Misunderstanding Media Customers

When we celebrated IBM's 100th anniversary, we praised IBM's well-known customer focus.  Every business realizes it has to focus on customers, but not all businesses understand who their customers really are.  Even when management knows who pays the bills, that understanding isn't always communicated to the bottom of the pile.

We used Google to illustrate the difference - Google users are the product, they're not customers since they do not pay Google any money.

One of our readers objected to a point we made:

"Are those people Google customers? Nope - they don't pay Google a dime....Are the cell phone manufacturers that put Android on their products Google customers? Nope - they don't pay Google a dime."

Actually they are. Google doesn't make anything from the advertisers unless the end use clicks the ad. Merely placing the ad image/text on the product page gets them nothing. The real customer IS in fact the end user because without their click (and product patronage, for that matter) there would be no advertisements from which to profit.

Furthermore, if Google doesn't care about the end users' desires, product patronage declines and advertisers go somewhere else.

The end user is Google's customer because it is their eyeballs and mouse clicks that transfer money into Google's bank accounts.

Google is a media empire; let's compare their business model with another media empire, the New York Times.

Google's only product.

The New York Times Business Model

The Times is sold on newsstands and by subscription.  A number of years ago, the Sunday Times retailed for $1.50.

At that time, newsprint cost about $1.50 per pound by the time the massive rolls were shipped from Canada and delivered to the Times' printing plant in Times Square.  When someone bought a paper, the retail price barely covered the cost of the blank newsprint.  Delivery costs and newsstand commissions came out of that, of course.  The sale didn't even cover the cost of the blank paper.  The Times lost money on every single paper sold.

How did they stay in business?  By selling advertising.  Advertisers gave the Times far more money than subscribers were willing to cough up.

When the Times had a subscription drive, each additional subscriber lost money, but they made up the losses caused by circulation increases by boosting ad rates.

Decades ago, there were very few advertising channels in New York City so advertising rates were very high.  When a potential advertiser approached the paper, the answer was often, "I'll have to see if I can get you in."  Limited channels made it easy to boost advertising rates - for many large advertisers, the Times was pretty much the only game in town.

From the advertisers' point of view, readers weren't customers, they were the product they were buying.  Advertisers paid the Times to expose readers to their ads.  The Times justified its rates by bragging about how many gazillion readers would see each ad.  They'd calculate the "per view" cost by dividing whatever the advertiser was going to pay by the number of subscribers.

This was bogus, of course.  Very few if any readers actually looked at each and every page of the Times.  Uncertainties as to who looked at each page, how long they spent there, and where they went next led to the saying, "Half of what I spend on advertising is wasted, I just don't know which half."

Misunderstanding their Market

The Times editors and correspondents gloried in working for the Times as IBM-ers gloried in working for IBM.  IBM prospered as long as it saw itself as helping customers solve complex problems.  They nearly went under when they lost customer focus and saw themselves as a mainframe company.

The Times not only gloried in "keeping the public informed," they took pride in being "the paper of record."  If something wasn't reported in the Times, it didn't happen.  Whatever the Times said on any topic, that was the way it was. 

They were somewhat justified in seeing subscribers as customers because customers actually paid something, but advertisers were their real customers.  The Times wasn't really in the news business.  The newspaper was a channel by which advertisers generated sales, but the Times didn't want to admit that their purpose was so crassly commercial.  Unfortunately, they got so caught up in the glories of being the "paper of record" that they let the costs of generating, packaging, and distributing hard-copy content get out of hand.

The Google Model

Google has exactly the same problem - how do we get eyeballs on our customers' ads?  How do we manufacture product to sell?

Google realizes that search engine users and Google app users are the product, not the customer.  The Times was somewhat confused about this.  Their solution was to spend more and more money making bigger and better content.  They thought that outstanding content would attract high-end readers who could be sold to advertisers; the fact that high-end writing generated Pulitzer prizes had nothing to do with their desire to emphasize news, of course.

Unlike the Times, Google doesn't generate any content to speak of.  They access the entire World Wide Web for free.  Their solution is to make it so convenient to find free content via Google that users will use their gateway to the WWW instead of, say, Yahoo or the Times' own web site.

Google doesn't spend a dime generating content.  It spends its money packaging other people's content to attract readers to sell.

Once they dominated search, they started spending money tracking reading habits.  The readers are the product, not customers.  The more Google knows about readers, the more it can charge each time a "product" clicks an ad.

What Google Knows

Google and the Times are competing for the same advertising dollars and selling the same product, except that Google has far more content available than the Times has.  The Times can't tell advertisers what fraction of their readers actually see or respond to any given ad.  Google can not only track individual clicks, it can tell advertisers a lot about who generated each click.

Google Analytics tells advertisers how many people visited each site, from whence they came, how long they stayed, and which pages they viewed.  They can compare how many visitors hit the "buy" button by pretty much any attribute Google collects including which page they started on.

Google software reads everything gmail users send or receive; how else can they post relevant ads?  They know who your main contacts are by watching your mail volume.  They know which of your friends visited other sites.  They turn Google voice messages into text to send to your cell phone; they can determine what your Google Voice calls are discussing.  Call volume tells them yet more about who influences you and whom you influence.  The Times can tell its customers none of this.

Not only that, the Times pays to generate content; Google gets content for free.

So many bloggers are willing to write for nothing that Google will never suffer a content shortage regardless of topic.  People used to think that quality would become an issue, but Google is fine-tuning its searches to give each user precisely what he or she wants so that they can skip over all the schlock out there on the web. 

The New York Times is slowly selling off other parts of its business.  Which model will win in the end?