Nieman Journalism Lab

Clay Christensen and David Skok: A not-quite-live blog of a conversation about disruption
The newsonomics of selling Main Street
Press Publish 8: Clay Christensen on the disruption of journalism

Clay Christensen and David Skok: A not-quite-live blog of a conversation about disruption

Posted: 28 Feb 2013 11:30 AM PST

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Editor’s note: Last night, the Nieman Foundation held an event with Harvard Business School professor Clay Christensen and former Nieman Fellow David Skok to talk about disruptive innovation in journalism. We’ve already posted audio of the event as part of the Press Publish podcast; below, we have video and — for those who’d rather read than watch or listen — a rough summary of the conversation.

When David Skok came to Harvard in fall of 2011 for his Nieman Fellowship, he sought out Clay Christensen. Christensen is known worldwide for his writing on disruptive innovation; Skok, head of digital for Canada’s Global News, wanted to apply those ideas to broadcast in specific and the news industry more broadly. Skok collaborated with Christensen and James Allworth on a research paper that eventually became “Breaking News,” which appeared in the Fall 2012 issue of Nieman Reports.

On Wednesday, Christensen and Skok were joined by Nieman Foundation curator Ann Marie Lipinski for a discussion on the causes of disruptive innovation and how the journalism business is being transformed today. Lipinski began by asking about the difference between sustaining and disruptive innovations. Christensen said the vast majority of innovations are sustaining — meaning they tend to make existing products better for existing customers, which is usually to the advantage of successful incumbent companies. Disruptive innovation is different. “I made a big mistake when I called it ‘disruptive,’ because it has so many different connotations,” Christensen said. “A lot of people think it’s just new and different, or radical.” Instead, disruptive innovation changes industries not because it is radical, but because it makes complicated and expensive processes simple and opens them up to a wider audience.

An example of a sustaining innovation would be the change in the telecommunications industry from analog to digital, which was controlled by leaders in the industry. That changed when cellphones became cheaper to make and spread around the world, Christensen said. That didn’t fit the business model of the larger telecommunication companies, Christensen said. Disruptive innovation takes place across industries, from telecommunications to automobiles — and even education.

“It’s happening to the Harvard Business School, and nobody at Harvard even thinks about it,” he said. To get a Harvard MBA, you’ve got to be the best of the best of the best just to get admitted, he said — and then you have to be able to afford the bill of Harvard Business School and forgo two years of salary. For graduates, their average starting salary is around $160,000. That sounds good, but as a result, business school graduates only get recruited by firms that can meet that salary — typically investment banks and consulting firms rather than General Motors, General Electric, or General Mills. Now those companies are disrupting business schools by creating their own corporate universities, which are cheaper to run, more accessible, and more closely attuned to the needs of the company.

In order for disruption to occur, there has to be a technology core — an approach that works in simple applications that can be improved to do more and more sophisticated things. He cited the example of Toyota’s growth being enabled by its use of unibody frames; at first they could only be used in subcompacts, but over time they (and Toyota) moved up to larger and more sophisticated automobiles. In the same way, the microprocessor enabled Dell to go from operating in PCs to more powerful servers. Christensen pointed to online education, where developments like massively open online courses can serve as a disruptor to established players in higher education.

Lipinski points out that industries sometimes have to learn these lessons repeatedly. Aggregation, for example, has been a key part of journalism for centuries; it was a key part of Time magazine’s model as early as 1923. But it still seemed to surprise incumbents in the Internet era.

Skok said news organizations often do study their history, but they don’t focus enough on what’s coming next. Looking at profit and loss statements every quarter emphasize a snapshot of the past; Clay’s work says no, don’t only trust that balance sheet — trust a theory to predict what will happen in the future. But the idea of running large companies based on theories over hard numbers is a tough sell, Skok said.

As disruption occurs, it commoditizes layers in the value stack — what used to be a high-value-added activity, one others couldn’t easily replicate, becomes cheap and easy. In journalism, the Internet, wireless technology, and other technologies have broadened the market for information. As a result, Christensen said, everyone has access to more information than they could possibly use. But that doesn’t mean that the whole indusry has become commoditzed and profitable: Commoditization opens up opportunities in adjacent layers in the value stack, he said. What you thought was a commodity becomes more profitable and proprietary — so even as one business dies, it opens up new opportunities. He cited the example of Forbes, whose previous core business — a print magazine — has been commoditized, but which has made interesting new moves online.

Lipinski asked about the concept of “jobs to be done,” the idea that asks companies to focus on their demographics and identify what they can provide to their customers. Christensen says companies should resist seeing their customers through the lens of demographics and instead think about the jobs they would hire their products to do. The customer is the wrong unit of analysis; it’s the job you need to understand if you want to survive disruption. An example: Think of the job of delivering messages across distances. Western Union did that well — but they framed their business through their technology, the telegraph. As technology advanced, Western Union was left behind — even though the job of delivering messages across distances remained.

Lipinski asked about the Newspaper Next project, which was designed to apply the theories of disruptive innovation to the newspaper world. But the project didn’t have much impact. Why not — did companies not see the cliff? Christensen said companies can be paralyzed by data, and that the lack of data can lead to inaction. For newspapers, even if you were warned a cliff was coming, you couldn’t see it until you were upon it, he said.

Lipinski asks Skok what it was like to take the theories and ideas of disruptive innovation and apply them in the real world. Skok said he is lucky to be working in a broadcast company, which hasn’t yet faced the sharp revenue declines that print has, leaving the luxury to experiment. But changing the culture of news organizations is difficult, he said; ultimately, none of this works in a newsroom without getting priorities, processes, and resources aligned around the goal of disruption.

Skok said his department is a standalone unit with its own budget that is trying to be revenue neutral or better within the company; it is “patient for growth but impatient for profit.” Every decision we make, Skok said, is based on whether a new initiative will allow us to scale in a way that lets us grow but also maintain profitability. Skok said you have to change the day-to-day tasks within an organization to make effective change.

A question from the audience: Given that newspapers’ disruption by Internet technologies has been happening for some time now, are there good examples of incumbent companies recovering from a disruption late in the process? Christensen cited Apple’s famed comeback under Steve Jobs as an example. A shift to jobs-to-be-done saved the company from being an “afterthought in the history of computing” to its leader, Christensen said. He also cited an Indian appliance company that, after being disrupted by the Korean corporation LG on the low end, went even lower, building a simpler cooling unit that cost only $39 and disrupted LG.

Skok spoke about Apple through the lens of Christensen’s theories about integrated vs. modular structures. Either approach could be strong under certain market and technological circumstances. Traditionally, journalism organizations have been deeply integrated and closed, from news gathering to distribution. That’s becoming more modular, Skok said. Now media companies are seeing more revenue from businesses other than the news gathering-to-distribution chain, such as events. The trick, he said, is to look at newsrooms not as a continuous line, but as a series of pockets that can be leveraged to create new lines of business.

Question from the audience: What are the jobs to be done in journalism? Christensen said one consideration is that large companies are often undercut by competition that focuses on specific jobs rather than one-size-fits-all solutions. He cited the example of Craigslist, which focused squarely on classified ads in a way that newspapers had a difficult time responding to. When you offer everything for everybody, you can’t focus on doing every job well, he said — you get picked off one job at a time. The challenge, he said, is finding jobs where a viable competitor has not yet emerged.

Skok suggested news companies examine how their own business can be disrupted — because if they can see it, their competitors probably can too. A problem for news organizations, like many companies, is that it’s difficult to get people to change their tasks or incubate when what they currently do is still effective, he said. Skok said his company’s primary output is broadcast news, something it does well, but that doesn’t leave many hours to disrupt their business.

In response to another question, Skok talked about the disruptive potential of news on mobile devices. Companies spend a lot of time developing mobile strategies, but then follow up with questions like “Where is the mobile advertising?” But advertising might not end up being the line of revenue to support mobile. Companies will need to adjust their thinking on why they invest in mobile and what kind of return they will see.

Skok also suggested keeping an eye on one current experiment, Andrew Sullivan’s newly launched paywall site. If Sullivan pulls it off, he said, it could be a good lesson for the industry, making the value proposition of news product more clear — for some, Sullivan’s take is essential daily reading. Journalists need to be more accountable for what we put on the page or what we put on the air, Skok said — it’s not longer good enough to be a mile wide and an inch deep.

The newsonomics of selling Main Street

Posted: 28 Feb 2013 09:06 AM PST

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Main Street is finally going digital. With the digitization of smaller business, newspaper companies believe they’ve found that elusive third leg of a business model — a model that could keep them standing, maybe even taller, into the second half of this decade.

We’ve see “marketing services” grow as a business pursuit over the past couple of years. Now — as newspaper publishers have just left the “Key Executives Mega-Conference” in New Orleans, where such services led off the weekend with a three-hour session — we can characterize it as the number one new business pursuit of many U.S. newspaper chains. It’s the new initiative they are most heavily investing in. In fact, in surveying the field, I’m estimating that marketing services revenue could equal at least 10 percent of newspaper company ad revenue — pushing $2 billion — by 2016. Aspirationally, this is the third leg of newspaper revenue — after advertising and circulation revenue — publishers know they need.

The business push goes by several names: marketing services, digital services, “becoming a regional agency.” Those terms all point to the same business, which targets small and medium-sized businesses (SMB). It’s a category of businesses many dailies long ignored — in the good times of 20-percent-plus profits, why focus on pennies, nickels, and dimes when the dollars were busting down the door? When Macy’s, Best Buy, and Safeway were subsidizing ink by the barrel, paying high rates, insertion orders were worth five figures.

I first ran across the bigger-is-better thinking when I became managing editor of the Saint Paul Pioneer Press in the mid 1990s. We had three school-aged kids, and all of them liked visiting the Red Balloon bookstore on Saint Paul’s Grand Avenue. I suggested that the Red Balloon might be able to afford a small ad in our (struggling for ad support) book section. “No,” I was told. “It would cost more than we’d take in to send a sales rep there.” The Red Balloon is 2.6 miles from the Pioneer Press offices.

In the old go-go days, larger metro papers considered only the top 5-10 percent of merchants as their customers. The other 90-plus percent were too small to care about. Even for smaller community papers, well over 50 percent of merchants fell into the “too small” category.

Well, times change. Humility is learned. Price points meet reality. 2.6 miles seems shorter.

Now the target is those much-derided digital dimes, dimes increasingly being spent by about 27 million U.S. SMBs. Almost 20 years after the Yellow Pages companies first started selling digital presences to smaller businesses, Main Street is finally ready to go more fully digital. Figure that Google has had about two million customers for its paid search, lead generation products. Figure that many of these smaller business owners now have their own personal Facebook pages, and some familiarities with Twitter and LinkedIn. Who hasn’t used Google search and seen the paid ads on the pages?

It’s not that these businesses haven’t had a lot of knocks on the door. The Yellow Pages companies, in their own print-to-digital transitions, complicated by bankruptcy and sale, keep on visiting. National companies like ReachLocal and Orange Soda make forays. Groupon, Living Social, and their deal brethren have whetted appetites, if often leaving behind heartburn.

Into this landscape, enter newspaper companies. Among those making a business of smaller business: groups including Hearst, GateHouse, Tribune, and McClatchy, and big independents like The Dallas Morning News, Star Tribune, the Buffalo News, and the Pittsburgh Post-Gazette. The latter two are clients of Guarantee Digital, which helps newspapers gets its marketing services programs up and going. It is headed by newspaper digital ad veteran Daryl Hively. They sell the basics of what the smaller merchants now understand they need:

A better site presence, and, increasingly, a mobile presence. In 2013, many have some kind of site — with the tech support of a nephew or kid next door — but not much of one. Marketing services providers offer professionalization through digital services, in look, feel, and basic information.
Findability: Basic search engine optimization (SEO) on Google and Bing and search engine marketing (SEM) to buy leads.
Social connections: Primers and services in using Twitter, Facebook, and LinkedIn
Reputation management
Content marketing
Daily deals

The pitch, increasingly, includes showing the merchant how well each of their marketing programs is working in and of itself — and comparatively. It’s a work in progress. One of the most intriguing new products addressing the problem, is TapClicks. COO Jeff Herr, a digital exec with Lee and MediaNews experience, says his company is focused on doing precisely that for marketing services. Earlier testers include MediaNews, Lee, and the Star Tribune. Marketing services companies make a higher profit margin on services they themselves provide, like site building and social setup, than on reselling products like Google AdWords. In all, it’s a business that can produce good margins, with a ramp to real scale.

Let’s look at the newsonomics of selling Main Street:

Well over a thousand new dedicated-to-marketing-services salespeople are roaming Main Street. The strategy espoused by Hearst-owned market leader LocalEdge: Hire a sales staff separate from the newspapers’ ad sales group, and use a different brand in the marketplace to differentiate the marketing services offer from that of traditional advertising sales.

The Star Tribune’s chief revenue officer Jeff Griffing explains why he hires non-ad salespeople — like former 3M salespeople — to sell marketing services: “They are used to walking into businesses and being truly consultative.”

LocalEdge is a Buffalo-based Yellow Pages company that Hearst bought 10 years ago and has made into the newspaper industry’s marketing services leader; it now syndicates its platform and training. CEO Jeff Folckemer says that there are 1,000-1,200 full-time marketing services salespeople pitching its products. The Star Tribune (Radius) and the Dallas Morning News (508 Digital) have each hired more than two dozen full-time marketing services salespeople for their big 2013 push; both use the LocalEdge platform. Other LocalEdge affiliates include Morris Communications, Wehco Media, Newsday, and the New York Daily News.
Price points range from $300 to $3,000 a month, depending on the degree of customization offered. Griffing offers this early snapshot of the Star Tribune’s developing business: “More than 90 clients as we speak, but that number changes daily. Average price point to date is $426 per month. Category learnings so far: 85 percent services, 15 percent retail and restaurants. Services trend so far: home improvement (gutters, roofs, landscaping, plumbing, etc.), professional services, dentists, financial services, tax services, etc.” The Morning News’ 508 Digital has passed the 600 client mark.
Custom work fetches higher rates. In Chicago, Tribune’s Bill Adee has built Tribune 435 as a custom marketing services house. Tribune 435 focuses on five-figure engagements to help merchants get their strategies up and running. In Dallas, the Morning News has also invested in a second marketing services business, Speakeasy. Specializing in site building, content marketing, and social, the 12-person startup works a terrain of $1,300-$12,000 a month. The average client pays $3,600 a month, says Speakeasy president Mike Orren.
It could add up to a $1.6 billion business within the next three years: My own forecasts of this emerging business look to a newspaper-owned $1.6 billion local marketing services business by 2016. That forecast (a part of a recent report, “The Local Marketing Services Revolution,” I wrote for Outsell) assumes that newspaper companies take about 25 percent of the local marketing services market by then.

It makes sense that newspaper companies are well-positioned to be winners in this emerging market. It’s easy to tick off their advantages:

a big brand in the market that is universally known — and associated with commerce
both print and digital promotional megaphones
the ability to convene events, cheaply, to educate and sell marketing services
an ad salesforce that can be appropriately leveraged — after the marketing services sales staff establishes the business

So is this the almost mythical third leg? Newspaper math is increasingly simple (“The newsonomics of zero, and The New York Times”). The upswing in circulation revenue can make up for the loss in ad revenue, but it’s probably not enough to provide much growth. If it can’t, newspaper companies need a third leg to find growth.

Marketing services clearly could be that third leg. We’ll have a sense of how much revenue — and profit — it provides, within two years. Newspaper company revenue reports typically have three lines: advertising, circulation, and “other.” If marketing services becomes an actual line, separate from “other,” you’ll know it’s a real third leg.

Groundwork for success is being well laid, based on a lot of painfully bought experience from the last decade. I have no doubt that the needs of local businesses, stores and services alike, will grow. There are few businesses that will be able to prosper without some kind of digital strategy. If newspaper companies can really change their stripes — getting away from selling print and digital space — and really put merchants’ results at the forefront of this new business, they’ve got a real shot at success. That’s why most are hiring new, separate sales staffs; execution and changing at least part of company culture will decide marketing services’ fate.

It’s curious. Marketing services looks like an advertising business. But the Star Tribune’s Jeff Griffing says its not. He associates marketing services with the Star Tribune’s (and daily newspapers’) other big initiative: all-access, print/digital circulation. “It’s an annuity business, if you do it right,” he says.

Like subscribers, merchant buyers of marketing services may provide a recurring revenue stream. Griffing’s notion: Merchants will always need help sorting out a constantly changing stream of marketing opportunities. If his company is truly in the business of providing ongoing consultative help, it can retain its customer long-term.

Marketing services, of course, isn’t going forward in a vacuum. Main Street is experiencing its own disruptions, digital and otherwise. A little company called Amazon believes that it can supplant some share of local goods sellers, with same-day delivery, now moving forward strongly in at least a dozen markets. How local merchants will be affected, and how they will respond, are unknowns. Fear — and opportunity — may both propel marketing services forward.

Photo by David Schott used under a Creative Commons license.

Press Publish 8: Clay Christensen on the disruption of journalism

Posted: 28 Feb 2013 07:35 AM PST

clay-christensen-cc It’s Episode 8 of Press Publish, the Nieman Lab podcast! Our guests this week are Harvard Business School professor Clay Christensen and David Skok, the director of digital at Globalnews.ca in Canada.

Normally, episodes of Press Publish feature me having an extended conversation with someone doing interesting work in journalism innovation. This one’s different — it’s actually a recording of an event we held here at the Nieman Foundation last night.

nieman-reports-fall-2012-clay-skok Does Clay Christensen really need an introduction at this point? Once you’ve been named the top management thinker in the world, I imagine not. Clay is the man behind disruptive innovation, the theory of how industries respond to technological changes that alter access to products or services. His book The Innovator’s Dilemma is one of the most influential business books of the past two decades, and his Newspaper Next project in 2006 provided an alternate vision of what a more agile U.S. newspaper business might have looked like.

David was a Nieman Fellow last year, and during that year he studied with Clay on the application of his theories to news. The result was “Breaking News,” a piece for the fall issue of our sister publication Nieman Reports that outlines the hurdles and the possibilities. (You may remember an interview I did with the coauthors back in October.)

Last night, David came in from Toronto and Clay came in from across campus to talk to a crowd of about 70 about technological disruption in journalism. They were in conversation with Nieman Foundation curator Ann Marie Lipinski. It’s a great framing of disruption and definitely worth a listen.