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A Million ProPublicas Now! We Need A Moore’s Law Of Investigative Journalism #futureofnews #wjchat May 31, 2011

Posted by bernardlunn in Uncategorized.
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ProPublica seems to be getting traction with their model. Not everybody loves ProPublica; because they are funded by George Soros people assume that they tend to lean left (and maybe they do, and if they do, I don’t care I tend to lean left as well – there, my bias is disclosed). But the point is we don’t want to rely on ProPublica. Maybe you want the Koch brothers to fund the right wing version. Or maybe you think ProPublica is too western oriented, or not left wing enough.

The diversity of hundreds of investigative journalism teams was an underpinning of our freedom in the west in the 20th Century. There is a reason George Soros funded ProPublica; he escaped from the Nazi regime, so he understands how important it is to have a free, open society and that a free press is vital to that.

For a while we worried about the concentration of power in a few media barons. The idea that somebody like Rupert Murdoch could tell an editor what story to run was unsettling. Frankly I thought those fears were exaggerated. Murdoch is a businessman. If he lets his newspapers and TV channels simply parrot his opinions he will lose a lot of money. The bigger risk was always that Murdoch simply served us what we wanted and that tended to be sports and entertainment. The ROI on investigative journalism was weak.

And then…..

The already weak ROI got decimated, literally, when a $1 in a print/TV ad returned as $0.10 online.

The problem was always economics. But pre-Web, it was a case of a frog in a slowly burning pot of water. Now we have reached the boiling point.

Ain’t it great. Anybody can be a journalist. Just press Publish in WordPress and voila, instant-media-baron

Oops, no, we just replaced Murdoch with Zuckerberg. You need the  traffic from Facebook and Facebook set the ad rates for the rest of us, so we need to cater to mass-market interests like sports and entertainment. Try funding a 3 month in-depth investigation on today’s CPM rates. Actually, don’t try it, save yourself the hassle, the experiment is not worth it.

Its. OK, paywalls will work, we will all pay subscriptions like we used to in print

Err, yes, and you still believe in Santa Claus? Subscriptions work for business subjects, the FT is OK, in the business world, time is money. Yes we “should” be happy paying for the journalists in Iraq, but we don’t in practice.

Ok, so for all believers in magic and fairies, here is another one:

Unpaid “citizen journalists” will fill the gap as they don’t have to worry about making a living and they will only present verified facts and declare their interests and biases.

Business 101 says that if revenue is coming down, you need to cut costs. The answer today is simply to cut out investigative journalism. Anybody who thinks that is a problem has to be thinking about how we decimate the costs of investigative journalism. I am using the literal meaning of decimate – cut costs from 100% to 10%. That is what has happened to ad revenue.

That needs something like a Moore’s Law, where costs halve every year. That will enable thousands, maybe even millions, of small investigative journalists to operate in a sustainable way. See a story that you think is big? Investigate it, write it, sell it to one or multiple news outlets, keep the copyright and then, Pulitzer in hand, write the book and go on the speaking circuit. Look at Matt Taibbi as a recent success story. OK, that maybe a fairy story as well, few will actually make this happen. But, if Moore’s Law can decimate the costs of investigative journalism, its not out of reach. .

Actually, I think that this is possible. Technology, which is causing the economic problem, is also capable of creating the solution. Methinks it will look something like this pyramid:

The top of the pyramid remains the trained and paid journalist. Those skills matter. Experience matters. Focus matters. But they need to be able to leverage the rest of the pyramid.

The old stringer deal was a retainer. That is probably dead. “Stringer 2.0″ is likely to be more on a per piece basis. The best stringers may make more money this way, if they happen to be where some big news is breaking and they have that all-important “nose for a story” (as well as guts and determination, real journalism is dangerous). But lets not confuse Stringers with the next layer. Stringers want cash. They must be able to sell copyright on commercial terms.

Citizen Journalist is a term that is past its sell by date. I don’t have a better word than “citizen” for now. But lets at least replace Journalist with Reporter. They report facts that they observe. These “facts” maybe untrue – that is the journalist’s job to uncover. What the Citizen Reporter wants is for the facts to be published. It matters more to them that a dictator is toppled than who makes money from the news. They may want their name published or they may want to remain anonymous and they should be able to make that clear in their report.

The bottom layer is the automation of all the context and background. This is where the semantic web and aggregation tools come into play. We should be able to spend money on the new and the original, the background stuff should be free and automated.

Disclosure: that is the focus of ReportingLiveFrom and this has not been launched yet. For more background, see these earlier posts:

Investigative journalism needs more than curation tools

Twitter is not enough: 6 needs of investigative journalism

Reporter Journalist Editor Publisher: the blurring of roles

Reporter, Journalist, Editor, Publisher: The Blurring Of Roles #futureofnews May 28, 2011

Posted by bernardlunn in Uncategorized.
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Reporter used to be synonymous with journalist. Recently, people have started to refer to reporter as a “citizen journalist”. The implication is that journalists are not “on the ground” reporting on what they see and hear at first hand, they are sitting at a desk curating flows from reporters who are unpaid. Calling unpaid reporters citizen journalists makes little sense, the term is overdue for retirement.

But the implication is that the journalist has actually become an editor, deciding what to publish from a team of reporters. Actually the journalist is also the publisher. When I am finished writing I simply hit my WordPress Publish button. It is free and I can have advertising networks sell some ads. I don’t need to manage a sales team and the accounting is simply checking into Paypal. I am oversimplifying a tad to make a point. But all the “media companies formerly known as bloggers” started a single individual who was journalist, editor and publisher at the same time.

This empowerment is the wonderful legacy of the social media age.

But something has been lost. We have lost the reporter. Maybe it is simply a budget issue. Unless it is a massive global story, like a revolution or Tsunami, nobody is paying for the reporter to fly to the spot. So our typical image of a blogger is somebody sitting in their home office on a laptop, reading news feeds and press releases. There are more PR people than journalists. Everybody is recycling the same old stuff. The tech blogosphere is canary in the coal mine. Any news release from a tech bigco has 10 or more news stories that are almost all the same, competing only on speed of release and link bait cleverness of the headline.

The only exceptions in the tech blogosphere are Arrington and Scoble. The Arrington story is not repeatable. He basically creates news by starting a controversy. He is so wired in the Valley that he can do this. This is either horribly conflicted or the return of Gonzo journalist; Arrington as a reincarnation of Hunter S. Thompson is a pretty funny thought. But that idea won’t scale as the VCs say.

But what Scoble does, travel the world interviewing entrepreneurs, is scalable. This is original content, proprietary, the essence of what we used to call reporting. He can do this because Rackspace pays his salary and expenses. That is a scary thought for media organizations; the future of journalism is coming from a company that is byepassing media companies to establish their own direct access to the market.

But whether the future creators of original content are media companies or “the companies formerly known as advertisers and now called content marketers”, the Scoble-like reporter needs better tools for the whole lifecycle from original reporting to publishing and monetization.

Disclosure: that is the focus of ReportingLiveFrom and this has not been launched yet. For more background, see these earlier posts:

Investigative Journalism Needs More Than Curation Tools

Twitter Is Not Enough: 6 Needs Of Investigative Journalism

Songs For A Revolution: My Top 10 Soundtrack For Revolutionary Times May 25, 2011

Posted by bernardlunn in Uncategorized.
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We live in revolutionary times, most obviously in the Arab world but maybe soon in other autocratic regimes and in business (creative destruction). I was too young for the 1960s, just got the faded me too backwash of the 1970s, but I was there for the late 1970s London punk scene and loved that energy.

So here goes:

Twitter Is Not Enough: 6 Needs Of Investigative Journalism #futureofnews May 21, 2011

Posted by bernardlunn in Blogging, Journalism.
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See earlier post on Investigative Journalism Needs More Than Curation Tools for context.

1. The reporter must be able to control the URL and the monetization. News that goes to closed social networks that monetize the free contributions cannot be sustainable. Journalism has to be paid for. We can use social media to listen (Twitter Lists are just the old “little black book” of sources) and to promote stories and get incoming links. But journalists who want to make a living cannot simply make the social media founders/investors rich.

2. The reporter must be able to contribute news using the lowest common denominator tools: mobile phones and email. Expensive, proprietary tools will be a barrier. Even a free app that has to be downloaded before one can contribute, will be a barrier. The person who happens to be “on the spot” where the news is breaking must be able to report what is happening.

3. The reporter must be be able to publish automatically on real time without asking anybody’s permission. This is the gift of the social media age. Yes, this same tool can be used by spammers, scammers and hacks paid directly by special interests. That is the price of openness and the reason why the next point is so important; but the alternative (control by a few media moguls) is worse.

4. The reporter must be able to proactively choose sources and ask them for specific contributions. Relying on curating existing flows on social networks is reactive and not the essence of journalism. This capability must be available to the single individual (the “person formerly known as blogger” and occasionally called citizen journalist) as well as media organizations large and small.

5. The reporter must be able to request payment in various forms. This won’t apply to salaried reporters working for large media organizations.  But all forms of free agent reporter are likely to create the majority of news content in the future and they should be able to request payment in whatever means makes sense to them – non-monetary recognition, stringer type retainers, per item fees. For example, the person who records a key moment of history should be able to get paid by the highest bidder, unless they have contracted with another news organization before the event.

6. Text is not enough, we need millions of TV stations. Mobile video is a reality and consumers want the old lean back TV experience with an interactive twist. Everyman can be a TV anchor replaces the earlier blogging dream of everybody can be a published writer.

Investigative Journalism Needs More Than Curation Tools May 19, 2011

Posted by bernardlunn in Blogging, Journalism.
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Investigative journalism is important to society, somebody needs to “speak truth to power”.

Historically the newspaper business was so profitable that it could fund long investigations. They could also take the risk of lawsuits that often resulted when the rich and powerful did not like the truth that was being reported. But today, those budgets are being cut to the bone and newspaper owners are too scared for their own survival to consider investigative projects.

Nor can the pure play online only blog-based businesses pick up the slack. They have to pander to page views and keep costs within the boundaries marked by ever-falling CPM and CTR ad rates. “Reporters” have to create 4 posts per day, usually around 500 words. Their best attempts at adding value to press releases are clearly no substitute for investigative journalism.

For a while, I thought that “citizen journalism” would be the answer. The idea was that any citizen can hit enter on their blog and the truth is revealed, they have no gatekeeper (who might be conflicted by their relationship with a special interest) who can say no.

The problem is that, for every honest citizen trying to do their best, there are way more spammers, scammers and paid hacks of the rich and powerful. So the consumer of news has to filter out the nuggets of truth from the mountains of rubbish. To do that they need well-trained and motivated journalists and editors. So we get back to square one.

Many techies dream of an automated answer, the perfect social curation filtering tool that will automagically assess every source’s credibility and only deliver the good stuff to your personalized online news service. Yep, and the high school student will find the cure for cancer in class and invent something that goes faster than the speed of sound.

I love how Andy Carvin at NPR is curating the news from the Arab revolutions using Twitter lists and other tools. The best tech bloggers, such as Marshall Kirkpatrick, have used these tools for a while, now we are seeing these tools used to report on matters that really matter to humanity. That is all great.

The danger is that we fall back into a naive view that technology will replace the need for people like Andy Carvin. Or that it is easy to get mainstream journalists to work the way he works. It maybe that this is something that is perfect for early adopters but won’t scale.

We need tools that empower trained journalists and editors, that help them to identify more credible sources and to efficiently get those sources to contribute. Those same tools can be used by citizen journalists. The tools must be very simple and very cheap, so that they are accessible to citizen journalists and local news operations. Exposing a $50,000 corruption at your local town hall matters just as much as the $500 million corruption at a national level when that $50,000 determines whether the school budget passes and your kids get art class.

I was initially sceptical about non-profit institutions getting involved. I thought that the answer had to come from the market. But I have been impressed by what ProPublica is doing and their model may be sustainable, as they get revenue from commercial news organizations. But we need more ProPublicas as well as purely commercial versions of ProPublica. For that to happen, we need a revolution in efficiency.

There needs to be something like a Moore’s Law of investigative journalism where the cost drops significantly every year.

Disclosure: this is the focus of ReportingLiveFrom, a new venture that I am co-founding. We are not yet ready to go live with our tools, I am writing about the issues to get our thinking clear and engage with other interested parties.

Why I Am Returning To My WordPress Blog May 4, 2011

Posted by bernardlunn in B2B Media, Blogging, Journalism.
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I was late to blogging, around 2007, but had written a lot in other media. I started with WordPress, then wrote for Read Write Web, SemanticWeb and SmallBizTrends.

I have no intention of monetizing via advertising, so I don’t care about page views (that is only a vanity stat). Nor do I have any single business objective, so I don’t feel the need to be disciplined about writing every day. I really do write for fun, I enjoy writing. It is a way to organize my thoughts. But it is also, hopefully, a conversation. I want to engage in a dialogue with people who are “thinking along the same lines”, even if they tell me I have got it totally wrong (I love changing my point of view).

So, the question is not whether I should blog. It is whether I should blog here, or on some high traffic site. A few years ago, it was different. Then it was obvious that you should blog as a guest author on a high traffic site. Four things have changed my mind on this:

  1. Google is indexing my blog posts within less than a minute. Yep, this no-name blog is being indexed almost in real time! I tested this myself. I assume this is because WordPress adopted RSSCloud.
  2. I tested on a blog network that lets guest authors post freely (SeekingAlpha) and on this blog and the number of page views was almost the same.
  3. I asked some blogs that have a restricted guest author policy and found that I had to write in a way that fit within their editorial guidelines. If I wanted to be a professional writer, that would have been a useful exercise. But I am determined to remain amateur in my writing and want the freedom to write what I want, when I want.
  4. New style aggregators such as Hacker News and Techmeme have a way to submit posts, so you can alert a specialized audience on a post by post basis. Hacker News found me about a year ago when my post on “punk manufacturing” was discovered and yesterday I submitted something that got a great conversation going. Methinks Techmeme is more news-driven and that’s not my game, but lets see.

This tells me that it might be possible to get the blogging magic quadrant – freedom on one axis and engaged audience on the other.

Software Architects Need More Respect: Hacker Culture Is Overdone May 3, 2011

Posted by bernardlunn in Uncategorized.
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Some people would say that I am not qualified to write about software development as I have never written a line of code in my life. But I have spent over 30 years working with some great developers on a wide range of projects and I have seen what works and what does not work.

A few years ago the art of architecting systems for scalability and extensibility started to get a bad press. I think Joel Spolsky was the first to coin the phrase “architecture astronauts“, to describe those who were always designing layers of abstraction but forgetting to deliver code that actually did anything.    Then we got the lean start up movement, focusing on the constant iteration that the web enables.

This led to the hacker culture, oriented to “just do it” speed. “Hacker” used to be a term of abuse, but like “punk” it was adopted by those accused as a badge of pride.

That is all good stuff, but methinks it has gone too far. We now see too many systems where the original system has to be totally thrown away. That may be OK if you raised $ gazillions and can now compete with Google and Facebook for a big team of really great engineers. But for most startups, it is not possible. So most startups limp along with the original system. The upshot is:

  1. Hosting bills that really start to bite into cash flow.
  2. Systems that crash too often; a few of these and your users have clicked away to a rival. Yes, we persevered through Twitter fail whales, but is your service really that addictive?
  3. New features take way too long. You either release fast or put in some QA and testing process to avoid brand-killing crashes.

It does not need to be like that. The best developers can do both. They create a scalable and extensible architecture AND deliver quick feature iterations. Sometimes you cannot get one person who can do both – it is rare. One team I worked with solved this by having a 4 person team where:

  1. 1 person hacked demos, in the full knowledge that the code would thrown away. He was awesome at this and in full synch with his colleague who:
  2. created the architecture AND the working code.   35 years later, the system is still being used.
  3. 2 people who did the ancilliary stuff like testing, documentation and so on. Great surgeons have a team, same is true with great engineers.

I think the problem may be with the pure architect model. No engineer likes being told “here is a perfect architecture, just code it as per that spec”.  Going back to the house analogy, we need more architectural engineers who create designs that they know will work and they prove that they work by writing the code.

Is Facebook Worth $100 Billion? Not If Competitive Advantage Period Is Halving With Each Generation Of Technology May 2, 2011

Posted by bernardlunn in capital markets, IPO, social networks.
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Many pundits call this “The Facebook Era”, meaning that Facebook has the same level of dominance as Google, Microsoft and IBM in their glory days. Plenty of investors seem to be backing this view with some serious $$$. The current valuation of Facebook on the private markets is around $70 billion.

That $70 billion valuation is a mighty big pair of shoes they have to fill. By the time they do an IPO they will need to show a valuation more like $100bn, to give current investors and the IPO investors a return.

We don’t have reliable earnings numbers for Facebook. That will only come when they go public and file reports with the SEC. So we can only go on revenue numbers that get bandied about. Parsing through all the reports in various blog posts, the revenue growth looks tremendous:

2009: $700m

2010: $2bn ($1.86bn from ads, balance from other lines)

That is a growth rate well over 100% which is staggering at that scale. That is $1.3bn in new revenue in one year. They talked about $1.2bn in the first 9 months of 2010. If they did $2bn in the full 12 months, it means that they did $800m in Q4, which would be an annualized run rate of $3.2bn. In other words, they would be on track to double again to $4 billion in 2011.

There is almost no reliable data on profit margins for Facebook. So we cannot do any PE or PEG comparables. But let’s assume that Facebook’s margins are similar to other large ad-monetized web technology ventures such as Google (that subject alone could be multiple blog posts, let’s just take it as an assumption for now).

If we assume that, we can do some PSR (Price to Sales Ratio) against comparables like Google, Yahoo, Demand Media and eBay. These are all publicly traded web tech companies that monetize primarily via advertising. I left out AOL, their price is very low for good reasons. Demand Media is the highest at 7.78, Google is 6.3. Let’s take Google as the benchmark. They are the current kings of the web.

Let’s say Facebook does an IPO in early 2012, showing $4 billion in revenue in 2011. To get to $100 billion, Facebook would need a multiple that was 4x Google’s. Here is the math – Google PSR is 6, 4x that is 24 and 24 * $4bn is $96bn. Google’s growth rate is around 27% (that is growth in last year, lots of debate whether that will accelerate or slow, let’s just take it as their growth rate for now). Facebook’s growth rate is around 4x that at 100%.

There is some blog chatter indicating EBITDA in 2011 of $2bn. Yes, EBITDA is not the same as net profit. Nor is blog chatter the same as audited financials. But for now, lets take that EBITDA number as audited net profit. That makes Facebook at $100 billion on a forward PE of 50. If their growth is really over 100%, that makes PEG = 0.50 which indicates a bargain.

So, with a couple of assumptions, the uncrowned King Of Social Media may be able to wear a $100 billion crown at IPO time.

One assumption relates to the fact that Facebook is still private and so we have no idea if these numbers are even close to accurate. There are no audited accounts that ordinary folk can take a look at. But lets for the moment make the assumption that those numbers are accurate.

The other assumption is more complex. Built into these Facebook projections is the assumption that Facebook can keep growing at these rates for a long time. That relates to what classic management theory calls Competitive Advantage Period (CAP) and what Warren Buffet calls “competitive moat”. To put it in simple terms, “how long can the company charge high rates for something before lots of competitors storm into the market and bring prices crashing down”? So, the big question is:

Has Moore’s Law Shortened The Competitive Advantage Period?

The big question for Facebook, which is clearly “minting money” today, is how many more years can they continue to do this? The stock boosters talk as if it is forever, that is clearly not true. But is that window 20 years? Or is it 10 years? Or is it 5 years? Or is it less than 5 years? This is fundamental to how you value the company.

A little bit of tech history helps get some perspective:

  • Wave # 1: IBM, mainframes. This lasted about 25 years from 1965 to 1990. I am counting from when the “minting money” phase started not from when the technology was invented or launched into the market.
  • Wave # 2: Microsoft, PCs. This lasted about 12 years from 1988 to 2000.
  • Wave # 3: Google, Web. This lasted about 6 years from 2004 to 2010. Now we are into current days so this is a lot more controversial. But we can see that the stock market no longer views Google as a growth company (their PEG demonstrates this), they have changed CEO and the new CEO is saying that social is the next wave they have to master (and we all know who the master of social is).

IBM, Microsoft and Google still generate huge amounts of cash. The question is the acceleration in those cash flows. That started to slow when they reached the end of their Competitive Advantage Period (CAP). If the above history is even close to accurate:

We are seeing a halving of competitive advantage window with each successive wave of technology. 

Is that some weird, ugly cousin to the virtual Moore’s Law?

We do not see this shortening of CAP in markets that are not impacted by technology. For example, Coca Cola still has great moat and that is why Buffet still owns a lot of Coke shares. The same forces that enable incredibly rapid growth – think of the time it took Facebook and Groupon to get to over $1 billion in revenues – may shorten the CAP. In other words, what Moore’s Law giveth it also takes away.

This matters if you want to invest in Facebook at a $100 billion valuation. If you can believe they will grow at current rates (around 100% a year) for 5 years and then slow to say 50% for another 5 years, that $100 billion valuation is quite sensible. But if they only have 1 year at 100% and 2 years at 50%, the numbers simply don’t add up.

If Social is the current wave, what is the next wave? Mobile is the obvious contender.

Mobile is fundamentally different. The app experience is not simply the browser experience on a small screen (like TV was more than Radio style talking heads and online news is more than a newspaper converted to HTML). From a business point of view, the App Store is the first significant addition to the monetization arsenal since Cost Per Click. The mobile phone is the one device we “cannot leave home without”, it is with us whatever we are doing. Location awareness may be the game-changing innovation that will disrupt the long-heralded local commerce market.

More importantly the growth of mobile dwarfs anything that went before. There are over 2 BILLION people with mobile phones. This is where the other big part of my theme comes in – “global”. Most of those 2 billion folks with mobile phones are outside developed markets like America, Japan and Europe. That is a good news and bad news story. The good news is that 2 billion people is one heck of a big market and it is quite likely that we will see at least another billion users soon (there are over 6 billion people in the world). The bad news is that most of them have tiny amounts of discretionary income compared to users in developed markets.

If the next wave is mobile, then the question is will Facebook dominate mobile?

Facebook clearly understand the challenge. But that is not enough. IBM understood that PC was the next wave, Microsoft understood that Web was the next wave and Google understands that Social is today’s wave. History shows that the leader in one wave never becomes the leader in another wave. So, if mobile is the next wave, then Facebook probably will not dominate that wave.

Of course, it is possible that Mobile is not another wave, it is not fundamentally different, that it is simply another way to be Social. Facebook clearly have that view. But again history is a guide. IBM saw PCs as just devices to connect to a mainframe, Microsoft saw the Web as just another feature within Windows and Google saw Social as just more stuff for a search engine to index; they were all wrong.

What do you think? Is Mobile another wave or just a feature of the Social wave? If it is another wave, will Facebook dominate that as well?

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