“Terrorism was rebar”

Josh Marshall at Talking Points Memo (a liberal blog) wrote about the future of TPM in the context of digital journalism as a whole. The whole post is fascinating, and I’d encourage you to read it (and to subscribe to TPM!).

TPM has been in constant publication for almost 17 years. In that period there have been perhaps three to five different ‘eras’ of publication in which the methods of finding news and paying for it have altered, often dramatically.

For twenty years, the key fact of the digital publishing world has been the over-supply of publications – that is to say, too many publications for the funding base of advertising which virtually all have been based on. The reasons for this are fairly straightforward. The cost of entry into digital publishing is very low. In the era of print, the cost of entry was a major factor keeping the number of publications limited. The other big factor was geographical monopolies. Much of what we now look back on as the heyday of copiously funded journalism was the product of a several decades long period in which most cities were dominated by one or two newspapers.

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A couple weeks ago Adrienne LaFrance published an article in The Atlantic arguing that the demise of Yahoo was a harbinger of the death knell of the ad-supported digital publishing industry. I think she got the story right but used the wrong example. Yahoo! (I’m tossing them a bone for old time’s sake by using the exclamation point) has been dying for years – long before the trends I’m discussing really came to the fore. But the engrossment of most of the ad revenue by two big monopolies will spell the end of a lot of ad supported websites. LaFrance states the case rather apocalyptically …

Print newspapers will continue to fold, but Yahoo’s demise is a signal that web-native companies are next. If you run a business that relies on digital-advertising revenue for an outsized portion of your funding, you need to find new streams of revenue. Now. It may already be too late.

 

Scary, if you’re a publisher.

I frequently talk to people who are looking to start publications or invest in them or in various ways want to think through the business of publishing. For a couple years I’ve been telling people I would not invest my money in any project that relied exclusively on ads and/or scale as its business model.

I was reminded of Marshall’s prescriptions for journalism while reading a fascinating article about Clayton Christensen in The New Yorker. Christensen, a Harvard Business School professor, is perhaps the preeminent scholar on the topic of why established businesses fail, and he has developed his own “theory” of “disruptive innovation” to provide insight into this problem:

The question he’d begun with, twenty years ago, was: Why was success so difficult to sustain? How was it that big, rich companies, admired and emulated by everyone, could one year be at the peak of their power and, just a few years later, be struggling in the middle of the pack or just plain gone? He had initially assumed that technology moved on, and the older players couldn’t keep up. But when he began to look into it he found that this wasn’t so: as technologies grew more sophisticated, whether by small improvements or radical leaps, the established companies, with their well-funded R. & D. departments, nearly always led the way.

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In industry after industry, Christensen discovered, the new technologies that had brought the big, established companies to their knees weren’t better or more advanced—they were actually worse. The new products were low-end, dumb, shoddy, and in almost every way inferior. The customers of the big, established companies had no interest in them—why should they? They already had something better. But the new products were usually cheaper and easier to use, and so people or companies who were not rich or sophisticated enough for the old ones started buying the new ones, and there were so many more of the regular people than there were of the rich, sophisticated people that the companies making the new products prospered.

Christensen found the same pattern in many industries, from disk drives to backhoes: when established companies fail to contest innovations in the low-quality/“cheap” portion of the market, disruptive innovators gain a foothold which they can use to gradually expand their market share in the future.

And Christensen’s ideas gained wide purchase, especially (and unsurprisingly) in tech circles. Christensen’s theory of disruption has made him an intellectual celebrity; his books are passed around by Michael Bloomberg and read by Steve Jobs and Bill Gates; and he has monetized his ideas through consulting and speaking gigs. He even set up the “Innosight Institute” to promote the gospel of disruption.

His vision has widened too. Christensen no longer limits himself to the tedious recounting of the travails of American manufacturing; he sees the possibility for disruption everywhere, from education to healthcare. Christensen “concluded that in many ways health care was like the steel industry”, and that “low-cost clinics” would begin to disrupt established hospitals (at least, provided that the fee-for-service system was dismantled). He became enchanted by the disruptive potential of online education, and was approvingly cited by David Brooks in an NYT Op-Ed called “The Campus Tsunami”. And he was even invited by President Clinton’s Secretary of Defense to give a talk about applying the principles of disruption to America’s future wars. (“The chairman explained that, for him and his staff, the Soviets were sheet steel, terrorism was rebar, and they needed to figure out how to reconfigure their organization to capture the low end of the market.”)

Part of the point of the theory of disruption is to scare established companies shitless (that’s where Christensen comes in – he quells their fears and provides solutions, at least for the right price). And, in that effort, he has succeeded wildly. The New York Times, in 2014, crafted an internal report on innovation (which was later leaked), much of it based on Christensen’s insights. Here’s a summary from Timothy Lee, a Vox columnist:

The report correctly observes that publications like Buzzfeed are posing exactly the kind of disruptive threat Christensen wrote about.

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When the leaders of a newspaper like the New York Times propose changes designed to make the organization more web-savvy, the cultural DNA that has served the company well so long becomes an obstacle. After spending decades working to make their organization better at serving print customers, they naturally resist changes that will make them worse at serving those same customers. And in many cases, they have the financial numbers on their side. Web-native publications like BuzzFeed, Business Insider, and the Huffington Post are growing rapidly, but none of them have revenues anywhere close to those of the New York Times.

A good example of this principle in action is the New York Times paywall. None of the company’s digital-native competitors have paywalls, and for good reason: to succeed online, you want as many readers as possible. It’s hard to be sure, but it seems likely that the paywall is a factor in the slow growth of the paper’s web traffic. And while the paywall is lucrative in the short run, the Times is likely forgoing higher advertising revenues it could earn with a larger readership.

Juxtapose that commentary against Josh Marshall’s. Lee is suggesting that the New York Times abandon a subscription-based revenue model for a digital advertising-based one, like his own company, Vox. Marshall is suggesting that any company that adopts that business model is doomed (which accounts for his own efforts to grow TPM’s subscription base). What accounts for the stark contrast?

Part of the problem, of course, is the obvious conflict of interest. Vox would obviously like Christensen’s theory of disruption to be true. If disruption is inevitable, and thus the New York Times will be disrupted, then who better than Vox to do the disrupting! If that sort of narcissistic propaganda can be dressed up as journalism by packaging it with a business theory endorsed by a Harvard professor, then all the better.

But the main part of the problem, as you might have surmised, is that Christensen’s theory of disruption is not a “theory” at all, at least in the sense that scientists and philosophers of science use the term. A theory must make some testable predictions, or else it is either a Malcolm-Gladwell-esque pop analysis grounded in cherry-picked anecdotes, or an elaborate construct that overfits the past and explains nothing about the future.

This predictive looseness is sold by proponents of Christensen as a feature, not a bug. In a later article, Lee writes,

Moreover, failure is an essential part of Christensen’s theory. The rapid pace of disruptive innovation happens because their low cost allows a lot of experimentation. Most of the experiments fail, but the successes push the industry forward. So the fact that the specific disruptive companies Christensen backed failed doesn’t really contradict his theory, which doesn’t say anything about which firms will best capitalize on a disruptive trend or even which disruptive technologies will have the biggest impact.

There are a few funny things about this paragraph. First, if Buzzfeed is “pushing the industry forward”, god help us all. Second, if “most experiments fail”, what does that imply about Lee’s proposed experiment for the NYT to get rid of paid subscriptions for digital content? And third, if Christensen’s theory “doesn’t say anything” about who stands to benefit from disruption, then what’s the point? As far as I can tell, all that Christensen’s theory says is that established companies fail and new ones replace them, with the benefit of cheaper technology. Christ, I could have told you that. Where’s my million dollar check and accolades from Michael Bloomberg?

Fortunately, Jill Lepore (whom I love) rips Christensen and friends a new one in her long and riveting essay in The New Yorker. Here’s the money ‘graph:

Christensen has compared the theory of disruptive innovation to a theory of nature: the theory of evolution. But among the many differences between disruption and evolution is that the advocates of disruption have an affinity for circular arguments. If an established company doesn’t disrupt, it will fail, and if it fails it must be because it didn’t disrupt. When a startup fails, that’s a success, since epidemic failure is a hallmark of disruptive innovation. (“Stop being afraid of failure and start embracing it,” the organizers of FailCon, an annual conference, implore, suggesting that, in the era of disruption, innovators face unprecedented challenges. For instance: maybe you made the wrong hires?) When an established company succeeds, that’s only because it hasn’t yet failed. And, when any of these things happen, all of them are only further evidence of disruption.

(As a side note, Christensen’s response to Lepore would be considered unhinged if Sebastian Gorka hadn’t redefined the term. He calls her essay “a criminal act of dishonesty” and frequently refers to her as “Jill” throughout the interview (“Come on, Jill, tell me! No!”), as if he knew her personally – he doesn’t.)

Undoubtedly, Christensen and other thought-leaders will continue writing about disruption regardless of what happens to journalism and digital advertising. If Vox and Buzzfeed succeed in dethroning the New York Times by following a no-paywall, digital ad-based revenue model, then the theory of disruption was correct. If they fail, the theory is still correct, because clearly they weren’t disruptive enough, or at least the right kind of disruptive. If the New York Times attempts to out-disrupt these upstarts by, perhaps, hiring a conservative hack and pissing off its core subscriber base, then that’s a good thing, according to the theory, because journalism is being disrupted. After all, serving your customer base is just one of those “obstacles” to being successful. Or maybe it’s a bad thing, because there are even more disruptive organizations with even more conservative hacks, and they’ll outflank the flankers and corner the market on disruption. At any rate, with Clayton Christensen being read religiously in the highest halls of the media industry, I foresee a bright future for journalism – or at least that about Christensen himself.

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