Sunday, July 25, 2010

The supply/demand curve for paid news

A few weeks ago I discussed how long-form journalism was a poor fit for mobile devices. In addition, long-form content such as features is increasingly tough to use on the Web, where information/entertainment distractions are never farther than a hyperlink, bookmark, or tweet away.

But Frédéric Filloux's excellent Monday Note brings up another factor that's going against lengthy essays, features, and videos: A shift in consumption habits among young Web users (Digital Natives) who have grown up with the technologies. He writes:
"... The fastest is the best. Forget about long form journalism. Quick TV newscasts, free commuter newspapers, bursts of news bulletins on the radio are more than enough. The group will do the rest: it will organize the importance, the hierarchy of news elements, it will set the news cycle’s pace."
The "group" is the trusted social circle which serves as an echo chamber and information channel. Trust is vitally important to this group, Filloux writes, and most corporate media doesn't have it.

The other essay that is worth a quick scan is Jeff Jarvis' analysis (via Mediagazer) of the recent Conde Nast corporate shakeup and the company's admission that advertising cannot be counted on to support operations (I wonder how much they paid McKinsey for that piece of advice?). As for Conde Nast's plan to recoup revenue through high-priced online subscriptions, Jarvis' incredulous reaction nails it:
The problem is going to be that there is only *more* competition in content and so trying to suddenly charge *more* flies in the face of basic economics. The absurdity of the strategy struck me yesterday as Amazon tried to sell me a subscription to Time for 28.8 cents an issue while Time is trying to sell its iPad issues for $4.99 and I see no reason to buy either. In what world do these economics make sense?
I agree with Jarvis (I had a similar reaction to Conde Nast's "How about a buck a click" quote when I saw it), but wouldn't it be interesting to do a back-of-the-napkin supply/demand curve to model what's going on with online information and plans to charge for it? I'm pretty sure the demand curve would show a small number of people who don't care about price and will gladly register for paid news or download an expensive mobile news app; a large (but not huge) population who won't pay much and are extremely sensitive to price increases; and then the majority of the population who won't pay anything. If plotted, it would look something like this:
"P" represents price on the Y axis, and "Q" represents quantity on the X axis. Both lines continue off the page. In my microeconomics class, demand levels were depicted as being linear or slightly concave. But for online news, I believe demand at high price levels is very low, and rapidly drops as the price increases (iPad news app developers, take note!). It flattens out as prices approach zero, but that shouldn't be much consolation for providers. The price level is too low to support operations unless there is a massive audience, but Q hits $0 much too soon -- there's simply too much free news out there, plus many other free or low-cost alternatives (see "Quality vs. junk journalism"? Or news vs. other information/distractions?), meaning that the Q value for paid news will always be low.

What's missing from this chart? The supply curve. Typically, it runs perpendicular to demand, starting near the origin of the graph (where x and y intersect) and moving up and to the right in a more or less straight fashion, reflecting the fact that as prices increase, more Q (i.e., more supply) will be made available to sell and consume.

But for paid news, I can't quite figure out how to draw it. Any product in a capitalist economy should follow the basic supply curve pattern described in the previous paragraph. But in the online news industry, publishers are making so much content -- including high-quality content -- available for free. How do you draw that? (Economists or readers with a better understanding of how the theory works in situations like this, please feel free to weigh in below, in the comments section)

In some cases, publishers are offering content for free on some platforms, while attempting to charge for it on others. Conde Nast's Wired is a perfect example: Conde Nast has $10-$12 annual subscriptions, which are sometimes issued for free (I pay nothing now -- is my zip code that good?), or you can pay the $5 newsstand price. Wired's paid and verified circulation is 754,574, according to the Conde Nast media kit. Or, you can read most content online for free. Quantcast reports more than two million people do that every month. Then you have the Wired iPad app, which launched with lots of fanfare earlier this year at $5 an issue, but was almost immediately discounted the following month. The total number of June iPad issues sold the first month? 95,000. If you plot the online/digital users on the demand curve, it would look something like this:
Theoretically, supply and prices should dial down to meet demand and reach a state of equilibrium. I don't see how this can happen for paid online news, as long as there is an open system of information exchange that allows for a constantly growing mass of content of all types, most of it free. There may be some exceptions in niche topics such as finance. But news, commentary, and analysis in most other fields is rapidly becoming a commodity in a sea of information alternatives. Add to that factors such as the consumption patterns cited by Filloux, and a never-ending stream of new platforms and information products, which fragments the audience even further. In such an environment, the prospects for getting people to pay for news are very limited.

Saturday, July 17, 2010

"Quality vs. junk journalism"? Or news vs. other information/distractions?

I thought I would continue my discussion of the competitive environment for news, after spotting "What the audience wants" isn’t always junk journalism on the Nieman journalism blog (once again, it's something I found through Mediagazer, which has replaced Romenesko as my main source of news about news).

Laura McGann's Nieman blog post suggests that "coverage based on clicks" is a recent phenomenon. I would argue that it actually has many parallels in the traditional media world. Ever since revenue has been tied to metrics, publishers (and journalists) have employed various tactics to boost circulation/viewership. Long before there were "10 worst movie villains" slideshows on the 'Net, broadcast news had "sweeps week" and newspaper publishers realized that crime news, investigative reporting, and 96-point headlines helped attract eyeballs and drive advertising/circulation revenue.

Also, in the always-connected mobile and Web world, news organizations should understand that it's not always a question of audiences wanting quality vs. junk journalism. It's a question of people them wanting information, or sometimes wanting a distraction. Newspaper publishers -- including the New York Times and The Washington Post -- realized this a long time ago, and offered funnies, crosswords, sports, recipes, and sudoku to their print readership, in addition to high-quality journalism.

But online and on mobile devices, the focus is still on hard news and quality journalism. This is despite the fact that audience members clearly want other types of information besides news. They want updates from their social circles, information about personal or professional interests, product-related data, etc. -- as well as entertainment and other distractions such as playing games, listening to music, looking at photographs, and playing videos.

Another way of looking at the situation: publishers are competing with sites, services and products that they seldom considered as rivals in the old days. In the oil spill example given in the Nieman blog, the people who tuned into the spill coverage and later tired of it may have switched to other quality journalism stories and sources afterward. But I suspect that many turned to "junk journalism," and even greater numbers turned to information/entertainment sources that aren't even "news."

Is that a bad thing? I don't think so. Quality news and other types of information and entertainment shouldn't be seen as mutually exclusive. In print this isn't an issue -- no one thinks the Boston Globe is committing sacrilege by publishing the funnies, automobile reviews, MLB stats and photographs of rich people attending fundraisers and other social functions. The Globe recognized years ago that readers want these information and distractions, just as Yahoo has recognized that people nowadays have certain online information and entertainment needs, ranging from hard news to online games. It's a tough place for Yahoo to compete -- there are too many competing services, CPMs are low, and there are added costs to operating the services. But it's something that sets Yahoo apart from other publishers, in the eyes of audiences and advertisers.

My online math class: Convenience gets an 'A,' but at what cost?


So I'm going to business school. It's an intense, full-time, on-campus program at MIT Sloan. However, before school started, a handful of us who don't have science, finance, or engineering backgrounds were asked to take an online precalculus course at another institution.

It's an understandable requirement. Our B-school curriculum has a very strong quantitative component. Microeconomics, accounting, and data analysis are math-heavy subjects, and even the instructor for the core marketing class has illustrated theory with mathematical equations.  To give you an idea of the types of questions I'm dealing with, here's an example from the practice microeconomics exam:
You have a patent on a drug that has been approved for sale in the U.S. The U.S. demand for this product, for which you are the monopoly producer, is

ln Q = 3.4 - 1.5ln P + 0.5 ln A

where Q is millions of tablets sold, P is the price per tablet, A is expenditure on advertising, and ln denotes a natural logarithm.

If you are maximizing profits, and if the marginal cost of a tablet is $0.90, what price should you charge?
That was actually one of the easier questions using a standard economics equation with price, marginal cost, and elasticity variables. The more difficult ones involved transfer pricing and monopoly pricing, which use calculus. Moreover, I'm in the room with bankers, scientists, engineers, and others who have used math in their day-to-day careers. Even if you don't have this type of professional background, everyone has to be able to keep up to get the most out of the curriculum, and maintain an intelligent and productive level of discussion with classmates and faculty.

So why not stick with the concepts covered in the GMAT, which is intended for people heading to business school? While GMAT test preparation concentrates on algebra and geometry basics, it's basically 7th-grade math. Precalculus goes beyond typical GMAT review topics, and in my opinion, the  advanced math review is more appropriate for business school. For instance, in my microeconomics class, we had to deal with logarithms and graphing supply/demand curves -- two areas which were *not* part of the Barron's or Kaplan GMAT review, but were covered extensively in precalculus.

The online precalc class I took was not through MIT, but rather through a well-regarded public university's continuing education division. The class has been in existence since at least early 2006, and during that time has apparently been taught by the same instructor. On the class bulletin board, I noticed that there were other students from UPenn/Wharton, the University of Chicago, and NYU who were taking the same class before starting their respective MBA or masters programs. The precalc class was a for-credit course, but the credit will not be transferred to MIT. The main purpose of taking the class was to ensure that we come prepared for some of the concepts and exercises that are now being thrown at us, as opposed to checking off a math credit.

So, how was the class?

The curriculum was standard. It started with a basic algebra review, went on to quadratic equations and graphing, spent a few chapters on functions, and ended with three or four chapters on trigonometry. There was one chapter on logarithms, too.

The convenience was great. We could go at our own pace, and start at any time during the year. Beginning in April, after putting the kids to bed, I would go downstairs to the living room to spend about 2-3 hours on readings and homework, and about every week, the chapter tests. I never had to deal with driving. Homework and tests were completed online. I was able to make very steady progress, with the aim of completing the course by the time my full-time MBA program started in Cambridge in early June. I was able to finish the required chapters in about two months and take the proctored final exam in downtown Boston the day after Memorial Day, just a few days before heading to MIT.

I worked very hard at the online precalculus class, and did very well in the homework, tests, and final. Most importantly, I feel that I learned a great deal and came to business school well-prepared. The value of taking precalculus was very apparent in the on-campus microeconomics class, which had a substantial math component. The online math preparation allowed me to focus my attention on economics theory, instead of getting hung up on the calculations in the problem sets.

But there were drawbacks, too. For years, I've heard criticisms from other students, faculty, and even supporters of Web-based distance education, relating to a lack of interaction between students and faculty. I can verify that this was indeed the case in the online class that I took. Here's what observed:
  • There was no shared sense of community, or any efforts by the school (the state university that offered the online course) to create one, beyond setting up an online message board. Many of the students used this to introduce themselves at the start of class, but by chapter 1 or 2 in the book practically all shared dialogues had stopped using the official message board.
  • What few questions that were placed on the message board -- either relating to the course content, tests or the online software -- were never answered by the instructor. One sad example: "Can you please provide more information on the final? Will it be similar to the Practice Final? How many questions will there be? Please let me know when you have a chance." I am sure others had the same question, too, but it was never answered on the board -- although the teacher did answer this particular question in a private email, when I asked her.
  • Because old comments from previous students were never removed from the board, it gave the appearance of an abandoned ghost town -- the MySpace of math.
  • The only comments that I saw from the teacher were the first comment at the top of each thread ("please feel free to email me, etc.") which dated from March 2006. Three times, she responded to students who introduced themselves, but by mid-2007 even these responses had stopped. There was no shared response by the instructor to any question about tests, math problems, or software issues. It is uncertain if the students who asked them gave up, or attempted to contact her by email afterward.
  • The lack of an easy mechanism to ask complex questions was very frustrating. For instance, the trigonometry chapter covered difficult concepts and methods relating to trigonometric functions and equations. In a classroom setting, the instructor would be using the board to work out equations and would be referring to the unit circle while students asked questions. In an online setting, I could use the textbook, online exercises, and pen and paper, but I still had a ton of "why" questions that could not be easily described or diagrammed via email.
  • On the other hand, the teacher was very responsive to those questions that were asked by email. I sent more than 10 specific queries over the course of the semester, most relating to grading errors with the MyMathLab software we used to complete assignments and take tests, or questions relating to the final. She responded to every one within 12 hours. This was impressive, considering many university professors I've had contact with in classroom settings sometimes takes days or even more than a week to respond to email from students.
  • Even though she was responsive with email, I did not observe any spontaneous communication from the instructor in the way of asking about problems, or even "keep up the good work" encouragement.
  • The $170 precalc textbook contained two extra books which were never needed for the class, as well as a login key for the MyMathLab section. Interestingly, the book was reproduced entirely online, reducing the need for even buying a physical text.
  • The instructor prepared "lectures", which were actually explanatory essays with diagrams. The quality of these documents was generally quite good -- I'd say they were much clearer than the Sullivan precalc textbook I used.
  • However, the text "lectures" did not encourage a shared dialogue, and seldom/never change from year to year. I found this out when a link in one of them directed me to an external website, which generated the following error: "Web Hosting from beeb.net closed on 30th June 2008." In other words, the link had been added at least two years before and was never revised.
  • MyMathLab contained video clips of various concepts and exercises produced by Pearson employees, but there was no classroom video of the instructor. I watched one of the MyMathLab videos, but found they were much less engaging than the free videos produced by Khan Academy.
  • Grading was easy. As long as you studied, understood the concepts and questions likely to appear on the homework and exams (which were driven entirely by textbook content), it was nearly impossible to do poorly. For the online homework on MyMathLab, the system allowed unlimited attempts on each question and even gave step-by-step instructions on how to solve tricky problems. This does not mirror the homework or testing scenarios typically found in physical classrooms, in which you get one chance to get it right, and in the case of tests, cannot have open browser windows or the ability to communicate with other people at the same time.
  • The tests followed the textbook lessons very closely, and you were allowed to take practice tests as many times as you liked. The questions that appeared on the practice and real tests were practically identical. Rarely was there a "trick" question.
  • Only the final was proctored (I did it at the New England College of Finance in downtown Boston). There was no monitoring on any other graded content. This, combined with an almost complete lack of student/teacher interaction, makes it very easy to cheat on homework and chapter tests.
  • Because the homework and tests corresponded to the textbook lessons, it was more efficient for me time-wise to take notes and practice problems from the textbook and do the homework and tests without even reviewing the redundant (but better-written) "lectures".
  • The textbook had a fair number of word problems, but these almost never appeared on the homework or tests. I wish they had -- the practical applications of mathematics is where a lot of people struggle, but is the best way of illustrating abstract concepts.
In summary, taking this online math class basically boiled down to being taught by a textbook, and getting university credit for it, from one of the top-ranked public universities in the United States. I use textbooks in my real-world classes too, but the big difference is the classroom sessions include a huge amount of discussion and focused questions on difficult topics, examples, and other areas worth exploring as part of a shared dialogue. In the online math class, there was almost no meaningful student/teacher or student/student interaction. To equate this type of online learning with a real-world classroom experience is a major stretch.

Further, struggling students tend to suffer in an environment when teachers aren't there to help, or even notice there's a problem. I wonder how many dropped out of my class, after attempting to make contact on the online message board, or getting hung up on the software? In the absence of any monitoring system for the exams and homework, how many have turned to cheating?

On the other hand, the convenience of taking a class at home was addictive. It was very easy to incorporate these classes into my home life, without dealing with wasting time or money on commuting to class. And, most importantly, I learned what I set out to learn.

Would I take an online class again? Maybe, if the topic lends itself to rote memorization and hands-on problem solving that does not require interaction with other students or faculty.

But for most college- or university-level subjects, online education is a poor substitute. In my opinion, the most effective learning takes place in the classroom, where you can easily raise your hand, engage in spontaneous discussions with classmates and faculty, turn to the person next to you to ask for clarification, or approach the professor after class or during office hours to ask questions or exchange viewpoints in a way that practically guarantees an instant response and is not constrained by typing, software interfaces, or waiting for a response.

To give you an example, in my on-campus microeconomics class, I suspect that about 3/4 of us were partially or fully baffled during our professor's first explanation of concepts like two-part tariffs and double-marginalization in certain transfer pricing scenarios. The only way we were able to "get it" were by some students raising their hands and asking the professor to explain a particular element, other students sharing their own experiences from their careers (with responses from other students or the professor), and the problem sets being explained in person by the TA, with more questions from us. Not everyone raised their hands or participated in the debates, but everyone in that classroom heard them, and learned something from them. I doubt 10% of this interaction would have been possible online, even using technologies that allow instant feedback from remote students -- it's too easy for people to multitask, read email, or browse the Web while attending class, and unless sophisticated two-way video systems are involved (such as telepresence), it will be difficult for faculty to get important visual feedback cues from the students they are teaching.

A decade from now, there may be better technologies that truly bring the shared classroom experience to people's homes, but the asynchronous, Web-based technologies that seem to dominate the online education sector don't come close to the real thing.

Other education-related blog posts by Ian Lamont:

Tuesday, July 13, 2010

Thoughts on the online information market, and why e-readers won't save journalism

For some time, I've been wanting to write more about online news organizations and the competitive environment they now find themselves in. I was finally prompted to do so after reading an essay about e-readers by the Columbia Journalism Review's Curtis Brainard (linked from Mediagazer). Judging by its length and lack of a search engine-friendly title ("A Second Chance") it's clearly intended for a print audience. And, while Brainard brought up some valid points about the new e-reader technologies, he missed the boat in terms of the content that is best suited for mobile devices. Here's the comment that I left on the CJR.org website: 
No, e-readers won't save journalism -- at least not the kind that the  author and the Columbia Journalism Review practice.

Consider the people reading this essay. What percentage of readers are consuming it on an e-reader, iPod, iPad, Android phone, or any other mobile device, relative to the percentage of readers who are looking at it on a PC or laptop screen? I suspect the mobile:PC ratio is quite small -- maybe just a few percentage points, if that (perhaps the CJR can let us know?). I further believe that even among those who are looking at it on a mobile device or e-reader, very few are reading it from start to finish. Like many publishers, the Columbia Journalism Review is still oriented toward long prose pieces that are a poor fit for mobile devices or the people who own them. Who is going to read a 4,546-word analysis (the length of this essay) on a small screen, or even a 1,000-word news article. How many would be willing to shell out subscription fees for long-form Time, Wired, or WaPo print content on a Nook or iPhone?

Even short-form content may be a stretch, when there are so many other free and low-cost distractions available on mobile devices. Publishers no longer have a monopoly on information or entertainment, like they did a decade ago, when tabloids, metro newspapers, books, magazines and CD walkmans were the staple on subway cars. Now when I look around at my fellow commuters, I see people playing games, listening to mp3s, texting, watching videos, checking Facebook for updates, and sometimes even looking at a newspaper or mobile news app. If people don't want to read a 2,000-word feature, or don't feel like paying for news (print or mobile), they still have too many free/cheaper options to choose from -- options that they didn't have before, because the technology wasn't widely available.
This last point about competition deserves a little additional commentary. I've been thinking a lot about the competitive environment for online news. Publishers assume people want news, when in actuality many of them just want information. Increasingly, it's not so important where that information comes from.

Consider product news. In the mid-1990s, when a new Apple product came out, the channels for information were far more restricted. People depended on the news media (and advertising) to find out about these products, because the only other channels were word-of-mouth and retail outlets. I don't need to pay to learn about the iPhone 4 from the New York Times' David Pogue (or, for that matter, and other news publisher), when I can get facts about the product from Apple.com, video from YouTube, and numerous opinions from blogs, message boards, and my online networks -- all for free. What extra value is Pogue delivering? Certainly, he's a great writer and is accurate and unbiased (well, most of the time), but is he worth $1 in print or a $n monthly subscription? I don't think so.  Neither will most other people, when they are prompted to pay online or on their iPad.



Sources and research: Columbia Journalism Review, New York Times/Bits, EdibleApple.com, Mediagazer

Image: New York Times iPhone app on the iPod touch. Creative Commons Generic License 2.0 -- you are free to use it for commercial or noncommercial work, as long as you credit the source (Ian Lamont) and link back to this blog post.

Related online/mobile commentary from Ian Lamont:

Wednesday, July 07, 2010

Hootsuite review

So you've signed up with Twitter, and are looking for a tool that will help you get the most out of this neat little communications medium. Sure, you can send and receive tweets through twitter.com, but once you start to use Twitter a lot, the generic Web interface gets old very quickly. It simply doesn't scale that well for heavy use, and in fact can be a drag on sending, receiving and reading messages. The review below explains how to switch to Hootsuite, one of the more popular Twitter clients.

Hootsuite is a tool that greatly expands the functionality of Twitter by letting you do things like monitor multiple lists and streams on the same screen, easily operate multiple twitter accounts, post simultaneously on Twitter and Facebook, share accounts with other users, and schedule tweets in advance. It uses a Web browser, which means no additional software needs to be downloaded, and also has a mini version that works on iPhones and iPod touches. I use it for posting to four individual Twitter accounts (@ilamont, @publicdime, @harvardextended, and @sloanfellow) as well as shared account (@mit_sf2011) and have set it up so I can monitor them on the fly (typically, before I leave for school, on the train, and in-between classes).

It's easy to get started (and I've embedded a video below which shows how to do it). Go to Hootsuite.com and register. Once you're in, you can authenticate your Twitter accounts and Facebook. This means you'll be able to see and post items on Twitter or Facebook without visiting Twitter.com or Facebook.com -- including posting simultaneously to both (useful if your friends are on Facebook, and other people monitor your tweets, and you want to send something to both audiences at the same time).

In addition, you will be able to create multiple views of Twitter lists, direct messages and search terms. These accounts and views will be preserved even as you change browsers and computers, which is useful if you like to tweet from both your home computer and the laptop you use for school.

To see what Hootsuite looks like and how to start using it, I've embedded a video that was created by Benjamin Bachman. It takes about 9 minutes, and is really good if you're interested in taking Twitter to the next level:

Monday, July 05, 2010

Dabba phones: A new model for the developing world?

Interesting piece on the PBS Newshour tonight about a South African entrepreneur named Rael Lissoos bringing a low-cost phone and Internet access model to the poor in his country, mainly by buying telecom traffic in bulk and reselling it at a much lower rate than the South African carriers like Vodacom. The video below is missing a few important elements, such as precise costs for Dabba phone cards and phone services, but it seems to be a much more attractive option than the prices charged to local residents under the existing carrier regime -- $8 for a 20-minute cell-to-cell call? That's even worse than AT&T's prepaid phone rate in the U.S., which would be about $5 for a 20-minute call (I know, because I own a GoPhone, which uses prepaid rates of 25 cents per minute).

In any case, you can see what's going on in the video below. If that model can be profitably extended to other parts of Africa at rates which ordinary people can afford, the potential impact on commerce, health, government services, family bonds and other aspects of society will be incredible. I heard from a classmate at Sloan who helped bring similar cellphone service to remote areas of Pakistan earlier in his career that some of the people in these regions -- mostly illiterate and without electricity or any modern means of communicating outside of their villages -- were overjoyed at the introduction of basic cellphone service. We take mobile phones for granted, but for people who live way off the grid in desperately poor conditions, it was a transformative technology that made life measurably better.