What Does Googlebase Mean to the Newspaper Industry?

In case you haven’t heard, Google is building a massive database for user generated content, called Googlebase. Having studied this problem for years, I believe I can offer some insight particularly with regard to the impact this will have on the newspaper industry.

It appears that Google came to a similar conclusion I did on the classified ad market. Of course, this didn’t surprise me since Google’s VP Engineering (Adam Bosworth) and I were early XML/database/structured data guys. That conclusion is that current classified ad solutions, including Craigslist and eBay don’t provide a scalable user experience.

The systems scale quite well, but as the amount of information grows, it becomes increasingly hard for users to find what they are looking for. If you want to buy a 1985 Corvette on Craigslist, a search will find everything that has the term 1985 and the term Corvette. This can include a lot of junk (parts, services, etc.).

Furthermore, when an individual creates an ad, there is little to guide them. They simply get a blank text box. As a result, the ads are pathetically deficient. For example, when listing a car for sale, many people forget to describe the interior, transmission, engine, and various add-ons.

The answer to both of these problems is to use category specific forms for both data input and search. The forms then guide the advertiser in creating the ad, and allow buyers to search by field (e.g. year = 1985, Make = Chevrolet, Model = Corvette).

From what I understand, this is exactly what Google is building into Googlebase. They provide a variety of forms based upon what you are selling and, presumably, what you are looking for.

I believe that the combination of:

Google’s traffic/brand + Structured Data Entry/Search + Free = Killer!

There are a couple of areas where Googlebase may have an Achilles heel. They still need to develop a sense of community that eBay and Craigslist provide. They could also benefit from an online transaction mechanism a la Paypal, possibly a Google Wallet. If the final version of Googlebase provides these capabilities, then watch out.

So, what does this mean to newspapers? We’ll if you thought Craigslist and eBay were tough competitors, this is your worst nightmare. If newspapers still harbor any hope of being able to charge for classified ads, this should permanently dispel those outdated thoughts. Welcome to free, now deal with it.

Newspapers can only play in this game if they: (a) provide an equivalent or superior classified solution; (b) lead the way in offering free listings; (c) move quickly; (d) cannibalize the classified ads by converting usage with a hybrid online/offline solution (reprint the free listings in your newspaper for free or very cheap).

The newspapers have a local presence, users, local business relationships and a local brand. They MUST throw all of this at drawing a line in the sand against the Google onslaught. They must capitalize on their local presence or they might as well kiss off classified ads forever.

The problem is that newspapers cannot afford to kiss off the classified ad business. They need the fresh content and usage that classified ads generate. They need that local anchor. News is good, but that is being aggregated by everyone. How can newspapers differentiate themselves as a local portal? They need a depth of services, and classifieds is a big one.

I know what I’m talking about. Our company started by building a collection of destination sites offering classified ads services in over 100 U.S. cities. We decided back in March (two months after our release) to get out of this business because we cannot compete with eBay, Craigslist, all of the newspapers and now Google. But in the process we built the best classified ads solution on the market, complete with simple category-specific forms for data input and search, advertiser ratings, everything.

Instead of competing with these big guys, we have instead decided to sell our classified ad software to newspapers and others who want to put a stake in the ground around local classified ads. Our company isn’t big enough to be a combatant, but we’re happy to be arms merchants in this battle for local dominance. If you are interested in getting into the local classified ad business and you want a “Googlebase” of your own, drop me an email and mike.hogan (at) zixxo.com.

Additoinal Insight into Googlebase is available from Greg Sterling at The Kelsey Group, Charlene Li at Forrester, John Battelle and others here too.

Plotting a Course for Newspapers (Part 1)

In the past few weeks six of the largest newspapers have executed significant cuts in their newsroom staff. Between the San Jose Mercury News, Boston Globe, New York Times, Philadelphia Inquirer, San Francisco Chronicle and Philadelphia Daily News, there have been 352 newsroom jobs cut.

Joe Strupp of Editor & Publisher explains that, with the exception of the Chronicle, all of these newspapers are profitable. So these cuts seem targeted at increasing profit margins not stemming losses.

I have blogged about the dilemma facing newspapers as they confront the impact of the Internet, particularly the cannibalization of classified ads, general advertising, editorials (blogs) and news.

Anyone can point out the problems facing the newspaper industry, which requires no deep insight. The challenge is plotting a course through this changing sea that enables the newspapers to maintain their prominent role.

Before I delve into this topic, I must point out that the newspaper world has been populated by a collection of locally dominant newspapers. With a few exceptions (e.g. Wall Street Journal, USA Today and New York Times) newspapers serve a city or metro area. Of course, some companies such as Tribune, Gannett and Knight Ridder own a few such local papers.

The Internet threatens such local monopolies. More precisely, the largest Internet properties are challenging the need for local newspapers. Instead of relying on the local newspaper to provide the syndicated news, you can get that, and more, instantly online for free.

As a result, I foresee a bifurcation of the newspaper business into a very few serious national/global players and a collection of smaller local portals. The big Internet news outlets will be the Yahoo, Google, MSN and Time Warner/AOLs of the world. I believe that Rupert Murdoch’s News Corp. is attempting to position itself as a player in this space as well.

The big question is whether the pure-play model like Google (all Internet) will dominate this segment or whether “mixed-media” companies like News Corp and Time Warner can exploit those oft referenced “synergies” to provide a better user experience. If the Time Warner/AOl example is any indication, I would bet on the pure-play companies.

Yahoo is using an interesting alternative. They are a pure-play Internet company, but behind Terry Semel, they are attempting to leverage mixed-media synergies through partnerships. Yahoo provides Hollywood with a toehold in the Internet.

News Corp has bought Internet properties like Scout Media, Intermix and IGN and word is that they are attempting to acquire Blinkx. But if they really want to be a player in the Internet business (which will subsume the global/national non-TV news business) then they should consider buying Barry Diller’s Interactive Corp. The synergies would be excellent. Also, given the P/E multiples for Internet properties (YHOO: 31.7, GOOG: 89.69) they could improve News Corp’s current 21.7 P/E and IAC’s “also-ran” P/E of 12.75 by combining and providing a serious alternative to the big Internet companies.

A News Corp/IAC combination makes sense because it would create a credible competitor in the upper echelons of the Internet market. I believe that the combination would garner a higher P/E multiple for both properties; the old 1+1=3 scenario. The combination would probably earn a P/E multiple in the area of 25 or 30.

Independently, I think IAC could easily double their value if they found a home with a larger partner that can make a play at being a top-tier Internet property. While there might be some personal issues between company heads Rupert Murdoch and Barry Diller, this combination looks to me like a winner.

There is also talk of Comcast or Google buying AOL from Time Warner at a supposed valuation of $20 billion. At this price tag, which seems quite high, it is beyond the reach of all but the largest Internet properties and Microsoft.

In the future, you’ll probably get the bulk of your non-TV news from the Internet and there will probably be only 4 real players in this field. The question is who will be left standing after the partnerships dust settles.

Of course, this leaves the local newspapers out in the cold. What can they do to chart a course toward future relevance? I’ll address this in a future post.

Just for fun, my long-term stock picks are:
Interactive Corp. (IACI): $24.98/share with 12.48 P/E
Yahoo (YHOO): $33.93/share with 31.56 P/E