Thursday, May 27, 2010

Google's views of the news business: No magic bullet here

James Fallows, writing for The Atlantic, has published a fascinating but mistitled feature on Google's approach to the news industry ("How to save the news", June 2010 issue.)

I say "fascinating" because it's probably the most complete public airing of the company's views of the news industry to date. Fallows interviewed at least a half-dozen executives -- from engineers to senior news executives like Krishna Bharat and CEO Eric Schmidt -- about their views of news processes and advertising.

I say "mistitled," because judging by the account in The Atlantic, there are no convincing strategies or products in Google's pipeline that will save the news industry as we know it. As you'll see below, I think Google is missing (or underestimating) several key points about the nature of the news business.

The article is several thousand words long, and strangely contains not a single link or commenting interface. If you're pressed for time, there is a summary by AllThingsD's Peter Kafka located here. I've left the following comment on the AllThingsD article, relating to a few crucial elements that Fallows missed (or Google avoided discussing?) that I think are crucial to an understanding of the display advertising ecosystem and news:

I read the Atlantic piece, and was struck by a couple of things.

First, local business display advertising, which is an important part of many newspapers' revenue models, was not discussed. If local newspapers are counting on sufficient online display ad revenues, they (and Google) will need to address the problem that relatively few local businesses are savvy enough or sufficiently interested in online display advertising, even though Google (and Facebook, ESPN, etc.) have tried their darndest to make it easy for them.

Here's something else to consider: The only way most newspapers and other local publications including phone books and magazines have been able to sign up local businesses for local print campaigns is by employing boots on the ground to cold call and visit in person these companies, and pressure them into buying ads. That is not the Google way.

Another issue that I think the Atlantic author did not press Google on concerns the massive oversupply of online information sources for people to turn to, including media from all over the world, company websites, social networks, shopping sites, forums, etc. The increase in the amount of available pages on which to serve ads, combined with the decreased amount of time that people will spend on news sites because they are too busy updating their Facebook feeds or looking at Wikipedia, will depress the prices of news pages that contain display advertising.

One last thing: Eric Schmidt was quoted as saying the following:

"In the future model, you’ll have subscriptions to information sources that will have advertisements embedded in them, like a newspaper. You’ll just leave out the print part. I am quite sure that this will happen."

To me, this seems like a 1990s vision of the future of news -- basically duplicate online what newspapers are doing in print. While this is already happening, it's not working. Considering the two points listed above and the many other online trends working against the news industry, I am skeptical of Schmidt's vision as stated in Atlantic.

The "boots on the ground" reference is something I picked up when I talked to a few pros who've been working PR and marketing in the Boston area for years: Most local business ads are sold by salesmen working the phones or going door-to-door in neighborhoods. The commissions are low, so volume is key -- they work quickly and try to get as many sales as possible per day. It's apparently a point of frustration for restaurants, florists, boutiques and other stores -- they don't like the pestering or the costs and they can't easily recognize the value of most print campaigns. But they often give in. They recognize that they should be doing some marketing, to bring new business in the door or to be recognized as part of the community. While some are interested in trying out online ads or seeing people referred by Yelp, Foursquare, or Groupon, many others do not want to get involved in the technology or are not familiar with how online display advertising works or can benefit them. Some businesses are not keen on online because they have grown up with traditional marketing practices and/or think that their target market won't see them (I actually heard this from a national manufacturer that makes outdoor equipment a few years ago -- most of their customers are in their mid-40s or older, so why bother with online?).

Finally, while some traditional newspaper companies have tried hard to migrate local businesses to online advertisers, I still see some major failures in the marketplace, including the Boston Globe, which is owned by the New York Times company. Relatively few of their print advertising customers are converted to online display ad customers. Part of this could be reluctance on the part of vendors and local businesses to make the jump, but I also suspect that the sales organization still operates in a 20th-century frame of mind, where big commissions are tied to print and online is an afterthought.

Sources and research: Interviews with various Boston-area PR/marketing agencies,, The Atlantic, AllThingsD,

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