An oral history of the epic collision between journalism and digital technology, 1980 to the present

A project of the Shorenstein Center on Media, Politics and Public Policy

Archive for July, 2013

Chapter 15: Time Will Tell

Steve Jobs

The third generation of Apple’s iPad, announced in March 2012. (AP/Paul Sakuma)
When we began constructing this oral history so many words ago, we raised some big questions that we hoped to answer about “what really happened to the news business.” At the time, we each had some preconceived notions — maybe some biases even — about what the answers might be, so we aimed to speak with 20, maybe 25, people along the way to sort out any differences we might have perceived in our points of view, and then lay them out for history ultimately to decide. As we closed in on our 60th interview, we realized we were totally sucked in to the exercise by a sense of discovery that we hadn’t expected to glean from rooting around in the past.
As we warned you at the outset, Riptide is a Rashomon tale of multiple perspectives, told — we hope not by an idiot — and signifying — we also hope — something important. In the process of examining this 35-year period in the life of the news business, we three authors have virtually merged our perspective into one; we disagree on only the smallest points, not even worth the discussion. In other words, we believe the story we present here to be, in its sum, close to the truth of what happened to the news business. And we believe we answered all the big questions we posed at the beginning — save one. And that is the big one, really: What is going to happen next to the news business, and how is that likely to affect the quality of life in a democratic republic?

We are quite aware of all the various alternative models and futurist scenarios that explain how quality general news media might survive. We have also followed all the current techno-rabbits being chased by the advertising industry — video, mobile, etc. Where will all this lead? And what will it mean for journalism? We don’t know. And we don’t really believe anyone else knows either.

Instead of taking on that thankless and impossible task of gazing into our crystal ball, we decided that — after talking to roughly 60 of the most seasoned, invested, thoughtful, powerful, intelligent, humbled, and philosophical people involved with the news industry in its past, present, and future — we would let our interviewees conclude. What follows is a selection of a handful of them who had particularly strong points of view and expressed them frankly.

We begin, not with a crie de coeur from an old-time newsroom hack for salvation, but with a clear articulation of the need for journalism in a digital world from the person whose singular invention did more to enable the collision between news and the Internet than anyone else.

…There’s a need for journalism. People are desperate for it. People are fed up with spam. They’re fed up with just searching, using a web search tool to find a medical article, then realizing only after they have gone to the bottom of the article and followed the advice, and bought the drugs that the whole thing was produced by the same pharmaceutical company, with an extremely slanted view. People are getting so good at presenting stuff which is biased [but appears] as though it is not.

People are fed up with that and journalists have got the skills and the motivation. It’s their job to solve that problem. With all these new genres, don’t expect everything to look like something on the printed page, just translated. Yes, you can think of a blog as an op-ed, but there’s a lot more blogs than there are, were ever, op-ed columns.

The world’s changing shape. Some of those things are fragmented into small pieces. Maybe that will equalize and maybe we’ll get a pushback. I think people will use tweets to find things which are larger. There will be a balance. I think serious pieces of work will be important. There will be a range of all those things.

It may involve new protocols. We are looking at new payment protocols.

One of the solutions may be to get payment protocols on the web, new payment protocols, so it’s easy for me, as I read your blog, or as I read your journal, the output of your journalism, I might be able to tell my browser, “You know what? Whenever I really enjoy an article, I’m going to hit this button, and I want to pay the guy who wrote it, and I want to pay the guy who pointed me at it,” because I really appreciate that.

…It’s building new systems. There will be new genres, both of works and of journalism. They won’t all be paid for by payrolls. They won’t all be paid for by advertising. We’ll have new types of products, ways of paying for them.

We just have to be creative. You think about how the user, what user interface would you like to have that makes it easy to pay for something, to give credit where credit is due? Let’s see how we can implement it.

Without the middleman, without having to cut down the trees and make wood and the paper and so on, then I think maybe we’ll be able to solve both of these problems.

We also spoke to Julius Genachowski, who in April of 2013 resigned as Chairman of the Federal Communications Commission, after presiding over a tumultuous period in the government oversight of communications and electronic media industries. He shares a sympathetic concern.

…I commissioned a report on the information needs of communities in the digital age. By commissioned, I mean we put together a team here at the FCC and brought in a terrific former journalist and former Internet entrepreneur named Steve Waldman to run this effort. And he produced his report, at this point, about two years ago. It’s called the “FCC’s Report on the Information Needs of Communities.”

Paul Sagan

And it concluded some worrisome things….

Julius Genachowski on opportunities to reach new audiences online and build new business models.

Let me describe the report a little bit…. It found that there were both opportunities and challenges, and then it tried to be concrete about what the challenges are. On the opportunities side — let me start there before we get to the challenges — new communications technologies, the Internet, mobile, are creating new distribution channels for news and information at much lower costs of distribution. You or I could start a news and information business tomorrow on the Internet at a much lower cost than if we wanted to do exactly the same thing 20 years ago and we needed to launch a newspaper or TV station. This is a general fact about the Internet and opportunities for new businesses. The cost to get started and the barriers to entry are a lot lower, particularly in a world where we preserve a free and open Internet.

In fact, there are lots of examples of online entrepreneurs that have started news and information businesses. But the report also found that, when it comes to news in particular, while the distribution costs may be a lot less than they are historically, it still costs money to report the news. Reporters don’t work for free, nor should they. The business models to generate revenue to pay for reporters, even on the Internet, are not where they need to be to support a robust reporting operation.

The report found a few different things. I think it tried to be intelligently nuanced. It identified the largest challenge around local news and information as opposed to national news and information. Local journalism, covering the mayor’s office, the governor, state, city, local agencies, that’s where we’ve seen the greatest cutbacks and the hardest economic challenges, as compared to national news. That doesn’t mean there aren’t issues there, but there continues to be vibrant coverage of Washington.

Local news and information, particularly in the area of accountability journalism, is where the report found the biggest challenge. The report drew a distinction that others have drawn, but it’s important to keep in mind, between opinion and journalism. The Internet is great to facilitate the wide distribution of many different opinions. It’s much harder when it comes to building a reporting entity, particularly if what you’re trying to do is build reporting teams in lots of different local communities.

Paul Sagan

…I just want to make sure that I’m following you; that I think you would agree that that part of the puzzle’s not been figured out. That has to happen and that path is really unclear.

I completely agree that it hasn’t happened and that the challenges are very significant. But I would also argue that there’s tremendous value in local accountability journalism. People really want to get local accountability journalism about their communities, about things that really matter to their lives. My hope is that innovators in this realm will continue to mine it. I don’t know if they’ll be existing companies that figure it out or whether they’ll be start ups, but I don’t think we’re talking about trying to figure out a business model to give people broccoli that they don’t want. I believe that people really want local accountability journalism because they care about their home, they care about their kids, they care about their lives and they want to be engaged citizens. Someone will figure out how to provide that and build a business model around it.

And from the person who many now view as the keeper of the last flame, a clear, unvarnished statement of purpose.

[To Arthur Sulzberger:] But the assumption over time is that people are going to continue to appreciate quality journalism. Without that, there’s really no…

If that goes away, then you’re right. Our mission is gone, because that is our mission.

Sulzberger isn’t the only person in the industry with a surname that’s synonymous with the long history of journalism in the U.S. But in this next case, the namesake also has backed some of the savviest new ventures in digital communications.

What has changed in the media equation is the mass media equation. Newspapers in 2013 are not mass media anymore.

The Economist can survive. The New York Times can survive. Newsletters can survive, even have circulation revenue. The idea that the mass market is a newspaper market or even a publishing market, I think, is in great danger.

And from yet another member of a storied news family, a few months before he announced the decision to sell his historic newspaper, a sense of uncertainty that perhaps foretold his decision to exit the business.

One of the questions that faces places like The Times and The Post, but I want to come back to local newspapers broadly, is…there any kind of a plus to a news organization in having really high-quality reporting and editing? I’m pretty sure the answer to that is yes, but we have not figured it out.

From a new-generation news entrepreneur, we heard a call for a bit more patience, some time to find new models that work.

One of our goals at BuzzFeed is to build a real, sustainable business that generates profits, to build a media company for the social age. There are all these big media companies that, 10 years ago — Time Inc., The New York Times — all these companies were worth $10 billion and were seen as really great businesses. But you haven’t really seen that with digital yet. You’ve seen people build companies that, by old media standards, are fairly modest. I think that’s because we’re at the beginning of a transitional period and that eventually it should be possible to build much larger, more successful, more profitable companies in the digital space.

To the extent that news remains advertiser-supported, a different kind of church/state relationship may be evolving — one where the boundaries may not be as clear.

Interestingly, talking to newspaper owners currently, if they say to you, “What can we do that would help WPP, or GroupM, or Mindshare or whatever it turns out to be?” It’s always that we say, “Greater flexibility.” And by the way, this boundary between advertising and content—advertorial, right—is going to get increasingly blurred. I mean, I don’t think that consumers should be misled. If it’s an advertorial it should clearly say at the top of the page, “This is an advertorial.” But content. There’s going to be increasing amounts of sponsored content — of content that’s developed for specific commercial purposes, just as much as for editorial purposes — and the two things are going to mix.

We also heard advice about where not to be in the future of news from someone who’s been in print, some of the earliest web publishing efforts, the heart of the most successful online advertising business, and now leading an effort to reinvigorate an old digital brand.

…The overall thing, across the entire Internet right now, regardless of what content space you’re in is, don’t get caught in the middle. If you go back to the Andy Warhol statement of people care about high-end luxury and they care what happens on the street. Anything else in between comes across as mediocre to consumers. That’s where the Internet is on local today. You either should be national, New York Times, Wall Street Journal, Huffington Post, or you should be hyper local and mean something to consumers. Our investment, we call it the bar bell investments, tend to be at both sides of those bar bells.

And we got a strong reminder from another player on the digital side, a reminder for newsrooms not to try to compete with technology on its terms.

The benefit that the journalists have over the technologists is their ability to do these in-depth, content-rich analyses and essays around things. Instead, they’ve tried to optimize, in many cases, for, “We have to be the fastest and the first and the best distributors.” But the technology’s always going to be the fastest and the first and the best distributors. The technologists are going to be particularly bad at the in-depth analysis and the content and the thoughtful reporting….There haven’t been enough attempts to monetize that as opposed to trying to compete with the technologists at being fast.

And from the journalist-turned-Silicon-Valley-all-star, a reminder that if you’re not unique, you’re in trouble.

I think, on the whole, that media and forms of journalism that have something original to say, have their own content, have stuff that’s really proprietary and have their own voice, as opposed to distributing the wire services or being warmed-over versions of stuff that you can find all over the place — I actually happen to think that they have a far brighter and better future than they ever did.

…Most of the existing media companies who don’t have their own content will go the way of the dodo. No doubt about that. There will be a few that are able to engineer a leap over this gulf. But we all know the industries where the makers of horse carts or locomotives weren’t the leaders in the next form of transportation. It’s no different in the media business.

And there was plenty of handwringing, especially from people who have had to fight the continuous battle of trying to produce quality journalism with ever-dwindling financial resources — only to have the ultimate product benefit the low-cost competition.

Talk about that context of the [investigation into the Catholic] priest scandal that you led at The [Boston] Globe.

Shortly after I got there, we embarked on a series investigating the Catholic Church. The issue there was not just whether a priest had abused children, which there had been cases of that before, but whether there had been a pattern of abuse and that the church knew about that abuse and then reassigned priests to other parishes where they then abused again, and whether that pattern had taken place over a long period of time. In fact, it had in the case of dozens and dozens of priests over decades.

Now, that was not something that anybody was going to tweet about. The priest abusers weren’t going to tweet about it. The victims weren’t tweeting about the abuse that had taken place. The Church wasn’t tweeting about it. Nobody was tweeting about that. That kind of information would never have been known had it not been for The Boston Globe doing that expose.

But, from the other side — playing a web-only hand — there’s a more sanguine view being expressed.

[To Henry Blodget:] The chest beating…on how do we support serious stuff? …Does that scale support a Baghdad bureau? Does that support the things that people worry are going to get lost in this transition?

Henry Blodget recalls the early days at Business Insider, the evolution of its brand and editorial direction, and why a site can be broad and deep.

Without question, or it supports what the Baghdad bureau is turning up. Twitter, Facebook, and blogs, just an incredible new mechanism for unlocking information. We see that all the time. You can do things. You do not have to have a reporter on the ground, necessarily, to learn a huge amount about what’s going on. Citizens are contributing to global knowledge.

I don’t know whether it’s going to make sense for The New York Times to have a Baghdad bureau. What I’m very confident about is that the world will continue to be vastly better informed than it ever has been before.

I think even with the pressure on newspapers, the world is vastly better informed than it ever has been. We’re going to digital.

…I think the hand wringing is completely misplaced.

Before the digital wave came along, plenty of news businesses were almost as much about conveying social status to their owners as they were about delivering those large profit margins (we said “almost”). Think Bill Paley at CBS or Henry Luce at Time or Kay Graham at The Post. Through the course of our conversations, there were a few who suggested it will fall to the rich and powerful to fund journalism because they think it’s important or maybe just for the influence. Not surprisingly, one name that always comes up in that category is Eric Schmidt.

John Huey

[To Eric Schmidt:] Can you take off your Google hat for just a moment…? You’re a very wealthy, very powerful man who’s shown a lot of intellectual interest in politics and journalism. You’re close to people like Steve Coll, who’s now in a position to do something really good for journalism and journalistic education [as the new dean at the School of Journalism at Columbia University] and bring it into the future. We’ve seen some non-economic models out there, like the Sandlers… [Herb and Marion, who funded the not-for-profit investigative effort] ProPublica. We’ve seen Mike Bloomberg who, for whatever reason, is willing to have a $500 million news organization attached to a proprietary data business…. Do you favor, personally, Eric Schmidt, the idea of wealthy, powerful, interested people getting involved in non-economic models to fund quality journalism in the interest of democracy?

I’m always in favor of more journalism and in particular, more investigative journalism done by the kind of quality that we’ve been losing. My personal favorite is the situation where you’ve got a business that throws off enough cash that that cash can then be used to do non-economic things. The reason is that that’s an industrially stable structure for a long time. With individuals, the problem is they run out of money or they change their minds.

John Huey

So that could be a Bloomberg then?

For example, the Bloomberg model is a very good one. I’m very impressed and proud of Mike for doing that. There should be more of that. If you go back to The Washington Post, The Washington Post is tied to an education company [Kaplan].

(But, of course, with the sale of its namesake newspaper to Bezos, what remains of The Washington Post Co. is an education and television station company — no longer one with a major stake in the news business.)

With no hint that a check to save journalism would be forthcoming from the Googleplex, we turned to another wealthy capitalist who entered the media arena, only to be surprised by his argument that market forces must pertain.

I think you could make an argument that rich people are a real danger to journalism, maybe not in the moment but over the longer term. To answer your question directly…I meant to say both things. Deeply unsatisfying, to me, to keep putting out something that was failing against any commercial standard. But I also don’t think it’s a healthy thing for the enterprise. You end up with two bad things going on. One bad thing is that it can never grow. No matter how wealthy the fund is or the person is that’s going to subsidize it, there’s going to be a finite amount of money in the trust. It’s going to produce a finite amount of income. You end up creating an enterprise that operates at that level, and then the next year, when things cost more, it will operate at that level but a little more tightly squeezed and the next year a little more tightly squeezed.

David Bradley on his career journey and how he became an online publisher.

We saw that with The Atlantic, with [owner Mort] Zuckerman. He was genuinely generous with the enterprise, but he had a limit of how much he was going to spend on it, which was about $4 million in a bad year. The Christmas party had become a potluck supper, where everybody brings his own. They had not been able to afford the high-end writers. They had lost people like…Nick Lemann had moved on when the contract wasn’t competitive enough. They were increasingly publishing the works of academics who didn’t charge for the pieces or charged at a lower per-word rate.

One thing you end up with is a ceiling on the growth and a meaner and meaner culture. “Meaner” in the sense of tighter, financially. The other thing that happens is, they get whimsical and quirky. Since there’s no external standard to which you have to perform, you can publish whatever you want. You can report whatever you want. You can do the indulgences of the aggregate of your talent base.

There’s something really good about The New York Times waking up in the morning, going, “We’re not breaking the news we used to break. We’re being scooped by these people. Furthermore, we’re losing this talent. Everybody meet in the conference room at 8:15 because we have to figure out what we’re going to do.” Those kind of crisis moments which the for-profit sector forces on you relentlessly.

Perhaps surprisingly, one of the most optimistic views of the future of journalism comes from inside Google’s own news operation:

As I’ve frequently said, I’m very optimistic about the future of news. I’m extraordinarily optimistic about the future of news, but it’s going to be a very, very different landscape. The reason I’m optimistic is because we have these huge open systems. The simple fact that in effect, we put a printing press in everyone’s hands. That’s a hugely powerful thing. You’ve got a lot more people participating in the dialogue than ever before. Doesn’t mean that it’s all good content. It’s not. Obviously not. Still wheat-to-chaff ratios. But a lot of it is very good. You’ve got a very open system. You also have opportunities, but it does require, as I said, us, when we look at the future of journalism, to rethink all the models, to rethink what is the right way to build a news product in this realm. How do you build audience in this realm? What are the right uses of the media form? What are the right uses of computational journalism? I think computational journalism has extraordinary potential that has not really been fully explored.

And maybe just to succumb to that natural desire to end on a high note — we turned to one of America’s most buoyant multi-media public intellectuals.

I think it will be worked out. People are always worrying about something. The Baghdad bureau, well then on the other hand, they’ll say there won’t be local news. Someone is worrying that the Internet will drive away every part of the current media. There isn’t anything that someone doesn’t have a theory needs to be subsidized. I think it’ll all work out. My friend Nick Lemann, who just retired as dean of the journalism school [at] Columbia [University], says whenever he has these discussions — and in his 10 years there he’s had plenty — he says the one thing you’re not allowed to say in these discussions is, “It’ll all work out somehow.” But I believe that.

That sounds a lot like something your mom might tell you right after you didn’t get the part in the school play. And maybe we believe that too, really. It might just all work out somehow. But that’s for the news, the journalism, the public good. That part might just all work out somehow, eventually. In the mean time, the transition from what’s left of the old legacy news business to whatever comes next is likely to be the swiftest undertow yet of the digital riptide. The next full moon, the next hurricane, the next digital media breakthrough — seems bound to take down a lot of familiar swimmers before it all works out somehow.

Chapter 14: Going Social and Paying to Play

Mark Zuckerberg at Facebook headquarters, 2007. (AP/Paul Sakuma)
Global advertising crashed — along with everything else — in the 2008 financial collapse. Total media advertising dropped from $410.6 billion in 2008 to $365.3 billion the next year. But unlike the previous recession, when Internet advertising collapsed, this time it grew — mostly because paid search advertising continued to lure advertisers even as their businesses weakened. This time, print suffered the steepest losses, with global spending in 2009 plummeting to $116.9 billion from $144 billion the year before.
All the separate digital operations that had been set up by the traditional operators were reeled back in to cut costs and now — with real urgency — to transform or die. Mike Perlis, the CEO at Forbes, tells the story of Forbes.com, where he decided to offer previously taboo content offerings — like allowing advertisers to create their own editorial content to run alongside the “real” content previously produced only by editors.

There was something called the worldwide financial collapse in 2008 which forced a lot of issues. Like everyone, we had to make cuts here, we had to make consolidations. It also happened to be the right time to manage the brand in a consolidated way.

Lewis DVorkin of Forbes Media on the ability to communicate with an online audience.

But lest we make you feel that this was a simple and non-confrontational time, and particularly when [chief product officer] Lewis [DVorkin] got here and began to change how we were gathering and distributing and creating content, there was a lot of — I hope you don’t mind me saying — there was a lot of, “Are you in, or are you out? Are you on board with the new way of doing things, or are you going to go somewhere else?”

The financial collapse also affected the startup entrepreneurs, but this time the broader context of the last bust provided a framework for operating successfully in a downturn. They weren’t new at this any more.

How did [Gawker Media] grow?

Consistently. Even after 2008, where I actually cut the costs by 35 percent. Within three weeks of Lehman [Bros.] going down — I’d been so scarred by the dot-com bust that there was no way it was ever going to happen to us. We were not going to hold on with loss-making ventures. In business terms, that was probably the biggest interruption, except that there was no interruption in sales growth. We rationalized our titles. We’d always been pretty ruthless about getting rid of things that weren’t working. Once you fire your first editor-in-chief, once you close down your first unsuccessful site, then subsequent actions become par for the course. If we were to do it now, people wouldn’t think, “Gawker’s in trouble.” They’d think, “That’s just Gawker doing what Gawker does. It’s a relatively ruthless organization.”

“I think that you had an era where portals were dominant, an era where search was dominant. Now we’re at the beginning of an era where social is dominant.”
But one pattern did repeat itself. Just as consumers continually expanded their use of the web right through the Web Winter of 2001, this time, there was unabated growth in consumer adoption of broadband, and even more so, adoption of powerful mobile devices: initially the Blackberry, but increasingly, Apple’s iPhone and Google’s Android devices. In large part, the growth of these new technologies enabled an old idea to finally reach critical mass: the social network.

Platforms for individual expression and interaction had come and gone since the advent of the web. Initially, these were static 1.0 services like Geocities and Tripod that allowed users to create their own “walled garden” homepages. These businesses were mostly acquired during the dot-com boom by the portals (Geocities by Yahoo and Tripod by Lycos), in some cases, for billions of dollars.

The next generation of social networks began in 2002 with the launch of Friendster and, the next, year, Tribe. Founded by Mark Pincus (who would later create the online gaming company Zynga), Tribe was focused more on the connections among people — groups. Once again, the newspaper industry tried to harness the new technology, this time to save classified advertising. Both the Washington Post Company and Knight Ridder invested in Tribe with the hopes of it becoming a kind of next-generation Craigslist. The theory was that people would tend to buy things from their social circles rather than anonymous Craigslist sellers. It failed, and over the horizon came Myspace — originally popularized as a place to talk about favorite bands — as the next ascendant social media phenomenon.

In 2005, Rupert Murdoch’s NewsCorp acquired Myspace for $580 million, and was suddenly viewed as having made the most brilliant deal by a legacy media company in Internet history. It was such a great deal that Sumner Redstone fired Tom Freston as CEO of Viacom for not making it. That’s how hungry the moguls were to steal a march on this social media phenomenon.

For a while usage of the site boomed. But then aspiring computer engineer Mark Zuckerberg went to Harvard and in his dorm room started a little proprietary network at first just within Harvard, initially to “rate” dating prospects. That, of course, was Facebook, and if you don’t know that story go see the movie The Social Network.

Chris Cox, Facebook’s vice president of product, describes the idea of the “the social graph,” the key underlying concept behind the company. He recounts a part of his 2005 job interview with then vice president of engineering Dustin Moskovitz and chief technology officer Adam D’Angelo.

They described to me this idea that Facebook was the seed of a collaboratively created directory of people. At that time, Facebook had around five million users, so the idea that it was this seed of something that could grow to actually be really, really big, but that had the property that each member of that network was creating their own projection. So, it was a collaboratively built directory and it was interconnected. Each person was connecting to their real-life friends.

That was a new idea to the extent that the rest of the networks that had existed on the Internet didn’t have the property that people tended to be themselves and tended to connect with people that they really knew in life.

But if you had a seed that had that property that was strong and engaged, it was actually growing and could become something really, really exciting, which they were calling “the social graph” — this idea of a collaboratively built directory of everybody in the world, where each person was responsible for their own entry in that directory.

They had that vision in 2005?

Chris Cox on how Facebook acts as an accelerant to help users discover something more quickly online, from news to a new application or website.

They did. We weren’t sure whether to call it “the social graph” or whether to call it something else. There was a bunch of debate internally around what to call it, but the key thing they did have was the word “the,” which was important because it meant that the idea was to reflect something that was a reality that had just never been mapped out. That was a powerful idea, for me, as a [Stanford University engineering] graduate student, once I wrapped my head around it. Then, if you could imagine that existing, there’s this directory that you’re in, and your mom is in, and your sister is in, and your brother is in, and your roommate is in, and your college professor, all the way up to Barack Obama and John Boehner, and all of the public figures in the world — Beyoncé and influencers in every different category.

If you could imagine a world where every one of those people had an entry, and every one of those people were connected to the set of people in the world that interested them, you had the underpinnings of a circulatory system that could be a publishing platform, where each person was receiving updates from the set of people that interested them, all the way down to their cousin and all the way up to the president of the United States.

That publishing system they called “Feed,” and my job interview was, “How would you come in here and help us build Feed?” Feed was to take the homepage, which at that point told you how many friend requests you had, and turn it into “this living newspaper” and these were the words that they were using.

Now, with more than one billion users globally, Facebook has redefined the whole concept of audience “reach” in which both publishers and even the big portals would proudly tout unique visitors in the 20 to 50 to 150 million-user range.

Around the same time that Mark Zuckerberg and his team were beginning to build “this living newspaper,” a group of entrepreneurs, including Blogger founder Evan Williams, created Twitter. The other members of the team, Jack Dorsey, Biz Stone, and Noah Glass, had worked together at Odeo, an early podcasting company. Seven years later, Twitter’s 140-character “tweets” are a preferred method for reporting and receiving “news” by both individuals and institutions like The Wall Street Journal, The New York Times, and Time magazine. Twitter, according to CEO Dick Costolo, is the global meeting spot. What’s quickly reported in one place and tweeted out may not always be accurate, as CBS newsman Scott Pelley noted after the tragic school shootings in Newtown, Connecticut, but it’s where more and more of us are going first to hear news — as well as gossip.

My perspective is that we’re building this global town square. What I mean by that is, if you went back to Ancient Greece, the way that news and information was passed around was, you went to the Agora after lunch in the town square.

Dick Costolo on why he thinks journalists should not try to compete with technology services like Twitter to break news first.

There was this unfiltered, multi-directional exchange of information. I might go into the Agora and say to Martin, “Hey, my aunt died.” Martin might say, “Euripides’ goat passed away.” We would exchange some information.

By the way, the politicians were there. The musicians were there, et cetera. There was this multi-directional, unfiltered exchange of information, which was interesting in all sorts of ways.

[The] advent of technologies…made it easier to distribute news, geographically and with less friction in time, starting with the printing press, then radio, broadcast television, cable, on and on. It was always in service to a broader geographic distribution and less delay in time, but at the expense of losing the multi-directional aspect of it. It became more and more one way. And losing the unfiltered aspect of it. It became more and more here’s what’s going on from the very few of us to the very, very many of you.

In fact, if you go back to the election — talking about the campaign — if you go back to the campaign eight years ago, there would be a debate. Then CNN would say, “Now, we’re going to go to Frank Luntz, who’s back here in the room with six people, and Frank’s going to tell you exactly what to think or what everyone in the room thinks about what happened tonight.” But it wasn’t. It’s Frank telling you what he thought happened tonight and what these six people said.

Along comes Twitter, and it’s got all the benefits of broadcast distribution. It’s got immediacy. The information is transmitted around the world in absolutely real time. It’s got obviously the breadth of geographic distribution but all the benefits of the Agora. It’s multi-directional. The president’s talking to me, but I’m talking back to the president. CNN is broadcasting the debate, and I’m saying, “I don’t think he answered that question.”

It’s certainly unfiltered. You don’t have to go to the broadcaster any more, during the basketball game or after the basketball game. You go to LeBron [James], and LeBron goes to you.

That has been why we’re seeing the [political] campaigns unfold on Twitter. There’s no more, “Now let’s go to Frank Luntz to see what people thought about that question 20 minutes ago,” because as the question happens, people are typing into Twitter, “I thought he dodged that question.” We already all know what we all thought about the answer.

As Google and the emerging social networks took an ever-increasing part of the advertising pie, news entrepreneurs recognized the dual dilemma of creating something that would both fit into the new distribution reality, and be sized to the realities of the new marketplace. Scott Kurnit, the founder of About.com (which was sold to Primedia in 2000 for $690 million, to the New York Times Company in 2005 for approximately $400 million, and then sold again to IAC in 2012 for $300 million), describes the challenge.

What we haven’t seen happen successfully in news is professional journalism matched with crowdsourcing, with proper curation. We see on Twitter, when the plane goes down on the Hudson, it’s first reported, and then the conventional news outlets pick that up….We see The Huffington Post has been successful, I think, with a modified model, both in terms of massive amounts of user input from commenting, and also blogging as interesting fodder. But they’re not The New York Times. The question is, as we look at the likes of The New York Times and the Time magazines, as they go forward, they can’t keep doing what they’re doing. The model doesn’t work. There’s less revenue in digital than there is in the old media and that’s not an anomaly. That’s real. That’s going to continue, so they have to lower cost structure. How do you lower cost structure? Well, you introduce, I think, people with passion who don’t do it for the money. They do it because they love it.

Scott Kurnit talks about why established media companies are just too slow to compete with disruptive new online news businesses.

I think that the blend of professionalism and passion and curation will become, and is becoming, the new source. I do worry about news that is just incorrect….You never know if a quote’s real or not on the Internet, and that’s a problem. So how do “We the People” thumb it up or share it appropriately to create enough of a filter so that we know that it’s real? I don’t think we’ve achieved that yet. I still think there’s…more voices for sure, but the ultimate news product is still in front of us.

One company attempting to create a news service for the social age is BuzzFeed, founded as an experiment by Jonah Peretti when he was still at The Huffington Post. Peretti sees benefits in an increasingly social news environment.

So I guess you think we’re at the beginning of something?

I think that you had an era where portals were dominant, an era where search was dominant. Now we’re at the beginning of an era where social is dominant. So digital feels old and has been around for a while. But social, to me, seems like it has more potential both to create new, interesting kinds of monetization and also to be a friend of original reporting in journalism. Googlebot is dumb and will aggregate the page that has the most keywords that it seems the most relevant to…but it doesn’t know that that’s not the original piece, or the authoritative piece. Whereas on Twitter, nobody is going to retweet that piece, no one is going to share that piece….

People will retweet the Ben Smith scoop or the [Michael] Hastings scoop. They’re not going to retweet the rewrite of it. I think that actually makes the reporters that we’ve hired…. They pull their own weight in terms of traffic because of the social web.

Still, to Kurnit’s point, there is the tricky problem of cost structure. Many of the news entrepreneurs we spoke with addressed this issue, and most did so by suggesting that some combination of tweeting, blogging, and crowdsourcing would complement a much smaller newsroom. Henry Blodget, for example, makes the case that in a social media age you do not necessarily need reporters on the ground when ordinary citizens are already there.

Marty Baron, executive editor of The Washington Post, offers a different view — with passion.

There may be instances where that works. Even if you have a train wreck, you’re going to get a lot of tweets from people saying, “I was just on the train and it crashed.” Who’s going to explain to you why it crashed? What were the circumstances? Nobody’s blogging on that. Nobody’s blogging on whether the person who was the conductor of the train was on drugs, or drunk, or fell asleep at the wheel, or anything like that.

They don’t know. They have no information about any of that. They have no information about whether the tracks were in proper condition. They have no information about whether the train was properly maintained.

Marty Baron describes the geographic limitation of print publications and the competition they confront from online news sites.

They can’t tweet about that. There’s nobody blogging about it. None of the engineers who worked for the Transportation Authority are blogging that “Hey, guess what? We haven’t been maintaining those tracks.”

The notion that all information is known, but it’s not necessarily available and it’s not put together in any coherent way for anybody to possibly understand.

We just did a story here about the governor of Virginia who has a highly unusual relationship with a very unusual company that’s putting out a dietary supplement essentially. It’s not clear that it has medical benefits, although some are being claimed. This company gave the governor, actually has paid for $15,000 of the wedding of his daughter. The governor’s daughter isn’t going to blog on that. The donor isn’t going to blog on that. The governor himself doesn’t plan to blog on that. The caterer didn’t blog on that. Nobody blogged on that. Where did that information come from? Through the efforts of our own reporters.

The Boston Globe just completed a series about the taxi business in Boston, and all the abuses that take place there, how the drivers are exploited essentially. Taxi drivers can’t blog on that because they won’t get another gig. The owners aren’t going to blog on that because they won’t get another gig. Nobody’s sending out tweets about any of that sort of stuff. The only thing that gets sent out on Twitter about that is if somebody had a bad cab ride. There’s a limit to the kind of information that becomes available because of blogs and because of tweets.

We have to be realistic about that.

Yet as the economy emerged from the Great Recession — and all the ascendant forms of distribution and advertising became more and more dominant — simple arithmetic dictated to the traditional news providers that they would have to continue to reduce costs while layering in additional revenue streams. For large general news sites — notably The New York Times — this was a serious change. There was little precedent for readers paying for general news content online. Moreover, at the largest newspaper-owned websites like nytimes.com, there was concern that a pay model would significantly erode the audience and accompanying advertising revenue that had been garnered over the past 15 years.

Ultimately, The Times decided to implement a “metered model” for its suite of digital products in 2011. Martin Nisenholtz, who was on the team that evaluated that decision, explains the basic model.

It’s very simple. The idea is that users get up to a certain number of pages per month for free. I think we started at 20. I think the meter is now at 10. That allows you to provide this massive sampling of content to tens of millions of people each month. It also provides inventory and reach for your advertising business. From the side doors, by that I mean companies like Facebook, Twitter, Google, etc., you can go to a search and get again, an article for free or if somebody wants to share an article, they don’t have to send you an article that you’re going to hit a wall on. It’s a very easy and friendly way of dealing with content on a global web.

Paul Sagan

If you hit that number, what happens?

Once you hit that number…before you hit that number, you’re told by the system that you’re about to hit the number and hopefully you’ll subscribe at that point. Once you hit the number, then you’re unable to see any more content until the first of the next month. You’ve used your quota. Then you come back and on the first of the month, get a new meter. In essence, the meter is reset.

Paul Sagan

At least in 2013, what’s the result? Some of that’s been publicly reported.

A lot of it’s been publicly reported. The result has been, I think, stellar. It’s certainly exceeded, I think, The Times’ expectations of what would happen along essentially three dimensions. Dimension one is the number of subscribers. [As of mid 2013, the company reported nearly 700,000 digital subscribers to New York Times digital products, an increase of 35 percent year over year.] I think by anybody’s calculus, the number of subscribers is positive.

Secondly, we thought that it would diminish the advertising inventory more than it has, so more free users are coming than we expected.

Third, there was some thought that there would be a migration out of print and into the web faster because of the price differential, and that hasn’t happened. It’s actually been additive in some ways to the print side.

I think the model has been a success pretty much along mostly every dimension that you can think of. That’s why, I think, you’ve seen so many other newspapers take a whack at implementing this model. I think, at last count, there was something like 400 or 450 newspapers in the U.S. pursuing a metered model.

The Times did not invent the metered model. It was pioneered by The Financial Times and has been successful there, as well. It was unlike the original paywall model, adopted by The Wall Street Journal back in the early days of the web, because metered sites allow casual users and aggregators to access a limited number of stories per month without paying. Rob Grimshaw, who manages the FT’s digital business, discussed the applicability of today’s metered model to general news businesses.

It’s an interesting debate. I think we do have some unique advantages. We are very niche. I think we have a very clear position in the marketplace and a relatively defendable position in the marketplace. I think we, probably, have an easier job of carving out our position in the marketplace than, say, a general news publisher because there’s just more competition for that space. However, what I’ve seen over time is an evolution of this discussion.

When we first came out and said that we’re doing this, and this is going to be the focus of a web business, everyone said that there’s no way you’ll ever be able to do it, nobody can do [subscriptions] online, forget about it.

When we were successful, the argument changed to, “You can do it, but nobody else could do it. A general news publisher could never do that.”

Then, The New York Times comes out and does it. The argument changes, again, to, “The FT and The New York Times can do it, but they’re quality publishers, so they can do it but nobody else could ever do it.” Now, you’ve got what, 1,000 publishers across the States, 1,000 titles across the States that are charging?

That begs the following question: Where are you today? Just explain your economics sitting here in April 2013, and then we’ll triangulate that with where some of the others might be.

Rob Grimshaw on how the Financial Times learned to build direct relationships with its readers online.

If you look at the FT as a whole, about 35 percent of our revenues come from digital now, which is something that we feel is a real achievement. Our thinking is that we need to get to about 50 percent digital revenues in order to be secure in the long term, to guarantee the future of the brand. But, we can see that on the horizon. We know what steps we need to take to get there. There is also another key aspect that we look at, and that’s the balance between advertising revenues and content revenues. In those terms, it’s about 50/50 now. This year we expect over 50 percent of the revenue for the organization to come from content as opposed to ads.

Just to give you an illustration of how massive a shift that is, in 2001 over 80 percent of the revenue for the FT came from print advertising. It’s a huge transformation. If you look at the digital business right now, FT.com, last year, made more than 50 percent of its revenues from subscriptions.

An almost identical dynamic has taken place at The New York Times in the wake of the metered model.

There are going to be a whole variety of different models. Some of them are going to have longer glide paths than others. Bloomberg has one model. ProPublica has another model. Thomson Reuters has a third. We have ours. You’re just going to have to keep on testing and learning. When I came here, roughly 80 percent of our revenue was advertising, 20 percent was circulation. Roughly. It’s now 50/50. Circulation revenue, print and digital, is clearly the growth area, as we adapt to the new digital advertising environment….

As Sulzberger notes, the news business today is still very much in a state of transition, both in terms of how it gathers and distributes the news, as well as how it preserves a sustainable, profitable business model. If the recounting of the last 35 years proves nothing else beyond a doubt, it is that the march of technological innovation around information is not going to slow or find some comfortable resting place. If anything, it is likely to quicken.

The core problem that the Internet has [caused for the news business] is that it has attacked, if you will, the union of the distribution and the editorial. There will be a new set of startups…which attempt to do news reading and news aggregation. Maybe some of them will become the dominant players there.

…Most of the arguments that I’ve heard are based on emotion, not rational analysis. So it’s helpful to start doing the math. The fact of the matter is that in an always-connected world, the audience of three, four, five billion — they’re not going to be paywall subscribers. If they’re going to see your content, they’re going to do it for free. You’ll have to come up with an advertising model that supports that. Ideally, working with Google and others. As we develop better advertising models, better targeted, there will be more money in that space. If your goal, as an editorial institution, is to cover everyone it’s not going to be paywall based. It’s important that this is your decision, not anyone else’s. You’ve got a choice of whether you want to use a paywall or not.

A reasonable prediction is organizations [that] had good subscription models, which include all of the major media institutions, will substitute those for paywalls. It’s a reasonable presumption. Why? They have strong subscribers. They understand how to run that business. It’s consistent with their model and a good choice.

Which brings us to the present — and beyond.

Chapter 13: The Advertising Rollercoaster

Craigslist CEO Jim Buckmaster and founder Craig Newmark, 2005. (AP/Jeff Chiu)
To many, the big question here is: What really happened to the news business? Maybe this is the simplest answer: Somewhere along the way, the advertising business left it in the riptide and made it to the beach. That’s not to say that advertisers don’t still pour many billions of dollars into publications and networks and websites that deliver news. They do. The New York Times Co. alone sold $898 million of advertising in 2012. Problem there: They sold more than $1.3 billion 12 years before. And as digital advertising replaces print and broadcast across the industry, the margins drop off steeply.
Paul Sagan

One problem for the news business is that it has always really been the advertising business. But very few in the news business want to admit that or talk about it from that perspective.

In a 2008 interview, NBC’s Jeff Zucker (now head of CNN) famously talked about “exchanging analog dollars for digital pennies” (later upgraded to “digital dimes”), and that continues as a problem, especially with the growth of programmatic ad buying and the precipitous decline in average digital display advertising rates.

To step back a bit, though — as the advertising markets returned to health following the 2001 recession, the main event for many traditional printed news companies was the continuing downward spiral of the industry’s highest margin earner: classified advertising. Tony Ridder’s worries from the early ’90s were now becoming stark reality. And even though Tribune and Knight Ridder were making a success of vertically targeted web businesses such as CareerBuilder and cars.com, it ultimately wouldn’t prove enough to fight the riptide. Kathy Yates of Knight Ridder (whose Mercury News, you may recall, was the nation’s second-largest classified vendor) witnessed the deep internal divides up close.

There was a cultural war that went beyond The Innovator’s Dilemma and compounded the issue. I think that, more than anything, is why there was a lack of passion in myself among others to become the world’s best classified advertising vehicle.

It just didn’t speak to the higher purpose that so many people were in the industry to try and nurture. That created a disincentive for us to really be doing the kinds of things that we would need to do — to, say, invest all of our energy in fixing the classified problem.

Had we done that, would we have been able to do it? I don’t know. It’s pretty hard to compete against free [like on Craigslist], but you can certainly build off of the traffic that comes from having a free classified product, and we should have known that.

We knew that the little liner ads in there attracted a lot of readership, attracted a lot of loyalty, and brought people to the newspaper. There were a lot of people that had subscribed to the paper just for that. But we didn’t embrace that, and I think that was a cultural problem that existed in the industry. For all of us.

As local newspapers struggled with the demise of classified advertising, overall display advertising was doing better, though not at the rates typical of a recovery. Total print advertising would come back slightly from its nadir in 2002 of $139.5 billion to $152.3 billion by 2005, according to MagnaGlobal. Hardly a robust recovery.

In the online ad arena, however, the revenue picture was starting to look much improved. From its low of $9.1 billion in 2002, Internet advertising would grow robustly to $23 billion in 2005. Already, $9 billion of that would go to paid search. The majority of the rest went to just five sites, led by Yahoo. Print-based media companies, meanwhile, were rapidly becoming “unbundled,” as Alan Spoon, the former Washington Post executive turned venture capitalist, puts it.

Think about the bundling of advertising. You knew where to find the tires in the newspaper. Maybe not in The Times, but in any local newspaper, you knew they were going to be in the sports section. You knew where to find the white sales in January. They were in the A section, even if you didn’t know where Sudan was. Now if you’re thinking about white-sale items at a good price, you’re thinking about Amazon. You’re probably going to some auto website to think about tires, with price discovery there. I’m talking largely newspapers, but it affects other media, too. Part of the information that people valued was the messaging from the advertisers. That became unbundled, together with ESPN doing what it’s doing in sports.

Nick Denton describes how this process played out at Gawker. Soon after he started the site, he took a banner ad off another website and stuck it on Gawker.

Nick Denton on what inspired the creation of Gawker.

I wanted to establish the principle that this is a commercially supported website. Don’t come and freak out later if we put banners on this. It was from the beginning.

Then you hired a sales staff?

Gabriella [Jackomen] was taking sales orders. We were order taking for a long time. We were order taking right through until Andrew Gorenstein, who came from Conde Nast, joined us about two years ago. He would argue that we were order taking pretty much until he came on. We had hot sites. People wanted to advertise. We had hot sites and hot categories. Consumer electronics — we had the hot gadget site.

That’s a nice place to be.

It’s a nice place to be. We got to choose. We got to take [content ideas from] Wired magazine. We chose the highest value bit of it. That’s the big problem the newspapers have had. Start-ups and new ventures come in and pick off the best bits. They leave The New York Times with the Baghdad bureau.

If it wasn’t injury enough that a large portion of digital advertising dollars was going to paid search — and of that most, as we’ve said, went to Google — digital display advertising also started to veer away from the control of the mainstream media outlets. So by 2008, paid search, according to MagnaGlobal, accounted for $24 billion out of a total Internet advertising market of $53 billion — or almost half the total spend — with Google taking most of that. Further, the Google methodology of connecting users and marketers was proving so effective, it was often viewed by those marketers as a cost-of-sale expense, rather than an advertising investment. This encouraged people with ad budgets to look for more ways to throw money at Google.

Tim Armstrong, now CEO of AOL, but then Google’s first head of ad sales, recalls the company began to expand beyond text advertising to claim a share of display, or banner, ad budgets.

They couldn’t spend the full amount of money they wanted to spend…. Our original intent was just to do search ads, and then what happened was, two or three years later, we realized customers were coming to us saying, “Hey, it’s so efficient to put all my budget into one system and have it run on search in other places. Can I put my display budget in and do that?”

We tried to build our own display system, but we were in ongoing talks with David Rosenblatt from DoubleClick. Essentially, it made sense for us to, instead of building it ourselves, [to] buy DoubleClick because DoubleClick had built all the piping. People don’t realize what the ad business is. The ad business isn’t about sales on top and selling advertising. What it’s really about is putting piping into all the major customers, into their billing side and [the] finance side. DoubleClick had done that. For Google to replicate that would have taken years, so we bought DoubleClick [in 2007 for $3.1 billion].

Tim Armstrong on the three big things that he believes every publisher must do to succeed online.

We essentially came up with a new strategy chart, which showed on one side of it…we would basically have all the advertisers. In the middle, we’d have a Google system, and on the other side, we would actually be agnostic towards what type of ads and what type of revenue we took…. We launched the Google TV business, the radio business. We actually ran ads in print. We used the Google system to actually buy print ads and put them in magazines and we tested that.

We really thought very big and broad about how do you have one system serve the whole ecosystem of advertising.

Actually, the use of technology to place web ads on different sites was not new. DoubleClick had been founded during the early days of web advertising, and then dozens of advertising networks sprung up during the dot-com boom. Most went out of business in the bust. One that stood out was a 1998 startup called advertising.com, founded in Baltimore by brothers Scott and John Ferber. By 2004, advertising.com had not only survived the Web Winter, but had assembled thousands of websites into a vast network that allowed marketers to target and buy advertising more efficiently. AOL acquired the company that year for $435 million, precipitating a flood of venture money into so-called “adtech” companies.

With all those companies stirring the pot of the web ad ecosystem, and Google running DoubleClick, news publishers were now faced with another dilemma: Should they remain the sole sellers of their inventory, or give their unsold — or remnant — inventory to ad networks to peddle? Scores of publishers, such as About.com and iVillage, offloaded their remnant slots to the networks. Some tried to start their own. But, among others, Gawker Media’s Nick Denton refused to play the network game.

We never allowed networks in. If you want to buy the Gizmodo audience, there’s one place to buy the Gizmodo audience. The front page would have value. Only one advertiser can be on the front page of Gawker on a particularly hot movie release weekend. We have advertisers who need to lock in those dates.

…You know when people talk about the unlimited supply of inventory on the web? That’s the biggest load of bullshit I’ve ever heard. It’s ridiculous. It’s like saying there’s an unlimited supply of paper in the world. Yes. It’s irrelevant. What matters is that you create opportunities that are unique. The front page of a site, on a day, if it has an exclusive sponsor on that day, that’s a unique opportunity.

Only one person can have this. Either it’s going to be HBO or Showtime. If you want that particular date, you better lock it in soon. There’s a limit to how much discount we can give you. That’s how we get pricing power. I don’t see the web as any different than any other medium that’s ever existed.

I’m just going to give you the argument back. The argument back is that, unlike any other medium that ever existed, you’ve got a player called Google that looks at all the behaviors across the Internet, including in its own search engine, and can give you the best parts of the Gizmodo audience for a third, a half, maybe even a quarter of the price that you charge. Those banners may exist on other sites, but the targetability, the measurability is incredibly precise. That’s the other side of the argument.

When we don’t run the networks, most of the networks can’t identify who the best Gizmodo readers are. We’ve kept those networks out. We’ve kept them out for a reason. We have a monopoly on the supply of our readers, to advertisers.

From the resurgence in Internet advertising beginning in 2003, to the Great Recession that began at the end of 2008, virtually all the swimmers in the news flow had a swift current at their backs, even if not in equal force and even with Google soaking up so much of the overall ad spend. Most news websites grew ad revenues in double digits year after year during this phase (albeit off relatively small bases of revenue with problematic margins), and overall newspaper advertising remained steady, growing slightly from $101 billion in 2003 to $108 billion in 2008, according to MagnaGlobal. Then, in the fall of 2008, came a fierce reversal in the riptide: the global economic collapse and ensuing financial meltdown.

Premium publishers attempted to hold on to high rates for their web advertising inventory, but it was a mostly futile effort. The average cost to buy online banner ads (so-called CPMs, or the cost for every 1,000 audience impressions) stood at just $3.50 for desktop inventory and a mere $0.75 per CPM impressions on mobile sites in 2012, according to KPCB. Effectively, Jeff Zucker’s digital dimes were rapidly being devalued back into digital pennies.

As a result, by 2012, some premium publishers began creating their own (so called “native”) advertising solutions, moving away from the standard banner units that had defined Internet advertising since the mid-’90s. Often, these publishers were criticized for violating what had been a sacrosanct “church (newsroom)/state (commercial)” divide. Jonah Peretti explains and defends this movement at Buzzfeed:

I don’t think banner ads are a solid enough basis for it [the business model.] And just like this shift [toward social distribution of content] has happened on the editorial side, the same shift is happening a little bit later, in advertising, where the leverage you get from massive networks can mean the same piece of creative and the same size media buy can get much more distribution.

The church/state separation is very important. And [editor] Ben Smith is very rigorous about it. I agree wholeheartedly that church and state is really important. The thing I don’t like about the church/state division, as someone who sits above the divide, is that it can lead to a two-tiered system where the journalists are seen as the whole purpose and the greatness of everything, and that the people in advertising are seen as a necessary evil that are doing things like, “Well, you kind of have to do it, but it kind of sucks. In an ideal world, there would be no advertising.”

Moreover, as publishers witnessed the banner ad becoming a commodity, they moved rapidly into new forms of business development. The Atlantic is just one place where what once was valuable ad placement on premium content has significantly decreased in value.

On a straight, banner contextual impression, sure, that’s probably the case [declining value], and I would concede the argument to you. But when you’re talking about going to an advertiser with an idea that is customized to that advertiser, that comes from an organization that understands its brand and its audience extremely well, that idea is actually expressed across a series of live events, a series of video products, a series of print products.

John Huey

You talked about marketing services. What does that mean?

Justin Smith on the lessons he learned from Buzzfeed, particularly about native advertising and “highbrow/lowbrow” content models.

That’s the idea. In a sense, that’s the creation of the idea. I think it’s the media company as agency, which is effectively what has happened to us. Atlantic Media is an idea-based marketing agency, digital marketing agency, is another way of describing our company. That multi-touch, multi-platform, multifaceted, customized, bespoke, ideas-driven initiative that in the past would have come from Ogilvy & Mather or from an ad agency is, in fact, coming from us directly, cutting out the agency, going directly to the client. That’s not replicable by programmatic [machine-driven buying]…

…another way and a flippant and maybe humorous way of looking at it is, we look at programmatic and, just entrepreneurially, we say, “What can we do that programmatic can’t do that adds value?” It’s like your back’s against the wall. They’re coming at you and you’re like, “Okay, [but] I’ve got to reinvent myself to do something that those machines, those algorithms, can’t do that delivers value to the advertiser.

There’s a lot of things, if you put your thinking cap on, your innovation cap on.

In general, print newsrooms didn’t innovate nearly fast enough to cope with the combination of declining ad values and an economic meltdown. Television outlets fared better, at least economically, continuing to garner the largest share of total marketing expenditures from advertisers, while holding on to more brand advertising dollars, according to Nielsen. Moving ahead, however, it will certainly take significant innovation to alter the strong current of digital advertising away from print and, as audiences continue to migrate online, eventually away from television as well. As of 2013, the disrupters are winning definitively in this area, and we are only now beginning to see how social media will come into play and alter the flow of things even more.

Chapter 12: Google, The Second Coming

Google’s Larry Page and Sergey Brin, before the company’s IPO, 2004. (AP/Ben Margot)
As one of the fastest growing, most valuable companies on the planet, millions of words have been spilled on the subject of Google, and we do not intend to reprise that history here, except to advance understanding of what has happened to the news business. But we refer you to three informative books on the subject, including Googled: The End of the World as We Know It by Ken Auletta, The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture by the very same John Battelle, and What Would Google Do? by Jeff Jarvis.
Battelle begins his book with the following quote from Brewster Kahle, founder of the Internet Archive: “The library of Alexandria was the first time humanity attempted to bring the sum total of human knowledge together in one place at one time. Our latest attempt? Google.”

Indeed, what turns out to have been the extraordinary ambition of Google — and its ability to deliver on that ambition — ends up coloring much of what happened to the news business between the Web Winter and today. That era can just as easily be called the Age of Google as anything.

“There was an enormous fear that we were selling out to the demons, that this service on the Internet was going to be perverted and spiral downhill into the clammy hands of the capitalists.”
There is one fact that is now indisputable in the history of what happened when the news business, and countless others, collided with the Internet. And that fact is simply this: Google changed everything. Like the dawn of every other era in this epic saga, the Google era actually began during the height of the previous era, in this case Web 1.0. It started in 1998, when — yet again — two Stanford graduate students, Sergey Brin and Larry Page, founded their little search engine company with — yet again — another silly name, in the two-bedroom graduate housing apartment they shared with another student.

Google began with a decidedly un-media company idea, creating a search algorithm that would “purify” the quest to find whatever you were looking for on the Internet without applying individual human judgment. Yet Google quickly evolved into the ultimate media company and has proved to be the ultimate disruptive innovator (so far) of a multitude of businesses. But above all else, it completely turned the advertising business on its head, beginning with the notion that Google didn’t want you to come to its site and stay there; it just wanted you to go through it to get everywhere else. And then it wanted to charge marketers for the privilege of following you where you were going, and knowing what you went there for, and then selling them the ability to advertise to you.

“Paid search” is the understated name given to its main business concept, which Google didn’t invent but worked hard to optimize. Then again, that’s a bit like saying that Sam Walton didn’t invent discount retailing, but merely made the most of it with a modest chain of stores. Google wasn’t the first search site to present paid results: that was invented during the dot-com boom by an entrepreneur named Bill Gross, who created a sponsored search engine called goto.com that eventually became Overture and was later bought by Yahoo. But Yahoo wasn’t able to swim fast enough to catch Google, and Google rapidly gained market dominance after it got started. Google called its service Adwords, which are those small text ads that show up next to the search results you’re looking for whenever you type something into a Google search box and click “enter.”

Google CEO Eric Schmidt has a pretty simple explanation for what actually makes his fairly complicated company click, and it’s the same thing that used to make all those news companies so profitable: a river of advertising dollars.

Google today is pretty much the same as it has been since I’ve been here. Since 2001, the majority — 97%, 98% — of our revenue comes from ads of one kind or another. These little ads that come along with our search results, which are targeted to what you were looking for, people auction and people click on them, and we make a lot of money from that, and we do it globally, and it works extremely well. That’s not changed very much, and I don’t think it will change very much in the next while.

Martin Sorrell on the creation of so-called “native advertising.”

Today, with digital advertising revenues in excess of $40 billion annually, Google’s share of the digital advertising market dwarfs all others. Sir Martin Sorrell, CEO of global advertising giant WPP, says that Google has become his firm’s number-one spending destination. The search company supplanted leader News Corp. and its global empire of media brands, everything from The Wall Street Journal to Fox News and The New York Post to American Idol. It was Sorrell who first referred to Google as his “frenemy”: at once, both friend and enemy. The same word is now often applied in a news context, as Google is a vital provider of traffic and revenue to news sites, while at the same time it systematically and voraciously feeds on their revenue streams. And while Google may want to be known for its “Don’t be evil” credo, Sorrell captured well the business impact of what they really do:

But if you thought about what was their principal operating principle, it would be disintermediation of established business models and providing you and I as consumer with a cheaper alternative, a better-value alternative… In a way, I think this is an industrial revolution that probably, for legacy companies, is very difficult to deal with.

google-annual-revenue-chart

Google’s annual revenue has climbed at the same time newspapers’ has plunged. Source: Google.

As he had in the early days of Yahoo, Mike Moritz of Sequoia became an early backer of Google.

The Google investment wasn’t centered around media. It wasn’t centered around news and information. It was centered around technology. The obvious point that the power of the search technology that the founders of Google and their close friends had worked on [was] superior to everything else that was around.

John Huey

But you saw it early on as an advertising play, right? Or not?

Initially, Google was going to be a licensing company to…

It was. It was licensing to Yahoo.

That was part of the way that Sequoia got involved with Google. Google was licensing its search technology to Yahoo for Yahoo to distribute.

John Huey

When and how does the advertising light bulb go off? Is Sequoia involved in that?

The advertising light bulb went off very early in a tiny way at Yahoo. The first advertisement, I think, was a tiny, inconspicuous Visa advertisement, which provoked all manner of hand wringing within Yahoo…. There was an enormous fear that we were selling out to the demons, that this service on the Internet was going to be perverted and spiral downhill into the clammy hands of the capitalists. There were all these outraged emails from the devoted that there was this little Visa advertisement.

Of course, it played out that Yahoo got over its squeamishness about running online ads pretty quickly and became the dominant Internet media company of its moment — but then lost its lead to Google and has been playing from behind ever since.

…It’s simple mathematics. If you got the best algorithms, you wring most of the cost out of the aggregation business that you’re in. Here’s Yahoo, clunking along with all those human beings, trying to aggregate information, and here’s Google.

Google’s architecture, the way they launched anything new, was stunning. We didn’t know it quite at the time, but it didn’t take us long to figure it out. They set up the company with a vision that everything we do, we can do, if we press one button here in [Silicon] Valley, it can roll out worldwide, instantaneously. Think of what kind of architecture it would take to do that. Among other things, they had strapped together these very cheap servers by the hundreds of thousands, literally. It’s the software that interconnected them that was brilliant. People forget that the architecture…of how the data flows, really matters.

Again, back to the point about speed. Like [at] Yahoo we’d have a [new product, take, for example] Yahoo Answers. We’d have a product developed by a small team in Taiwan or Korea.

[A] successful product, by the way.

Yeah, fine. But first of all, look how long it took just to get headquarters to understand that it was successful, much less roll it out anywhere. Versus Google, who could have taken something like that and rolled it out instantaneously. I remember asking one of our engineers, “When we’re doing testing, how many servers do we dedicate to that task?” Proudly, he said, “5,000.” I said, “How many does Google use?” He said, “At least 100,000. Maybe 150,000.” Think of an exponential curve, and think about our line versus theirs and how long it would take for them to zoom past us. Back to search, everything that they did was architected for speed and simplicity. They made it look simple, but they had the best algorithms, by far. That meant that they would be more accurate, they’d be more timely. In making the advertising case, it’s the same for the ads. They would be placed in the best context.

Chapter 11: From the Ashes

Arianna Huffington in Madrid for the launch of El Huffington Post, 2012. (AP/Paul White)
The dot-com crash and ensuing Web Winter hit the Bay Area start-up scene, not to mention the rest of the web business world, like a neutron bomb. But, to reiterate, that was all about the collapse of advertising and, with it, business models and valuations. The consumer never even blinked, and web usage continued to grow sharply. It was, in fact, an exponentially growing beast, far from the passing fancy that many traditional media executives had hoped it would be. At the same time, users were moving rapidly from slow, dial-up connections — the kind that propelled AOL to early dominance — to fast, always-on connections at home as well as work, the first place most users got a taste for what the Internet could be like if it was always available and speedy. Years later that shift is starkly apparent in the crossover between the decline of AOL’s subscriber base and the ascent of subscribers to Netflix movie services.
Paul Sagan

Web 1.0 happened with too much hype, much too publicly. In many ways, Web 2.0 happened much more out of view, but much more as a reality.

Riding this wave of user growth and improvements in connectivity, developers were evolving websites into something new. Early sites, including the portals like Yahoo that came to dominate initial usage before the dot-com bust, were comprised mostly of so-called static pages, with content that was fixed from page to page, that didn’t change from user to user, or at best changed very little based on the identity or interests of a user, and it relied primarily on material gathered by a site’s producers, housed on their servers, and coughed up over and over again until someone made a new page.

aol-netflix-march2013-splatf

As Dan Frommer’s chart makes clear, the arrival of broadband destroyed some business models (AOL) and enabled others (Netflix). Source: SplatF.

That fixed nature of websites was changing right around the time of the bust, and the term Web 2.0 was coined (in 1999) to describe sites that were embracing technology that allowed for increasingly dynamic experiences for visitors. Web 2.0 was not about a fundamentally different web, but rather referred to a critical evolution in the software that developers could use to build ever-more compelling sites. As described in Wikipedia, “A Web 2.0 site may allow users to interact and collaborate with each other in a social media dialogue as creators of user-generated content in a virtual community, in contrast to websites where people are limited to the passive viewing of content. Examples of Web 2.0 include social networking sites, blogs, wikis, video sharing sites, hosted services, web applications, mashups, and folksonomies.”

Then on September 11, 2001, it became abundantly clear to everyone that the web not only wasn’t going away as a source of news, it was becoming a central source of news. Since the inception of digital news, it had always been true that major events spiked web usage, whether at CNN or The New York Times — anywhere. Each major event brought in new audiences, and often a large percentage would stick and become regular users. Because the 9/11 terrorists flew their planes into the World Trade Center at the beginning of the work day, most Americans were in their offices, where they quickly became glued to their computers for real-time news as the tragedy unfolded. News servers were so over-taxed that many crashed or had to temporarily revert to “text-only” status. So, just as the dot-com bust is reaching its nadir, the web becomes the go-to medium for the whole country. Chris Schroeder was managing The Washington Post’s news site on 9/11.

I can remember, as an example, in the couple of hours after September 11th, people cared a tremendous amount [about] what was right or what was wrong. So in that instance, as a contextual aspect of breaking news, that mattered a great deal. People, again, weren’t thinking — and I don’t think [that they] think now — “Would I pay more or less for it?” But they certainly put a value on it. People want to know what’s really going on.

Chris Schroeder on the cultural differences between traditional new organizations and the new media companies that came to disrupt them.
Schroeder’s washingtonpost.com was also among the news sites that relied on another web invention on 9/11 to continue serving traffic. That invention, sorely and ironically tested that day, an invention that kept many of these Web 2.0 news sites available under crushing user demand, was Akamai Technologies, the company Paul Sagan ran until the beginning of 2013, when he stepped down as CEO and came to the Shorenstein Center, eventually to work on this project as a Fellow. Akamai’s co-founder and chief scientist, Danny Lewin, was aboard American Flight #11, the first plane hijacked that morning. As Business 2.0 reported in a retrospective article that appeared in 2005: “‘Our employees were in shock,'” recalls Sagan, who was at the Cambridge [Massachusetts] offices that morning. ‘But traffic was going crazy.’ Remarkably, Akamai’s network and employees absorbed the stress, so that customers like CNN, which used Akamai to cache and deliver web content, were able to accommodate the extra traffic without a hitch.”

At the same time, 9/11 spawned a new technology movement around news that began to define a new era. Krishna Bharat, who created Google News, talked to us at Google’s Mountain View complex:

I helped start the research group here [at Google]. I worked on web search for a few years. But then in 2001, I sort of got interested in news again, as did a lot of people, because of 9/11. I could talk about that, if you want.

John Huey

Yes, because it’s a recurring theme in our interviews. …There are several things that everybody agrees on, and everybody agrees that 9/11 was a seminal moment in the history of news and digital news.

Krishna Bharat explains his views of what news has become commoditized online and what forms of journalism will sustain pay models or require government subsidies.
Yes, I will. And so a little bit of personal background here. I was at a text retrieval …and indexing conference in New Orleans along with lots of other researchers, and we were stuck there after 9/11 happened because the skies were closed. So I spent all my time trying to either find a flight back or follow the news and brainstorm about finding news with a lot of people. So I was stewing in it, in some sense. I came back here, and I found out what happened in that period. A lot of online news sites had kind of melted down, so Google had to host some of that content. They built a resource page. It was abundantly clear that, although we were a premier information company, people came to us and said, “Give us information about what just happened now,” and we didn’t have a good answer, right? We didn’t have a way of telling them….

A month and a half later [after September 11th] I had my first prototype: 150 sources. Either top international sources or top national sources crawled every 15 minutes or so and indexed, and presented in the form of a pretty ugly UI [user interface]. Here’s the top story and here are the articles with the top story, here’s the second story and so forth.

We [Google] were a pretty small company at that time. I sent the demo out. I would say everybody in the company looked at it and played with it, and some people got very excited about it because news was on everybody’s minds, and they went to a couple of sources habitually, and now they were able to expand the range of sources, and they were able to look at sources that had interesting viewpoints that they hadn’t encountered before. It was super efficient.

Today, Google News ranks among the top few Internet news sites in traffic. But that’s for largely text-based content. The next battlefield may be over video news, where Google has a beachhead with YouTube but not market control. Richard Gingras, one of the digital pioneers going back to the era of teletext, now manages Google News among other areas of responsibility.

Well, what we were really looking at on the television side was, “What was the future of the television set?” Google has always been quite concerned about the hegemony, for instance, that exists between distribution players and hardware devices. The control of cable over the distribution infrastructure, for instance. The control of carriers in device lock-ins in the cellular [telephone] world. The notion, really, with Google TV was, “How could we enable the full flowering of IP for video, and in a sense, to some extent, bypass the control points of the cable guys?” Thus the notion of saying, “Should there be an operating system for the TV that basically says, ‘Connect this TV to the Internet, and you’ve got the world of the Internet before you’?” Which would be a hard thing for the cable guys to control.

Richard Gingras recalls some early experiments with online news way before the web.
By 2002, the country was beginning to emerge from the recession, which technically lasted just two quarters. But there remained a deep skepticism about Internet business models, particularly those that were advertiser supported. And yet, as the after-shocks of the 9/11 attacks began to recede, a few brave entrepreneurs began to wade back into the water. One of them was Nick Denton, a former international correspondent for The Financial Times.

I was always a geek. When I was based at the FT in Budapest, I used to get on a little train [to go to] Vienna, which was the closest place you could buy Wired magazine and all the Mac enthusiast magazines.

In ’96 I switched from the investment banking beat to the tech and Internet beat…. I wanted to go to San Francisco. I’d read Wired magazine. I believed that something was happening there, and was actually a little bit disappointed when I arrived. It wasn’t quite what I’d imagined, that South of Market. I’d imagined this digital epicenter where the new web was being born. It actually seemed to be inhabited by a few homeless people, and maybe two or three people who could have conceivably been web designers. But I still believed. I closed my mind to the visual evidence.

…Before leaving the FT, Richard Lambert, who was the editor at the FT at the time, asked me when I was in San Francisco to “tell us what we should be doing.” I wrote a memo, which unfortunately I’ve lost. It said it is pointless for us to report what others had [already] done better. We should be seeking to add value, and where others have done a story better, we should link to them. This was…

Heresy.

It was heresy. It was revolutionary. Unfortunately, it was still sort of revolutionary in the newspaper world 10 years later. That was the extraordinary thing. The extraordinary thing was not that it was revolutionary then. The extraordinary thing was that it was still revolutionary and still sort of is now — that newspapers insist on rehashing stories that have been better covered elsewhere, instead of taking and moving the story forward. There’s still a huge amount of duplication in the efforts of the news industry.

netscape-andreesen-ap

Nick Denton, Arianna Huffington, and the Financial Times’ John Gapper, 2011. (CC/FT)
Denton stayed in San Francisco, where he became friendly with the pioneers of blogging — Dave Winer, Evan Williams, and Meg Hourihan — and started several businesses, including a news search engine called Moreover and something called Newsblogger.

The idea of Newsblogger was that you would consume and write about the news at the same time. It was actually very much ahead of its time. It was something like what we’re doing now in many ways. The act of reading and writing — in a truly interactive news environment — cannot be separated. They have been separated, but they cannot be usefully separated.

He continued through this period as a serial entrepreneur, attempting to buy Blogger and then resigning from Moreover. He took up personal political blogging after 9/11, and also wrote self-disparagingly about the whole dot-com boom and bust, including his and others’ roles in it. He moved to New York in the spring of 2002, and founded Gawker as a side project.

There’s a certain demographic. It was part of the city, and here was a site that appealed to a very specific group who are very well networked, who would talk amongst themselves. It was a very good place to start in many ways.

John Harris talks about looking for revenue in the early days at Politico.

The site got buzz almost straightaway. Our launch party was maybe two or three months after we launched. Kurt Andersen came. I didn’t know Kurt Andersen. None of us were connected to him in any way. He was a figure. We’d all heard of him. He’d edited Spy magazine. Gawker was, to some extent, the successor…to Spy magazine.

One of the reasons it took off, I think, was because there was nothing else going on at the time. They were all carpetbaggers and had been washed out of the market. There was no Internet advertising. The initial business model, to the extent there was one, was that, “Maybe we can make some money off of licensing fees.” That was the extent of it. Or otherwise, “I’ll just fund it for as long as it takes.” When something takes off like that, you should just plunge straight in. I wouldn’t say I plunged straight in. In retrospect, I should have gone more aggressive, sooner.

Now, just as Denton did, all manner of news entrepreneurs could take advantage of the new generation of technology and publishing tools to build businesses at much lower cost than previously. The barriers of entry to publishing were at a historic low. A young journalist named Rafat Ali founded paidcontent.org, in part, to chronicle the post Web Winter. Two entrepreneurs named Jason Calacanis and Brian Alvey founded Weblogs Inc., a network of dozens of blogs, later sold to AOL.

While Nick Denton was steadily building his network of blogging sites, Arianna Huffington and Ken Lerer were creating another kind of news operation. Huffington and Lerer each brought a co-founder to the table. Huffington brought journalist and blogger Andrew Breitbart; Lerer, an ex-teacher and ex — MIT Media Lab graduate student named Jonah Peretti. Peretti describes how Lerer recruited him to be a Huffington Post co-founder:

He knew I was from a very different world with very different interests, and wasn’t a creature of the media world. He knew that he needed someone who understood the web and technology. I ended up flying out and meeting Arianna. I remember we had a 7 a.m. meeting which, for me, is incredibly early. She was already in a meeting with another group when I woke up, came out of my room in her house, and she’s already at the table having a full breakfast with like some NGO in L.A. that was working on an environmental cause or something. I was like, “What?” I don’t know if I was the second breakfast. Maybe it was the third or fourth. But she was definitely starting earlier. Next thing I knew…we were flying to [a] rally in Sacramento, which wasn’t planned.

Jonah Peretti on the evolution of online news business models.
I came back feeling like, if anything, it would be an adventure. Arianna was incredibly charming and tireless and driven. Then we formed a partnership, also with Andrew Breitbart, who used to work for Arianna. The four of us went into business together. We started hiring a founding team. Then, of course, Roy [Sekoff], who was working with Arianna previously and continued, became a partner at HuffPost, too.

At the outset, The Huffington Post combined many of the things that had appeared since the inception of web news, but most notably the ideas of aggregating content and blogging:

It was aggregation. It was Drudge [the news aggregation site founded by Matt Drudge] plus three other elements: The collective blog; the community — because, from the beginning, we made it very easy to comment…; the fourth element was original reporting. It was part of the template, but at the beginning, we didn’t have the money yet.

Arianna Huffington recalls how she got the historian Arthur M. Schlesinger, Jr. to blog.
Huffington and her team mastered the distribution environment being built at the time by Google, and did so in a way that allowed for attraction of a large audience at low cost.

[So we] made a page that Google liked and that consumers liked as this one-stop shop to find out all the things that are happening all around. Now, the question that some people ask is, “If you are a news organization and you have five people on the scene and you’re doing tons of original reporting and you’re writing these stories and collecting things and it costs much more and HuffPost is getting more traffic than you, is that fair?”

One example of this — I remember some reporter calling me to ask about this a while ago — it was, The New Yorker did a long Scientology story and the HuffPost outranked The New Yorker story in Google. The reporter was like, “Isn’t this unfair? Think how much The New Yorker spent on that.” But when you think of what a consumer wants — a consumer is in their office. They have a little bit of time between meetings. They heard some buzz about a Scientology piece in The New Yorker, they search for it. They get a page that has some bullet points that explains what’s in it, a link to it. Like, “You might want to read it.” And three or five percent of people are like, “Oh, I actually do want to read this long piece.” And other people are like, “Oh, I’m glad I know what it’s about. I don’t really want to read this. But I’m glad I know what it’s about.”

From a purely algorithmic perspective or purely technical perspective, Google is giving people, in that case, a good consumer experience. But from an economics of journalism perspective, there is a problem, which is that The New Yorker is spending a huge amount of money to produce this long story and they’re not getting as much traffic online as Huffington Post, which might have spent two hours on it, or some even shorter amount of time. The time it took for the editor to read it and pull out relevant things.

So one question is, what’s good for consumers? Then there’s this other question of what’s good for journalism and how do you build sustainable models for journalism?

One especially important software tool that had enabled these new media publishers to emerge during this time was RSS, sometimes known as Really Simple Syndication. RSS gave publishers the ability to programmatically syndicate content across the web, in turn allowing them to greatly, and instantly, expand their audiences. Developed in the late ’90s in part by Dave Winer, RSS became the syndication standard that would also unleash a whole new generation of products, like Google Reader, built on “content aggregation,” a concept that stirred much controversy among traditional content providers as links and articles were freed from their “home” publications and reassembled into new mash-ups.

Winer tells the story of how The New York Times and other major news organizations adopted RSS and helped make it a standard in the early 2000s.

RSS didn’t really exist yet. I mean, it was sort of nascent, but it wasn’t really popular at all.

John Huey

And what were you planning to do with it?

What I did with it is that we had an aggregator that we just plugged in, and we had several news sources: Wired, Red Herring, Motley Fool, a lot of blogging tools. We had a lot of stuff coming through our system. What we didn’t have were the major news organizations.

John Huey

So you get this call from the licensing department at The New York Times?

And she says, “You’re a very sweet boy, but you can’t do this.” And I go, “Oh, please?” You know, I felt like…loved and admired, but absolutely prohibited to do this.

John Huey

But caught.

Caught. And I said, “I understand. I won’t do it anymore.”

Ultimately, The Times and other news organizations agreed to adopt RSS, and the standard took off across the news industry, enabling a new class of aggregators called “news readers.” This was the beginning of the inevitable trend of readers assembling much more fluid, more personalized news experiences. News websites would get traffic from these sources, but the tradeoff was the steady erosion of the “front door,” or homepage “brand” that was so dominant during the Web 1.0 era. With these in place, many consumers no longer wanted to go to individual site “homepages”; they wanted a convenient “reader” that would gather all of their favorite web content. RSS made this revolutionary new user experience simple, taking former attempts at aggregation, like My Yahoo, much farther across a wider range of sources of content. Hundreds of such readers launched, including Google Reader, which eventually shut down in 2013 as Twitter and others reached dominance. But in their time, these readers portended a change of user behavior that would lead to hyper-fragmentation in the news world.

One of the seminal companies started during this period, in late 2003, was Feedburner. Dick Costolo, its founder, is now CEO of Twitter:

It started to become obvious to us, the founders of Feedburner, that there were getting to be too many things you have to check in the morning. Remember, there were these — they called them, I don’t know — My Yahoo; these half-attempts at, “Assemble your own homepage and we’ll pull in all these widgets; I’ll tell you what’s going on.” But they really weren’t very good, frankly. With the invention, if you will, of syndication, RSS, we realized, “Oh, this is the future. What you’ll do is you’ll subscribe to a bunch of RSS feeds, and they will be brought to you and delivered to you. You’ll only have to go to this one thing to keep track, in real time, of the 50 things you want to be interested in.

The idea behind Feedburner was, in this world where all content will be syndicated, and what you’ll catch up with in the morning is a feed instead of your 90 different sources you go to, somebody needs to sit between the publishers and the subscribers and create some sort of frictionless way of making sure this stuff gets shared easily and is trackable and traceable.

The content providers are still going to need to make money, so they’ll want to put ads in their feed and on and on and on. That was the idea behind Feedburner, and we were right.

Then Google acquired you, right?

Mm-hmm. In the summer of 2007, they acquired us, again, on the hypothesis that as content is syndicated and more and more people are getting content in syndication instead of going to xyz.com, it’s going to be important to be part of that world of syndication. A publisher clearinghouse, if you will.

As the world of content became increasingly fragmented, news companies were now challenged to supplement the traffic coming directly to their homepages with users coming in from the “side doors,” that is, from the RSS-enabled news readers and, most importantly, from Google’s increasingly dominant search engine.

By 2004, it was clear to some that we were entering a new era of innovation, characterized by a heretofore-unseen focus on cost containment. The dot-com bust had evolved into an era of more seasoned, more disciplined venture capitalists and entrepreneurs, not to mention bean counters at traditional media companies, seeking much leaner business models. This was Web 2.0, and while there is probably much truth to Tim Berners-Lee’s characterization of Web 2.0 as just “jargon,” the new phrase caught on and began to define the post — dot-com bust era. John Battelle, co-creator of the Web 2.0 conference, and now CEO of Federated Media, told this story in a Google Hangout (Yes, we understand the irony in this):

I think there was a cultural moment, after the dot-com crash, where there was a lot of sentiment in the air that this Internet thing was certainly important, but it was overhyped, under-delivered, probably over-capitalized, and a lot of people lost a lot of money. In New York, in particular the financial markets, I think, had a very negative view of the web, as did a lot of the large media companies who had invested heavily in it, and not seen a return. [They] were, quite honestly, I think, driven in part by a concern that their traditional models were going to be disrupted. So that was some schadenfreude.

John Battelle on the creation of the early standards for online ad banners.
Web 2.0 really meant that if we take a platform that is open, that has a shared sense that values how we connect to each other, how we share information, how we communicate, we can do some pretty remarkable things.

The open source stack of technologies had become far more stable and, probably most importantly, we had a broadband usage that had crossed 20 or 30 percent in developed markets and was growing at a spike similar to the spike we see now [in 2013] with mobile adoption.

Probably the seminal Web 2.0 company was one that started in 1998, and that was Google. Google was built from the ground up on this idea that the web is about connections between things. In the first instance those things were webpages; in the second instance they were people. Just like what we’re doing now on a Google platform [in this Google Hangout].

[Google] gave almost everyone an instant reason to derive value from the Internet, which was, “I can instantly find what I need and go there.”

Chapter 10: The Rising Tide Lifts All Boats

Traders watch AOL Time Warner’s stock price dive after a management shakeup in 2002. (AP/M. Spencer Green)
Because of their first-mover advantages and considerable investments, the big four — AOL, Yahoo, CNN.com, and MSNBC.com — were all well on their way to dominating the early days of the digital news “space,” as it came to be known. But the exploding popularity of the web seemed to be good news for almost all in the journalism business. Everyone — The New York Times, The Washington Post, The Wall Street Journal, and all the major magazines and metro newspapers — had their own sites, and the traffic on those sites grew exponentially. What’s more, as Walter Isaacson vividly recalled from his Pathfinder days, advertisers were more than eager to shower money on exploiting this new medium.

Digital ad revenue was rocketed up through the late 1990s — until 2000. Source: IAB.

In retrospect, though, during the mid-1990s the old-line publishers were mostly repurposing their print products and not investing much in real innovation. Times were good, and the core products were pumping out cash.

The fact is — hindsight is 20/20 — it was a small effort [at the outset], a small experiment, with a very small impact. For most people in the organization, it really didn’t touch them very much. It’s not that people were hostile, or that they didn’t want to do it. They just didn’t care very much, to be perfectly honest.

Martin Nisenholtz recalls how he thought The New York Times should approach the web in the early days, back in the mid-1990s.
The legacy companies were racking up digital revenues all right. Total Internet advertising revenues exceeded an estimated $10 billion industry wide in 2000, according to MagnaGlobal, part of the Interpublic Group. But the companies realizing these online ad sales were also waking up to the fact that the margins for digital advertising, even in those early years, weren’t really adding up to the underlying profitability models they had come to expect from print or broadcasting. The digital businesses just weren’t contributing much, if anything, to the bottom line. Amid all the hype and frenzy, occasionally a doubter would emerge.

In late 1995, for example, The New York Times quoted Time Inc. CEO Don Logan’s memorable response when asked how much his company had spent in the past year to develop the Pathfinder portal: “It’s given new meaning to me of the scientific term ‘black hole.'”

Despite that he had once been a computer programmer at NASA and a PhD candidate in mathematics, Logan was immediately denounced as a Luddite. The real issue, of course, was that the “new media” companies weren’t chasing profits at all, but rather “valuation” by Wall Street. Even with precious little to show on the earnings or asset sides of their ledgers, many of these companies came to be valued with market caps exceeding those of their “old media” competitors. This phenomenon created a generation of instant dot-com billionaires and turned Silicon Valley into an object of media fascination that garnered as much ink as Hollywood, Washington, or Wall Street.

By far the most spectacular — and somewhat bizarre — event of this whole period came in January of 2000, when Jerry Levin and Steve Case stunned the business world by announcing that AOL, valued by the market at $163 billion, would pay $182 billion in stock and debt to acquire media titan Time Warner, valued before the deal at $83 billion. The creator of “You’ve got mail” suddenly owned Warner Brothers, Turner Broadcasting (including CNN), HBO, Time Inc., and Time Warner Cable to boot.

It wasn’t until AOL started to become the leader that I thought, “That’s going to change every part of our business. We better get on the bandwagon….” At first we thought we could develop all of this internally….

You [couldn’t] turn this battleship [Time Warner] around, much as I would’ve liked. So we went to the next strategy, which is you acquire it. We thought, “Yahoo would make a lot of sense.” [But] Jerry Yang was not interested.… [Then I was at a dinner with] a group of CEOs…. Here I’m Time Warner. Biggest company in the country. I’m media. This other guy, Steve Case, is there. All everybody wanted to do was talk to Steve Case, wanted to hear about AOL. What’s AOL doing? I thought, “Pretty Interesting.” So we started to talk. [He] had a very good board. Was actually making money. My assumption was, based on all this history, that you couldn’t take journalism and turn it around.

By this time, we had CNN. I had my ideal of a video news service. But it was all going to change and somehow was going to affect all of the businesses. We better get part of it, or it’s going to disrupt or eat our lunch. A lot of this is the reason why we put AOL and Time Warner together.

Of course, the deal is now generally regarded as the worst disaster in the history of corporate acquisitions. Current Time Warner CEO Jeffrey Bewkes, who, as HBO CEO at the time, was hostile to the deal, has since called the deal “the biggest mistake in corporate history.” But while it ultimately resulted in a loss of around $200 billion in market value for Time Warner shareholders, it did nevertheless turn out to be a great financial windfall for Steve Case and his AOL shareholders who, had they held on to their digital-only company for the market collapse that was soon to come, would have suffered precipitous losses.

There are as many versions of this story as there were AOL/Time Warner employees. At least three books have been devoted to the subject (including Fools Rush In by Nina Munk, Stealing Time by Alec Klein, and There Must Be a Pony in Here Somewhere by Kara Swisher).

Why did the merger fail? Why did this notion of combining AOL with the broadband access with the greatest content brands fail?

I think it’s a lot of things, but the core of it is around execution. I think the idea of that merger, from AOL’s perspective and from Time Warner’s perspective in terms of the strategic drivers of what’s happening with these markets, what’s happening with technology, I think it made sense for both companies….

How would the execution have been different?

I think it’s all about people. Thomas Edison famously said a century ago, “Vision without execution is hallucination.” I think that was part of the problem. In retrospect, because Time Warner itself was a company that was essentially built through a variety of different acquisitions and mergers and AOL came into that world, we saw the world converging. We saw operating this as one company to try to be the leader in this new and digital world….

I think it ultimately came down to people and cultures…. If the top 50 executives of the combined AOL and Time Warner companies had all been fired, and you called a central casting to replace them, and 50 new people that were not focused on the past but rather on the future were in charge, I think it would have worked out better.

This colossal deal didn’t just have negative financial consequences for the merged companies, it also contributed to a grinding halt to most digital strategy development at the Time Warner legacy divisions.

There was a thought that there would be this synergy, not just between AOL and CNN, but among all — Time Inc. and Time Warner and AOL…Netscape, and some other things like that. CompuServe, which they had a piece of at that point. That whole year of 2000 there were all these attempts: “Let’s have about 100 meetings a month to try to figure out what these synergies are.”

We would place some links into some AOL property, but we didn’t have that really direct pipeline that MSNBC had from MSN. AOL was a little bit on the decline user-wise at that point, too, because of the rise of broadband, so you could argue that the quality of traffic they were driving probably wasn’t as good as what MSN was driving.

As far as I can remember, we [CNN.com] never overtook MSNBC in unique users while I was there.

As much as anything, that [merger] led to my departure…. Upper management went through a lot. My boss changed about five times in five weeks, and there was the whole Time Warner corporate level…which gave yet another layer of management. So it was difficult.

“The economic model had collapsed. It hadn’t eroded. It just collapsed.”
The valuation madness of the era had other effects across the news industry.

The dot-com boom starts, and all of a sudden we’re seeing people leave the [New York Times Digital] organization. We can’t hire people because people are expecting stock options. By 1998, I would say it was clear that something much more — let’s just say interesting — was going on than a small-bore experiment.

At that point, Russ [New York Times CEO Russ Lewis] decided we needed to break out [digital] into a totally separate operation. I believe he had read The Innovator’s Dilemma by Christensen, and sort of believed that in order for us to truly get some kind of scale here we needed to have our own separate operation.

John Huey

Tell us about that. What happens?

There was, let’s just say, a very vigorous debate in the company as to whether we should be broken out or not. Obviously, the folks at the newspaper were not happy about losing control of their website, which in many ways I don’t blame them. But it was determined that we would become a separate digital operation…. In addition, we would pursue a public offering of the stock, which…other operations were doing at the time…. Barnes and Noble, for example, had a separate company with its own stock. That was the seminal moment.

I would say the other thing that happened at that point is that we decided…that we really did need to ramp up the engineering side, and we acquired a company called Abuzz, which had been started at MIT. It was a precursor to businesses like “Yahoo Answers” and Quora today. [At the time,] it was called a knowledge management platform, where people would put questions into the system, and the system would find in this vast network of users the five or six best people to answer those questions, send them the questions, and then the answers would come via email. We acquired that business, acquired the engineering team, and began to integrate that capability into The Times on the web. That was in ’99.

John Huey

Tell us how the public offering comes to an end.

It came to an end in a very strange way. We were working with Goldman Sachs.

We worked through much to the latter half of 1999, and now into 2000. AOL had just acquired Time Warner. We were sitting in a room with our bankers, the Goldman folks. I believe it was April of 2000. Taking a company public, you work very closely with your bankers. You’ve created this thing. It was actually a tracking stock. We created this document called an S-3, which is like an S-1 except for a tracker [stock].

We were rehearsing the road show at that point…. I think people were still carrying beepers. Remember those little beepers? They started to go off all in unison. The Goldman folks basically said there’s some issue…I think the market was actually diving hundreds of points that day. They went back to Goldman, but they said, “We’ll be back tomorrow to rehearse again.”

We never saw them again. Because the dot-com boom was over, so there was no IPO.

Other than the obvious irrational exuberance, pundits and others have speculated over the years about exactly how and why the bubble burst in 2000. Some have suggested that AOL’s acquisition of Time Warner signaled a top so irrational, so cockeyed, that the market simply collapsed in disbelief. But whatever the reasons, the pullback of April, 2000, was the harbinger of what Nisenholtz now calls the “Web Winter,” which began in earnest in January of 2001.

By then, the whole country was beginning to feel the effects of the dot-com bust and attendant market selloff. Most Internet news organizations endured steep budget cuts in an attempt to rebalance the lost revenue from the disappearance of banner ads and the lofty valuations that were now a part of history.

Like many big media companies, The Times needed to retrench some. I was told, “Look, you got to find a way to get this thing profitable. We’ve invested a lot of money in it.” [Then] 2001 dawns, and in January we had our first series of layoffs, and then in April it became clear that the recession was going to be even deeper. We had a second series of layoffs. We did manage to at least get the business to cash-flow profitability by the end of 2001.

Paul Sagan

How big a business is it? How many people are in it?

I’m going to guess, at that point across the company, maybe 140 people. But we probably lost 40 percent of them in 2001. It was really taken down. I’d say that the revenues at that point were maybe $25 or $30 million. Remember we also had this B2B [business-to-business] entity embedded in the overall business that included our LexisNexis deals and others. I almost don’t count that money because it wasn’t dot-com money.

Paul Sagan

The consumer business, the dot-com business, was very small?

Well, yes. Once the dot-com bust happened, it got very small, very fast…. Now I do want to say that from a usage perspective, the dot-com bust didn’t do a thing to our usage curve. Our usage curve was a straight-line growth.

nasdaq-internet-users-chart

Blue line and left scale: Daily close of the Nasdaq Composite, 1995 to 2002. Maroon triangles and right scale: Estimated number of world Internet users in millions. For a time, these two lines moved in tandem — until they didn’t. Source: Nasdaq and IWS.
John Huey

This was all about advertising. Right? …The economic model had eroded?

The economic model had collapsed. It hadn’t eroded. It just collapsed. It was very, very difficult to sell Internet advertising. In fact, [we] started the OPA [Online Publishers Association] in 2002 because the buzz on Internet advertising was so bad that I felt the industry needed to come together and put a fact base out there that at least said, “Look, there are these users who are actually using these services, and they actually see these ads, and they respond to them in these ways.”

Ironically, many strategists in the legacy media companies breathed big sighs of relief. All the anxiety and irrational exuberance of the dot-com boom were now fading into what appeared to have been just a bad dream. Mainstream operators could go back to making money the old-fashioned way, doing what they knew best — publishing newspapers and magazines, or running network and broadcast television companies — and selling ads at comfortable, high margins. The very word “dot-com” became a joke, a symbol of nothing more than an over-hyped future foisted on an honest industry by a group of Silicon Valley hucksters and their bankers.

Sign of the times: A young blogger named Philip J. “Pud” Kaplan launched a site in 2000 called fuckedcompany.com to catalog the disaster. For a brief moment he became a minor star and even published a book of the same name. The site was shuttered in 2007.

Chapter 9: Birthing the Blogosphere

Bloggers write at the 2004 Democratic National Convention, where some were credentialed as a new kind of press. (Mario Tama/Getty)
As we’ve seen, traditional news companies approached the web in one of two ways. Companies that were producing articles for newspapers would “repurpose” those articles for distribution online. Television and cable companies saw the web as an opportunity to extend their breaking-news DNA into a new medium. Either way, the legacy media companies were mainly engaged in the one-way distribution of information, filtered through traditional editorial processes. To them, the web was mostly a broadcast medium, a new form of distribution for what they’d always produced. We asked Tim Berners-Lee if that was a mistake.

A few places we suggest visiting in the blogosphere

Dave Winer

Doc Searls

Matt Mullenweg

Om Malik

Andrew Sullivan

Arianna Huffington

No, I think the media companies are in that business. They have content, and they move it out. You’d be doing that with physical paper, or you’d be doing that with TV. Then you look at the web, and obviously, it’s reasonable to use the web for doing that. I don’t think that was a mistake. I think that in the future we may see new genres.

The broadcast-only [model] went on for ages, and then somebody invented the blog, which was an easy way of making it so anybody could write an article. Wikis came out, and blogs came out. It was pretty easy to set up a wiki and pretty easy to set up a blog within particular areas, so you’d find all the bird watchers would get into the bird-watching blog, which would then become a wonderful resource.

For them that was a collaborative resource. Wiki was one of the things that allowed collaboration. Blogs were another genre. We’ve seen those two genres become fairly well known, but I feel that those are just two ideas.

The “somebodys” who invented the blog were software developers like Dave Winer, Meg Hourihan, Evan Williams, and others who started early blogging platforms.

The big thing that happened in the ’80s was desktop publishing. Desktop publishing dropped the cost of publishing. When I started [a company] in 1980, [we] got venture capital money and…bought this enormous laser printer. It was a very impressive capital investment. It was like half a million dollars. “We’re going to do our own typesetting and layout. We’re going to save a lot of money with this.” It was a bargain.

Dave Winer talks about the blogs he reads.

But by the time the ’80s were over, that same laser printer now cost $1,500. That was the process. The process of driving the cost of publishing down. Until the point where the web comes along in ’93, ’94. The cost of publishing goes almost to zero. When did I figure that out? I figured it out when PageMaker [a software program for the Mac made by Aldus, later acquired by Adobe] came out, and I saw what people were doing with it.

In 1985, a small-time radio personality in North Carolina named Doc Searls found himself out of work and moved to Palo Alto to open a small ad agency. Taking root in Silicon Valley, it would go on to represent many of the top companies of the time — Sun Microsystems, Apple, Logitech, Symantec, Hitachi Semiconductor — and eventually become one of the biggest agencies serving the tech industry. Searls himself was an early adopter to the power of the Internet and became a legendary early blogger, as well as co-author of The Cluetrain Manifesto, one of the seminal books about the effects of digital technology on markets.

I date the Internet that we know now and that I think will exist for the fullness of time to 1995. [That] was when the perfect storm of ISPs [Internet Service Providers]; dial‑up access; the graphical browser especially, that was the biggest thing; domain names for sale…. All of those things together made it possible for anybody to publish, for anybody to run their own radio station, for anybody to run their own TV station, for anybody to do what the hell they pleased in a space that we’d never seen before — that put all of us at zero distance from everybody else. It didn’t matter where we were in the world. At something close to no cost at all, anybody could communicate with anybody. Anybody could run their own printing press, as it were. To me that was just fundamental.

Doc Searls describes the changes from the real world to the virtual world of the Internet in “geologic terms.”

Seeing this “self-publishing” phenomenon as a tremendous liberator of information, Winer and others went hard at work on programs that would quickly enable anyone interested in anything to start creating and reaching communities around an infinite variety of subjects. So while the legacy media businesses grappled with their own Internet challenges, on the other end of the spectrum — from the bottom up — the blogosphere was born. We asked Winer, essentially, what it was about these platforms that made them catch on so dramatically.

It’s ease of use. It’s because we hacked at lowering the barrier to entry. We really hacked at it. Before we did Manila [an early content management system], I made a list of all the steps I had to go through to update a piece of writing on my website, and it was like 20-odd steps. They were all really frightfully complicated. I said, “We just need to get that list shorter,” so we hacked at it.

ODEO WILLIAMS

Ev Williams, cofounder of Blogger and Twitter, pictured in 2005. (AP/Eric Risberg)
A teenager in Texas named Matt Mullenweg, who was interested in economics, started blogging after meeting some people from the tech industry at Austin’s South by Southwest festival, and ultimately created WordPress, today the world’s dominant blogging platform.

What brought you to WordPress?

Sure, so Movable Type [an early blogging platform] — I wasn’t crazy about the software. So I switched to something called b2. b2 was open source. I started hacking on it, contributing some code, which was a great way to learn how to code, because I really didn’t know…. b2 sort of was abandoned as an open source project. Myself and a fellow over in the U.K., Mike Little, picked it up and continued it, and that became WordPress.

In 2003, Mullenweg joined CNET, an early publisher of technology news on the web.

Matt Mullenweg recalls some of his early work that lead to the creation of WordPress.

I remember a meeting I was in at CNET…a lot of early web folks were there. There’s this meeting and they were [demonstrating] their publishing system at the time that was called Comet or Ajax or something like that, and then they had a screen with WordPress on it.

I said, “Alright. Here’s a finished thing ready to publish. We’ll set a timer and let’s publish it live to the web on both,” and started the timer. Of course, on WordPress it took 15 seconds. I copy and pasted the article, pressed publish, and it’s live instantly. In their system — and this was probably the most uncomfortable meeting I’ve ever been in in my life — it was maybe 15 or 20 minutes. It had to rebuild things. It was excruciating, and all these engineers with gray beards were just glaring at me; glaring at me really angry.

For a lot of us who are writers, we could all become Benjamin Franklin. To me, he was the first blogger. Maybe Samuel Pepys was, but it was really Franklin with Poor Richard’s Almanack. He was kind of the first blogger, in a way. It was this self-published good, and the best blogs are really good and became worthy publications on their own.

John Huey

[To Dave Winer:] Your definition of a blog is that it’s non-institutional and it’s the unedited voice of the individual?

No, the first part I wouldn’t include because it can be institutional. I was blogging as CEO of Userland Software for many, many years. That was very much a blog. There’s a buck-stops-here thing going on. There’s nobody else that’s responsible for this. It’s just me.

John Huey

You’re unedited and you’re unaccountable.

Ken Richieri of The New York Times Co. talks about the importance of the legal concept of fair use.

I’m totally accountable.

John Huey

To the — ?

To the readers. I’m more accountable than any of the writers at The Times are.

John Huey

Unaccountable to an editor.

I see. That’s what you mean. Yeah, but I’m so accountable because I can’t spread it out. I wrote the whole thing. Every word in here is my word.

I feel, on the whole, blogs are probably more accurate, particularly in the long term. When I publish a blog post it’s not edited beforehand, it’s not fact-checked beforehand. But it’s my words, my name’s on it, I feel personally attached to it and if there’s anything wrong in it I get a comment within five minutes telling me about it. That was the beauty of blogs: That conversation would be transparent under the blog post.

Now that it was easy and fast to publish on the web, journalists began to use these new tools to circumvent their traditional intermediaries: legacy media companies. Some became “brands” on their own and attracted large audiences.

I started Gawker as a side project. My most successful ventures have tended to be side projects.

When I was in Silicon Valley, we reached out to people like David Winer. I wouldn’t say we were friends, but I knew David Winer. I did become quite friendly with the founders of Blogger, with Evan Williams and Meg Hourihan: Meg Hourihan, who I ended [up] working with later; Evan Williams, who I was going to partner with before he was acquired by Google. I was entranced by Blogger.

Michael Sippey of Twitter talks about competition online for the user’s attention.

Blogging was a new form of publishing, but it was more than that. It was the essence of interactive engagement, and so it captured something that the interactive pioneers had known all along: that the web was fundamentally social. Jeff Jarvis recounts that moment for him:

I’d been around blogs. The confession here is that Nick Denton, now head of Gawker, was then heading up a startup called Moreover.

He showed me blogger. “Look!” He types something. He hits a button and there it is. I said, “BFD.” I didn’t get it. I didn’t understand the importance of blogs. I will fully confess. He showed this to me and I said, “So you published a page.”

After September 11th, I had more to say about the experience. I thought I would do it for a few weeks. I started blogging on Blogger.

The ding moment for me…maybe I put too much importance on it, but Nick knew some guys in L.A. named Ken Lane and Matt Welch, who were earlier bloggers. He said, “Hey, my friend was at the World Trade Center. Look what he wrote.” They wrote something about it and linked to it, to me. I linked back to them. I remember Nick lecturing me about the permalink; that I had just linked to the top of their site. No, you link right to their post.

The ding moment there was that I saw a conversation had occurred, in different places at different times. But it was a conversation. That was a lightening bolt of what the link enabled, and how the link changed the very structure of media from a product, a lecture, into a conversation. It really was a changing moment for me.

Tech journalist Om Malik was a rising star in Silicon Valley, having worked for Forbes.com, Red Herring, and Business 2.0, when he decided to launch his own company around his blog in 2006.

Not every publication can have 10 people working on a single story. Not every publication can hire Malcolm Gladwell. Not every publication can afford to pay David Carr.

My view is that, that is one way of doing things, then there is the blogger way of doing things, which is one man trying to obsessively cover an industry, or a topic, or a subject, and finding all sorts of information about that topic, subject or person, and then aggregating it on their blog.

Om Malik describes reporting and online journalism business models at places like GigaOM.

Andrew Sullivan was a legendary political journalist and commentator — and the former editor of The New Republic — who established himself as a high-traffic blogger for Time.com, and later Atlantic.com and The Daily Beast. A substantially compensated, popular blogger for establishment publishers, he made the decision to set up shop on his own in 2013 with a unique and bold proposition. He would decline both investor and advertiser dollars, attempting to survive entirely by charging his readers to subscribe. We caught up with him in the tiny Greenwich Village apartment from which he works alongside two aging dogs and a handful of smart, eager collaborators and interns.

John Huey

Andrew, when was the first time that you realized that this thing called the Internet was going to transform either journalism or transform your life as a journalist?

I knew it in an intellectual sense by the end of the ’90s. You just saw it…. I suddenly realized, when I put the first post up, I could put stuff up here that I hadn’t published elsewhere. This was the light bulb moment….

I slowly developed these little features that seemed like fun at the time…. One day I was like, I’d like the readers to see what I see every day,…which is a simply amazing litany and variety of people from every place on earth telling me stuff, communicating instantly. Not only instantly, but incredibly erudite, interesting people who were experts in their fields, obviously, and had things to tell me.

How do I get them to see each other? All they’re seeing is me. As an experiment I said, “Why don’t you take a picture on your digital camera of what you see when you look out your window every day? We’ll do it for a week.”

John Huey

You’re still doing it.

Andrew Sullivan on his early experiences online and how he approaches journalism as a blogger.

I can point to the post where I’m like, “Please stop!” I was deluged with hundreds and hundreds. It’s just me sitting in my room.

John Huey

They talked back.

Yeah, exactly! Now, some journalists aren’t likely to take to that very well. We won’t mention any names, but you can imagine. You’re thrown into this melee of conversation. Increasingly, I wanted their voices to be a part of it, so they also became part of it. I did that for six years by myself….

…This great thing means I can write anything. No one can stop me anymore. This is a writer’s dream: for a writer to reach his or her readership directly without any publisher, editor, colleague, advertiser, having to pass those hurdles, let alone the fact checker and the copy editor….

John Huey

You’re still a blogger, basically.

Fuck, yeah. Yes! That spirit, the original spirit of, “I’m a blogger and I’m doing it because of freedom,” is still, I would say, my primary objective. I don’t want to become a Huffington Post.

There was, however, one person who did want to become The Huffington Post: Arianna Huffington, also an early blogger, who built a site that aggregated content from across the web, a company she and her partners sold to AOL for more than $300 million in 2011 after it had attracted more than 25 million unique visitors per month.

I don’t remember the first thing that got my attention [online]. But what fascinated me was the engagement, the fact that writers who are no longer just writing and leaving the scene, but staying there to engage with readers, and that readers had a voice. Whether it was in chat rooms or forums or the early version of what was happening online, something new was happening.

Chapter 8: The Innovator’s Dilemma

Clay Christensen, 2011. (CC/Betsy Weber)
The failure to embrace engineering is, in some ways, merely a symptom of the larger issue that faced virtually all legacy media players of substantial size over the past three decades: The Innovator’s Dilemma, the strategic theory first articulated in a classic business book by Harvard Business School’s Clayton Christensen. In almost every interview, some example of the dilemma surfaced.
Simply put, the theory suggests that even the brightest managers with the best of intentions struggle when they face disruptive innovation because at first the disruptor seems vastly inferior to the current product, both in terms of quality and pricing. Consequently, the incumbent typically abandons the low end of the market, improving margins in the process. Over time, however, as the disruptor improves product and gains pricing power, the incumbent gradually loses the whole market.

Christensen’s theory identifies three types of innovation:

  • Sustaining Innovation, in which an incumbent makes good products better.
  • Efficiency Innovation, in which a company delivers a legacy product, but at a better price.
  • Disruptive Innovation, in which an interloper arrives in the market and, ultimately, destroys the incumbent’s existing revenue streams.

As his work was brought up in nearly every one of our 60-plus interviews, we invited the person who coined the phrase “The Innovator’s Dilemma” to walk across the Harvard campus and give us his take on what happened to the news business when the digital riptide hit.

In finance, we teach our students this paradigm that you should always ignore sunk costs and fixed costs and only look at marginal costs and marginal revenue…. [But] when you’re a manager and you look [at only] the marginal cost of using what [you] have versus the full cost of creating something new, always the marginal cost [analysis] trumps [meaning, sticking with the business you have wins out over investing in a new venture].

You might try to send it out [create a separate division to try out the new thing]…but the marginal cost thinking every day causes the accountants to want to pull it back in [to merge the new operation into the core business]. That’s one problem…that many of those [ideas] that could be…the next generation of business just gets brought in and killed….

Clay Christensen describes what causes us to buy something, such as a newspaper like The New York Times.
For a long time, the news industry was fairly adept at the first two types of ongoing innovation. Dow Jones and Gannett, for example, used the satellite to build and extend national distribution for The Wall Street Journal and USA Today, respectively, thus sustaining the franchises for their newspapers. Earlier, the transformation of newspaper production from hot to cold type made the entire industry far more efficient over time.

When digital technology first arrived on the scene, however, news industry managers understandably — but mistakenly — viewed it as an opportunity for sustaining innovation. The early videotex and teletext experiments were meant to create new uses for journalism and find new pools of subscription and advertising revenue. When the services didn’t immediately take off, publishers quickly abandoned them.

[So] it’s true that if you’re in the layer that’s getting disrupted you might go to the beach at low tide and stand out and hold your arms up and command that the tide not come in, [but] the tide actually doesn’t care. Commoditization just happens if you just sit there.
“There was a meeting in the early 2000s where the tensions between the analog part of the company and the digital part of the company were made very clear.”
A decade later, as the web era dawned, many of the industry leaders began to recognize that digital technology might destroy their most lucrative revenue streams. Soon after he became CEO of Knight Ridder in 1995, Tony Ridder was asked by a group of editors what kept him up at night.

We’ve read, and I assume it’s true, that when you took over the company, one of the people in the newsroom asked you what kept you up at night. You talked about classified advertising, which was very prescient at the time, but it was looked at in the newsroom as, “Why would that keep him up?”

As you know…from being in the business, newsrooms get criticized for being liberal. But newsrooms are the most conservative organizations anywhere. They are so hidebound…. I would always talk to the editors and ask for all their questions. That was one of the questions. It was like 1994 or 1995. “What keeps you up?” I said, “Electronic classifieds. I think it could really make a big difference to our business.” What they really wanted me to say, I guess, was that we don’t spend enough money on journalism or something.

But it was clear to me that people were going to figure out how to deliver classifieds in an electronic form. We were going to do it, too. But that was going to eat away at this great business that the newspaper industry had, with classified advertising in print form.

We always said from the start — even though this really kind of created a lot of internal tension — I always said, “Don’t worry about eating our seed corn. We’re going to build the best Internet company we can, and it’s going to mean we’re going to take business away from the print.” But that was very difficult to do. And publishers would say, “All right, Tony, that’s easy for you to say, but you’re putting pressure on me to perform, and I’ve got more revenue from the print.” That was always the tension in our business. We were trying to run a public company where we were being compared to Gannett and Tribune and The New York Times, and we had profit pressure.

One of Christensen’s prescriptions for The Innovator’s Dilemma is for companies faced with such disruption to form separate units that are empowered to compete with the core business, creating the new disruptive force from within. Somewhere along the way, most news companies tried this approach, but it usually lead to cultural clash and internal tension. Crovitz, who managed such a unit at The Wall Street Journal, recounts a story typical of the era:

There was a meeting in the early 2000s where the tensions between the analog part of the company and the digital part of the company were made very clear. It was a proposal from folks on the print side of The Wall Street Journal to offer access to The Wall Street Journal website for free.

On the digital side, we were highly offended by this notion because we had spent years trying to establish value for the digital part. You couldn’t get access without being a paying subscriber. But from the point of view of the print folks, they were trying to keep their ABC [audited subscription] number at a level that they were told it needed to be to support advertising.

There was a meeting scheduled…. I had a prop for the meeting: …I put in the middle of the table a toaster. At that time, banks would give toasters to people if they opened an account. I said at that meeting, “What am I doing here? You want my product to be your toaster.”

News companies also attempted to create consortia among the various players to achieve the scale necessary to compete in the marketplace. From the New Century Network formed by a group of newspaper publishers, to the current Next Issue Media in magazines, these ventures have often been mired in strategic disagreements and ungovernable board structures.

We sat successively on the boards of three companies, one of which is still in existence. One called New Century Network, which consisted of the very smart representatives of eight or nine companies, each probably the smartest person within that company, sitting around a table, I think all eight of them under the impression that they were going to run the business or that their ideas were so much better than anybody else’s that they should prevail. Then they would go back, and they would review the plans with the CEOs being asked to put all kinds of money to fund these investments, and the CEO would say, “I don’t want to do this. I want to do that,” or “Is this guy running the place any good? Let’s put in this better person I know.”

Moreover, as Christensen points out, managing a separate digital business unit necessitates accepting a higher cost structure than combining efforts in one newsroom.

Many of the people who were working on the digital side of traditional news organizations became frustrated with cultures seemingly unable to adjust to change. Betsy Morgan, who managed CBSNews.com before leaving to become CEO of The Huffington Post, recounted how that played out:

I wanted to show them something very early on that was called Google Trends. It was in Google Labs at the time [2006].

We took these [Google] engineers around to meet various senior producers and executive producers. I said, “This is fantastic.” You could change your lineups for the evening news based on what’s trending that day on Google if we had current data. Won’t this be fantastic for some of the investigative reporters at 60 Minutes or 48 Hours? You’re going to see connections to things you never would have seen before.

Betsy Morgan talks about the essential cultural differences between an established media company and a disruptive one.
These Google engineers were fabulous and smart and articulate. I got shut down. I was told that, had I not learned anything at the time I had been at CBS News? Had I not learned that this was not the way journalism was done, and that these funny, skinny kids from Google had nothing to say about the business, about the creation of journalism?

I have to say, that was sort of a breaking point for me.

Perhaps the most aggressive and innovative traditional newspaper company through this period of disruption was Tribune. From the outset, they understood The Innovator’s Dilemma, set up separate digital operations and led in the creation of two successful industry initiatives, CareerBuilder and Classified Ventures. Still, the company failed to make the transition. The short version of the story is that in 2000 Tribune paid the now astonishing sum of $8 billion to acquire Times Mirror (and the background was explored in detail by AJR). At roughly the same time, of course, AOL managed to leverage its enormous market value (of more than $150 billion) to buy the earnings-rich media conglomerate Time Warner.

Both deals would end up in the history books as historic disasters for all kinds of reasons, but one of the major side effects was that they severely disrupted much of digital progress that had been underway at the legacy media companies.

Knight Ridder was Tribune’s partner in CareerBuilder. It had experimented with every interactive technology since videotex. Its lab in Boulder, Colorado, had envisioned the iPad 15 years before Apple introduced it. The company was the first journalism company to partner with AOL, the first to work with Netscape at the Mercury Center, the first to follow Christensen’s prescript to break out a separate digital operation. Yet, in the end, the company failed. Sitting in his living room, with its majestic view of the Pacific Coast and the ocean waves breaking over the shore on the Cypress Point Golf Club in Pebble Beach, we asked Tony Ridder about the central metaphor of our oral history project: the swimmers and the tide.

The tide is basically the march of technology and innovation. The swimmers are the folks making the decisions, people like you, throughout this history…. No matter what decisions anybody made, the technology (the tide) was just going to overwhelm…. Is that true, do you think?

I do think it’s true.