The previous posts made a case that the current trajectory for the crossword industry is in a direction opposite to where we should be going – to keep the art form alive and thriving. Assuming that we manage to reverse course with the constructive suggestions, what kind of business models will likely be sustainable in the new world? Which ones are unlikely to be sustainable and furthermore may even be destructive?
To start, let us look at how the value chain has evolved over the years (with some simplifications to keep it manageable). To set the base scenario, I will start with the printed media crossword industry value chain (Fig. 1) before technology affected it significantly.
Note: Green lines indicate flow of money. Red lines indicate flow of content. Blue lines indicate indirect flow of value (brand name, advertising value, etc). Thickness of the lines roughly indicate the relative sizes of the flow within each type.
Authors (A) sold new, unpublished content to newspapers (N) who paid them a tiny fixed amount. The newspapers edited the crosswords to provide additional value to the content and supplied it to the newspaper subscribers (S). The subscribers not only paid for their subscriptions but also became targets for advertisers from which the newspapers got significant revenue. This used to be a fairly robust first publication market for crosswords.
None of the newspapers really needed to do a Return on Investment (ROI) calculation for the crossword feature on its own as the production costs were marginal relative to the whole paper and there was a captive audience for it. As might be noticed, the newspapers were the center of the universe in this world, the vestige of which still remains.
Book publishers (P) bought rights to secondary or archival publications. They printed crossword books and sold them via book stores (B) to crossword book solvers (R). This was a smaller market with each entity in the value chain (P and B) keeping a cut. Newspapers realized additional marginal revenue from the secondary markets.
I will ignore the syndication market for now which is similar except for the same content going to multiple newspapers with the content owned by the syndication rather than the newspapers. The value chain is very similar.
We can judge the business models for each entity in three dimensions – ethical, legal and sustainable. While one can make an argument that perhaps the amount paid to authors was poor and not fair, it was a market determined price where a number of newspaper brands competed for the authors. None of the entities could really be faulted for ethical, legal or sustainability issues in their business models in this value chain.
Then the Internet happened (Fig. 2):
The newspapers put most of their content, including crosswords, online for free. Online users (U) could now get the crossword content from any newspaper without any subscription dollars going back to the newspapers, only indirect advertising dollars. The newspapers had to pay the vendors (V) for the software needed for publication which increased the cost. These online costs were offset to a certain extent by the savings in not having to print and deliver newspapers to the online subscriber base. The net effect was that the printed newspaper business shrank in general as more subscribers moved to free online access. The monetary value attributable to the crossword section also shrank with the reduction in the captive subscriber base.
The newspaper industry suffered terribly in this evolution and some even went into bankruptcy. The ones who survived the change are still struggling with their business model to decide between paid, free and advertiser supported online content that maximizes their revenues. The effect on the crossword industry was significant as the number of outlets that paid for original content dwindled over time and the money available for syndicates continued to dry up to support only the cheapest sources.
In the secondary markets, the situation is even more dire. Some of the publishers had produced electronic titles within the bookstore (or the almost extinct software store) channel but most of them never really ventured into the online distribution model directly to end users. This has been a colossal strategic mistake on part of the publishers who have been sitting on electronic rights to the content but doing very little with it.
At the current pace of progress within such publishers, they will most likely get disaggregated from the value chain entirely. So far they have been able to get secondary content rights because they had the marketing/sales channel in printed media that was too expensive (or not worthwhile) for content owners to get into on their own.
But now, technology has made it possible for content owners to directly partner with technology vendors and bypass publishing houses for direct marketing to end users. And this is the fastest growing market segment! Without a clear strategy, experience and marketing investment on the publishers’ part, even a garage software company can do better in pushing the content out to consumers in the electronic markets. With the printed book sales dwindling and content owners likely to become increasingly reluctant to sign away electronic rights if the publishers are doing nothing in this area, they have the least sustainable business model for crosswords. Most, if not all, such publishers may decide to get out of crosswords altogether.
One might argue that this is just a natural evolution and that technology has made publishing houses (for crossword archives) obsolete. After all, unlike new books, crosswords for secondary publication have already gone through an editorial process and many crossword sources have established branding (e.g., from the newspapers in which they were published). Therefore, the publishers have very little value to add in the electronic distribution of such material. It is a valid point.
On the other hand, there are significant opportunities for the publishing houses to provide first publication content in a direct to consumer paid-crosswords market.
Evolving technology and consumer behavior in the always-connected world has completely changed the potential for direct to consumer sale and delivery of crosswords.
So much so that this has the potential to be significantly larger than the current dominant market of newspaper-funded crosswords provided mostly free to its audience.
This is particularly true in the increasing number of hand-held devices capable of becoming points of sale as well as being content consumption devices regardless of where their owners are. Compared to the printed publishing model where the points of sale were limited to visits inside of a bookstore, the potential for (impulse) sales of crosswords to any device at any time wherever people are, is several orders of magnitude larger. Combined with the ability to package the crosswords in many different ways, to customize it to the user and to provide value-added services, this can unlock a significant market for the industry.
The dwindling number of newspapers sponsoring first publication content of their own is an excellent opportunity for publishing houses to step-in and create their own edited-crossword brands. Content is available fairly cheaply at the moment because of the small number of outlets available to the authors. This model already exists to a certain extent in the publisher’s printed book catalogs, so it is not a new idea by any means. However, electronic distribution enables extremely flexible packaging possibilities not feasible in the printed book model to open up new markets.
This opportunity also exists for individual authors who are prolific enough to create enough content to work directly with technology partners for direct to consumer paid markets. Both of the above can co-exist because of the branding differentiation and possibly pricing differentiation as well.
As technology providers, we are extremely excited about the possibilities for innovation in this industry in the new era – in business models, types of services and the nature of crosswords themselves possible without the restrictions of printed media.
A segmented market with sustainable business models in the new era, would look something like the following (Fig. 3):
Authors would have 3 outlets.
- Traditional newspapers with electronic distribution in a paid subscription model or monetization via advertising as part of the whole publication delivered electronically in their own channels (e.g., apps). Newspapers would provide their own secondary/archival publications rather than use the publishing houses in the same channels. Technology partners would share in the revenue stream.
- Traditional book publishers that would make their own branded first-publication collections available in a paid model (subscription or one-of). Technology partners would share in the revenue stream.
- Direct partnership with technology partners to make their self-edited crosswords available in a paid subscription or one-of model with a revenue share.
Branding and pricing differentiation would make the segments co-exist to cater to different target audiences. In a future post, I will cover some marketing techniques for branding and differentiation to increase the pricing power of crosswords in this ideal scenario.
But there is a huge fly in this ointment – the increasing number of parasitic business models amongst software vendors as a standard feature that has ethical, legal as well as long-term sustainability problems. Unfortunately, this environment is destroying the market for paid crosswords as well as gradually destroying the existing business models (on which the parasites depend on!). This prevents the evolution into the healthier scenario above with innovative business models and services until it is likely to be too late to recover from.
It is a bit amusing to see the rationalizations and the mechanisms these vendors implement in a futile attempt to stay legal. As I will describe in the next post, none of them will protect them from a serious copyright infringement lawsuit if it comes to that but I hope it doesn’t have to since the fix is rather simple. The futility of these rationalizations and mechanisms are also evident in the value chain distortion created by the parasites (Fig. 4).
Even a cursory look at the value chain shows the unsustainable nature of this scenario as the parasites give nothing back of any value to the content producers that they depend on to justify selling their services or apps. In addition, they are also decreasing the audiences for those sites that the crossword feature would have brought in, in the previous value chain. While such parasitic models have existed for a while without serious distortions (as they were relatively small in reach and scope), the situation is entirely the opposite in the mobile world where the aggregation parasitic apps are the norm rather than the exception. The convenience of this service will continue to attract more audiences. The web-scraping has become a standard necessary feature of ANY new app on mobiles or computers because of the audience expectation set up that this is the norm, legal and acceptable.
What is unfortunate is that this parasitic business model of a one-time fee for unlimited content is sustainable only as long as sufficient new users keep buying such an app. There is very little opportunity to up-sell to existing customers in this commoditized software market short on innovation. The costs to fix bugs and keep the software updated with every OS change and to keep pace with competitors keep coming up. Once the new user acquisition starts to taper off – either from saturation or because of too many apps with the same set of free crosswords – the business model falls apart to improve the apps or to keep them updated. This will likely make some, if not all, of the parasites to abandon the market (assuming they have not driven their content sources out of the markets by then in a mutual destruction scenario). It is an opportunistic business model that might even make some good money in the short-term, but good for the industry? Absolutely not.
In addition to the unsustainable nature, the scenario has legal issues related to copyrights that I will cover in some detail in the next post which can only end in a lawsuit at some point if not voluntarily corrected. There are also ethical issues primarily arising out of not sharing the revenue from sales with the content producers/owners that they depend on to make the sale. If the app was being sold for how great the app was, they wouldn’t need to include the parasitic scraping!
But wait, one might say. Haven’t some of these parasites provided an avenue for individual authors to sell their crosswords directly? This option didn’t exist before. This may be legal on part of the authors, but it is neither ethical nor sustainable for them. It isn’t really ethical because they are getting the exposure to a market that is based on copyright infringement of their peers. But more importantly, this is not sustainable except for a short-term opportunity to the first-movers.
In our market testing, we estimate the conversion rate of people buying in this scenario of abundant free crosswords delivered with no effort is less than 1%. The so-called “freemium” model in the “freeconomics” isn’t about giving away a life time supply of cheese to sell a cheese grater and offering more cheese for sale or giving away the banking services free to sell a toaster and offering another bank’s services for a fee.
As I have mentioned before, with at least 20-30 crosswords available free every week in the parasitic mode, the target market that has time for solving any more is small. Within that market, people who are willing to pay for crosswords mostly undifferentiated from the free content is another small fraction. While the volumes involved may provide some discernible revenues to the first few authors who get on, it isn’t sustainable if every author wants to get on because of the dilution in that tiny market. Of course, this situation isn’t ethical either because authors of the content this parasitic model depends on don’t necessarily have the rights to place their crosswords for sale in these channels. So one group would be benefiting at the cost of another group of their peers. A rather unfortunate and distasteful situation.
But wait (again), aren’t those crosswords already available free online? How does an app collecting these crosswords and supplying them decrease the market for paid apps crosswords? Perhaps the market doesn’t exist for paid crosswords at all.
The above, while true in theory, shows an utter ignorance of consumer behavior in reality which supports two name brand gas stations within a mile of each other with a difference of $0.40 per gallon (true story in my neighborhood), one grocery store selling the same branded item for twice the price of the grocery store in the next block, the list goes on. People are creatures of habit, lazy when it comes to consumption and willing to pay a premium for convenience. Give them a web site to do price comparison shopping, only a few will use it. Give an app that will do it by taking a picture of the bar code and doing real time search with a single click and almost everyone will use it.
The delivery convenience is the primary reason for people to pay for a parasitic app but it is seriously mispricing the product for that convenience for opportunistic and unsustainable revenue. A more ethical and sustainable business model would charge a premium for that convenience, sharing revenue with the content producers for the content being delivered.
The solution is rather simple. The parasitic apps can voluntarily do the right thing and send people to the conveniently bookmarked crossword sites for the crosswords using the web browser (not some embedded browser that does not allow what the site expects them to do) as it was meant to be consumed than try to pretend that they are being legal with absurd and disingenuous mechanisms. The next post will discuss at least 3 out of 4 conditions that they fail for copyright infringement in any of these attempts. Instead, they can provide the convenience of delivery as a subscription service and revenue share with the content producers. They can innovate on the app features and services rather than on web-scraping to bring value that people will gladly pay for.
The industry participants have a serious individual and collective decision to make if the parasitic models persist. Tolerate, participate and even reward any of these parasitic business models and see the industry decline further. Take a stand to move these vendors towards more ethical and legal business models that are sustainable and see very interesting business models and innovations flourish.
Some of the participants and the parasitic models are on a collision course and only one of them can survive. We will likely see which ones survive early next year.
Next post: Understanding copyrights and infringement