Topic: Business models
Facebook Confirms News Subscriptions Coming in October (Jul 19, 2017)
Campbell Brown, the former news anchor Facebook appointed as head of News Partnerships in January, has finally confirmed what’s been rumored for some time now, namely that Facebook is readying a subscription product for newspapers. It sounds like it will adopt the familiar though not universal approach of allowing readers to access ten articles before having to pay for a subscription to a given publication, though it’s not clear that the ten articles will include those readers read separately in their browsers, so that will be a key point for papers to nail down before signing up. Another will be payments and how those will work, since Facebook still doesn’t have credit card details from the vast majority of its users. Since some publications don’t allow any free articles before the paywall kicks in, this won’t be a perfect or universal solution, but on paper should neutralize one of the big criticisms of Facebook’s gobbling up of news consumption. However, given that this has been in the works for some time, and the largest publications will be aware of that, the recent PR push by the News Media Alliance against both Facebook and Google suggests that it certainly won’t assuage all their concerns. Update: also today, Facebook announced analytics for Instant Articles with support from Nielsen, to allow publishers to compare results from their IA and web-based versions. The lack of comparable analytics has been another bugbear for the news organizations using IA, so this should check another box in resolving those concerns, at least on paper.
Some Online Publishers Increase Revenue by Reducing Ads (Jul 13, 2017)
The Wall Street Journal has a nice bit of reporting here on several websites which are reducing the number and toning down the nature of ads, and seeing positive results in terms of ad revenue as a result. Reading the article, it’s hard to avoid asking “You mean you dramatically improved the user experience and more people spent more time on your site?” The changes being described here seem so obvious that it’s easy to forget that the received wisdom in online advertising (as in TV advertising, arguably) has been that the best way to generate more ad revenue is to show more ads and make them harder to ignore, at the expense of the user experience. The backlash against advertising online (manifested in both use of ad blockers and refusing to visit sites with obnoxious ads) and on TV (manifested through ad-skipping DVRs and the rise of ad-free properties like Netflix, Hulu, and HBO) is now finally forcing a reckoning among those that have swallowed that line of thinking. And the results should surprise no-one: prioritizing anything over the user experience is always going to worsen the experience and therefore usage, while prioritizing the user experience will improve it and usage, and in the process may well improve revenues too. This isn’t a panacea for online display ads, many of which will be blocked anyway even if not obnoxious, and whose value compared to native and search ads continues to erode, but it’s better than continuing down the road most online publishers have been on. The solution for TV advertising, on the other hand, isn’t nearly so simple, given the broader declines in viewership.
The News Media Alliance, an industry group representing major newspapers, is beginning a push, launched with an op-ed in the Wall Street Journal from its president, to get permission from Congress to act collectively in negotiating with Facebook and Google. I’m linking here to a piece in the New York Times on the topic, but it’s from the media columnist and therefore almost as much opinion as reporting, something I’ve found with most of the stories on this, which feels a little ironic. But the thrust of both the op-ed and the opinion side of the New York Times piece is that the news industry is being lorded over by the digital giants, and that single publications or even media groups are powerless to negotiate better relationships without being able to bargain collectively. That, in turn, would be a violation of antitrust rules unless Congress were to pass legislation providing legal cover, something it seems rather unlikely to do, especially in the current political climate. The op-ed is disingenuous to say the least – this is the money quote, in my opinion: “But the two digital giants don’t employ reporters: They don’t dig through public records to uncover corruption, send correspondents into war zones, or attend last night’s game to get the highlights. They expect an economically squeezed news industry to do that costly work for them.” That feels like a distortion of the true relationship here, which is that Google and Facebook both point people to the content those people find interesting, including content from major newspapers. If those newspapers decide to make that content available for free either on their sites or through Instant Articles or AMP, that’s their decision. But that’s not nearly the same as those companies doing that work “for” Google or Facebook. While the idea that the newspapers face an imbalance of power in negotiating individually with Facebook and Google has more merit, it’s also disingenuous to argue that these two companies are somehow singlehandedly responsible for the inequitable distribution of advertising revenue between them, given their respective audience sizes and all else that ails newspapers and their business models. At the same time, it’s worth noting that Facebook is pushing ahead with its plans for subscriptions and other improvements to how it works with publishers, but publications including the New York Times continue to be skeptical of those changes, which makes one wonder just what these papers would kind of relationship with these companies the papers would find acceptable. All of this merely reinforces my sense that the companies don’t really have any solutions to propose, but in fact are angling for some kind of punitive regulatory action against these companies on the basis of their size and influence.
SoundCloud is significantly reducing its staff and closing two of its offices in a bid to cut costs and reduce losses as one potential acquisition after another seems to fizzle. Twitter and Spotify were each reported as suitors earlier, but both ultimately moved on, and just in the last few days French music streaming service Deezer was also mulling an acquisition. I’m guessing these cuts are a sign that that deal also fell through and SoundCloud now realizes its only hope for survival is going it alone. That continues to be a really tough proposition, because SoundCloud continues to struggle to find a role for itself as a paid rather than free service. It’s become enormously popular as a free music source, but almost all the artists who start their careers on SoundCloud eventually cross over to the mainstream music industry and its more established business models, including paid streaming, which is becoming increasingly important and is driving almost all the revenue growth in the industry. SoundCloud’s failure to cross over with those artists to the paid streaming world is likely to be fatal unless salvation comes in the form of an acquisition.
Uber Talking to SEC About Giving Drivers Equity (Jun 29, 2017)
According to Axios, Uber has been meeting with the Securities and Exchange Commission to discuss giving drivers equity in the company. As the piece notes, this was something recently-acquired ride sharing startup Juno promised to do, but which it found legally difficult given SEC regulations. Of course, if drivers were employees, there would be entirely standard ways to deal with stock-based compensation, but the combination of the fact that Uber is a private company and drivers are contractors rather than employees make this more complex. Given the historical meteoric rise of Uber’s valuation, I could certainly see the appeal for drivers of getting a stake in the company, though the attraction will have waned a little as there have been reports of shares selling at lower prices in the private markets over recent months. Longer term, there are still big questions about whether Uber’s valuation will continue to grow if it doesn’t have a clear path to profitability and doesn’t seem to be winning decisively against Lyft and other big competitors in its important markets. And its big investment in autonomous driving is another potential huge cash sink which isn’t guaranteed to pay off, especially given the distraction and uncertainty created by the Waymo lawsuit and the departure of Anthony Levandowski and Travis Kalanick in recent weeks. Still, Uber does seem to be genuinely interested in trying to find ways to improve its relationship with drivers recently, and this is another potential step in that direction.
Uber Pool Burned Through Cash for Months in San Francisco (May 31, 2017)
I noted this change myself this morning as I’m part of the affiliate program at Apple (we’ve very occasionally linked to the App Store and iTunes Store from the Beyond Devices Podcast site). The change affects app and in-app purchases, and represents both a short notice and significant reduction to the commissions affiliates have been paid in the past, without any kind of explanation or justification from Apple. There are several possible explanations: Apple could be adjusting this cut downward ahead of a reduction in its cut on apps and in-app purchases to be announced at WWDC in just over a month; it could have decided that too many companies are gaming the system, e.g. by linking to their own apps on the store and taking a bigger cut; it may have decided that it would rather foster better discoverability on the App Store than have third parties do it; or it could be something else entirely. Hopefully the other shoe will drop at WWDC – whether in the way I’ve suggested above or in some other way – but it’s entirely possible that we’ll never know. This isn’t a great signal to send people trying to build a business around the App Store, though, because it suggests capriciousness and unpredictability. And especially because it hurts those businesses which – like Apple – have eschewed advertising as a business model largely or entirely because of the tradeoffs it entails.
On the face of it, this could look like the in-app purchase model that so many other games have used so successfully over the last few years, which would look like capitulation on the part of Microsoft to the prevailing model. However, even though the article implies towards the end that that’s what’s happening here, this is actually something different. Whereas the classic IAP model often holds progress in the game hostage to the purchase of various items through the medium of in-app currency, Minecraft has always eschewed that model, instead charging a high up-front fee to purchase the game in the first place, with a small number of in-app purchases for specific items. It is now opening up that latter model to a small number of third parties, and while the use of in-game currency as the medium may carry echoes of the classic IAP model, this is something very different. Given the addictive qualities of the IAP model, that’s a very good thing, given that the game’s audience is largely children. The last thing Microsoft wants is for Minecraft to get a reputation for being a sort of Candy Crush for kids, whereas it’s currently known as a game that has at least some educational qualities.