Are there opportunities for technology startups which target the media business?

Fred Wilson — a venture capitalist who has made investments in Twitter, Zynga, Tumblr, Etsy, and FourSquare, among others — apparently thinks not. As reported on MediaShift on November 15, Wilson told an audience of CUNY students with interests in business and journalism that better opportunities could be found in industries that aren’t as “picked over” and have problems that aren’t being solved.

As the co-founder of a technology startup that once considered the news industry as a source of partnerships and revenue, I agree with Wilson that startups should look elsewhere.

However, the reason they should do so is not because the media industry lacks problems that need to be solved. If anything, the media industry has problems that span every sector of the industry and every segment of the value chain. Rather, the reason why startups should look for other opportunities is many industry problems are so intractable, and the chance for making a successful business is so slim, that it simply doesn’t make sense to target it.

The case of Invantory

Right now, we’re developing Invantory, a mobile software platform that targets the local classifieds marketplace that is currently dominated by Craigslist. We’re going to make the Invantory experience one that is defined by an easy-to-use interface and great-looking photographs that are now possible with most smartphones. Further, we’re attacking a problem that has vexed users of Craigslist and newspaper classifieds for years — the lack of a system to vet who you’re dealing with. Our reputation system, which is built on proprietary algorithms and other safeguards, will help users better evaluate the other parties before they make contact.

My partner, Sam Chow, is a former Microsoft engineer and an experienced programmer for Apple’s iOS platform. My own background is online news, content and communities. In the 2000s, I was a technology journalist and online editor, and in the 1990s, I worked at a daily newspaper and on a daily television newscast.

My news roots run deep, and I thought there might be some alignment between our platform and the needs of local news publishers, which have seen their own classifieds revenue fall sharply in the last five years. In 2006, classified revenue in four categories (cars, jobs, real estate and “other”) totaled $17 billion, according to the Newspaper Association of America. Last year, it totaled just $5.6 billion. Wouldn’t it be great if our platform could somehow help the media industry, while building Invantory’s user base?

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I began seeking out publishers, online news professionals and other experts to better understand the market and the possibilities for our platform to serve online news operations through white-label apps or other solutions. Very quickly I realized there would be a problem selling to publishers. Most people I talked with had reservations about dealing with software vendors, ranging from a reluctance to share revenue to outright mistrust.

“I’ve dealt with enough vendors to become very cynical,” a publisher of a small newspaper told me. “Whether they extrapolate revenue based on bigger markets or outright lie, we have become very suspicious.”

This sentiment, which was echoed by others I spoke with, made me realize that the sales cycles would be punishing. For many customers, it would be hard to get our foot in the door, let alone successfully close a deal.

Yet the same publisher was interested in a technology that could help once again make classifieds a draw — as well as bring in revenue or improve efficiencies. He readily admitted that his own technology was complicated for users. “On Craigslist, it’s easy to create an ad, upload a photo, and publish,” he said. “We should be able to do that.”

The barriers

I spent time studying how classified systems worked at various publishers. I found it very interesting that many smaller publishers still had a classifieds desk that took ads over the phone, often augmented by email with customers. Some larger publishers had online classifieds tools, but they were clunky. Part of the problem related to the fact that most attempted to serve both the print and online classifieds, and did neither job well. Others were poorly configured. The system used by my hometown newspaper didn’t even let me post classifieds locally — but did make it possible to create listings in markets more than 20 miles away. The system also tried to charge expensive rates for relatively small ads — $15 to $20 was a typical base rate for a small text ad in print. (A simple online classified ad was included for free.) No wonder people were abandoning newspaper classifieds for Craigslist.

Beyond the clunky ad creation systems, one of the biggest technology problems I observed was the nonstandard online publishing platforms used across the industry. This is actually a huge, underappreciated issue for all news publishers, including broadcasters, news agencies, blog-based news and opinion sites. It leads to additional costs, complexities, and talent shortages that companies based on older media platforms — including print, television and radio — did not have to deal with.

Among newspaper websites, it’s not hard to find home-grown hacks or heavily customized content management systems. Even at publishers which use the same CMS across their properties, variations are common — a typical example might involve different versions of Drupal and Drupal modules, owing to staggered technology upgrades, different needs for various brands, and complications involving legacy applications and data. Throw different registration and online payment systems into the mix, and you can start to understand the problem new software platforms targeting this industry are faced with.

Related to the CMS mess was a lack of developers and other technical staff at media organizations. This is a problem that afflicts many industries, not just the news business. But it exacerbated the problem with nonstandard publishing systems. Not only would heavy programming work be required to get Invantory to work with a new customer’s site, but integration would largely fall back on us. Systems integration is technology consulting that requires lots of time and specialized development staff. It was not a business that we wanted to get into.

The Final Nails in the Coffin

The final nails in the coffin came at the New England Newspaper & Press Association’s fall conference in October. There, I heard more details about the pain being experienced by publishers, and received advice that helped us make our decision to abandon our original plan to target the media industry.

One of the speakers, Amy Mitchell of the Pew Project for Excellence in Journalism, laid out the grim financial outlook. She stated that while most newspapers are still managing a profit, they’re surviving by managing costs. Mitchell was unable to identify any solution to the revenue crisis. “We are not recommending anything other than experimentation,” she told the audience, adding that this was going to be tough at many publications whose corporate cultures are resistant to change and innovation. This signaled that publishers were not only less likely to invest in innovative technologies, they were also unable to afford more expensive third-party software.

News industry analyst, author and blogger Ken Doctor was even more skeptical of a turnaround. “It is impossible for anyone to keep up with the disruption,” he stated. Doctor went on to predict that broadcasters would soon begin to feel the same pain as newspapers and magazines, as business models based on traditional advertising eroded further.

However, Doctor also saw opportunity in tablet platforms. “If you read, you’re going to have a tablet,” he said, adding that the price of Kindles and other devices will soon drop to $50. “Why wouldn’t you buy one?” he asked the audience.

The final presentation of the afternoon was from Alan Mutter, a former newspaper editor turned Silicon Valley CEO. As a consultant, speaker and author of the Reflections of a Newsosaur blog, he has become a well-known pundit on the travails of the news industry. During his NENPA talk, he predicted more top-line pain for publishers, owing to a number of trends:

  • “The audience trend is you don’t have audiences under the age of 40.”
  • “The most important thing happening is brands are going directly to consumers.”
  • “High-priced reach advertising is not defensible.”
  • “Coca-Cola has 34 million friends on Facebook … This is the future for marketing and advertising.”

Moving on

That evening, I met my partner and told him that the idea of selling to the news industry wouldn’t work. Doing so would require huge investments of time and staff expertise, for skeptical customers who generally couldn’t afford expensive technology systems. Raising capital would be more difficult when investors heard who we were targeting. We are still going ahead with our plan to create a mobile classifieds platform, but will instead go direct to consumer based on a freemium business model.

We’ve already built out the cloud infrastructure and now have a demo application. Work has already started on our intellectual property — the proprietary technologies that will drive our reputation system. Soon we will begin user testing. (If you’re interested in signing up for product updates, or seeing an alternative to Craigslist in your town or city, please use the sign-up form on the front page of the Invantory website.)

We understand that we’ll face a new set of challenges, especially in terms of developing a solid go-to-market strategy and revenue plan. But we believe the time is ripe for innovation in this space.

Ian Lamont is the former managing editor of The Industry Standard and a web media veteran with years of experience developing online news, community and content. He eventually left the news media to return to grad school, earning an MBA as an MIT Sloan Fellow. His startup, Invantory, is a mobile software platform for local classifieds. Follow him on Twitter at @invantory or @ilamont or email him at ian.lamont@invantory.com.

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