In Tuesday’s post about the New York Times and its paywall, I made the passing comment that Sergey Brin and Larry Page might be able to design a paywall that wouldn’t hurt the paper’s bottom line. But after thinking about it some more, I think this is actually wrong. One of the most distinctive things about Google’s business strategy is its absolutely relentless focus on improving customer satisfaction to the exclusion of all else—including short-term revenue generation. Not only does Google regularly release products with no apparent prospects of monetization, the company will actually change its products in ways that reduce revenue but improve the user experience. For example: Google’s decision to enable POP and IMAP access for GMail, which means less time spent on the GMail website looking at ads (at least in the short run). Or the decision to penalize advertisers whose websites load slowly.
This is not altruism on Google’s part. While I’m obviously not privy to the thinking of senior management, there are some solid business reasons for behaving this way. First, the economics of information goods means that they can afford to give their products away for free. Once Google has created a new software product, the marginal cost of providing it to one more user is very low. This means that unlike a typical business, Google doesn’t care about costs per customer. More customers are almost always a benefit, even if many of those customers are contributing very little to the bottom line.
Second, I think Google understands that its brand is its most valuable asset. Behaving in a promiscuously pro-consumer fashion has given the company a sterling reputation with consumers. Indeed, Google’s branding is so strong that just adding Google branding to competitors’ search results causes customers to rate those results more highly. Every time Google improves one of its services, it strengthens the “halo effect” around the Google brand and thereby gives a boost to every other product in the Google stable.
Finally, and most importantly, the web is a young medium and it’s hard to predict exactly where opportunities for monetization will pop up. By worrying about maximizing “eyeballs” now, Google puts itself in the best possible position to exploit unexpected opportunities that do arise. For example, it’s not clear what the dominant business model for online video will be, but it’s likely that YouTube’s huge user base will be an asset once someone figures it out.
How does this apply to the New York Times? One thing to keep in mind is that a site’s heaviest users are the most valuable. They not only see the most ads, but they’re also the most likely to help the site in other ways: promoting its content, participating in its communities, trying out experimental new features, and so forth. If the Times demands that these users pay for access, some of them will leave. But more importantly, forcing users to pay will subtly alter users’ attitude toward the site. People will do things to help out a site they feel warm and fuzzy about that they won’t do for a site with which they feel they merely have a business relationship. Much of Yelp’s success, for example, comes from its habit of assiduously rewarding its most prolific reviewers. The Times should be looking to build that kind of relationship with its readers, not trying to wring subscription fees out of them.
Moreover, the business imperatives of the paywall will necessarily discourage certain types of experimentation because the people running the paywall will fight to kill products they view as holes in the dike. Reduced experimentation will mean missed opportunities. Obviously, I can’t predict exactly which opportunities will be misssed, but that’s the point. Neither can the Times executives, which is why it’s risky to close off any doors.
One obvious retort is that Google’s massive profits give it the luxury of making long-term bets without immediate prospects of monetization. The Times, in contrast, is struggling to make ends meet so they need revenue now. This is a fair point, but I think it’s worth looking at things the other way around: Google’s huge profits are due, at least in part, to its pursuit of a promiscuously pro-consumer business strategy over the last decade. We’ll never know how much damage the last paywall experiment did to the Times‘s reputation and traffic, but I bet it was significant. Likewise, we don’t know what kinds of successes the Times might have had if it had experimented more aggressively with new products a la Google a decade ago when it was still flush with cash. Conceivably, the Times could have captured the classified market before Craig Newmark (another guy with a relentless focus on customer satisfaction) did.
Of course, the Times didn’t do this because it didn’t have Google’s corporate culture. And it still doesn’t, so it will probably go for the short-term revenue offered by the paywall.