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Plus Report - By Thomas Baekdal - June 2019

What really happened to publishers when Google entered the market?

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The "Google should pay for linking to us"-battle has come to the US. This is a battle that we have had here in Europe for ... well... forever, but now US publishers also think this will be the solution to all their problems.

As a media analyst, I am so frustrated by this, because it illustrates a complete and total lack of understanding of why the market has changed the way it has.

The problem is that the media industry is wrong about why they are losing the market to Google. It's not because Google is indexing our articles, it's because they created something we in the media have never done. And this doesn't just apply to Google. It's the same story when it comes to things like Craigslist.

I have been trying to explain this for 15 years, without much luck, so with this article, I'm going back to the basics. I will illustrate what has actually happened, and why we are essentially fighting the wrong fight.

The reality is that, even if publishers end up convincing the politicians to give them what they want, they are still going to lose.

But let me explain why.

How search dramatically changed everything

If you are as old as me, you will remember a world before search. A time where if you wanted to find something, you basically had to resort to trial and error.

Let me give you an example from the world of retail, and then I will explain why it's the same for publishers.

Imagine that you want to buy a new shirt, but you are living in a small town that only has six fashion shops. How would you find that before the internet?

Well, you would go out into the city and visit each shop. You would go to the first shop and ask if they had what you were looking for, then to the next shop, and the next, until eventually you found something that was kind of what you liked.

It was like this:

Today this looks silly, but this was really what it was like before the internet.

So what happened? Well, Google happened.

Google looked at this world, and instantly realized that this was a very time-consuming and inefficient way to do anything. More than that, it also often caused people not to find the best choice.

Imagine, for instance, that the best shirt for the price was actually in shop number 6, but this person ended up buying something from shop number 4 because he just didn't know.

So Google did three things:

First, they indexed what every shop had to offer. Secondly, they tried to rank this in relation to what people really wanted, and finally, they put themselves up as a service that could guide people as to where to go.

Now we have this:

It's easy to see just how big this change really is. By introducing the ability to search, Google completely disrupted the flow of the old market, and people love it.

But it actually goes much deeper than this. Because by changing the way people get to things, we suddenly need to think about this market in a very different way.

You see, the old shops are all designed for 'browsing'. This means that, traditionally, there are three critical elements that you need to be successful. These are location, location and location.

That's because every shop in the past was designed for people who were just walking by. And so by placing your shop at a location with a lot of through-traffic, you would get the most views and therefore also the most sales.

But now with Google being able to tell people specifically where to find the best things, your location is no longer that important. Suddenly other factors increase in value. Factors like uniqueness, reputation and focus.

You can see this effect very clearly if you look online. Location suddenly doesn't matter (except in a few cases with shipping).

But it's not just outside the stores where this is happening, it's also disrupting the inside.

Every single retail store is also designed for browsing around. When you walk through the door, you are encouraged to take a path through the store before you get to whatever it is that you want to buy.

Everyone who has ever worked at a fashion store knows how important this is. People might come in just looking for a shirt, but because of their journey through the store, they will end up buying a shirt, a pair of jeans, and two t-shirts.

It's designed around a 'browsing model'.

But now Google comes along, and suddenly people can just search for "Hugo Boss shirt cotton white", and instead of taking people on a journey through the store, Google just dumps people right where they wanted to go.

From here:

And directly to here:

The effect of this is the same as before. Google has eliminated the path, and is instead giving people a way to reach the final point in an instant.

This has a massive impact on how a store works, because suddenly you are not getting all that extra exposure to all your other products along the way. On the upside, the traffic you do get has a much higher level of intent.

So, I now have a simple question for you. Did Google steal the market from the local stores?

Well, no. People still buy just as much clothes as before. But more than that, Google is not even in their market. If you are looking to buy a Hugo Boss shirt, Google is not saying, "here, buy this shirt from us instead."

Instead, what has happened is that we now have a 'moment-based' market.

Think about it like this:

In the past we only had the one market. The market defined by browsing (or just going shopping). In this market, you optimize for the journey that people take. In other words, you design your interactions around a path that you want people to take. And in the old days, this was the only market there was, so every store was designed for it.

Today, we have a moment-based market, where people choose whether they just want to browse around OR if they are looking for something specific, via search, where they instead go from point to point.

In short, we went from just having one market, to two markets.

And what happened was that this new second market turned out to be far more powerful. Because while some people enjoy just going shopping, most of the time people are actually looking for something specific, and here 'search' is the much better path.

Of course, most brands have already realized this, and thus changed the way they sell online. Compare, for instance, the difference between a supermarket (designed solely for a browsing path) and Amazon (designed primarily for a search path).

But this, of course, is where we come to the problem with newspapers.

Newspapers never changed their path

Here are a couple of simple questions. What is a newspaper designed for? ...and what is the business model optimized for?

Well, let's start with a print newspaper.

A print newspaper is entirely designed around the concept of getting people to sit down, and casually flip through it, page by page, without having any idea about what is coming up next.

In other words, newspapers are entirely designed for the old market where people only browsed around. It is just like an old physical retail store.

You go in, you look around, and take your path through it.

This is particularly true when it comes to the business model. Think about advertising.

The way brands pay for advertising in print newspapers is that you generally pay the same, regardless of what page your ad is on, because the newspaper is assuming that their audience is just flipping through the pages.

They are not taking into account that people might go to a specific page, because newspapers are not designed for that ... so neither are the ads.

This model is then completely disrupted by the internet and Google. Now people search for a specific story they would like to read, then they click onto that specific article ... and then they leave without going any further.

Suddenly, the entire ad model of local news is gone. Now as a local newspaper, you are not getting the views in the same way.

This also massively disrupts the ad model, because how can you charge people for ad spots that people don't see? Google, of course, knew this and created a model where brands are only paying for the ads that are seen or clicked on.

I have talked about this in previous articles, but there is a great quote from Ken Auletta's book "Googled". He tells the story about how the traditional culture clashed with the digital one, when Mel Karmazin, president of Viacom, met Google's founders to discuss advertising.

Here is a short excerpt:

It was Google's ambition, Schmidt and Page and Brin liked to say, to provide an answer to the adman's legendary line "I know half of my advertising works, I just don't know which half." To help them sort through the digital clicks, Google and other new media companies relied on what are called cookies, software files that reside on a user's browser and keep track of their activities online: search questions asked, Web pages visited, time spent on each Web page, advertisements clicked on, items purchased. Because of these cookies, Google's searches improve with use, as they become more familiar with the kind of information the user seeks. Although the cookie doesn't identify the user by name or address, it does assemble data advertisers crave and couldn't get from traditional media companies like Karmazin's.

And unlike traditional analog media companies, which can't measure the effectiveness of their advertising, Google offered each advertiser a free tool: Google Analytics, which allowed the advertiser to track day by day, hour by hour, the number of clicks and sales, the traffic produced by the keywords chosen, the conversion rate from click to sale-in sum, the overall effectiveness of an ad.

Thus, the several hundred million daily searches Google performed in 2003 (today the number is 3 billion) provided a tantalizing trove of data. Google helped advertisers target consumers not just by age, sex, income, profession, or zip code, but by personal preferences for leisure time activities, frequently visited locations, product preferences, news preferences, etcetera. Google took much of the guessing out of advertising. "Our business is highly measurable," Schmidt said. "We know that if you spend X dollars on ads, you'll get Y dollars in revenues per industry, per customer."

Karmazin was aghast. Most of the American media-television, radio, newspapers, magazines-depended for their existence on a long-entrenched advertising model. In the old method, at which Karmazin excelled, the ad sales force depended on emotion and mystery, not metrics.

"You buy a commercial in the Super Bowl, you're going to pay two and one-half million dollars for the spot," Karmazin said. "I have no idea if it's going to work. You pay your money, you take your chances." To turn this lucrative system over to a mechanized auction posed a serious threat. "I want a sales person in the process, taking that buyer out for drinks, getting an order they shouldn't have gotten." What would happen if advertisers expected measured results from the $3 million spent for each thirty-second ad for NBC's 2009 Super Bowl, or for the approximately $60 billion spent on television advertising in the United States each year? Or the estimated $172 billion spent in the United States on advertising, and the additional $227 billion spent on marketing, including public relations, direct mail, telemarketing, and sales promotions?

"That's the worst kind of business model in the world," he said-the worst, that is, if you're an old-school ad man. "You don't want to have people know what works. When you know what works or not, you tend to charge less money than when you have this aura and you're selling this mystique." For sixty years, network television sold much of its advertising in an "up-front" each spring and summer after the new fall shows were announced. Even as audiences were declining, executives created a cattle-stampede mentality by convincing advertisers they'd get shut out of the hit shows if they didn't buy early. Karmazin and the networks continued to charge ever-steeper rates because, he said, "advertisers don't know what works and what doesn't. That's a great model".

The Google executives were equally appalled. They thought Karmazin's method manipulated emotions and cheated advertisers; just as egregiously, it wasn't measurable and was therefore inefficient. They were convinced they could engineer a better system.

By then, Karmazin knew there was little he and Google could do for each other. "I was selling twenty-five billion dollars of advertising," he said. "Did I want someone to know what worked and what didn't?" Like the aging Falstaff, he had "heard the chimes at midnight." Karmazin trained his eyes on his Google hosts, his hands folded on the table, his cuff links gleaming, and protested, only half in jest, "You're fucking with the magic!"

From Ken Auletta's: "Googled, The end of the world as we know it".

Think about how big an impact this has on a local newspaper. Suddenly, the 'people are just flipping through it' model doesn't work anymore.

Even the journalism is designed for this. While we can all agree that some local news stories are very good and have done a tremendous job keeping local issues in check, most news stories are what we call 'throw-away news'.

In other words, they are stories that are so short that they work when people are just randomly paging through the paper, without any specific focus or value.

It's the same reason why we can't get people to buy single news stories. The value just isn't there.

So again, when Google comes along, and directs people to just a single article, not only are we losing out on all the advertising views that we used to charge for, we also don't have much to offer people in that one specific moment.

And what's the result of this? It's obvious, local newspapers no longer match the market, not because of the role of journalism, but because we are creating it in the wrong way and for the wrong moment.

I want to give you an example

Recently near where I live, we heard that Apple had dropped building a planned data center in the area. So I went to the local newspaper to search for a story about what was going on.

Here is what I got:

  1. Apple drops large data center at Aabenraa (but the article doesn't explain why).
  2. Apple drops huge data center in South Jutland.
  3. Mayor about Apple: This is not that big a catastrophe.
  4. Energinet: Apple just thanked us for good cooperation.
  5. Apple: That's why we dropped Aabenraa (finally we get to hear why).
  6. Nobody thought anything was wrong: The municipality's top people were not included when Apple made their shock announcement.
  7. Aabenraa's Municipal Director: Something about the Apple plans worried us.
  8. Apple's dropped data center costs entrepreneur billions.
  9. Then came the trip to Aabenraa: Two letdowns to the Jutland municipalities in three months.
  10. Comment: Less disappointment in Aabenraa.
  11. Six strikes in the disagreements: Data centers provide few jobs and cost in offshore wind turbines.
  12. Apple goodbye doesn't change giant solar park plans.
  13. After Facebook and Apple exit: Industry Association urges people not to overreact.
  14. Danish company loses billion orders for Apple cancellation in Aabenraa.
  15. Apple doesn't owe a dime after dropped data center.

The local newspaper wrote 15 articles about it, most of them completely missing vital information, many of them conflicting with each other, most focusing on such a narrow part of the story that you have no idea how it fits into the larger perspective.

In fact, when I searched for this, I did not find these 15 articles. Instead I was just directed to one of them, and it contained no useful information other than Apple not building the data center.

I'm sorry, but this doesn't work.

This is what you do when you are optimizing for random content designed for people who don't really care and who are just casually browsing across sites. But for anyone who is specifically looking for information about this event, you provide the worst news experience possible!

Local newspapers, even to this day, haven't done anything to adjust to the type of moments or needs that people have now. You are still designing news for people who are just randomly paging through stories ... and even that isn't very good.

Another example that illustrates this clearly is to look at the classified market.

Again, it's the same story. We constantly hear local newspaper editors complain how Craigslist 'stole your market'. But, again, think about what you had to offer.

Classified ads in the local newspapers were designed for just browsing through. It was a collection of ads in some part of the newspaper, which people would then have to look through, one-by-one, looking to see if there was something interesting.

It's exactly like the physical fashion stores I talked about earlier.

But imagine if you are looking for something specific. For instance, imagine that you are a model train enthusiast, and you are looking to add the very specific "Hornby LMS Princess Coronation Class, 4-6-2, 6241 'City of Edinburgh' - Era 3" to your collection.

This one:

So... how likely would you be to be able to find this in the classified section of a local print newspaper?

The answer is not at all. First of all, you would have to look through the classified listings one by one, spending a lot of time looking at things that have nothing to do with this. Then, even if one was for sale, you would have to read the local newspaper on that specific day, because the next day it wouldn't be in the newspaper anymore. But finally, the likelihood of this specific model being for sale in your local town is infinitesimally low. It might be for sale in a neighboring town, but you would never know.

Think about how crappy an experience this really is.

In comparison, take a site like eBay. If you want to buy this train, you just... you know... search for it. And instantly it shows you where to get it.

You no longer have to browse around and look through hundreds of irrelevant listings for other things. You are not limited to sellers in your local town, but more importantly, eBay will keep the listing up until it is sold. So you can search anytime you want.

As a local newspaper you might be frustrated that the tech companies have taken over the classified market, but it's not really difficult to understand why.

But more than that, eBay didn't steal this market from you, they are not even in your market. As a local newspaper, your market is designed for 'random people who are just paging through the newspaper', whereas eBay is in the market for 'a platform for people searching for something specific'. These are two completely different markets, with very different dynamics.

On top of that, eBay has innovated in many other areas. For instance, you are free to list 50 items for sale per month, and only if you sell something do you have to pay a fee.

Compare that to the old local newspaper model, where you would have to pay no matter what and basically just take your chances.

I mean... local newspapers didn't even try to create a product that people wanted, neither for your readers or for the people selling things through you.

Obviously, we can have a long discussion about why this is. There are internal and external issues. For instance, in the US, one thing I hear a lot is that local newspapers are legally prevented from partnering because of anti-trust issues. And that's a good point.

But it doesn't change the fact that you could just have created this for yourself. Even if local newspapers could have partnered with other local newspapers, that still wouldn't be as effective a model as eBay (who won't have to share the revenue with hundreds of other newspapers or spend the profit on supporting journalism).

This all leads me to something far more important, which is how advertising became a non-media market.

Advertising is now non-media focused

All the things I have talked about above illustrate what happens when the market is suddenly defined by more than just one moment, and newspapers fail because they are still trying to create something for the old type of moment.

But the biggest change of all of this, is how the internet opened up a path for brands to advertise without going through the media at all.

Let me explain:

If we think back to the old market for local newspapers, what we had was a completely closed ecosystem.

For each city, you would have a local newspaper, and everyone in that city would read just that. Similarly, every single local shop would advertise in their local newspapers, and often limit their ad budgets to that as well. Even for the big brands, if they wanted to reach people, they would place ads in each local newspaper for each city where their clothes were sold.

In other words, we had this:

From an advertising perspective, this was the golden age for local newspapers.

But then the internet came along, and with it Google, and suddenly people could not just search for news-related things, they could search for anything.

This has a tremendously disruptive impact on local newspapers, because suddenly brands no longer feel that newspapers are the best place to advertise.

Think about the paths that people take, and what people do as part of that.

Let me give you two examples, one being a 'media path' and the other being a 'non-media path'.

So the first path, the media path, looks like this:

People go to Google. They search for some specific news event that has happened in their local city, like ... say... a new case of police brutality against a black person. They find the result from a local newspaper, click on it, and on this page they then also see an ad for a fashion company selling cotton shirts.

My question now is, would a local news article like this be a good place for a brand to advertise?

Well, considering the nature of the news, this particular article probably got a lot of pageviews, so it does give brands 'exposure'. But, when people are reading news like this, nobody would feel compelled to buy a cotton shirt. Instead, the readers of this local news article all end up feeling angry, depressed, and outraged ... emotions that have a very negative influence on any form of ad exposure.

In fact, I would go so far as to say that local news articles like this are not brand-safe.

The second path is the 'non-media' path. Again, people go to Google, but now they are searching for "hugo boss cotton shirt", and they are then presented with this:

So I ask you again. Is this a good place to advertise? The answer is obvious. This is the perfect place to advertise, because here you get the reach and the right intent. And you are not burdened by any of the negativity of the outrage that usually comes with advertising in a newspaper.

In other words, Google is a far more brand-safe place to advertise.

This is the new reality. Google isn't winning because they took your market. They are winning because they created a new market that had nothing to do with journalism or news. When people go to Google and search for "Hugo Boss cotton shirt", they are not thinking about journalism at all. People are no longer going through the local newspaper to get to anything. They now take a path that doesn't include newspapers at all.

So, you are not losing your market to Google. You are losing your market to non-media. And it's the same thing we see everywhere else. It's why Amazon's ad income is exploding in size. They too offer brands the ability to reach people when they are not doing anything related to news.

This is the new reality. News and advertising don't fit ... and they actually never did. The only difference is that in the past, the local newspaper had a monopoly on attention. Now people have a choice, and they choose to interact with the brands when they are not interacting with news.

This doesn't mean local news isn't important. In fact, articles like the one I mentioned earlier about police brutality in Phoenix are an example of very good and extremely important journalism.

As journalists, you are doing a very good and important job. But that doesn't change why advertisers are moving away. Brands don't advertise to support the news. They advertise to generate a return on investment in terms of sales.

As a local newspaper, you cannot tell brands to advertise with you instead to support your journalism, because that's not what that budget is for.

For instance, last year the UK Press Gazette said this:

Channel 4 News has generated literally billions of video views for Facebook - much of it for work created at great personal risk by journalists working inside Syria. By way of financial return it gets almost nothing, while Facebook banks the advertising income.

As a journalist, this might sound like a perfectly reasonable thing to say, but they just don't get it. You will never get brands to advertise in newspapers because you are covering extremely sad and depressing stories about Syria.

It doesn't matter that you are generating billions of views. Because those views don't generate a positive outcome for brands.

A good example of this is Instagram. Today, Instagram makes a ton of money from advertising, because almost all its activity is based around positive things, where people are sharing personal photos, following brands, or feeling inspired by influencers.

This makes Instagram the perfect place to advertise, not just in general, but also by creating direct partnerships with celebrities or influencers.

Like this one from Wonder Woman ... sorry, Gal Gadot :)

But imagine if Instagram wasn't like this. Imagine that instead of all the personal photos, the influencers, and the brands, that Instagram was solely a news channel. And that every single post was from a local newspaper covering some news that had just happened.

Like this:

What do you think would happen to the ad income? Well, some brands might still want to advertise just to get the random exposure, but overall, Instagram's ad revenue would drop catastrophically.

Local news would be a terrible platform for generating ad revenue for Instagram, so it's not focusing on that.

This is the simple reality that you have to get a grip on. Instagram is winning because its main source of focus and revenue has nothing to do with news. It's another non-media advertising platform.

And it doesn't matter how much you complain to the politicians or call for Instagram, Facebook, Google, YouTube, Amazon to be broken up or to force them to pay you for the views.

The simple fact is that, even if you generated a million views on Instagram, those views won't generate anywhere near the revenue that you think it would. In fact, it might turn more people away from the ads than it gained.

Local shops leaving local news

The final example I want to show you is another way that advertising has moved away from local newspapers, and to explain this I want to tell you a personal story.

It's about my mom.

Remember the model I showed you earlier of local newspapers before the internet, and how all the local shops would only advertise in their local newspaper? This was also true for my mom.

My mom is a business owner, she sells things related to knitting(although she has also sold a lot of other things over the years). In the early days, her business was like any other local shop. It targeted people in her local town, where people could stop by her physical shop and buy something.

Because of this, she used to spend all of her advertising budget on the local newspaper, because that's where her customers were most likely to see it.

But over the past 15 years, she has shifted more and more of her business online. It has gone so well that in December last year, she told her customers that she would no longer have a physical shop that people could visit. From now on, everything would be sold online.

This also meant a dramatic change in her market. Today most of her customers are from other cities in Denmark, and she even has customers from other countries, like Norway, Sweden, Germany, Holland and even as far away as Canada.

So, I now ask you this simple question. Where should she advertise today?

In the local newspaper?

No, of course not. That would be silly, because her market is no longer limited to just a single town.

But you might say, what about if she advertised in all the local newspapers across the country? The same way as the big brands did in the past?

Well, again, no. While she would reach many more people that way, it would have no form of targeting. She is not looking to advertise to every random person in a city, she only wants to reach those deeply passionate about knitting, and advertising in all the local newspapers would be a gigantic waste of money.

Instead, she advertises on Google and Facebook, and in particular Facebook has turned out to be working well for her.

It turns out that Facebook has a very big community of knitters, and by using Facebook targeting options, she can narrow down her ad views to just these people in such a way that it instantly creates a spike in sales with most ads.

This is the new reality, and of course, it doesn't just apply to my mom. It's the same thing for every other local shop that has turned more of their focus on online sales. As soon as they do that, local newspapers become a much less appealing place to advertise, because your definition of the market no longer aligns with where the shops get their customers from.

And, again, it doesn't matter how much local newspapers complain about losing this market, or how much you call for Google or Facebook to be 'broken up' or how you think that Google should be paying for linking to you. None of those things have any influence on why all of this is happening.

The simple reality is that we now live in a new type of world, where our interactions are defined by having different types of moment, each with their own dynamics and market structures, and the only way to be a part of that is to start thinking about how you, as a newspaper, can create something valuable for it.

This is no different from any other industry. Everyone has had to make these changes. Even my mom had to change a lot of things when she moved her business online.

For instance, back in 2013, she was also selling tea in her knitting shop. Why? Well, because people who physically came to her shop to 'browse around for knitting products' would see her shelves with tea and think that was the perfect thing to also add for an evening of knitting.

But when she shifted her focus online, people stopped acting that way, and so she is no longer selling tea. It worked in the old market, but it doesn't work in the new market.

As a newspaper, it's the same for you. Just because something used to work in the old market doesn't mean it should also work in the new world.

People still need journalism, and people still need local news. But the definition of 'local' has changed, and the moment people might have is also very different. And so we need a different journalistic product to fit into that.

This is where you should focus your time and energy.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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