and print product ratings company) and Carfax (an online vehicle history provider) can make money on their content, how is it that reputed news organisations are unable to get people to pay for professional journalism? The difference boils down to one word - 'trust'. People no longer trust the mainstream media to provide them with unbiased, accurate and complete information. In fact, the readers' reaction to Globe's announcement confirmed it- most people claimed to have been informed more by the readers' comments to news articles, than the articles themselves. Only when news media works in the interest of the readership (like 'Consumer Reports' and 'Carfax' does),  there is chance that readers might "eventually" pay.

This erosion of confidence in mainstream media developed over decades. The slide began when news came packaged as entertainment in the Cable News Network (CNN) and the audience started flocking around television to enjoy the package of news and brilliant visuals with brackground jingles to suit the mood. Advertisers soon realised that there are more eyeballs on the tube than on the pulp. At one point (in early 2000's), there was even a survey which indicated that over 40% of Americans got their news from late night comedy shows! Rupert Murdoch's media empire took it a step further by running a blatantly commercial news enterprise that pandered to the politicians, industrialists, religious groups, celebrities and the man-on-the-street alike. He became all-powerful and had the money and numbers to show for it. Other businesses which relied on advertisers' support simply had to follow suit or go out of business.

Over the years commercial news channels opiated the audience on free news 24x7 with live footage of matters important and immaterial. Reporting took a backstage and 'storytelling' became the norm. One thing the 'news consumers' did not realise quickly enough, is that the one who pays the piper calls the tune. Discerning readers protested when they were fed political and corporate propaganda day in and day out, but nobody cared.  The establishment was happy with the remaining vast majority that came back to them over and over for their junk-news fix that was doled out free. Even now, one can safely assume that people will rather have free 'entertaining' news than quality, professional and objective journalism that they have to pay for.

As a proud news corporation with a storied heritage, Globe did not go cap-in-hand to their readership begging for sustenance. Instead they made a value proposition which included "a new personalization tool called Dashboard, an enhanced Streetwise column and a subscriber-only business commentary service called ROB Insight". The vocal majority of their readership howled and ridiculed.

I really wish they succeed with their digital subscription model. I do care for the thousands of educated hardworking employees who put in years of service under difficult conditions. It is very hard to keep commercial interests and social responsibility balanced in today's greedy self-centered (this applies to the readership as much as it does to the powers-that-be) fast-changing world . Many of those professionals will find it hard to get into an equally gainful employment in the current economic environment, if they were to lose the current one. Especially the journalists - they will be asked to play on the same field as the hacks with no more than a thought, a thesaurus and a pair of thumbs. For their sake, I wish the paywall works.

But, will I be subscribing? No, Thank You!

Sunday, October 9, 2011

Take a bow, Steve!

Steven P. Jobs, the founder of Apple Computers and one of the most popular entrepreneurs in history died on October 5, 2011.

By now this is old news. The obituaries have been posted, eulogies showered. After all, he was a darling to many. Consumers loved the products he delivered. Connoisseurs appreciated the beauty, simplicity, utility and technical details in them. Stock brokers loved the money they made from trading Apple's stocks. Retailers, content producers, application developers, telecom companies and component manufactures benefited from their relationships with Apple. Politicians - especially American politicians - loved him for keeping the American economy and pride going by delivering innovative products that the markets world over craved for, even in the face of the recession. Even rival companies benefited from the economic activity his products helped create.

He was labelled variously as visionary, inventor, innovator, communicator, salesperson and a beautiful mind. His business methodology became subject of study at management schools. His stage shows turned the technology world into frenzy. His product announcements were eagerly looked forward to, widely reported and greeted with fanatical cheers. His demeanour, simplicity, the control he exercised over the creation and usage of his products, his abrasive behaviour towards his employees, the iron curtain around his private life, his close relationship with fellow tech entrepreneurs, the aggressive defence of his firm's intellectual property - all defined the character of the man that stood so high in the public eye. He was essentially the public face of Apple, the company, so much so that often his name and the company's name were used interchangeably.

If we look closely, Steve Jobs did not invent anything new. Portable music (MP3) players existed long before iPod came along. Smartphones existed since the days of Nokia communicator (1996). Microsoft tablet PCs were commercially available eight years before iPad was released. When we mention File sharing the first name that comes to mind is Napster, not quite iTunes. Even his glittering product launch spectacles were not original - Oracle's chief Larry Ellison was the first to do such stage shows (in the tech world it is called the "Larry Ellison show" even when he is not involved). Despite all these, Apple (and Steve) became the greatest success at delivering these products and services individually and as part of a digital ecosystem.

There are two factors at the core of this success - product design and control.

All Apple products, without exception are beautifully designed. Small form-factor, stunning appearance, intuitive user interface and beautiful packaging made its products highly desirable. A few years ago, a colleague of mine described the vivid expressions of her son when he was gifted an iPod for his birthday. It came in exquisite packaging as if it were jewellery. He opened it with wide eyes and on seeing the gleaming red gadget inside, crooned "Oh, my baby, my baby". Of course, the excitement came at a price to match. That is another peculiarity with Apple's products - they are never cheap. It is probably that high price point, combined with the appearance and packaging that made Apple products a much-coveted gift during the holiday seasons over the years. After all, who wants a cheap Walmart toy for a gift! Beauty and uniqueness were always Apple's USP.

Apple very soon realised that it is just as important to have content for their devices. Enter iTunes. In the past decade nothing has revolutionised the recording industry quite like the iTunes (if we briefly ignore the illegal pranks of Napster, Kazaa and all). Consumers could purchase single tracks legally from the iTunes store instead of having to purchase entire albums - most of which had a track or two that people wanted to hear a second time. The amazing price point of a dollar per track made it an incredible value proposition. Quite a few of the artists saw great opportunity in this transition - now they could market their own music directly to the customer without having to go through the recording industry's middlemen and pompous publicists. The result? Almost all of the music retailers in North America went out of business. Apples business model inspired companies like Netflix and Hulu to start legal video streaming services at a price anyone could afford. Whatever life was left of the disk vendors and video rental companies, was sucked by the recession of 2008.

With enormous market success came enormous power and Steve was nonchalant in using that power. In the following years and with the release of each product we saw the overbearing patriarch in him. Initially he was not too keen on producing a phone or a PDA or a tablet. It was understandable. In North America, the phone carriers owned the cell phone customers. Almost all cellphones were bought through the carriers - the customers got discounted phones in return for long-term contracts. The phone manufacturers were at the mercy of the carriers. With the success of his products, Jobs could speak on level terms with the carriers - in fact he would get the carriers to sell his phone on his own terms. The iPhone was launched exclusively through just one carrier in each country. He refused to allow his product to be treated as an accessory to carry the carriers signals. For him (and eventually his customers) the iPhone was the star - the carrier was just one of the service providers and accessory suppliers. To this date one will never find the carrier's logo on an iPhone case. Eventually he let up on the exclusivity of carriers but by then it was clear to everyone, who owned the iPhone customer.

The launch of the iPhone was a landmark for Apple - it was from that point that the company started exercising enormous control over the design, manufacture, delivery and usage of their products and over the relationship with its partners. The company vehemently chased down those responsible for product leaks at the design, manufacturing and delivery stage. Customers were not allowed to change anything on their devices - not even their phones' batteries. All cables, docks and connectors had to come from Apple or its authorised suppliers. Parts manufacturers, assemblers and their employees were not allowed to disclose information about their supplies to Apple - they were all bound by very stringent non-disclosure agreements. In some cases, Apple was seen to do pre-emptive sourcing of components (placing enormous orders with exclusive parts manufacturers so that competitors would not be able to get them). When "Jailbreaking" became commonplace to work around restrictions imposed on devices, Apple would attempt to "patch" them back to original state or void the warranty. Even Apple's operating system "Mac OS X", which is sold as independent software, is not allowed to be installed on hardware of your choice - it had to be installed on Apple's hardware only. When a US-based company named "Psystar Corporation" attempted to market a custom-built computer which had legally-purchased Mac OS X preinstalled, Apple sued them for violating the Digital Millennium Copyright Act and won. Most recently, Apple entered into a series of legal disputes with Samsung - which ironically is one of Apple's major component providers- for violating their patents. They even went to the extent of getting courts to block the sale of some Samsung products (smartphones and tablets) in various parts of the world.

To label Steve Jobs as an arrogant paranoid control freak would be far from truth. In fact, the best description of his personality and its evolution, came from the man himself. In his commencement address at California's Stanford university in 2005, he uncharacteristically talked at length about himself - his evolution in life and even about his death. I strongly suggest that you read and watch his speech yourself, for, it is impossible and unbecoming to summarize or annotate it. That one speech reveals his thought process, his excellent communication skills, his attitude to life and work and most importantly his principles. His overarching dictatorship of the Apple empire was perhaps prompted by his expulsion from the company he founded. His frantic efforts to bring out first-in-class products was perhaps fired by the knowledge of his terminal illness. He was a practising Buddhist - which, in my opinion, is the only philosophy that a completely logical person can get along with. His minimalist appearance was in sharp contrast to the glittering extravagance of his products. He shared a very cordial relationship with Eric Schmidt of Google and Mark Zuckerberg of Facebook (in fact Mark described him as his mentor). He was a devoted family man. He was also an intensely private person - Wall Street often alleged that he was disrespectful to thousands of investors who had a stake in Apple, by not adequately and quickly reporting his medical condition (which had a bearing on Apple's stock prices).

The most important thing to remember about him is that he changed the digital world for ever. Even those who have never used a single product from Apple or never been involved anywhere in their supply chain, benefited from Apple's creations. Recently, I received an upgraded Blackberry from my employer. It came with a full touch interface and no hardware keyboard - just like the iPhone. The display is crisp, the browser is fast and it came with a lot of applications. This Blackberry would have been unthinkable even three years ago. The enormous success of Apple at such high price points ensured continuous orders for parts suppliers, which in turn led to further innovations and lower prices for the electronic components used by all device manufacturers. There wouldn't have been a beautiful, powerful and feature rich Android operating system found in some of the popular smartphones of today, but for the pioneering work by Apple. Even Blackberry evolved from a Government servant's dull communication device to a desirable consumer product. My Ubuntu Linux desktop's "Unity" interface would be able to trace its pixel ancestry to Mac OS X. Windows 7 and the upcoming Windows 8 put more focus on the user experience primarily because of the challenge thrown by the Apple's Operating System. Social networking sites like Twitter and Facebook are credited with revolutionizing our social life, but they are just web sites - they would not have had the ability to galvanize popular movements in Egypt, Syria and Libya but for the mobility of the internet pioneered by Apple.

Apart from the lessons that we all learned from his Stanford speech, Steve Jobs' life teaches a few more. The ingredients for your success can be found all around you. Your success lies in the value that you create out of them. The popular iPhone's components are sourced from manufacturers all over the world. The total cost of those components (minus the operating system, of course) is just a third of the retail price of the device. Even including the retail cost of the operating system, it can safely be assumed that Apple makes 40 to 50 percent profit on each device it sells. Another lesson learnt is that even with all the features and conveniences that comes with technology, human elements like beauty, exclusivity, simplicity, ease of use and relationship with everyday lives matter. Last, but not least - Scientists may bring about the important innovations that make our lives better. But it will always be an artist's effort that will be the most loved by the world. Love matters, in the market.

You have lived a complete life Sir. Thank you for changing our lives for the better. Take a bow, Steve!