Summary:

The future of news might be difficult to predict, but by looking at successful consumer apps and the broader news industry, we can start to develop a picture of what a truly next-generation news industry could look like.

Despite the recent flurry of activity like Jeff Bezos buying the Washington Post and investing in Business Insider, Pierre Omidyar starting First Look, Flipboard’s acquisition of Zite, and new products like Facebook Paper and Yahoo News Digest, fundamental questions remain about the future of news:

1. How will news products grow and retain large 7-day-a-week customer bases?
2. How will news products make money?
3. How will news products address the content discovery problem?
4. What’s the demarcation between the future of publishers and next-gen news product companies?

If we examine what’s working in consumer products and news more broadly, we can make educated guesses about some of these questions and get a sense of where the future of news is headed.

How will news products grow and retain large 7-day-a-week customer bases?

Publishers have struggled to keep pace as the tides of distribution shifted from portals like AOL and Yahoo, to search like Google, and then to social networks like Facebook and Twitter. With the rise of social products and mobile apps, consumers have shifted their consumption habits to a new generation of daily use case apps.

It’s estimated that there are now more than 2.71 billion people on the internet worldwide, with somewhere on the order of 1.5 billion of them consuming news. The dominant distribution model for news has shifted from portals to search and social. Search makes up around 39 percent of all referred traffic and social makes up about 24 percent of all referred traffic, with social slated to overtake search in the near future.

The other recent shift in distribution is to mobile. Top social networks like Facebook and Twitter have an Android install base of 500 million-1 billion and 100 million-500 million, respectively. Top messaging apps like WhatsApp and Line have an Android install base of 100 million-500 million. These new social product categories are driving more traffic to publishers than to combined results from publisher apps and mobile readers.

Top publishers like the New York Times, The Economist, Financial Times, BBC, Time, CNN and USA Today range anywhere from 1MM to 10MM Android installs and are in the 10-30MM MAU range across all platforms. Top mobile news readers like Zite and Pulse have install bases in the millions, and Flipboard is now over 100 million installs, but DAU numbers are maxing out at much lower levels so far, probably about ~5MM. The problem lies in retention – successful social apps are retaining more of their signups as future MAU and DAU than publisher apps or mobile readers. To build the next generation of news products, we need to understand why these retention problems are happening and what we can do about it. Without retaining approximately 50 percent of all-time signups as MAU and keep 25 percent of our MAU coming back 6-7 days a week, the news industry won’t be able to materialize a new category for news that is relevant on a modern scale as compared with social apps.

Publishers have tried a variety of experiments to create next generation mobile or social news products, for example News Corp’s The Daily and The Washington Post’s Social Reader and Trove projects. Meanwhile, modern social product companies have attempted forays into content, like Tumblr’s failed Editorial experiment.

Given the above results, it’s not clear that publishers will be successful defining a new generation of news products or social apps will be successful defining a new generation of news content.

How will news products and publishers make money?

Classical subscriptions models work in finance like WSJ, Financial Times and The Economist, and for big brands, like New York Times, but break down for many other kinds of content. The Economist has 100,000 paid digital subscribers and 1.5mm print, and New York Times has 760,000 digital subscribers, a 19 percent increase from 2012 to 2013.

Publishers that haven’t done well with subscription revenues online have traditionally fared better with CPM and CPC ads. As mobile distribution climbs, the value of banner and right rail slots declines, since they do not exist on mobile. The average cost per click of Google’s ads fell by 11 percent in 2013, whereas Facebook’s cost per impression was up 186 percent, cost per click up 35 percent, and revenue per click up 83 percent.

In addition to improvements in display ads on social networks, native ads are working well on platforms like Twitter. Although Twitter’s advertising revenue per user ($2.66, annualized) is smaller than Facebook’s ($6.12, annualized), native ad growth is strong. As of Q4 2013, advertising revenue for the quarter totaled $220 million, up 121 percent from the same period last year and ad revenue per thousand timeline views was $1.49 for the quarter, up 76 percent year from the same period last year.

Early examples of in-feed commerce look promising. Facebook introduced in-feed mobile app install units in 2013 and mobile ad revenue as a share of total revenue went from 23 percent in Q4 2012 to 53 percent ($1.25 Billion) in Q4 2013. Facebook also used mobile ad units to drive 145 million installs on App Store and Google Play in 2013.

It may be that in-feed commerce ultimately wins out over brand advertising, as it has potential to be more compelling for the customer, drive transactions directly, and therefore be more valuable for the seller, the customer, and the platform. The hard problems to solve here are building high quality pools of content, surfacing the right content to the right customers, displaying the content well in feeds, and providing low friction ways to buy.

How will content discovery work?

Content discovery is increasingly real-time, tailored to your interests, and predominantly aggregated – either algorithmically or socially – rather than discovered in the old editorialized publisher-per-channel model. It’s important to understand that social and algorithms are not at odds but rather deeply intertwined. With the rise of social, personal brand and interaction is increasingly important as authors and subject matter experts build brand affinity that often rivals the publications they write for or share from. Signals from these authoritative people are increasingly important in ranking.

Facebook runs the largest scale newsfeed in the world, which is built upon personalized ranking, which is in turn based on social connections and interactions. In Facebook’s case, shared experience and connecting with friends is paramount – people interact with their friends and the personalization system is in the background. The same ideas are likely to drive future relevance engines focused more on surfacing interesting content. The move toward social distribution model may imply that customers continue to crave more relevant news with deeper social context – not just the relevant news on its own.

Another interesting trend is the move from storytelling to interactive story discovery, for example the recent events in Ukraine unfolding on Twitter, the covert operation against Osama Bin Laden, and the coverage of the 2014 Oscars on social media. There is still place for great interactive storytelling like the New York Times has been doing with its new format represented by Snowfall. Still, even for long form journalism thoughtful public and private discussion is an important means of discovery.

The distinction between publishers and next-gen news product companies

Before the internet, newspaper companies controlled four things which have since been disaggregated; the distribution channel, the product, the revenue model, and the content.

The distribution channel is now the internet, and the costs are being driven to zero. New channels built on the internet are driving distribution to new heights through being more social, cheaper, faster, and more ubiquitous – first portals, then search, and now social and mobile.

The dominant revenue models shift with each era of new distribution models – subscriptions are still around, but CPM and CPC based ads have taken over during the portal and search eras, and now we’re witnessing the shift to native in-feed units and more commerce during the social and mobile era.

The products are becoming increasingly complex, requiring sophistication in the same areas as classical print design, as well as modern mobile app design, social design and the design of relevance systems.

Publishers are great at creating content, a nut that neither the new distribution providers, revenue model creators, nor product designers have not been able to crack. We’ll likely see more awesome product design companies becoming big distribution hubs and more companies creating new exchanges for new kinds of revenue units. Every so often these will be combined when there is a symbiotic relationship between product, distribution, and revenue model. This creates large integrated product design + distribution + revenue behemoths like Google and Facebook; for example, the CPC model fits naturally with search and the in-feed model fits naturally with social.

The current mass market trend is toward social-dominated distribution and product models with new forms of native advertising and commerce. The future of news products and revenue models will probably play into these trends. As we’ve established, 1.5 billion people read news on the internet, but the news industry hasn’t been successful in establishing publisher-specific, aggregator, or reader apps that leverage this scale successfully as compared with social apps. If we are to find a new category of products for news that succeeds on a proper scale for news as compared with social, then we probably need to design products differently to align with interactive social trends and move away from consume-only products that mimic the newspapers or magazines of the past.

Bradford Cross is CEO of Prismatic. Follow him on Twitter: @bradfordcross

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