“Any publisher talks about being a tech company, run for the hills.”
The case for a broad revenue mix in publishing has never been stronger. With the events market still on shaky ground after coronavirus lockdowns, digital ad rates tanking and rising cost-of-living pressures squeezing online subscription sales, the last thing any publisher needs to be at the moment is a one-trick pony.
There is no doubt these are tough times, but, this too will pass and those that survive will be left thinking hard about where to go next.
For many, the fight for reader revenue gains will be the only way to keep the lights on. Others will revert to events, advertising and the newsstand with their fingers firmly crossed. But some of the world’s most innovative publishers had already started down a different road, selling their technology infrastructure to other publishing businesses and beyond.
The logic seemed pretty simple: Capitalise on the investment made in your own digital transition by selling, or rather renting, the software solutions you developed to power-up your business to companies that are trying to catch up.
Big Tech might be going through a rough patch now, but looking at Silicon Valley’s track record, it has been tempting to see a rosy future in technology development to replace the uncertainties of publishing. Brian Morrisey recently wrote in The Rebooting:
Software businesses are valued far higher than content businesses, especially those reliant on the ups and downs of advertising.
In his newsletter, Brian runs through some of the companies that have embraced SaaS dreams, from Minute Media to The Washington Post, all striving to deliver their software expertise to paying customers. Just last week, there was speculation that the New York Times would be added to the list following discussion around ValueAct Capital’s 6.7% stake in the business.
Following comments on the investor’s ultimate aims for the publishing group, Semafor’s Ben Smith was asked:
Is the Times always going to be fundamentally a news company expanding into these ancillary tech products? Or is it trying to morph into something like a tech company with an ancillary news product?
Smith answered that the NYT’s recent evangelism for content bundling could be a sign that tech investors’ love of bundled products were influencing the publisher’s future direction.
CEO Meredith Kopit Levien used the word ‘bundle’ three times on the company’s first quarter call. After initial conversations with ValueAct, she used the word 40 times on the second quarter call.
Hedge-fund dreams, publisher nightmares
The truth is, however, that success stories that start with the phrase ‘Publisher-turned software developer’ are likely to be very few and far between: publishers entering the field need very deep pockets and skill sets that they don’t naturally carry.
In a Rebooting podcast interview earlier this year, Dotdash CEO Neil Vogel said:
Any publisher talks about being a tech company, run for the hills.
And recent industry news suggests that protracted software sales cycles, brutal client service requirements and the challenge of running two very different types of business simultaneously might be taking their toll.
VOX Media, which started selling its Chorus content management software four years ago, has decided to stop licensing the CMS. The six clients it has on board have been given 18 months to find another platform.
Vox has no plans to scrap Chorus. Developed in 2008, it will continue to ‘power’ the publishing groups editorial brands, a portfolio that includes Vox, New York Magazine and Thrillist. But dreams of a separate SaaS business are over.
Writing in Adweek, Mark Stenberg, says the decision to abandon its Chorus business is down to a softening in the advertising market that has forced widespread industry layoffs and a broad reduction in expenses – Chorus customers were paying six or seven figures annually. The publisher also believes the move will release resources that can be focused on investment initiatives that deliver higher return on investment.
The slowing ad market has also pushed The Washington Post’s standalone Zeus ad-tech business back into its existing ad sales organisation, effectively ending The Post’s bid to generate revenue from licensing ad-tech software. It stopped licensing its Zeus Performance ad optimization tool earlier in the year.
According to Axios, the company had been planning to focus on developing the Zeus Prime self-serve solution after closing Zeus Performance, but the ad market slowdown made it difficult to grow its publisher network.
Even’ The Washington Post’s ArcXP software, heralded as a publisher software success story, doesn’t seem to have a future inside the publishing organisation. After spending almost 10 years molding its in-house publishing tool into a software business, Washington Post executives are reported to have floated the idea of selling it off with Jeff Bezos.
Buying the paper after Arc had been developed, Bezos supported the idea of licensing the CMS. But the WSJ reports that, at the time, he warned that ‘customer support could be a drain on resources’. He might have been right.
Although the Post expects ArcXP to generate over $200 million in annual recurring revenue by 2027, according to the WSJ, the software business still isn’t profitable. And, even with a $50 million development budget allocated for 2023, management thinks the Post needs to explore a spinoff or sale for ArcXP to reach its full potential.
Of course, there are still publishers forging ahead with their SaaS efforts; Axios is selling software to help companies create newsletters. The company is leveraging its super-slick ‘Smart Brevity’ formula, targeting communications and human resources departments across a range of industries, and adding content consultancy to the software mix.
And smaller companies that have a truly unique proposition can maybe bootstrap their way to a viable product offering. As with almost everything else in publishing, the more niche the offering, the more chance of success.
But before you start writing the business plan for your new publishing software venture, think about this: you might have the best self-built pub-tech on the planet, but are you ready to get into software sales?
ArcXP embodies the publishing expertise of the Washington Post, but it also integrates the advanced capabilities from Amazon Web Services and, maybe more importantly, a commercial team that knows how to sell software.
Remember FutureFolio? It was a state of the art SaaS solution for creating digital magazines that Future Publishing licensed to other digital magazine publishers. Future had a first-mover advantage and made maybe $30 million in revenue over its lifetime. But alas it is no more.
No doubt cost pressures in digital magazine production contributed to demise of the venture – damn you PDF replicas. But I spoke with someone a couple of years ago that knew the story of FutureFolio and while there was a range of factors that ultimately killed the product, a lack of software sales expertise was high on the list.
“We had no one who was specifically good at selling and supporting software”, they told me.
And their advice to any media company considering licensing their software?
Spin it off into its own company that’s actually geared towards building, maintaining, selling, and supporting software.