May 17, 2009
The 4 reasons anybody ever consumes information (or opinion), and what that tells us about business models
The online world is abuzz with discussion about the future economic models of the publishing industry. It might help in evaluating various proposals to consider why anybody might possibly want to pay money or attention for information or opinion, whether delivered in published or personal-communication form. Since this is a very long post, I’ll put a few of the conclusions here up top, namely:
- “Freemium” models, in which one gives away some good information but charges for the best stuff, can succeed. I do that, in a way. So does ESPN.com. Rupert Murdoch, so far as I can tell, proposes to make WSJ.com more like ESPN.
- Charging by some kind of usage metric doesn’t make sense. This seems to be what the New York Times is thinking about. It may also be what Murdoch is suggesting for some of his other properties.
- Grand cosmic all-you-can-consume-of-all-but-the-most-highly-valuable-information subscriptions — e.g., an “ASCAP for news” — could be marketable. And I don’t even think they’d require the antitrust exemptions the newspaper industry is whining for.
Those conclusions, in turn, are based on the theory that the the best selling proposition for decision-supporting information and information technologies is:
Keeps you fully and conveniently informed about subject area X, where X is important to you.
Here’s some background as to why I think that. So far as I can tell, why one consumes information almost always boils down to one or more of four reasons:
- To be entertained. This is, obviously, the main purpose of entertainment. It is also a major purpose of “frivolous” news — e.g., about sports, celebrities, or cute cats. What’s more, serious news sources and advice-givers are often judged in part based on how pleasant or unpleasant it is to listen to them.
- To aid in decision-making. Service providers such as doctors, lawyers, accountants and (at least in principle) stockbrokers help you make decisions. So do general consultants. So, hopefully, do business intelligence tools. Technology news is, in principle, focused on helping with practical decision-making. So are the only categories of consumer newsletter that ever thrived in the dead-tree subscription era (health and investment). I could list many more examples.
- To be sufficiently well-informed. Reasons one might wish to be well-informed include:
- To make better practical decisions. One of the biggest fears when making a decision is that there’s something you don’t know about that will make the decision a bad one. You hire experts in large part to keep you out of trouble. You use analytic technology in large part to warn you of trouble. And a huge part of investing is looking for and hopefully ruling reasons for a company and stock to suddenly fall apart. Many other decision processes are similarly guided by fear, especially of risks yet unknown.
- To make better voting decisions. If one does a strict cost-benefit analysis, based on the value and likelihood of affecting the outcome of an election, it isn’t even worth the trouble to go to the polls, let alone to inform oneself well enough to make a careful decision. People vote out of a laudable desire to do their part in society (conscious version) or because it’s expected of them (unconscious version). But by extension, this analysis means that the cash value of news that’s useful just for voting decisions is very low, unless your engagement with politics goes beyond mere dutiful poll-going.
- To facilitate social interaction (whether “water-cooler” and other business-related socializing, or purely social) or, similarly, to avoid the embarrassment of not knowing. Incidentally, this can be a reason for watching a popular TV show or keeping up with sports just as it is for reading the “hard” news.
- To be educated for future benefit, or just because. People like knowing things. Students are obligated to know things, at least until their final exams are over.
- To flatter (or avoid irritating) the speaker (or somebody the speaker represents). Polite listening plays a huge role in family relationships, classroom behavior and, dare I say it, religious observances. I further suspect that it underlies certain consulting engagements for analysts such as myself.
So what kinds of business models suit these purposes?
- Polite listening is an essentially personal form of interaction. As such, it plays little role in most publishing organization’s business models, and I will not consider it further in this post.
- Educational publishing is a special subject that I also won’t deal with right now.
- Entertainment has traditionally been paid for in connection with a specific item or event, e.g. a concert, book, CD, DVD set, movie showing, or just an individual song. There are plenty of subscription examples too, from humor magazines to pornography services to, of course, cable television itself. Finally, ancillary and/or licensed merchandise is an ever increasing source of revenue, from overpriced food and parking at event venues to the huge business in t-shirts and sports team jerseys.
- Staying well-informed mainly for social purposes is what you do by consuming the same news (and perhaps entertainment) everybody else does. The entertainment side of this can be a unique property — probably a television broadcast — monetized in the usual ways. But the news side is increasingly a commodity, due to internet-based competition.
- General political news is a hard-to-profit-from commodity too. This is the source of much recent angst, in part because it raises the possibility that it may be hard to find a good way to fund much-needed investigative reporting. On the other hand, with all the interested and even passionate parties involved, other sorts of political reporting and analysis are likely to thrive in the new-era information ecosystem.
- Quick-hit advice is delivered via quite a few different business models, from professional services to self-help books and seminars. Or it can arrive for free, via friendly chitchat — which can occur via communication media as new as Twitter or as old as the dinner table.*
*And yes, there are definitely some opportunities to aggregate into a critical mass and then monetize electronically-delivered free advice. But that’s a special case of the topic of the next paragraph …
Finally, with all that underbrush cleared away, we arrive at the main points:
- In a large fraction of cases, information purchases and consumers are looking for the most comprehensive and reliable source(s) of information and informed advice on a particular topic area.
- If the two goals are in conflict, comprehensive is the more important criterion.
- If the main goals are met, convenience is a crucial third criterion.
- Pre-internet, “convenience” commonly equated to physical delivery of newspapers, television news broadcasts, etc.
- Now, convenience commonly equates to interface and analysis technology, in areas such as search and business intelligence.
Cases where this seems true include:
- Stock quote terminals and the like, which are a multi-billion dollar industry, with almost all the revenue going to convenient, all-in-one box suppliers. Reuters beat Quotron on technology. Bloomberg beat Reuters on both information and technology.
- The success of search engines vs. more structured web portals.
- Earlier, the success of the general Web vs. “walled gardens” such as AOL.
- The success of Wikipedia vs. more carefully managed (but narrower) information sites.
- Pre-Web, the daily newspaper.
- The ascendancy of the Web over the (now suddenly limited-seeming) daily newspaper.
- Pre-Web, the multi-billion dollar industry of newsletters, most of which simply aggregated hard-to-get news.
- The failure of what are now many generations of limited enterprise dashboard products, even as dashboards succeed in contexts where they indeed provide more comprehensive information.
If you believe all that, then it follows reasonably that a top selling proposition for information is keeps you fully and conveniently informed about subject area X, where X is important to you. And that, in turn, leads to the business model comments I put at the top of this post.
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