Daily Archives: September 14, 2009

Newspaper Publishers Delusional on Paid Content

Alan Mutter provides an overview and commentary on a survey that indicates, as he puts it, “only” 51 percent of newspaper publishers in the United States believe they can charge successfully for access to their interactive content.

I would be astounded if 50 percent of American newspaper publishers somehow manage to extract direct revenue from online readers. I still think advertising, in one form or another, is their only hope, though it’s obvious to all that advertising isn’t getting the job done under the current circumstances.

I already pay enough for my broadband Internet access. I don’t relish the prospect of getting nickel-and-dimed as I traverse the web in search of news. I can tolerate web-based advertising, just as I am reconciled to print and television advertising, but it would be beyond my tolerance (financial and otherwise) to have to drop coins into virtual toll booths at every news site I visit on the web. Incidentally, I say that as a voracious reader and an individual who prefers to read and think about his news instead of passively consuming it as a television viewer.

Still, I would aggressively seek a news alternative rather than submit to an online mugging from the likes of plutocrat Rupert Murdoch.

I’m not only one who feels that way. According to the survey by industry consultants Greg Harmon and Greg Swanson, while 68% of the publishers responding to the survey said they thought readers who objected to paying for content would have a difficult time replacing the information they get from newspaper websites, 52% of polled readers said it would be either “very easy” or “somewhat easy” to do so.

Newspaper publishers were put into this conundrum by technological change, especially the rise of the Internet as a news-delivery channel. It was a disruptive change, one that wreaked havoc on their establish business models. The problem was exacerbated enormously by the severe economic downturn that struck with a vengeance last year and persists to this day.

As consumers continue to count their pennies and save at a rate unprecedented in decades, advertising is a tough sell, especially in obsolescent print media. It’s not going gangbusters online, either.

Even so, what on earth makes newspaper publishers think financially battered consumers are in any position to spend disposable income they no longer possess on a service that, while arguably important and valuable, is not essential?

Steve McCroskey, in the movie Airplane, famously said, “It looks like I picked the wrong week to quit drinking.” Newspaper publishers have picked a similarly inopportune time to ask for more money from beleaguered consumers.

New York Times Examines BusinessWeek’s Decline

An undercurrent of schadenfreude runs through a New York Times article on the dire straits in which BusinessWeek finds itself.

There’s an irony in the tone and substance of the coverage. After all, the New York Times isn’t exactly in a privileged position from which it can look down condescendingly on its down-at-heels publishing brethren. Like many newspapers, the Old Gray Lady, as the Times is known, is having trouble recasting itself as an invaluable online and offline destination for breaking news and the analysis and commentary that accompany it.

Still, misery loves company.

Perhaps that’s why the article on BusinessWeek’s decline is tackled with obvious gusto by Stephanie Clifford. She does a good job, for the most part, marshaling facts and figures, soliciting quotes from experts and assorted pundits, and providing a big-picture view of deteriorating industry dynamics as well as a sharp closeup look at BusinessWeek’s specific hardship.

There is a notable omission, though. It’s one that got me thinking, a consequence that should concern us all. Toward the end of the article, Clifford writes:

With bids about to land, investors and employees are debating the future of BusinessWeek. There are levers to move, like decreasing circulation or raising the magazine’s price. But it is still a weekly in a nanosecond world.

“They have to be unique, must-read,” said Stephen B. Shepard, the editor of BusinessWeek for 20 years and now dean of the Graduate School of Journalism at the City University of New York. “That’s the only hope for almost all these publications.”

Well, it would be folly to argue with Shepard’s assessment. I agree that weekly newsmagazines must do a few things well to ensure their survival. Being a unique must-read publication definitely is one of them.

All of which bring us to the omission, the publication not mentioned, perhaps because it has resisted the powerful currents of doom that have buffeted its counterparts.

As weekly publications decline and fall all around it, the Economist has managed to maintain its footing with both readers and advertisers. It isn’t mentioned in the article. That’s unfortunate, because it might serve as an example BusinessWeek could emulate in its bid to remain viable.

The challenge in emulating the Economist, though, is that it’s practically inimitable. Is it a weekly newsmagazine, like TIME and Newsweek, or is it a weekly business magazine, akin to BusinessWeek? Some people say it’s the former, a standard newsweekly, but I humbly disagree.

Sure, the Economist summarizes the week’s news, just like a newsmagazine; but it does so from a decidedly business-oriented perspective. It also includes more business news and financial commentary that one would ever find in a TIME or Newsweek. In that respect, it is more weekly business magazine than weekly newsmagazine. That said, it’s not a purebred either way, and that might be what makes it unique.

Another difference between the Economist and nearly every other weekly newsmagazine is the tone of the publication. It has a flavor all its own. It’s ironic, skeptical, sometimes cynical. It can be haughty and dismissive in its cool pose as the establishment authority on what happened and why it mattered (or didn’t). Derek Thompson, over at The Atlantic, has given some thought as to what makes the Economist succeed where others have failed:

What exactly makes the Economist work is a $64,000 question in journalism. On its face, the idea of writing anonymous editorials about everything from urban politics in South Africa to the medicine news in Bangladesh doesn’t seem like a winning formula in an age of journalism that supposedly lives in a bunker under a roof known as the lowest common denominator. But the highminded Economist is succeeding, nonetheless. I would hazard to guess that’s because it’s a magazine that exists primarily to tell you what to think — complete with an Oxbridge accent and a biting sense of humor that knows when to bite.

Whatever it is that makes the Economist work, online and offline, BusinessWeek ought to identify it. Then it ought to determine whether and how that insight can be mined for its own salvation.

HP: Positioning and Filling Holes for Data-Center Dominance

While reading NetworkWorld’s interview with Marius Haas, senior vice president and general manager of HP’s ProCurve Networking business — now part of HP’s $45-billion Technology Solutions Group — I got the distinct feeling that HP might consider a core-switching acquisition if private and public market valuations of logical target companies hadn’t run ahead of economic reality during the past few months.

HP still might make an acquisition of an emerging data-center switch vendor. Options would include those mentioned by Alan Leinwand earlier this year: Arista Networks, Blade Network Technologies, and Force 10/Turin Networks. If it chose to be more ambitious, HP could take a run at Juniper Networks, which has its own data-center switch offerings as well as its Blade-supplied EX2500 top-of-rack 10G Ethernet data center switch.

Juniper is Cisco’s primary competition in the router market, but it isn’t apparent that HP wants to play in that market. In fact, HP probably will conclude that it can derive more value from a smaller acquisition of one of the private data-center startups listed above.

But the timing for such an acquisition probably isn’t right. Arista is self-funded by its founders and presumably isn’t in a hurry to make an exit until it has developed a bigger installed base and greater market momentum. Blade has just raised a new round of financing, in which Juniper participated, and has set a valuation of approximately $230 million. Meanwhile, the reconstituted Force10 Networks, merged with Turin Networks, has been the recipient of prodigious funding and might be looking for a payout that HP would be reluctant to provide.

That’s probably why Haas has taken what he describes as a “pragmatic” stance in relation to HP’s core gap in data-center networking:

You can assume I’m looking at everything. I view the window of opportunity for us as now. The customer base is saying it wants us to step up now. So we’re looking at everything – build, partner, buy. What’s the best investment profile from a return standpoint, not just for our share holders but for our customers? So you should assume that’s the pragmatic approach I’m taking.

From the interview, as well as from everything HP has said and done during the past few months, it is obvious that Haas and his colleagues view Cisco as their main threat in data-center convergence. With regard to Cisco’s Unified Computing System (USC) and the vision that underlies it, Haas said the following:

But we’re not doing it the way they’re doing it. We’re not saying customers need to move into a converged network/storage/compute fabric with a proprietary stack that locks you into a 10 year+ architecture with an as yet undefined TCO model.

We’re saying we’ve been doing this for years. We know what the compute fabric looks like, the storage fabric, and we’re absolutely investing hard in the network fabric. And we believe that establishing your data center on a holistic and integrated infrastructure which includes servers, networks, storage and management, using common architectural building blocks, is the right way to do it.

So the marketing rhetoric they’re putting out there is interesting, but we decompose it and see it’s forcing some trends customers don’t want. It is a closed architecture with proprietary Cisco compute technologies. It doesn’t scale to the capabilities we have, and it doesn’t have overall data center management from an orchestration and automation standpoint, including identity management and policy management. Those are huge gaps they’re not addressing.

It’s an interesting argument, using Cisco’s relative inexperience in data-center computing, storage, and policy management as wedge issues to shake customer confidence in Cisco’s slick marketing pitch.

The rant against “proprietary Cisco technologies” might prove less persuasive. Most customers know that all vendors offer “open” products and technologies until they have the opportunity to invoke some form of proprietary lock-in. It’s in vendors’ DNA. Smart customers know it’s in their interests not to buy into a Manichean morality tale in which one vendor represents good and another represents evil. Save the schlock for Hollywood.

To the extent that HP can focus on its expertise, focus on lower total cost of ownership (TCO), focus on the benefits of being able to do a better job than Cisco of pulling the pieces together into a whole that is greater than the sum of its parts, it will have a good chance to maintain control of the accounts it already owns and of capturing new clientele.

The plan looks good, if not great. The ultimate outcome will depend on how well it is executed.

Japanese Handset Vendors Officially Announce Joint Venture

In what was a poorly kept secret, perhaps by design, a trio of struggling Japanese mobile-handset vendors finally have announced that they will merge their manufacturing operations into a joint venture.

In reports published by the Associated Press and Agence France Presse, the three companies — NEC, Hitachi and Casio Computer — said they have agreed to merge their handset-manufacturing operations by April next year in a bid to boost their competitiveness at home and abroad.

The move effectively sees NEC take nominal charge of a preexisting mobile joint venture, established in 2004, between Casio and Hitachi. That faltering JV has made modest impact in the Japanese market. There is no guarantee the new combination will do anything other than reduce operating costs for the companies involved.

Still, on that basis alone, it was a good move — at least until one or all of the partners decides whether it should remain a player in the domestic and foreign handset markets.

Much will depend on NEC, which will own 70 percent of the joint venture by next June. Hitachi seems to be furtively edging toward an inconspicuous departure from the handset market, whereas Casio seems unsure of its strategic commitment to the space.

By word and deed, NEC seems most serious about turning the joint venture into a meaningful top-three player in the Japanese market. If it can use that position as a springboard into higher-growth developing markets, so much the better.

Always difficult beasts to steer successfully, joint ventures are prone to internal backbiting, organizational dysfunction, and bureaucratic paralysis. What’s positive about this one is that NEC clearly has taken the captain’s chair. We’ll see now whether it can get the ship on course for adventure and profit.

Joust at Joost Bears Watching

Mike Volpi made his industry bones as Cisco Systems’ preeminent wheeler-dealer during the networking giant’s frenetic run of acquisitions through the mid-to-late 90s and slightly beyond. At the risk gross understatement, I would say those were better times than the current dark ages for people who engage in that sort of high-octane dealmaking,

No fool, Volpi recognized the end of an era when he saw one. For a time, he became a business-unit VP at Cisco, with all the responsibilities that such a job entails, before leaving Cisco in 2007 to park himself briefly in the venture-capital community while waiting for an opportunity to run a startup company.

He didn’t wait long. Volpi got his chance with Joost. a much-hyped online-video site that was launched by Niklas Zennström and Janus Friis, the technological tandem behind previous P2P phenomena Kazaa and Skype. Given the accomplishments and past performance of the founders, Joost was handicapped to succeed in a packed field of video-site contenders.

Joost never did make a serious run, though. It was an underachiever from the outset, and it now seems destined for an ignominious end.

Nonetheless, the drama surrounding the company and its erstwhile principals is far from over. In a statement issued to the Wall Street Journal and other media recipients, Joost announced the following:

“Mr. Volpi was removed from the board of directors and from his position as chairman of Joost by shareholder vote. The company and its board of directors is conducting an investigation into Mr. Volpi’s actions during his tenure as CEO and as chairman.”

Previously, it was assumed that Volpi first resigned as CEO, then later gave up his role as board chairman. After relinquishing the CEO role, Volpi took a gig as partner at venture-capital firm Index Ventures, which, like Joost, is based in London.

Index Partners was a player organizing the group of investors that is attempting to acquire Skype from eBay. It is Volpi’s role in that pending transaction that seems to have triggered the antagonism of Zennstrom and Fris ,who still control ownership of Joost and were involved with a competing bid to wrest Skype back from eBay.

Much remains unknown about the nature of the investigation Joost’s board of directors is pursuing regarding Volpi’s actions as CEO and chairman of the company. It is apparent that the board suspects Volpi of skullduggery, but, beyond that, the situation is clear as mud.

It’s a situation that bears watching, however. Zennstrom and Fris also control a company, Joltit Limited, that owns P2P technologies leveraged by Skype and Joost. In an SEC filing, that company is mentioned as a potential irritant in the consummation of eBay’s sale of Skype.