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Summary:

In less than six years, Arianna Huffington and her team built a media operation second only to the New York Times in terms of traffic, and almost as valuable, while traditional news organizations have struggled to grow online. Why? Because they have too much to lose.

Amid all the discussion about whether AOL overpaid for The Huffington Post, how much founder Arianna Huffington made from the deal, and whether the kind of search-engine optimization the site does is losing its relevance, it’s worth taking a step back to look at what Huffington and her team have accomplished: in less than six years, they built a media operation that is second only to the New York Times in terms of traffic, and almost as valuable. Traditional news organizations like the Times, meanwhile, have not only failed to do something similar, but have struggled to grow online despite the lessons provided by The Huffington Post and others. Why? Because they have too much to lose.

When Arianna Huffington started the Post in 2005, she was known for very little other than her marriage to Republican congressman Michael Huffington, some political aspirations, and her web of social connections to a wide variety of people in the media, politics and business communities. When she started the website, as media consultant Jeff Jarvis noted in a blog post, it was widely ridiculed as a lightweight plaything for a rich socialite. It certainly didn’t look like much, and the content that appeared there — a strange and eclectic mix of commentary from film-makers, actors, bureaucrats and left-leaning intellectuals — didn’t appear to be much of a competitor for anything, let alone an established and dominant media player like the New York Times.

But thanks to some funding from Softbank and Greycroft Partners, and the web savvy of people like Jonah Peretti and CTO Paul Berry, The Huffington Post just kept growing and growing, and made use of all the social tools at its disposal, from comments and Twitter to Facebook’s social graph plugins. As more prominent writers started to post their thoughts on the site, that attracted others — even though the network didn’t pay any of them anything, something that has been a source of much controversy. But as some have pointed out, The Huffington Post didn’t have to pay anyone; thousands of people have been more than happy to write for nothing, the same kind of phenomenon that has helped other sites like Talking Points Memo grow from single blogs into new-media powerhouses.

The supply of media content is now infinite

The days when outlets like the New York Times and The Economist had a monopoly on commentary are long gone — for better or worse, the web has expanded the marketplace for columnists (and every other kind of content) to the point where it is virtually infinite. Meanwhile, media companies like the Times and Rupert Murdoch’s News Corp. continue to try and put up walls around their content, like someone stacking sandbags against a tidal wave. As media analyst Ken Doctor has pointed out, the combination of AOL and The Huffington Post is very much the antithesis of that approach — it is based on the idea that the supply of free content is effectively infinite.

There are risks to that approach, as Farhad Manjoo notes at Slate, including the fact that the SEO principles that the HuffPo and AOL use are facing some significant pressure from Google as it tries to improve the quality of its search results. But it is fundamentally a web-native strategy, not a rear-facing and defensive strategy.

Traditional media sees the web as a threat

Newspapers and other media outlets, however, have been effectively incapable of recreating what The Huffington Post has been able to build. The Guardian has probably come the closest, with its Comment Is Free network, which pulls in commentary from anyone who wishes to submit it — and as we have written, the British newspaper is also one of the most forward-thinking when it comes to things like crowdsourcing (with its MP expenses project) and also its Open Platform API, which allows outside parties to develop applications and services that use Guardian content and share in the revenue generated. But few other media entities have embraced the web in the kind of whole-hearted way that The Huffington Post has — and that’s because it sees the web (consciously or subconsciously) as a threat.

As author Clay Christensen outlined in The Innovator’s Dilemma, it is almost impossible for a company that has an established business in one market to successfully transition to a different market, particularly one that disrupts or cannibalizes its existing business. Newspapers have been caught in that trap for the past decade at least. Every bit of growth online comes at the expense of the printed product, and even though the writing on the wall has been obvious in terms of the slide in advertising revenue as readers move online, very few newspaper publishers have had the gumption to fully embrace the web — with the exception of outfits like the Journal-Register Corp., where CEO John Paton was able to launch a web-first approach because the company had already gone bankrupt.

For companies that have grown used to controlling the platform and distribution of content for so long, the web is fundamentally a threat rather than an opportunity. Arianna Huffington had nothing to lose and everything to gain — and gain it she did.

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Post and thumbnail courtesy of Flickr users George Kelly and World Economic Forum

  1. Total garbage. Newspapers didn’t create the Huffington Post, because they had already created their own newspapers. And without those newspapers, there will be no more Huffington Post to steal quality content.

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    1. Thanks for the comment, Joe — that kind of response is exactly the sort of thinking that prevails at newspapers, which is yet another reason why they are in so much trouble online. Huffington Post doesn’t steal content, it provides excerpts and then links to the original, just the same way Google News does. That should be a benefit for newspapers, not a negative.

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      1. Joe’s right. It isn’t just a matter of incumbents failing to adjust. It’s more a matter of founding principles conflicting with deplorable tastes.

        Whatever their compromises and failings, newspapers still believe in their responsibility to discover and communicate accurate news. They are subject to our apparent preference for low-quality entertainment, but they probably see themselves as holding the line against low-grade scavengers like HuffPo, so following HuffPo’s methods would be antithetical to their mission.

        Planned Parenthood could probably make good money selling porn, but they don’t.

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      2. Matt, excellent point. I wonder how many more newspapers would be in more trouble if it wasn’t for news aggregators such as Huff Post, Yahoo News, and Google News and the like…

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  2. When the Huff Post and the like put a full-time reporting team on the ground in Iraq they will be a newspaper; the telling wording in this story is that the Times and its ilk no longer have “a monopoly on commentary” (aka “hot air”). But where are the facts on the ground?

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    1. This is the telling comment. If the Huffpo has no journalists on the ground abroad then it’s not truly a news source. It’s business model is easily replaceable. And it’s days are numbered.

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  3. I don’t think Christensen said it was impossible for companies to successfully transition to new markets, more that they are incapable of doing it. The inability has to do with general business management philosophy, where managers are trained to avoid risk at all costs (new markets = risk). This is most evident in successful start-ups that are supposed to transition into mature companies, when the board brings in experience executives who know how to manage a business, but not grow one from nothing (which is what they effectively must do when they need to transition to a new market). They are instinctively opposed to new things, as they are trained to milk existing sources of revenue. Their strategy is to convince people to buy what they sell, rather than sell things people want to buy. Startups have to sell things that people want to buy, because they have no other reason for existing. That’s why they succeed. Big companies survive mainly because of inertia, not because of management genius.

    Wall Street demands this kind of behavior, as they have no tolerance for companies that take new market risks (analysts criticized Apple when they opened their first retail stores, and look who’s laughing now). Managers who get hired to run publicly traded companies are slaves to quarterly results, so they will not make investments that may yield results in two or years (analysts and the sheep that follow them will drive the share price down if they think a company shouldn’t be investing in a new market). The one exception is Apple, which successfully (a serious understatement) branched into music players, then mobile phones, and now tablets, and created ecosystems for all of them. Unlike their competitors, who refuse to cannibalize their own business, Apple went as far as killing the industry leading iPod mini, replacing it at the height of its popularity with completely newer models. They knew if they didn’t do that, somebody else would. How did they know this? Because their management understands the technology that underlies their products, they know where its going, the implications of how it will impact their current products, and how they can use it to improve their customer’s experience. Their competitors don’t know or understand any of that, and as far as I can tell, don’t care, either. Their product definitions and designs are driven by profit projections, not product success in terms of whether people like it. They use their distribution channels as a weapon, not as a tool, in that they expect they will sell X number of devices at Y $ each, because they will be in N stores.

    Companies like the NY Times don’t have executives who are capable of starting a new venture, because they avoid hiring people like that. This isn’t to say that they should have taken the route of the Huffington Post, but that the only way they will deliver an innovative product or service is if they hire a consulting firm that tells them to do that (and consulting firms don’t do that, as they follow standard business school textbooks).

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    1. That’s a great point, Ken — that’s one of the things I didn’t really have time to get into, but you are totally right. Risk-taking behavior, and the ability to tolerate it (or even produce it in the first place) is one of the things that many traditional media are missing — and something that startups can generate because they don’t have anything to lose.

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  4. +1 @KenG and I’ll add – newspaper advertisers also need to have some risk-taking behavior. I am amazed at the number of full page ad-buys in NYT (yes, i still read it in paper form) for movies in oscar season – exactly who are these ‘advertisers’ trying to influence – did they ever do an analysis of how effective this strategy may be vs. going where millions of readers are migrating….

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  5. Matthew – one nit: your post makes it sound like the Huffington Post is nearly as valuable as the New York Times itself. As you know, it’s nearly as valuable as the estimated revenue that the NYT *online* operation brings in (if those estimates are right). Not the entire paper (and print is still the largest revenue driver).

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    1. Yes, that’s a good point, Robert — that is what I meant, as the link makes clear, but I could have been more obvious about that.

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  6. This is the classic case of disruptive innovation – Clayton Christensen…His Resources, Processes, and Values theory explains why the news papers cannot by themselves disrupt their own industry..
    Why didn’t Blockbuster create NetFlix?
    Why didn’t American airlines create South West?
    Why didn’t Siebel create SalesForce.com?

    My 2 cents..

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    1. Yes, you are quite right of course — Netflix and Blockbuster is a great example of the same thing.

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  7. Mathew,

    I think you’re missing the point a bit here and also slightly misrepresenting what Christensen actually meant.

    Christensen’s main argument was that, in some situations, standard management principles (like the ones taught at his school) will lead to failure.

    He also made a separate point, that it is difficult to disrupt your own business because of institutional inertia (i.e. the troops won’t go for it and will undermine you at every turn). He gave the example of IBM developing the PC in a separate unit as one way around the problem.

    I think you’re confusing the former with the latter here. Newspapers aren’t suffering from a lack of investment in digital. They certainly have invested plenty and are willing to invest more. They are more than aware of the threat. Rather, the problem lies on the operational level.

    To use NY Times as an example, they have an enormous and impressive back end. Probably the best in the business. However, they get very little value at it.

    Meanwhile, their home page is extremely slow. It seems to change maybe a dozen times a day. Whenever you go there, you’re almost guaranteed to see the same thing you saw an hour ago. They’ve been apathetic and clumsy on social (I stopped using their social component when I realized that it was posting to Facebook when I hit the Twitter button) and they are simply terrible with inventory management.

    Clearly, they are trying to run the website with all the old newspaper ideas, such as the “Chinese Wall” which keeps all commercial considerations out of product design.

    So while I agree that newspapers like the NY Times need to get their act together, I don’t think it fair to say that it is because they are trying to defend themselves by protecting print revenues. Rather, they need to change they way they operate so they can move on opportunities more effectively.

    – Greg

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    1. Thanks for the thoughtful comment, Greg – but I’m going to disagree with you a bit. I think both of the factors you describe are involved. It’s not just operationally or structurally that newspapers need to change (although they certainly need to do that), but culturally there is still a long way to go as well in many cases.

      Although there are many talented and forward-thinking staffers at the New York Times and elsewhere, I think that there are still a lot of senior and middle management who see the web fundamentally as a threat — whether they would be willing to admit it publicly or not. And that is also a very big drag on fully embracing the web.

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      1. Yes, I agree with that (and I think culturally is probably a better word to describe it than operationally).

        I was making the point because many take (seeing Internet as a threat” means that they are not investing. Management says “Hey, that can’t be us, we’re investing, we’re believers.” So, like in NY Times, they invest in lots of technology that does them very little good.

        So I think the “threat” that you describe is more of a personal one. People in senior management have worked a certain way for a long time, feel that they have accomplished a lot, want to continue to do things that they believe made them successful. Like you said, this is cultural, but shows up operationally.

        In any case, I think that the biggest problem is that too many print editors fail to realize how different the Web is, in terms of pacing, usability, how you make money, etc. and how hard it is to make the transition. I’ve had to transition a bunch of magazine editors to digital, and it’s very difficult.(Sales and marketing is less so).

        I think the days of “we have to protect our core print business” are long over.

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  8. Where else would you have been able to learn about the House on C Street and The Family that was referenced in Doonesbury? Or info on Roger Ramsey? Or the real scoop on Scientology? Or the truth about ACORN and the dirty tricks played to get them out of business?

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  9. Huffy Puffy is a boil on the body of the Internet that should not be taken as any kind of ideal by anyone but a wanna-be snake oil peddler. The content is either poached or freely offered by digital sharecroppers and it’s one of the most poorly designed web sites in history. As Farhod Manjoo pointed out on Slate, it’s nothing but a content farm.

    The reason that a newspaper didn’t build Huffy Puffy is that the people who run newspapers have standards; by comparison with Arianna, Rupert Murdoch is Effing Mother Teresa.

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  10. [...] Why Didn’t a Newspaper Create The Huffington Post?: Tech News and Analysis « [...]

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  11. Matthew, loved the post. I riffed on it with some of my personal thoughts

    The notion that publishers need to be come real platforms is absolutely key here.

    http://aboutecho.com/e2home/2011/02/09/analysis-curation-turning-your-site-into-a-viable-platform/

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  12. Mathew,

    I agree with you that it is kinda odd that traditional newspapers haven’t been able to create something similar to the HuffPo. But I’m not sure if it’s instructive to look at this from a monetary / business perspective.

    The thing is: I don’t think the New York Times is in any real sense a business operation. The real currency for the Times is not money but power, i.e. influence over public opinion.
    It just doesn’t matter if the operation loses money. There are more than enough people to fund the Times as long as it is as influential as it is now. And I really don’t think the Times lost any of its influence over the last couple of years. Even if people don’t read the Times themselves, every journalist and blogger will, so it doesn’t matter that much.

    It probably makes more sense to compare the Times to other institutions that are in the business of shaping public opinion. Harvard for example. Havard could easily admit more students to make a shitload of money in the short run, but it would diminish its prestige and hence the long term influence. The same goes for the Times. I don’t think it would be good strategy to convert the operation to a streamlined content farm. Not because there is no money to be made there, but because money isn’t the objective.

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  13. The markets aren’t taken in by Huffy Puffy:

    “Since Feb. 1, the price of AOL shares has dropped from $23.85 to $20.89 at yesterday’s close.

    “With 106.7 million shares outstanding, that means AOL has shed $315 million in value over the last five trading days — which happens to be exactly the same price AOL agreed to pay to acquire HuffPo.”

    http://www.nypost.com/p/news/business/aol_stock_sheds_huffpo_price_tag_el1sFNDBYfHoytknIKnOJL#ixzz1DYUoFMRz

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  14. Matt,
    While I agree with your broad point that newspapers haven’t figured it out yet — who couldn’t agree with that? — it’s worth looking more closely at what lessons they could learn from HuffPo. Smart use of SEO? Yes, definitely. Don’t be afraid to serve as an aggregator? absolutely. Leverage your audience? For sure. But, they need to do those things in a way that is in keeping with a newspaper’s values. Newspapers serve their communities by being a part of those communities. They have feet on the ground. They aim to apply the standards of professional journalism to reflect that position. HuffPo lives by a different set of values. It may be a good (quick) read and a great place to see a starlet in a bikini, but it’s not a newspaper. It’s not trying to be one. It serves a different role. So, yes, there’s much to be learned from HuffPo — and kudos to them for figuring a whole bunch of things out — but the trick for newspapers, and for all of us, is to apply those lessons in a way that serves their own distinctive position.

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  15. [...] a problem for HuffPo. Yes, the site rivals the New York Times online for traffic and market value. And yet, HuffPo is a creature of electronic media: But thanks to some funding from Softbank and [...]

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  16. When people argue that Huffpo “steals content”, they’re not just talking about the fact that half of the stuff on the site is heavily excerpted from other sources. That’s one part of it, but it’s probably not the most important. Though, I would be interested to see what percentage of pageviews on an excerpted story actually click through to the original producer of the article. I bet it’s pretty small, which which would mean that the notion of Huffpo as “savior” of other media outlets is a red herring.

    The real issue is that Huffpo free-rides on the original reporting of the NYT and other major newspapers. All of the opinion commentary that churns out pageviews for Huffpo depends on other sites to break the stories that they comment on. Sure, Huffpo has a few reporters now (some of whom are funded by the non-profit HuffFund), but for the most part it aggregates commentary on other people’s reporting. Commentary is free or cheap to produce, but the time-intensive original reporting that the NYT does isn’t cheap. It’s not cheap to have a Baghdad bureau to cover the Iraq War or to unearth the NSA wiretapping program. Those sorts of big stories require huge amounts of time from writers and editors; they’re expensive to produce. But when the NYT breaks a big story like that, other sites like Huffpo benefit because it gives their opinion writers something to talk about and causes big traffic spikes. Huffpo’s business model depends on free riding on the public good of investigative journalism provided by the NYT among others. They do make money, but if everyone followed them down that path there wouldn’t be as much good investigative journalism out there. Wikileaks can’t be relied upon to break all of the stories that need to be broken.

    To me, this answers the question posed by the post. The NYT didn’t make the Huffington Post because to do so would be to abandon journalism. It might be the right business model, but it would be a significant social loss. Perhaps a pigouvian subsidy to support journalism is necessary to bring the NYT’s revenues more in line with it’s social benefits. It’s too bad that there’s no way to make Huffpo pay for all of its free riding.

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  17. [...] The reality is that the biggest problem for traditional newspaper companies — a combination of high costs and falling ad revenues — isn’t something a paywall is going to help solve. At best, it is a stop-gap measure that might slow their decline somewhat, and an ultimately futile attempt to reimpose scarcity on their content in an age when the supply of free content is virtually unlimited, thanks in large part to the rise of new-media entities such as the Huffington Post. [...]

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  18. [...] Is that aggregation? Sure it is (or “curation,” as some prefer to call it). Is Carvin not taking reports from unpaid bloggers and news reports from other publications and republishing them? Of course he is. But he’s also engaged in a very real form of 21st-century journalism. And maybe if Bill Keller spent a little more time trying to understand how aggregation works instead of railing against it, the New York Times would be a little further ahead in this new media game, instead of playing catch-up with Arianna Huffington. [...]

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  19. The solution would actually be to use both models. Aggregation means customization, first based on publication theme, but ultimately it will be done algorithmically. So the real question is “Should a user be able to completely customize their news?” The answer, we all know, is that they shouldn’t. The fact that they currently can means that only those customized venues receive the revenue of the pageview.

    However, there are also real stories about real issues with real consequences that people need to know about from an objective standpoint, and funds should go to the sources of those stories.

    What we need is a hybrid system, where let’s say 80% is customized and the rest is key stories. These two models are pulling further and further apart, and what we need is a well-thought-out algorithmic solution that’s in the middle.

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