Broken Business Models

From the once-esteemed New York Times, we have Times to Stop Charging for Parts of Its Web Site.

The New York Times will stop charging for access to parts of its Web site, effective at midnight tonight.

The move comes two years to the day after The Times began the subscription program, TimesSelect, which has charged $49.95 a year, or $7.95 a month, for online access to the work of its columnists and to the newspaper’s archives. TimesSelect has been free to print subscribers to The Times and to some students and educators.

In addition to opening the entire site to all readers, The Times will also make available its archives from 1987 to the present without charge, as well as those from 1851 to 1922, which are in the public domain. There will be charges for some material from the period 1923 to 1986, and some will be free.

The Times said the project had met expectations, drawing 227,000 paying subscribers — out of 787,000 over all — and generating about $10 million a year in revenue.

What changed, The Times said, was that many more readers started coming to the site from search engines and links on other sites instead of coming directly to NYTimes.com. These indirect readers, unable to get access to articles behind the pay wall and less likely to pay subscription fees than the more loyal direct users, were seen as opportunities for more page views and increased advertising revenue.

Here we see a classic failure of business -- its inability to see that the business model that it was based on has gone away, and it's not coming back.

Very few businesses take the introspective look. For one, it's hard, and two, you may not like what you see.

Let's first observe what the failure was; then, we may be able to predict what the future holds a little better.

The Net has done three things:

lowered the cost of publication to zero,

severed the channel linking content to distribution, and

created extreme specialization of content.

This blog itself is an example of all three. You are reading a extremely specialized blog, and my cost of publication is non-existent. You are not tied down to reading this every morning or even periodically. If you don't like the content, you are free to go elsewhere, and you may not come back.

"Times Select" didn't understand the rules. For one, it broke the link that traditional readers had. The readers had been programmed (for decades) to read the daily editorial. When you put this behind a "pay wall", you're penalizing the most loyal customers.

The customers went elsewhere for their daily editorial content, and not only found it, found it to be plentiful and, horrors! better. So that's a triple whammy. Your loyal readers went elsewhere, and not only did they not pay, they won't be coming back either.

Bad decision!

Additionally, if you read the article, they talk about "revenue". Yes, but what was the "profit"? My guess is there was none.

A reasonable guess of the future is that the Wall Street Journal is next, and after that The Economist and The Financial Times.

So what does work?

The relationship!

If you understand this, you'll also understand why the "Dining" and "Science" sections of newspapers are doomed. Specialization of content is here to stay, and the only people who hang around are the ones who perceive value in your content. You had better respect this relationship.

This should also explain why the Book-of-the-Month clubs may or may not make a lot of money but Miltary-Books-of-the-Month and Gardening-Books-of-the-Month made monster profits.

This is a brutal lesson for traditional media (newspapers, radio, television, music, film, advertising) to learn. Their failures will be taught in business schools some day.