With the sale of the Washington Post to Jeff Bezos, the newspaper enters a crucial phase in its 136-year history amid disruptive changes in communications, technology, and reader habits. According to HBS professors Bharat Anand and David Collis, both experts in corporate strategy, the qualities that Bezos has shown in his leadership at Amazon, including constant commitment to the customer and a long-term approach to innovation, are good news for DC’s paper of record.
Three Ingredients for Success
Media organizations around the world are trying to reinvent themselves for digital success. Indeed, few strategic problems are as hard as those confronting newspapers –declining print revenues, even greater declines in advertising revenue (mostly due to the loss of classifieds), and a fixed cost structure to boot . On top of that, few newspapers have the historical cachet of the Washington Post – and therefore more to lose from making the wrong call. So news of the Post’s ownership changing hands from the Graham family to Amazon’s Jeff Bezos – after seven decades, no less – merits attention, and scrutiny.
To begin with, there has been considerable speculation about Bezos’s personal objectives in acquiring the Post. More influence in Washington? A philanthropic interest? Or a friendship with Don Graham? No one really knows.What we do know is that it’s an unlikely business marriage. Digital CEO buys traditional media. Disruptor par excellence buys the canonical declining business. (Probably the only similarity is that they’re both based in Washington – but those are different places, too).
Yet this may be a more intriguing business combination than appears at first glance.
Newspapers face three problems today. First, they used to be protected geographically, but no longer. For decades, a paper like the Post competed against a few local and even fewer national newspapers. (Despite its international reputation, the lion’s share of its print revenues still comes from the greater Washington, D.C., area). Now, in the age of the Web, it competes against everyone. The problem this creates is not one of news quality. Many newspapers can provide that, and papers like the Post continue to do so. Rather, it creates the need to differentiate from others. Differentiating to attract readers, however, first requires an understanding what they want. And there’s the rub. Newspapers have historically not been centered around this. Instead, their natural center of gravity – and one that served it in good stead for a long time -- has long been their product (news) and those who produced it (journalists).
Second, inevitable in the transition to a digital world is the willingness to forego some revenues in print. Experiments require not only creativity and boldness but an ability to self-cannibalize. This is perhaps the biggest roadblock to digital reinvention. Don Graham knows this. That’s why he created WaPo Labs to focus on digital innovations but kept it organizationally separate from the paper. One of the lab’s most famous creations was its Social Reader, a product designed for Facebook and the first by any major paper to experiment with directly aggregating news into social networks. One concern, of course, was what this free product would do to print revenues.
Third, experiments and innovation require time and, by definition, a tolerance for failure. Trouble is, quarterly reporting pressures by public markets do not create the most favorable environment for either reinventing or innovating.
These three requirements are essential for newspapers going forward.
It turns out that few companies exemplify these attributes better than Bezos’s Amazon. And it’s hard to think of another digital CEO who is better at managing across these three fronts.
For nearly two decades, his number one mantra has been “customer-orientation.” That is a buzzword that is tiresome to hear when it comes from most organizations. Bezos and Amazon, however, believe it and practice it. Accounts of internal meetings and their obsession with the “customer experience” are legendary.
At the same time, few companies have more experience with self-cannibalization than Amazon. Several years ago, it announced its Fulfillment by Amazon strategy. Just when it had created an impressive warehousing and logistics operation, it opened up these facilities to other retailers, thereby creating fears that third-party retail sales might cannibalize some of Amazon’s own revenues in certain product categories. Then Amazon went a step further with its Prime membership announcement, offering participants free shipping for all transactions for $79 a year. This initiative threatened to compromise its multimillion dollar-shipping revenue stream. And most well known of all, in 2007, when the company – then the largest e-retailer of printed books -- introduced the Kindle and a $9.99 e-book, it again risked taking a big bite out of its revenues. Most companies do well to undertake one major self-cannibalizing action. Amazon has done it at least three times.
And, last, there’s the long-term view. Amazon is famous for frustrating stock-market watchers and analysts, who wonder when it will decide to stop “investing for the future” – as Bezos likes to put it – and “take profits.” The debates among bloggers about whether Amazon’s profits will ever live up to its promise are predictable every time its earnings announcements come around. Of course, Bezos’s strategy hasn’t hurt the company. Its current market value is $135 billion.
Customer-centricity, self-cannibalization, and a long-term view. More than ever, newspapers need these organizational capabilities. It’s still far too early, of course, to tell what the Washington Post will look like five years from now. But Bezos’s experience on these three fronts may give it as good a shot as any at getting there.
Wanted: A New Economic Model
The joke used to be that you could only make a million dollars in the airline industry if you started with a hundred million dollars. With the acquisition of the Boston Globe for about a twentieth of its value twenty years ago and of the Washington Post for a twentieth of the group’s market capitalization, it is clear we can now substitute newspapers for airlines. Yet John Henry, the winning bidder for the Globe, and Jeff Bezos, the new owner of the Post, are not noted for making poor business decisions. Is there a method to their madness, investing in what has been widely characterized as a dying business?
Of course there are plausible explanations for their purchases that have nothing to do with economics. Their motives might include both the public good (maintaining a crusading fifth estate to counterbalance other, increasingly concentrated sources of power and wealth) and self-interest (the vanity of having a mouthpiece to promote their personal agendas, or, more troubling perhaps, to influence the public and legislators on issues that affect their other businesses – the Boston Red Sox and Amazon).
But is there an economic rationale to the investment? Or to put it more bluntly, is there a viable future for these newspapers after the internet has disrupted the traditional print business? Since Bezos’s strategy for any business has always been based on customer-centricity, begin by asking exactly what role a newspaper can play in a consumer’s life? As a physically distributed printed daily paper carrying local classified advertising, probably not much.
But imagine a world that lacked a trusted intermediary selecting key events, reliably reporting the facts, and offering informed analysis-- all available anywhere, any time, on any device. In its absence, entrepreneurs would be lining up to launch such a “curated” edition of world news. And if that edition could be customized to your needs and interests, how much more valuable would it be? And if it were provided by a worldwide brand already recognized for integrity and honesty, so much the better. The Globe and Post can fill that need.
The objection has always been that there is no way to monetize such a role. Online advertising does not plug the gap left by the demise of the classifieds. Nor will enough subscribers pay to get behind a firewall. Yet take a very long-term view of the evolution of the Web – something that Bezos is willing to do – and ask, as one possible scenario: In a world of micropayments on the Web (say at 1/10th of a cent per page view), would it be possible for enough people to run up a bill that would keep the Post in business?
Who knows what the new proprietors will do with their acquisitions, but don’t underestimate the potential for a real return on their investment.
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