The Software Abstractions Blog

Responding to Disruptive Innovation: Threat or Opportunity?

Scott Karp of Publishing 2.0 recently wrote an article about newspapers and the web in general, and about the Washington Post in particular: What Newspapers Still Don't Understand About the Web. Karp feels that the Post doesn't really get the Web - the web site is essentially a reflection of the Print newspaper, rather than leveraging the unique possibilities offered online.

The New York Times, on the other hand, definitely gets it, and is only moving further ahead in  leveraging the web. For example, in technology, the Bits blog regularly shows up on Techmeme, and the NYT is already on twitter.

How does this happen? How can two direct competitors in the same field react so differently to the same change in their industry?

According to Clayton Christensen and Michael Raynor, a large part of the answer lies in the way companies react to a disruptive innovation in their field. In their latest book,     The Innovator's Solution, a sequel to the highly popular book detailing the Innovator's Dilemma, they handle exactly the issue described by Karp's post, in a more general way.

What Christensen and Raynor found is that the way a successful incumbent company responds to a disruptive change in their domain depends on the part of the organization that is tasked with responding to that change.

There are two primary ways in which the company can respond: the disruptive change can be viewed as a threat, so that the company pumps resources into trying to harness the new process, technology or idea as an evolutionary improvement to its existing business model; or the disruptive change can be viewed as an opportunity, in which case the company tries to find the appropriate market or business model that naturally fits the new paradigm.

Obviously, if the existing operational part of the organization - one that is already very successful - tries to respond to the change, the main interest is in preserving the status quo, and the big change is seen as a threat to be neutralized; if instead, the company forms a small, semi-autonomous entity tasked with responding to the change, unhampered by the existing business model, then the big change is likely to be seen as an opportunity to be exploited.

There are many other fields where this type of change is taking place. One example is the iPhone, which is clearly proving to be a major disruptive innovation for handheld computers, causing existing market leaders such as Palm, Microsoft and RIM to scramble.

Are there others? How are they responding to the disruption? Leave a comment below and let us know!

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Indirect Business Models for Blogs

Fred Wilson wrote an interesting post yesterday on the A VC blog: The Long Tail Of Business Models , in response to an earlier article about Media Business Models by Chris Anderson, who first popularized the Long Tail concept.

In his post, Wilson gives us a long list of monetization strategies for FREE content, such as blogs; some of which are very popular strategies and others not so much. A few of the less common ones are reproduced below:

• Lead generation (you pay for qualified names of potential customers)
• Subscription revenues
• Rental of subscriber lists
• Licensing of brand (people pay to use a media brand as implied endorsement)
• Alternate output (pdf; print/print-on-demand; customized Shared Book style; etc.)
• Live events

• Cost Per Install (popular with top Facebook apps who can help others get installs)
• Sponsorships (ads of some sort that are sold based on time, not on the number of impressions)
• Listings (paying a time based amount to list something like a job or real estate on your website)
• Streaming Audio Advertising (like radio advertising delivered in the audio stream after a certain amount of audio content has been delivered)
• Streaming Video Advertising (like streaming audio but in video)
• API Fees (charging third parties to access your API)

The full list is available in his post. Overall, this is extremely valuable for any publisher of free content.

To Wilson's list, I would add the following strategies for generating indirect revenue - i.e. more in line with Business Development. These strategies are not directly monetizable, but equally real all the same, and can be converted into actual income with a bit of effort.

Indirect Revenue Strategies for Blogs

• Lead-In to Consulting Business; this is more specific than, but a subset of, generic referrals and lead generation
• Book Writing Opportunities; your blog allows you to gain credibility, build an audience and interact directly with your readers
• Lead-In to Education Business, such as Classes and Webinars
• Gather Market Intelligence, using Polls, Surveys, Feedback et al
• Networking (in the good sense of the word) - you can find others with similar thoughts and interests
• Define your own Viral Meme; for example, here's one viral term: "Web 2.0"

In addition, of course, there are the intangibles, such as name recognition for authors, increased visibility for brands and fresh content - which equates to increased traffic and SEO benefits - for publishers.

If you know of any additional ideas for indirect monetization, please leave a comment below (or comment on either of the main articles referred to).

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Techmeme: Web 2.0 Discovery, with a Web 1.0 twist!

Jeremiah Owyang wrote an interesting post yesterday: The Five Members of the Techmeme Family - in which he lists the different types of bloggers that end up on Techmeme. I think he's right on the money; as an avid follower of the site, I've seen the same dynamics at play.

For technology watchers and bloggers, Techmeme is a gold mine, an invaluable resource that constantly highlights breaking news, unique perspectives and interesting blog posts. Through the site, I've discovered some amazing writers and their high-quality work: Scott Karp on Can Blogs Do Journalism? , Fred Wilson's incisive post - What My Kids Tell Me About The Future of Media , Jeremy Liew's ongoing series about the Semantic Web - Meaning = Data + Structure , Dale Dougherty's wonderful post on Journalism is Burning Or How Breaking News is Broken and so many others.

In his post, Owyang also looks at how posts are rated on Techmeme. What's interesting about it is that the person who breaks the story does not necessarily get the lead; a more mainstream news source or blogger often becomes the "top node", even if all he or she is doing is to repeat the story without any additional content or unique insight. This is a reasonable approach from an automated content discovery perspective, but it sometimes gives funny results.

As Owyang says:

...

The Breaker: This can be mainstream news source or a mainstream blogger that discovers the story from the Original News Source and blogs it, as a result, they often become the top node, even if they aren’t the original source. It seems as if some websites are naturally geared to be an “H1″ even if they are resonators.

The Resonator: Also referred to as those who echo or copy, they repeat what was already said, adding little or no additional content, news or opinion.

...

As an example, consider this Techmeme snapshot from 5:55 PM ET, December 31, 2007 - the image below shows a fragment of that page.

At that time, the big news of the moment was about an executive defection, er, employment change - Steve Souders, Chief Performance Yahoo, left his post at Yahoo! to join Google.

What is interesting to note is the ordering of the various stories on the Techmeme web site.

The lead story on this topic is the Silicon Alley Insider post by Henry Blodget - an A-list blogger. Now, Mr. Blodget is a fine writer and SAI is a great blog, but this particular story that leads is written mostly as a breaking-news flash, with minimal opinion and no particular startling insights. (Where is the story behind the story ?)

However, the story had already been broken by techno.blog on the previous day (according to the respective blog post time stamps), so it wasn't really breaking news by the time it appeared on Silicon Alley Insider. And others - for example, Donna Bogatin and Ashkan Karbasfrooshan - provide a lot more additional content and, arguably, much more insight. So how did the big-T pick Blodget's post as the lead?

My belief is that the Techmeme algorithms choose their lead based on the prominence of the source and on the links to a given post (which two factors are generally highly correlated, in any case).

This is fine and generally works well. Are there other options, other algorithms that can be used to choose the lead for a developing story, that could highlight the more meaty posts? A few possibilities come to mind:

• Reader Votes: Within the set of posts for a developing story, allow readers to vote for the ones they like best, so that the most popular ones rise to the top.
• Link Count: Examine the cross-linking between posts to leverage the implicit knowledge therein, similar to Google's PageRank algorithm. I believe Techmeme already incorporates this to some extent.
• Bookmark Count: Examine the incidence of social bookmarks for different posts, for popular bookmarking services like del.icio.us .
• Human Editors: Use human editors to select the top leads. Of course, this may prove too expensive and/or cumbersome.
• Author Markup: Enable authors to include metadata in some standard format for their posts. By using markup or tags such as "news", "opinion", "analysis", "multi-idea" and so on, authors could indicate the type of their post to the selection engine. Admittedly, this approach is susceptible to gaming, although it could be combined with voting to improve quality.

Over time, the significance of "prominence" as a measure of content quality is eroding - especially for blog posts in particular. As the web evolves, Techmeme and other sites are sure to experiment with these and other alternative approaches; it will be interesting to see which ones emerge as the winners.

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How long before the walls around content come crashing down?

Scott Karp of Publishing 2.0 has posted an interesting article today: What Is The ROI Of Requiring User Registration To Access Online Content? , in which he takes a close look at the registration wall used by the New York Times online and wonders whether it is worthwhile.

The theory goes that personal data collected from registered users enables sites to better target ads and charge premium rates. But I wonder whether the lost traffic from users who choose not to jump through the registration hoop — which I bet is particularly true of NYTimes’ large volume of visitors from search engines — outweighs the gain of higher ads rates (assuming NYTimes.com is consistently able to charge higher rates).

As Karp notes, the registration requirement presents a barrier to access for users who come in through a search engine, at a time when NYTimes.com is  focused on growing their readership beyond the current regular readers; and these casual users are just the type of users who are likely to have a lower tolerance for jumping through registration hoops, notwithstanding the NYTimes.com claim that registration takes "only a minute".

In one of the comments to the article, Howard Owens responds by questioning a critical assumption; Owens asserts that the registration requirement does not, in fact, cause traffic to drop.

I’ve run two registration sites, and have spoken with other newspaper.com site managers who have run their own registration-required sites, and two things I found to be true based on empirical evidence:

1) There is no drop off in traffic past the first 60 days of registration (after 60 days, traffic exceeds pre-registration numbers and continues to grow).
...

Personally I believe that the ROI of requiring user registration is questionable at best. Intuitively, it makes sense that at least some users will get discouraged and drop off when confronted with a "registration required" notice; so there's bound to be some negative impact, with all due respect to Howard Owens [perhaps the numbers he saw can be explained by other changes that happened at the same time, such as SEO enhancements that bumped up traffic, compensating for the impact of the registration?].

At the same time, there is another major trend currently under way that will increase the importance of this debate, and in my opinion, accelerate the crumbling of these registration and payment walls.

This big change is in user behavior. Individual consumers are increasingly flocking first to the major search engines when looking for information and data, rather than to individual web sites, even when they already know high-quality sites that can provide the information. It makes sense from the user's point of view: the user wants to find high-quality content in general, regardless of source, and using a favorite search engine is a quick, easy and comfortable way to do that. This overall trend is inevitable and irreversible. As Don Dodge noted in a recent article: Search engines are the Start page for the Internet.

Empirical evidence indicates that, even for major web sites with strong brands, the number of users coming in from search engines is increasing as a percentage of total traffic (although I do not have hard numbers to back up this claim). This forces content publishers to open up more information in order to satisfy those users, which further solidifies the position of search engines as the starting point - which in turn, forces publishers to open up yet more information - and so on, in a self-reinforcing virtuous cycle.

As publishers see this changing user mix - a higher percentage of traffic consisting of new users coming from search engines - engaging those users will increase in importance, and putting barriers in their path will be less acceptable. Instead, publishers will be forced to find new and innovative models for monetization; similarly, user tracking methods will need to be improved to collect data implicitly rather than requiring explicit action from the user.

As the user starts interacting with the site - if she wants to comment, post or otherwise participate, for example - then progressive upsells into registration and payment are perfectly valid and acceptable.  By that point, the site is dealing with thoroughly-engaged users, not casual visitors.

I see it as a question of time before 99% of content from major publishers (NYTimes.com included) becomes free and openly accessible on the Web.

To paraphrase Cory Doctorow (he of the free books !) and Tim O'Reilly, on content: the real danger isn't loss of revenue through sharing, it's obscurity and irrelevance.

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