Gordon Bethune, ex-CEO of Continental Airlines once remarked in reference to United Airlines -”The inmates are running the asylum.” If he had looked at the crosswords industry, I suspect he would have expressed the same sentiments.
I think most of us would agree that we are lunatics to be in this business. So, the fact that we may be accused of being in an asylum would neither come as a surprise nor would it be taken as an insult. The question is whether we are running our asylum as inmates might.
The airlines industry, until recently, had a lot in common with the crosswords industry today. Most airlines struggled to break-even for their investment, had no pricing power, flooded the market with supply, shot each other in the foot commoditizing the product with no differentiation, gave away too many desirable benefits and perks for free, asked people to pay for a seat with one hand, while giving away the next seat free or cheaply with the other hand, mishandled the evolution of technology and the consumer power it created… the list is long.
With their customers used to such low pricing and extensive freebies, airlines have had to struggle to get customers to start paying more or start paying for things that were free before. Only serious bankruptcies (or credible threats of such) forced the industry to consolidate and stop shooting each other in the foot. There are signs that they are becoming profitable again. So miracles do happen. There are many lessons in that recovery for the crossword industry.
The equivalent calamity for the crossword industry in the current trajectory is the continued loss of publisher patronage, the only source that is keeping the content production alive at the moment. People familiar with paying crossword outlets over the last couple of decades are painfully aware of how many media patrons have exited from sponsoring their own crossword content until there are only a few left. It will reach a point where the money available to the authors and the distribution platforms is no longer sufficient for anything beyond mediocrity in content and delivery mechanisms. Enough competent authors and innovative technology providers will exit the business to threaten its survival at least in terms of having any quality product. We don’t have to wait for such a calamity to fix it.
The previous posts outlined the problems in being relevant to the audience with changes in demographics and technology. In this post, I will discuss the failure to rationalize the business models with changes in technology. It is the latter that gives the appearance of the inmates being in charge.
Like the airlines at a different point in time, the crossword business models of a decade ago were relatively rational and made a lot of sense for those times. There were five primary business models:
- Printed newspapers with crossword editors bought original content from authors and published them to make their newspapers attractive for people to subscribe to. They had enough advertising and subscriptions to justify it.
- For smaller newspapers that could not afford to have original content of their own, syndicates provided a cheaper “amortized” solution. Syndicates made money with volume and bought original content from authors.
- Publishers bought rights for archived collections (and some even bought original material) and published printed books that were sold in book stores. People bought enough of these to keep them going.
- A few crossword clubs stayed in business selling original printed crossword subscriptions to solvers. Solvers received printed crosswords via mail.
- Boxed crossword software sold compilations of crosswords. They provided a fixed number of crosswords for solving after which they were thrown away and people bought another package.
At first glance, the current business models may look the same updated with new technology. Perhaps the volumes within each business model may be different now compared to the past. But the problem is that some of the basic assumptions within each business model and the assumptions that made those business models co-exist have become invalid. The inmates apparently have not realized this and are carrying on as if that didn’t matter. This is the key point that must be understood to bring a bit of sanity into the asylum!
The primary catalyst for this change was technology.
One basic assumption behind all of the above business models co-existing is that they did not step on each other too much. They managed to keep the supply and the demand sufficiently segregated from each other, or alternatively those separate models existed only because there was that segregation.
For example, the printed newspaper crosswords were, in effect, a perishable item. Very few people bothered to cut them out of the newspaper and keep them if they didn’t solve it immediately. The supply disappeared as the newspapers were discarded whether they were filled or not. It was not easy to make copies even for family members.
This meant, for example, there was a market for archives/collections because people liked the crosswords from a newspaper but did not (or could not) subscribe to that particular newspaper. Or perhaps because they never got around to solving many of their own paper’s crosswords, they bought an anthology to catch up when they had time for it.
The syndication of the same crossword to many different smaller newspapers made sense since the audience to each of the newspapers were very local and the newspapers didn’t notice or care that the same crossword was being published in many newspapers.
The crossword clubs catered to people who were unable to get a paper subscription or didn’t like the crosswords in the local newspaper and wanted a steady supply of the type of crosswords they liked.
The packaged software catered to those that wanted their diversions on the computer but were given a finite supply for each sale. This required the solvers to buy more packages or buy a newspaper subscription or a club subscription to get more.
When technology invalidated the assumptions, the situation is more like the following imaginary scenario (if not worse):
- The newspapers came with a punch-out crossword that could be very easily cut out and stored. They were so thin that people could keeps thousands of them in their filing cabinets. The paper was such high quality that it would last forever. They could also easily wipe them and share it with others.
- In addition, solvers had access to crosswords from almost every newspaper without having to pay for any subscription. They could just go and cut out crosswords from any newspaper in their public library. The library had an unlimited supply of every newspaper so anyone who wanted to could do the same.
- If that wasn’t sufficient enough, for a single one-time fee much less than the cost of a subscription, delivery services offered to bring almost every crossword published anywhere and hand-deliver them to the people for life. The solvers didn’t even have to go to the Library. The delivery service would even put the crosswords on their computers so they didn’t even need a file cabinet and allowed them to access it from any place on earth they were in.
Now, go through the earlier business models again and see if they make any sense whatsoever in the above scenario. For example, how do you convince a newspaper to pay for your crosswords because it brings them increasing subscriptions in the above scenario? Gordon Bethune would have torn off the last of the remaining hairs on his head looking at the situation.
One might say that this is an unfortunate but necessary consequence of technology and of supply and demand and we just have to get used to it. Nonsense. This is a predictable consequence of inmate behavior living in silos and shooting each other in the foot, just as the airlines did until recently. I will address rationalizing the business models with evolution of technology in the next post and continue here by looking at some of the inmate behavior in more detail.
When we, at Litsoft, looked at possible business models for Across software on the mobile platforms, we couldn’t believe the state of the asylum. We knew exactly what Gordon Bethune or any of the airline CEOs went through trying to rationalize their business models to justify existence, while each of their peers supposedly trying to do the same were collectively hurting each other.
For example, it made no sense for us to just provide a mobile app with limited crossword content because every app out there was providing unlimited supply. Of course, this was possible because such apps didn’t have to pay for the content given how they obtained the content (a problem that needs to be addressed both ethically and legally that I will cover in a later post in some detail). So, we would have no choice but to do the same because of what our peers did.
If we followed suit, we would be hypocritical at best and unethical at worst. On one hand, on behalf of content creators, we were trying to convince online sites how publishing premium crosswords on their sites would bring them more traffic that they could monetize. The compensation for such content production would come from sites who were convinced of this. On the other hand, after selling the sites on it, we would enable people who buy our apps to get access to that content without ever having to visit the site!
Now, some might try to dismiss this as a problem with Litsoft’s business model, not the industry’s problem. But think about it. Litsoft trying to do both just makes the problem explicit and obvious, not create it.
Separating this into multiple entities doesn’t make the problem go away. One set of participants would be trying to convince online sites that they should put out crosswords to increase their revenues – not in terms of files downloaded (which has not been used as a metric since the dot com days) but in terms of actions that can be monetized while visitors are on the site. This is what justifies the sites paying for the content production.
Another set of participants would be trying to (ab)use this availability to provide content to people without these people ever having to visit the site in any way that can be monetized. The situation at the moment is so bad that no one in the mobile audience who might otherwise have visited a site for the crossword feature ever has to visit the site in any way that might serve the site owner’s purpose (unless the site owner is selling the content which is rare). Any app that solvers can get for solving published crosswords at the moment makes it wholly unnecessary to visit the site (as distinct from grabbing a file which cannot be monetized). Apps that try to avoid this would go nowhere because people are used to and expect that delivery – an expectation that the industry itself created like the airline industries with its perks and freebies earlier.
Mobile audiences are the growing market for online sites. So, if the industry wishes to continue to make a case for online sites to publish crosswords, they should be finding ways for the mobile audiences to utilize the sites in a way that can be monetized, not equip the audiences to subvert it. The current situation is sort of like a third party TV streaming service that enables people to access PBS content without having to be subjected to any pledge drives. Rationalizations such as “I would not have pledged anyway” don’t hold up to closer scrutiny of how pledges work.
Contrary to what some might be suspecting here is my point, the lunacy is not with software vendors. They are doing what they need to do and are allowed to do with self-interest (or with public interest for non-commercial apps), a wholly rational behavior. Ethics and legality are different issues from lunacy. They might even rationalize that if the content producers and publishers are getting hurt by this, they would do things to prevent it, so it is not their problem.
They would be partly right and partly wrong about this. How they are wrong will be covered in a post soon on copyrights, “fair use” and protecting the markets. But they will be right about one thing, the responsibility of the content producers and/or publishers.
The lunacy is not entirely with the publishers if they are not creating their own content and charging for it (like The New York Times). The content producers are the ones that stand to suffer the most from this.
- Publishers who see declining audiences or zero mobile audiences for the crossword feature will just decide to cut or reduce the compensation for the crossword feature (remember that most of them are struggling in their business models) or choose the cheapest source which hurts content producers.
- All secondary archival markets (printed, software packaged, club, etc) for the content producers are hurt if the content overflows from the first publication market into that segment.
- While the unlimited overflow prevents direct to solver business models for the content producers, they are not sharing revenue in the business models that relies on convenient delivery of their content to solvers.
Again, it should be emphasized that this is not just a commercialization (“making money”) issue that some content producers may not care about. As explained in a previous post, if content producers did not want “commerce”, they should be putting the content out for free for anyone to just come and use it without using any commercial products to do so, only then would it be free of any “commercial interests”. If they want to be paid for the crosswords, even minimally, want brand recognition for their crossword via editorial selection, want their crosswords to be available on any platform or device, then they already have a “commercial interest” in crosswords.
The most problematic inmate behavior in content producers at the moment is that they actually like, use for themselves and promote software or services that do precisely what I have described above as a problem for the industry.
Why they do it is not difficult to understand. For most content producers in their silos, there are only two things that matter – being paid for the content, and seeing their content that they have sold be used by as many people as possible (for satisfaction or ego gratification). So, once the crossword has been sold to a source, it is “not their problem” if every solver gets it any way they can, and free and convenient distribution gets the widest possible audience. What they have failed to see is the increasing conflict between the two goals, given what technology has made possible.
This situation is understandable given that this was not a problem under the assumptions of the previous decades. Once a crossword was sold to a newspaper, no one had to worry about who got access to that crossword. The nature of the printed media limited its lifetime and its overflow into other segments. The segmented markets which thrived (or at least survived) had natural barriers for distribution across segments so free and paid markets could co-exist. But, we now have a situation where that assumption is no longer true and yet the inmates have not adjusted to that reality.
I am not suggesting here that we should necessarily cling on to some irrelevant business models of the past. First of all, not all of them have lost relevance, just needs fine tuning. For example, it has been customary for content sources to limit their online publishing clients to a small archival (say two weeks) to protect their republication markets. In addition, it will now be necessary to limit the use of that material to the context of that publication (suitably defined). The limitations are already there in many instances, it just needs to be enforced.
Second, it is quite possible that a publisher/content producer may have a valid business model or a goal to let anyone deliver their crosswords freely to end users in any way they can. Perhaps they are establishing a brand, and need the marketing especially for a limited time. Or they may allow delivery services to supply content for a reasonable licensing fee. Some may provide limited free content or “lesser” content to up-sell to “premium content” (if there is differentiation in content). Those models are to be decided by the content owners to fit their business goals, not subverted by third parties who don’t own the content.
Third, new business models have come up. For example, providing the crossword content free to online sites in exchange for providing a funnel back to the source to up-sell to the audience.
I am sure many completely new business models will be conceived in the future.
What inmates of an asylum might do, however, is replace valid business models with foolish ones that destroy all of those business models. Imagine the business model of a manufacturer selling a cheese grater for $5 that includes a lifetime supply of a pound of free cheese every week. That would be called dumb. The manufacturer tries to justify it by offering to sell more of the same cheese for those that need more than a pound a week. That would be called wishful thinking. The manufacturer tries to be profitable by sending his people out to collect the free cheese samples in all the grocery stores and supply that cheese free to his customers. That would be called something far worse.
To summarize, like the airline industry of the past, the crossword industry participants cannot live in silos and shoot each other in the foot. Even if this is inadvertent from focusing solely on their self-interests or tolerating conflicting goals. The business models used in the industry need to ensure that one participant isn’t exploiting another because, to say the least, such models are not sustainable. These result in the whole industry being hurt.
It is not my intent to suggest any specific business models for the industry. Just saying that if we stop running the asylum like inmates, people in the industry will create new and innovative business models that will help the whole asylum.
In the next post, I will take a look at market segmentation and what might be needed to support multiple business models to co-exist and the value of branding and differentiation, to create newer business models. In a follow up post, I will tackle the issues of protecting copyright for contents as well as copyrights and patents for software and services since it is quite likely that the industry will start to see legal implications of this in the future.