With the purchase of The Washington Post by Jeff Bezos, he is acquiring a 'membership' alone that has a value of $175 million. He is also purchasing many other assets for his $250 million.
For the last year at The Washington Post, I've argued internally that paywalls turn readers into members of The Washington Post. Paywalls turn newspapers into membership organizations. In other words, the subscriber database transforms into a very valuable digital membership database. For many internet companies this is their primary value. The membership profile of a Washington Post reader is richer and thus much more valuable than most internet memberships.
While paywall revenue is certainly valuable, the real value in a paywall is acquiring a credit card number for each member. Having a credit card on file for readers completely transforms the newspaper business model.
Paywalls turn newspapers into e-commerce operations.
This is easily understood in looking at how digital ads will change. Any ad can now have a 'buy me now' button with a credit card on file. This substantially reduces the 'friction' in converting an ad viewer into a customer. The staff selling ads now has a much different job selling a product into a 'news app store'.
In a print newspaper you read the same ads as everyone else. When reading a newspaper online the ads (or products) are targeted based on your profile. The better the profile, the better the targeting and the value of the ad. With a credit are on file the profile is even richer. The depth of a newspaper membership is a marketer's dream.
The online profile also allows The Washington Post to be competitive in some markets again. For example, many believe that newspapers have lost the classified ad business to Craigslist. The Post's membership profile is stronger that Craigslist leading to several opportunities.
The value of a credit card on file can be approximated. In the tablet marketplace revenue comes not only from the hardware sale but from app store sales. When HP launched their ill-fated tablet, having a credit card on file was so valuable that they gave away $50 in merchandise just for putting a credit card on file in their app store. When Android was launched, Google received a lot of criticism because of the low number of customers with credit cards on file for their app store. Amazon was able to instantly create an app store because they had credit cards on file. This is ample evidence of the value of having a online profile with a credit card on file.
How did the $175 million figure come from? I believe that The Washington Post can easily get credit cards on file for one million members. This is based completely on extrapolating publicly available circulation numbers and online traffic. This is not based on any internal numbers. (In fact I have very limited access to any numbers at all in my job.) The number of subscribers and revenue from Apple's app store are available. These rough numbers suggest an estimated contribution of $175 per member to Apple's valuation. So I used this figure to value The Washington Post membership. While the $175 figure may be high, the member estimate is probably low.
I think Bezos purchase of The Washington Post will accelerate the transformation of the newspaper business model that I think was inevitable. The biggest personnel impact will be in expanding IT department because of the importance to build the online profile. Next, as I explained above, will be a change in advertising sales.
My work at The Washington Post is coding primarily for mobile web. You see my work when you visit washingtonpost.com with your phone's browser. I've took this job just over a year ago. The views here are my own.
Personally, I'm excited to see the newspaper transformation from the inside. The Washington Post is known to foster innovation. Many people will now be interested in working here and I'm already here.
1 comment:
Thanks for helping to clarify the advertising model. I'm not sure if I ever really understood it except in practice; when the "friction" is reduced to the point where all obstacles are removed--no forms to fill out, no account numbers to type in--it's easy. A little too easy, some might say. But from the seller's point of view, it's great.
You concentrate on what you do to make the Post a great paper. Best of luck to you.
What we need are a new generation of great journalists from a variety of backgrounds, not beholden to corporate interests, to cover stories that need telling. And we need a Post management that deals fairly with rank-and-file staff at the Post.
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