News - Google vs Newspaper

EVERYONE KNOWS THAT Google is killing the news business. Few people know how hard Google is trying to bring it back to life, or why the company now considers journalism’s survival crucial to its own prospects.

Of course this overstates Google’s power to destroy, or create. The company’s chief economist, Hal Varian, likes to point out that perhaps the most important measure of the newspaper industry’s viability—the number of subscriptions per household—has headed straight down, not just since Google’s founding in the late 1990s but ever since World War II. In 1947, each 100 U.S. households bought an average of about 140 newspapers daily. Now they buy fewer than 50, and the number has fallen nonstop through those years. If Google had never been invented, changes in commuting patterns, the coming of 24-hour TV news and online information sites that make a newspaper’s information stale before it appears, the general busyness of life, and many other factors would have created major problems for newspapers. Moreover, “Google” is shorthand for an array of other Internet-based pressures on the news business, notably the draining of classified ads to the likes of Craigslist and eBay. On the other side of the balance, Google’s efforts to shore up news organizations are extensive and have recently become intense but are not guaranteed to succeed.

That this campaign is under way is surprising in its own right, as is its strong emphasis inside the company as a significant strategic measure. Most Internet and tech businesses have been either uninterested in or actively condescending toward the struggles of what they view as the pathetic-loser dinosaurs of the traditional media. (What is the Craigslist vision for sustaining the news business? Facebook’s? Microsoft’s?) Google’s projects have hardly been secret, since most of them involve collaboration with major newspapers, magazines, and broadcast-news organizations. This April, the company’s CEO, Eric Schmidt, delivered a keynote address to the major news editors’ convention, telling them “we’re all in this together” and that he was “convinced that the survival of high-quality journalism” was “essential to the functioning of modern democracy.” Last December, he wrote an op-ed in The Wall Street Journal announcing that Google would be going out of its way to devise systems that would direct more money toward struggling news organizations—rather than, as many in the news industry assumed, simply directing more of everyone else’s money toward itself. Publishing this in The Journal was a piquant touch, since the paper’s owner, Rupert Murdoch, has frequently denounced Google’s effect on the news industry.

Still, compared with what it could have been saying about its strategy toward news companies, Google has undersold its efforts and rarely talked about them as an overall program with a central guiding idea. Partly this is because of the highly decentralized nature of most innovative effort at Google, which often takes place in “20 percent time”—a workday per week when developers can concentrate on projects they choose themselves. Partly it is because of the “permanent beta” culture at Google, in which projects are viewed as tentative and experimental long after they have reached what others would consider a mature stage. (The company’s wildly popular e-mail system, Gmail, officially graduated from beta-test status only last summer, after five years of operation by tens of millions of users worldwide.) And the news organizations that are trying out experimental approaches at Google’s suggestion and with its support have themselves chosen to be quiet.

But after talking during the past year with engineers and strategists at Google and recently interviewing some of their counterparts inside the news industry, I am convinced that there is a larger vision for news coming out of Google; that it is not simply a charity effort to buy off critics; and that it has been pushed hard enough by people at the top of the company, especially Schmidt, to become an internalized part of the culture in what is arguably the world’s most important media organization. Google’s initiatives do not constitute a complete or easy plan for the next phase of serious journalism. But they are more promising than what I’m used to seeing elsewhere, notably in the steady stream of “Crisis of the Press”–style reports. The company’s ultimate ambition is in line with what most of today’s reporters, editors, and publishers are hoping for—which is what, in my view, most citizens should also support.

That goal is a reinvented business model to sustain professional news-gathering. This is essential if the “crowd sourcing” and citizen journalism that have already transformed news coverage—for instance, the videos from inside the Iranian protests last summer—are not to be the world’s only source of information. Accounts like those are certainly valuable, but they will be all the more significant if they are buttressed by reports from people who are paid to keep track of government agencies, go into danger zones, investigate and analyze public and private abuse, and generally serve as systematic rather than ad hoc observers. (I am talking about what journalism should do, not what it often does.)

Google’s likely route toward this destination, however, differs in crucial and sometimes uncomfortable ways from the one the existing news business would probably choose on its own. The differences are natural, given the cultural chasm that separates a wildly successful, collectively cocky, engineer-dominated, very internationally staffed West Coast tech start-up from a national news establishment that is its opposite in all ways: East Coast–centric, liberal arts–heavy, less international in staff and leadership (more Brits and Australians than in the tech industry, fewer Indians, Chinese, and Russians), dominated by organizations founded in the distant past, and at the moment strikingly downcast and even panicked.

Krishna Bharat Here’s an important illustration of the difference: people inside the press still wage bitter, first-principles debates about whether, in theory, customers will ever be willing to pay for online news, and therefore whether “paywalls” for online news can ever succeed. But at Google, I could hardly interest anyone in the question. The reaction was: Of course people will end up paying in some form—why even talk about it? The important questions involved the details of how they would pay, and for what kind of news. “We have no horse in that race or particular model in mind,” Krishna Bharat, one of the executives most deeply involved in Google’s journalistic efforts, told me, in a typical comment. His team was already working with some newspapers planning to put their content behind paywalls, others planning to remain free and hoping to become more popular with readers annoyed when paywalls crop up elsewhere, and still others planning a range of free and paid offerings. For Bharat and his colleagues, free-versus-paid is an empirical rather than theological matter. They’ll see what works.

The deeper differences involve Google’s assumptions about what the news business will have to do to “engage” readers again—that is, make them willing to spend time with its printed, online, or on-air products, however much they cost. One Google employee who asked not to be named mentioned another report on journalism’s future and pointed out a section called “Focus on the User.” “They just mean, ‘Get money out of the user,’” he said. “Nowhere do they talk about how to create something people actually want to read and engage with and use.” On the topic of engaging modern users, Google feels very confident right now, and the news business feels very nervous. Apart from anything else, that certainty gap makes Google important to the future of the news.

Before describing how Google came to this point, what its engineers are trying to do, and where it all might lead, a full-disclosure note. Eric Schmidt of Google is an important figure in this saga. By chance, and because he and his wife were Atlantic readers, Schmidt and his family had become friends of my family long before he joined Google as CEO in 2001, and we have stayed in touch. For this story, I did not talk with him except in one official on-the-record interview in late March, after I had finished my other reporting at Google HQ.

LET’S START WITH the diagnosis: If you are looking at the troubled ecology of news from Google’s point of view, how do you define the problem to be solved? You would accept from the outset that something “historic,” “epochal,” “devastating,” “unprecedented,” “irresistible,” and so on was happening to the news business—all terms I heard used in interviews to describe the challenges facing newspapers in particular and the journalism business more broadly.

“There really is no single cause,” I was told by Josh Cohen, a former Web-news manager for Reuters who now directs Google’s dealings with publishers and broadcasters, at his office in New York. “Rather, you could pick any single cause, and that on its own would be enough to explain the problems—except it’s not on its own.” The most obvious cause is that classified advertising, traditionally 30 to 40 percent of a newspaper’s total revenue, is disappearing in a rush to online sites. “There are a lot of people in the business who think that in the not-too-distant future, the classified share of a paper’s revenue will go to zero,” Cohen said. “Stop right there. In any business, if you lose a third of your revenue, you’re going to be in serious trouble.”

You can’t stop right there, Cohen said, and he went through the list of the other, related trends weighing on newspapers in particular, each pointing downward and each making the others worse. First, the relentless decline of circulation—“fewer people using your product,” as he put it. Then, the consequent defection of advertisers from the lucrative “display” category—the big ads for cars, banks, airlines—as well as from classifieds. The typical newspaper costs much more to print and deliver than a subscriber pays. Its business rationale is as an advertising-delivery vehicle, with 80 percent of the typical paper’s total revenue coming from ads. That’s what’s going away. In hopes of preserving that advertising model, newspapers have decided to defend their hold on the public’s attention by giving away, online, the very information they were trying to sell in print. However that decision looks in the long run, for now it has created a rising generation of “customers” who are out of the habit of reading on paper and are conditioned to think that information should be free.

“It’s the triple whammy,” Eric Schmidt said when I interviewed him. “Loss of classifieds, loss of circulation, loss of the value of display ads in print, on a per-ad basis. Online advertising is growing but has not caught up.”

So far, this may sound familiar. To me, the interesting aspects of the Google diagnosis, which of course sets the stage for the proposed cure, were these:

First, it was strikingly not moralistic or mocking. This was a change, not simply from what I’d grown used to hearing at tech conferences over the past decade—the phrase “dead-tree edition” captures the tone—but also from the way Americans usually talk about distressed industries. Think of the connotations of “Big Auto” or “Rust Belt.” Whatever the people at Google might privately think, that is not how they talked about the news business. What was happening to the press, they said, was happening because of huge, historic technological forces rather than because of short-sightedness or backward thinking by publishers, editors, and owners. “This is a fundamental disruption of an industry,” Nikesh Arora, who joined Google six years ago and is now president of its global sales operations, told me, before detailing the top-to-bottom pressure on every part of the modern journalistic business model.

Next in the Google assessment is the emphasis on “unbundling” as an insurmountable business problem for journalism. “Bundling” was the idea that all parts of the paper came literally in one wrapper—news, sports, comics, grocery-store coupons—and that people who bought the paper for one part implicitly subsidized all the rest. This was important not just because it boosted overall revenue but because it kept publishers from having to figure out whether enough people were reading stories from the statehouse or Mexico City to pay the costs of reporters there.

“Newspapers never made money on ‘news,’” Hal Varian said. “Serious reporting, say from Afghanistan, has simply never paid its way. What paid for newspapers were the automotive sections, real-estate, home-and-garden, travel, or technology, where advertisers could target their ads.” The Internet has been one giant system for stripping away such cross-subsidies. Why look to the newspaper real-estate listings when you can get more up-to-date, searchable info on Zillow—or better travel deals on Orbitz, or a broader range of movie showtimes on Yahoo? Google has been the most powerful unbundling agent of all. It lets users find the one article they are looking for, rather than making them buy the entire paper that paid the reporter. It lets advertisers reach the one customer who is searching for their product, rather than making them advertise to an entire class of readers.

Next, and significantly for the company’s vision of the future, nearly everyone at Google emphasized that prospects look bleak for the printed versions of newspapers—but could be bright for the news industry as a whole, including newspaper publishers. This could seem an artificial distinction, but it is fundamental to the company’s view of how news organizations will support themselves.

“If you were starting from scratch, you could never possibly justify this business model,” Hal Varian said, in a variation on a familiar tech-world riff about the print-journalism business. “Grow trees—then grind them up, and truck big rolls of paper down from Canada? Then run them through enormously expensive machinery, hand-deliver them overnight to thousands of doorsteps, and leave more on newsstands, where the surplus is out of date immediately and must be thrown away? Who would say that made sense?” The old-tech wastefulness of the process is obvious, but Varian added a less familiar point. Burdened as they are with these “legacy” print costs, newspapers typically spend about 15 percent of their revenue on what, to the Internet world, are their only valuable assets: the people who report, analyze, and edit the news. Varian cited a study by the industry analyst Harold Vogel showing that the figure might reach 35 percent if you included all administrative, promotional, and other “brand”-related expenses. But most of the money a typical newspaper spends is for the old-tech physical work of hauling paper around. Buying raw newsprint and using it costs more than the typical newspaper’s entire editorial staff. (The pattern is different at the two elite national papers, The New York Times and The Wall Street Journal. They each spend more on edit staff than on newsprint, which is part of the reason their brands are among the most likely to survive the current hard times.)

Publishers would be overjoyed to stop buying newsprint—if the new readers they are gaining for their online editions were worth as much to advertisers as the previous ones they are losing in print. Here is a crucial part of the Google analysis: they certainly will be. The news business, in this view, is passing through an agonizing transition—bad enough, but different from dying. The difference lies in the assumption that soon readers will again pay for subscriptions, and online display ads will become valuable.

“Nothing that I see suggests the ‘death of newspapers,’” Eric Schmidt told me. The problem was the high cost and plummeting popularity of their print versions. “Today you have a subscription to a print newspaper,” he said. “In the future model, you’ll have subscriptions to information sources that will have advertisements embedded in them, like a newspaper. You’ll just leave out the print part. I am quite sure that this will happen.” We’ll get to the details in a moment, but the analytical point behind his conviction bears emphasis. “I observe that as print circulation falls, the growth of the online audience is dramatic,” Schmidt said. “Newspapers don’t have a demand problem; they have a business-model problem.” Many of his company’s efforts are attempts to solve this, so that newspaper companies can survive, as printed circulation withers away.

Finally, and to me most surprisingly, the Google analysis reveals something about journalism that people inside the business can’t easily see about themselves. This involves a kind of inefficiency that a hard-pressed journalistic establishment may no longer be able to afford.

Neal Mohan At a minor, practical level, today’s news organizations generally seem clumsy, at least from Google’s perspective, as they try to re-create their brand and business on the Internet. “The print world has gotten placing an ad in a newspaper or magazine down to a science,” Neal Mohan of Google, who is in charge of working with publishers to develop online display ads, told me. He said that for TV or radio advertising, the overhead and administrative costs of placing an ad might be 2 or 3 percent of the ad’s total value; but for the online news sites he knew about, simple, correctable inefficiencies might drive the cost to 25 or 30 percent. His team is working with publishers to reduce these “parasite costs.”

It was Krishna Bharat who identified a more profound form of inefficiency. As a student at the Indian Institute of Technology in Madras, Bharat had written for the campus newspaper while taking his computer-science degree. “In a second life, I would be a journalist,” he once told an Indian newspaper. (When the Indian newspaper asks me, I will say: In a second life, I would be a successful Google executive.) He got his Ph.D. at Georgia Tech and was an early Google hire, in 1999. After the 9/11 attacks two years later, he grew worried about the narrowness of news he was receiving through the U.S. media. “I felt that we really had to catch up with the world’s news,” he told me. “To get a broad understanding, you had to visit sites in Europe and Asia and the Middle East. I was wondering if Google could do something to make the world’s news information available.”

This last statement is the kind of thing many people at the company say in utter earnestness. In Bharat’s case, it meant devising a system that would collect news feeds from around the world, automatically and instantly cluster them by subject and theme, and move them up and down in prominence based on how many sources in various parts of the world were discussing the same topic. A few weeks later, such an automatic news-monitoring site was up and running as an internal demo at Google. In September 2002, it went public as Google News, initially covering 4,000 English-language news sources a day. Now it covers as many as 25,000 sources in some 25 languages, all by purely automated assessments of the main trends emerging in news coverage around the world.

Except for an 18-month period when Bharat founded and ran Google’s R&D center in Bangalore, his original hometown, he has been guiding Google News ever since. In this role, he sees more of the world’s news coverage daily than practically anyone else on Earth. I asked him what he had learned about the news business.

He hesitated for a minute, as if wanting to be very careful about making a potentially offensive point. Then he said that what astonished him was the predictable and pack-like response of most of the world’s news outlets to most stories. Or, more positively, how much opportunity he saw for anyone who was willing to try a different approach.

The Google News front page is a kind of air-traffic-control center for the movement of stories across the world’s media, in real time. “Usually, you see essentially the same approach taken by a thousand publications at the same time,” he told me. “Once something has been observed, nearly everyone says approximately the same thing.” He didn’t mean that the publications were linking to one another or syndicating their stories. Rather, their conventions and instincts made them all emphasize the same things. This could be reassuring, in indicating some consensus on what the “important” stories were. But Bharat said it also indicated a faddishness of coverage—when Michael Jackson dies, other things cease to matter—and a redundancy that journalism could no longer afford. “It makes you wonder, is there a better way?” he asked. “Why is it that a thousand people come up with approximately the same reading of matters? Why couldn’t there be five readings? And meanwhile use that energy to observe something else, equally important, that is currently being neglected.” He said this was not a purely theoretical question. “I believe the news industry is finding that it will not be able to sustain producing highly similar articles.”

by Hal Varian, Google's chief economist