Kindle Review – Kindle Fire Review, Kindle 4 Review

Let’s start with a somewhat unrelated observation -

Google and Microsoft are paying Twitter to get real-time tweets and to be able to index them (to the best of my knowledge).

Yet newspaper articles are free and newspapers should be glad for the traffic.

Why is it that content that costs tens of millions of dollars is free and newspapers should be glad to get traffic for their content?

At the same time, content that people create for free is so valuable that both Microsoft and Google are paying to access these 140 word nuggets.

Let’s start by trying to understand the difference between a channel and a product (or content).

Channel Vs Product/Content

When growing up it was interesting to see how powerful the channel was in fruits and vegetables (this was in a country other than the US) -

1. Farmers would be forced to sell fruit for the equivalent of 5 cents a pound.
2. The distributors would then sell it to shopkeepers and the shopkeepers would sell fruit for the equivalent of a dollar a pound.

That’s 20 times the price farmers got. Perhaps a more accurate way of looking at it is that 95% of the price customers paid never reached the farmers.

This was because farmers had No Other Channel to get their product to the market, they had little knowledge of what their product was worth, and distributors were great at hoodwinking farmers.

In terms of the value proposition to customers, there are two separate components i.e.

1. The Product/Content they get.
2. The Channel they get it through – the convenience, ease of access, etc.  

It’s in the best interests of each to overwhelm the value of the other i.e. take 95% of the customers’ money for itself.

Channel Vs Product/Content.

At any given time there is always a struggle between companies that provide the channel and companies that provide the content/product.

What does that mean?

• A store like WalMart is always trying to provide the best choices and the lowest price so that customers associate them with value and always come to them. 
• A company like Apple is always trying to provide the most valuable, desirable products so that customers come for Apple.

The above two examples are good ones because these companies exert a lot of control over different areas i.e.

• Apple has its retail stores and its website and iTunes.
• WalMart has its stores and its distribution network and its online site.

Channel Owners move into content and/or start marginalizing content creators, and content creators start creating their own channels.

Any company that starts optimizing soon realizes that every other company in the chain has profits waiting to be stolen.

As a company its duty is to get 95% of the profits.

What are the channels and the products for News?

The product for news companies is the news content (in whatever form).

The channels are -

1. Print Newspapers.
2. TVs.
3. Print Magazines.
4. Online Sites.
5. iPhone and other mobile channels.

For any of these channels, the content creators either own the channel or they don’t.

When they don’t, it’s in the best interests of the channel owner to play down (and even actively destroy) the value assigned to news.

This destruction of value is actually a reassigning of value i.e. the channel becomes more and more important. It works best when there is a single company that owns the channel.

The Most Profitable Channel is one that makes the product seem worthless and the channel seem invaluable

The Internet is an absolutely wonderful channel for channel owners i.e. ISPs and Starting Points because -

1. People pay for Internet Access and expect free content.
2. The content creators are pitted against each other.  
3. The ethos of free can be easily twisted.
4. People do spend money online.  
5. 95% of the profits can be grabbed by channel companies.

Channel owners can make content ‘worthless’ and at the same time use customers consuming this ‘worthless content’ to generate profits.

Reasonable Cuts and Unreasonable Cuts

• A very smart channel owner will introduce a somewhat reasonable cut i.e. Apple with 30% for the App Store.
• A very efficient or somewhat unreasonable channel owner will push for a 80% cut or more.

The latter company ends up destroying the value of content and creating either an equilibrium where content creators fight for 5 cents out of every dollar or they just destroy the market entirely.

With News we’ve gone way beyond a reasonable point

In effect the value perception of news is very low.

Newspapers have nothing to lose by just ditching the Internet as it exists today and starting their own portal.

If you think about it – It was newspapers’ greed that did them in.

They thought they would make back money from advertising. This is suicidal since it was unproven, it wasn’t newspapers’ area of expertise, and their core product was being devalued.

Now, they get to restart -

1. Stop giving away content. You might be getting pennies – However, it’s costing you dollars to create news.
2. Stop sharing and losing brand equity.  
3. Make a Hulu for News and let customers start there.
4. Completely switch off all re-use. All reuse. Let Blogs manufacture their own news.

As a company that pays its employees and tries to earn profits you cannot survive in a channel like the Internet where there are -

1. Crazy people who work for free. 
2. Super smart companies that make you work for free and make money off of your free work.

Newspapers are just out of their depth as they understand neither model.

Accept that Customers will Hate You

Surviving is better than being popular and going extinct.

Of course customers are going to hate you – they’ve had over a decade of ‘free’ everything.

Your true customers are only people who value your product and pay for it.

If you are spending your lives creating news and think it’s worth spending your life on it, then perhaps it’s reasonable to expect people to pay for it.

25% of Traffic coming from Search Engines? That’s Spectacularly Good

If NY Times gets 75% of its traffic from other sources then they might as well switch.

• That 25% is going to keep growing and become 75% in 5 years if newspapers keep eroding their brand and eroding the value of their content.
• Search is completely consolidating into one company. That means a supremely powerful channel owner and bad, bad news for content creators. 
• They lose just 25% – their online revenues aren’t that much anyways.
• They still have value and branding.

Lots of people still associate news with newspapers.

Do we really think the ‘traffic’ would prefer some unknown website over the New York Times?

No, it wouldn’t.

We’re talking about Brands that are very, very well trusted and content that is still better than 99% of blogs.

Channel Owners are trying to create Content Sources

Look at all the websites search engine companies are buying or creating i.e.

1. Microsoft is creating Live Spaces for content, PhotoSynth for photos, and so forth.
2. Yahoo bought Flickr, they bought Geocities, and so forth.

These are companies that eventually intend to produce their own content (or have user-generated content) and completely marginalize quality content creators.

They are doing their part to take over the channel and the product.  

Finally,

Why Hulu for news is a great idea.

Three big things -

1. Brand stays with newspapers or goes into a shared channel they control. 
2. A Channel of Good Intent. At some point it becomes as important as search engines and you can completely turn off search engines.  
3. People make it their starting point for news.

Cannot overstate the importance of people starting for news at Hulu for News instead of some random news aggregator.

Also, let Jason Calacanis (or someone like that) head it - you need someone like that to be your CEO – ruthless, ambitious, not scared of Google, and sees things as they really are.

If you own the starting point and the content – no one can threaten you.

Filed under: publishing Tagged: | future of newspapers, hulu for news