Facebook isn’t the devil, but its offer to media outlets is still a risky one

According to a recent report in the New York Times, Facebook is working with a number of media outlets — including the Times itself — on a deal that will see them publish news and other content directly on the social platform, instead of just linking to stories on their websites. Facebook’s interest in these kinds of deals has been mentioned a number of times in the past, including in a piece by the late NYT media writer David Carr, but this is the first time we’ve gotten any real details. Initial launch partners reportedly include the Times, BuzzFeed and National Geographic.

If you follow any journalists on Twitter, you might have heard the term “Faustian bargain” used more than once to describe this kind of arrangement when the New York Times story first appeared. Faust, of course, was a legendary German scholar — immortalized in a play by Goethe — who was unsatisfied with his career and wound up making a deal with the devil: Unlimited wealth and fame, in return for his soul. That might be overstating the downside of Facebook’s deal a tad, but it is definitely a double-edged sword — and one media companies shouldn’t take lightly.

For a media outlet, the benefits of publishing direct to Facebook are fairly obvious: By doing so, they get strategic access to Facebook’s more than 1 billion active users, some of whom spend hours every day on the social platform. That kind of audience reach is like the Holy Grail for publishers, most of whom are lucky if their readers — even the ones who pay for the content they consume — spend more than a few minutes on their site at a time. Any traditional publisher, even the New York Times, would jump at the chance to have Facebook’s engagement engine applied to its content.

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In addition to reach, it appears that Facebook is offering media outlets the ability to have their content appear more quickly as well, since loading external sites can take some time within the Facebook app and readers find this irritating, to the point where they often don’t click on those links again. In a sense, what Facebook is offering is a little like the “fast lane” that Internet providers like Comcast guarantee to providers such as Netflix — a way of smoothing the path so that their content reaches the audience more efficiently (whether this is fair or not is a separate question).

Facebook also has another powerful thing to offer, and that is its news-feed algorithm — and this is where the company’s appealing offer starts to look a lot more like a Faustian bargain. While Facebook could presumably use its news-feed ranking algorithm to recommend more stories and content from its partners (an aspect of the deal that other publishers are undoubtedly also thinking about), the details of whose content gets recommended and when would be totally under Facebook’s control.

The all-powerful Facebook algorithm

This is part of why Facebook as a news source is a concern not just for media outlets, but for individual users as well: the functioning of the Facebook algorithm — the way it chooses which things to show you and which to hide — is so arcane that many users aren’t even aware that it is occurring. And so the view they have of the world is being distorted in some way, but they don’t really have any idea how or why. That’s more than a little troubling, and the new arrangement Facebook is talking about would expand that problem even further.

The media industry has been down this particular road once before: Several years ago, so-called “social readers” were all the rage — applications from outlets like The Guardian and the Washington Post, which allowed readers to consume content without having to leave Facebook. Those applications quickly gained millions of users because Facebook promoted them, but then the social platform changed its mind (and its algorithm) and stopped doing so, and their readership was reduced to virtually zero almost overnight.

The loading screen of the Facebook application on a mobile phone is seen in this photo illustration taken in Lavigny

The unfortunate reality of dealing with Facebook is that, like Google, its algorithm is a black box. The only ones who know how it works — and ultimately control its outcome — are CEO Mark Zuckerberg and Chris Cox, the executive in charge of the news-feed. They say they want high-quality content because that’s what their readers desire, and therefore it increases “engagement.” But who decides what content matches that description, and who it is going to be shown to, and when? Facebook.

It’s not just about control either — it’s also about who ultimately benefits most from the kind of arrangement Facebook is proposing. If media outlets can get some data from the social platform about their readers and their demographic breakdown, interests, etc. then it might arguably be worth it, but then there’s the long-term cost: If consumers find more of their news appearing on Facebook without having to click to find it somewhere else, who will they start to see as the source of news? Facebook.

In some ways, dealing with Facebook is actually worse than Faust’s deal: The German scholar chose to cut a deal with Satan primarily because he was vain, but media companies are forced to work with Facebook whether they want to or not, because the platform plays such a huge role in how millions of people come into contact with the news. With that kind of clout, news entities can’t afford to not be on the network, but the more content they put there, the more they risk losing even more control over their business — and the only one in a position to dictate the terms of such a deal is Facebook.

How media companies should be thinking about the Apple Watch

In case you’ve been in suspended animation, Apple finally announced the details of its new wearable computer — known simply as the Apple Watch — at a recent event (if you call it the iWatch by mistake, you will be haunted by the ghost of Steve Jobs). Much of the attention focused on the luxury options, such as the gold-plated one that sells for $15,000. But assuming Apple can also reach a fairly broad consumer base with its lower-priced models, how should news and media outlets be thinking about delivering their content to a watch? Or should they even bother?

Some media companies have already answered that question by rushing to have their news features ready for the launch: CNN has a news-alert service for the watch — which Apple CEO Tim Cook mentioned in his announcement — that shows the same kind of notifications iPhone users can get on their devices, and other companies have either come out with similar alert features or said they are working on them, including the New York Times and National Public Radio.

According to CNN’s description of the Watch app, users can tap on a news alert to see the full story, or click and have the story appear on their iPhone — or they can tap on a news alert about a video, and have the video start playing on their phone. The apps from the New York Times, NPR and Breaking News apps appear to follow a similar model, with a short alert users can click on.

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These first few iterations of news apps suggest that what many news organizations have chosen to do is to take their existing news alerts for the iPhone and reproduce them on the Watch. But is this really the best approach? Does anyone really want to tap on a news alert and see the story appear on their Watch? For that matter, given the sheer amount of apps that users might get notifications from — such as Twitter or Facebook or simple text messaging — are users even going to want news alerts?

Don’t alert me, bro

Even if news alerts are part of the mix for Apple Watch users, it’s not clear that simply duplicating existing iPhone alerts is going to work. Not only are many phone users (including me) already irritated by notifications, but a watch is even less conducive to interruptions because of its size. Many have started talking about the “glance” as the new atomic unit of attention when it comes to a watch — but how much information can a news organization convey in a single glance at a tiny screen?

Jack Riley, head of audience development at The Huffington Post UK, spent a month looking at exactly those kinds of questions as a Nieman Fellow at Harvard — not just as they pertain to the Apple Watch, but the whole new class of “wearables” of which the watch is a part. His report appeared at the Nieman Journalism Lab, and made some interesting points about how media companies should be looking at these devices and the kinds of things they need to consider.

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One of the first points Riley makes is that a user’s attention and behavior when wearing or looking at a watch are much more fragile than when they have their smartphone out and are busy looking at it. Since the main benefit of smart-watches for many users is the ability to get rid of both their phone and its annoying distractions, news companies are going to have to tread very carefully through this minefield. Riley describes what Joey Marburger of the Washington Post digital team said about his Pebble:

“My logic was like: I can silence my phone and I’ll tailor notifications that come to my watch. I don’t have to use my phone in a meeting, or pull out my phone and be rude — I’ll just check my watch. What I learned very quickly is I was being more rude, because it looked like I was constantly checking the time.”

Circa co-founder Matt Galligan and editor-in-chief Anthony De Rosa have both talked many times about how sensitive they are when it comes to alerts on their app, which notifies users whenever a new piece of information comes in about a developing story that they have decided to “follow.” There is a definite psychological impact, however small, every time a user gets an update — and if there are too many, or they aren’t properly targeted or relevant, then a user will ignore them or turn the feature off.

A giant noisy ocean of content

What something like the Apple Watch makes abundantly clear, with its incredibly limited screen real estate, is the central conceit of almost every news organization — from CNN all the way down — which is that users will only ever need their app or service or alerts, and therefore it doesn’t matter how they treat them. In reality, those alerts and apps are just a tiny piece of flotsam in a giant, roiling sea of content that is streaming at people from a thousand different sources.

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So the first thing news entities will have to come to terms with is the idea that their news alerts are just going to be adding to the noise for many users, and so they will need to be a) hugely relevant and b) very infrequent. As Riley points out, news isn’t — and never will be — the driving force behind the adoption of a new technology like the watch. He quotes the Washington Post’s Marburger again on this point, who says “No one’s going to buy a smartwatch because they get better headlines.”

Another big challenge for news companies, which Riley also discusses, is the monetization issue. That might seem like a big enough struggle when it comes to smartphones, and the way that content consumption occurs on them, but that pales in comparison to the difficulty of monetizing content that appears on a screen the size of a watch. There aren’t going to be any banners or pre-roll video ads here. That means the Apple Watch has to be seen as an extension of an existing brand-awareness program.

The bottom line is that while the Apple Watch might be seen as attractive by news companies — like any high-end technological device that is going to sell millions of units and be used by a fairly wealthy customer base — there are a number of factors that make it unwise to rush into the space without thinking through some of the challenges ahead. Some media companies will undoubtedly do so anyway, of course, and so we will be able to learn from their inevitable failures as well.

Thoughts on media business models

As the smoke begins to clear from the shut-down of my former employer and the rubble that was left behind starts to take shape, a number of nagging questions remain. That’s an understatement, of course; pretty much all that remains are questions, some financial and some emotional. But from my personal perspective, one of the most nagging is: Does Gigaom’s failure mean the model the company was based on — a three-part structure composed of advertising-supported editorial, events and subscription research — is fundamentally flawed, or was it just poorly executed?

A number of news articles, including one by Peter Kafka at Re/code and another posted on Tuesday by Farhad Manjoo at the New York Times, have described the debt and related cash-flow requirements the company faced, which appear to have become too onerous for the board and the company’s creditors to stomach any further (more details have emerged since).

Although revenues at Gigaom’s research arm were growing, what seems to have happened is the gap between those top-line revenues and the bottom-line cash flow or profits of the division grew too wide, and investors stopped believing that the company would ever get there, or weren’t willing to spend any more to fill that chasm. And without a plausible road to profitability, there was no hope of an exit that would justify the $40 million in cash and debt the company had raised.

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So was the failure of the company a result of a fundamental flaw in the three-legged research/events/editorial model? I don’t think so, despite the rather tangible evidence to the contrary — evidence I am forced to confront every time I look at my dwindling bank balance. I didn’t just champion the Gigaom model because I happened to be working there, I actually believed (and continue to believe) that it can work, and that if done properly it can create a much better foundation for a media company than just relying on advertising.

I mentioned the Economist in my earlier post, and it continues to be the ne plus ultra of this approach: it has an editorial product that is supported in part by advertising and in part by subscriptions, but it also has a highly-regarded research arm — the Economist Intelligence unit — that contributes substantially to the bottom line, and it does events and offers its members other benefits as well. Politico is pursuing a similar model, offering a free editorial product combined with a subscription-based premium product (Politico Pro) that includes events and other benefits for members.

The principle behind this model is that you bring readers in through the front door — the free, ad-supported editorial side, which hopefully carries its own weight (as Gigaom’s did) but doesn’t make a lot of extra money — and you hope to create a relationship with them based around your expertise. Then you (theoretically at least) monetize that relationship through other means, including events and subscription research. In some sense, the editorial product becomes a loss-leader for the rest of your offerings, a way of finding new readers or customers.

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So what failed in Gigaom’s case? Former VP of research Michael Wolf argued in a recent post that the research arm lost its way at some point, and decided to focus on high-volume (but relatively commoditized) products like webinars and sponsored white papers rather than developing a deep expertise in subject areas — and it also targeted large corporate clients, many of whom apparently didn’t renew after their initial trials, instead of focusing on individual buyers and growing more slowly.

This might be naive, but I still believe that the Gigaom research unit and the model it was part of could have worked, and in fact arguably did work for a number of years. From what I have been able to piece together, it sounds like spending — which was undertaken in an attempt to grow that side of the business to a scale that would make it worth all the millions that VCs had invested in it — just out-paced the actual cash coming in. That’s arguably a flaw in execution, not the model itself.

The bottom line is that I don’t think the death of Gigaom should be taken as evidence that the model itself doesn’t work. Is it difficult to execute? Sure. A guarantee of success? Hardly. But I think there is room for another media entity to make a go of it if they wish to, and hopefully we will see more giving it a shot. Advertising and traditional news paywalls are not the only options.

More financial details re: Gigaom’s debt

There’s been a fair bit written about what helped to take Gigaom down a week and a half ago, and the role that debt played in the company’s failure (I wrote a personal take on the demise of the company). In a story about the shut-down, Peter Kafka at Re/code reported that sources told him the company borrowed $5 million in a debt round led by Western Technology Investments in 2011 and then borrowed even more debt after that. According to his story, by the end of last year, Gigaom was paying a total of $400,000 a month for rent and debt-service costs.

Thanks to Wong Joon Ian, an investigative reporter working for Coindesk who looked at securities filings from WTI, we have a few more details about the company’s debt load. According to SEC documents, the original loan from WTI was actually $4.7 million, but it came at the end of 2012 rather than in 2011 — and based on subsequent filings by WTI, Gigaom was paying more than $400,000 a quarter to service that single loan.

SEC records show that by the end of last year, Gigaom still had about $2.5 million remaining to pay on the loan, which was set to mature in February of next year. That means that in order to get current with its lender by the end of the loan period, the company would have had to boost its payments to $600,000 a quarter or find some other way of getting an injection of new funds. And it had at least $12 million more in debt outstanding apart from that WTI loan, according to Kafka’s story.

Joon Ian also notes that in an interview, the head of Western Technology Investment said that his firm likes to put borrowers who can’t pay their loans into what he called “friendly foreclosure,” so that they don’t have to file for bankruptcy, thus improving their chances of raising new funding or being acquired. Gigaom is reportedly talking with a number of media entities about acquiring some or all of its remaining assets, including the name and archive of published articles, as well as the company’s mailing list and possibly its events business.

Surveillance shouldn’t be the new normal

As the Globe and Mail has reported — based on classified documents obtained from an anonymous source — U.S. intelligence officials appear to be mapping the communications traffic of several large Canadian corporations, including Rogers Communications Inc., one of the country’s largest internet and telecom providers. Perhaps the most depressing aspects of this news is how completely unsurprising it is.

By now, we have all been subjected to a veritable tsunami of surveillance-related leaks, courtesy of documents obtained by former U.S. intelligence analyst Edward Snowden, a trove from which this latest piece of information is also drawn. These files suggest the National Security Agency uses every method at its disposal — both legal and otherwise — to track every speck of web and voice traffic, including tapping directly into the undersea cables that make up the backbone of the internet.

In that context, the idea that intelligence agencies are snooping on the networks of Canadian corporations like Rogers seems totally believable, despite the fact that a 66-year-old agreement between Canada and the U.S. supposedly prevents either country from spying on the residents of its partner. While the document in question doesn’t say that any snooping is occurring, it seems clear that the behaviour it describes is designed to create a map of those networks in order to facilitate future surveillance activity.

The U.S. has repeatedly argued that this kind of monitoring is necessary in order to detect the activities of potential threats to U.S. security. The problem with this approach, of course, is that no one knows where those threats will appear, or how they will manifest themselves — thanks to the diverse nature of modern international terrorism — and so the inevitable result is a kind of ubiquitous surveillance, in which every word and photo and voice-mail message is collected, just in case it might be important.

Photo by Carolina Georgatou

Photo by Carolina Georgatou

One of the risks inherent in the steady flow of leaks from Mr. Snowden and others is that the new reality they portray eventually becomes accepted, if not outright banal. Of course we are being surveilled all the time; of course our location is being tracked thanks to the GPS chips in our phones; of course the NSA is installing “back door” software on our internet devices before we even buy them. At this point, it’s hard to imagine a surveillance revelation that would actually surprise anyone, no matter how Orwellian it might be.

If nothing else, one of our duties in this kind of environment — a duty not just for journalists but for governments as well, and the Canadian government in particular — is to prevent this kind of behavior from becoming banal, to fight the overwhelming sense of “surveillance fatigue” that each new revelation triggers, by shouting our disapproval from the rooftops if necessary.

This is one reason why we should celebrate the existence of leakers and “whistle-blowers” like Mr. Snowden — and even entities like WikiLeaks, despite all the obvious flaws inherent in that organization and its founder Julian Assange — regardless of our partisan political leanings. The U.S. government and its allies may see both of these men as traitors, and their acts as treasonous, but how else are we to discover the innumerable ways in which we are being surveilled against our will?

If our government wants to maintain the trust of its citizens, it should mount its own campaign against these kinds of activities — which are taking place either with its explicit or tacit approval. Just because we are friends and trading partners with the U.S. doesn’t mean we have to submit to their vision of what the future needs to look like.

We don’t need to live in a world where the locks on our virtual doors have a secret pass-code so that government forces can enter at will if they believe we are a threat to national security, or where our every click is recorded and filed away in a secret location, and our cellphones and internet devices listen to our conversations waiting for us to utter certain red-flag trigger phrases. If our governments believe it is necessary to trade our freedom for what amounts to an illusion of security, we need to do everything in our power to convince them that it this is not a trade we wish to make.

This post originally appeared as an op-ed piece in the Globe and Mail