The New York Times Paywall

In my 2010 JCDL keynote I reported Marc Andreesen's talk at the Stanford Business School describing how legacy thinking prevented the New York Times from turning off the presses and making much more profit from a smaller company. Part of the problem Marc described was how the legacy cost base led the NYT to want to extract more money from the website than it was really capable of generating. In other words, the problem was to get costs in line with income rather than to increase income to match existing costs. This is essentially the same insight that the authors self-publishing on Amazon have made; the ability to price against a very low cost base creates demand that generates income. The NYT's paywall demonstrates that Marc was right that they are hamstrung by legacy thinking.

First, in order not to suffer a crippling loss in traffic (Murdoch's London Times lost 90% of its readership) and thus advertising revenue, the paywall cannot extract revenue from almost everyone who reads the NYT website:

• Subscribers to the print edition, who get free access.
• People who read the website a lot, who get free access sponsored by advertisers.
• People who don't read the website a lot, who can read 20 articles a month for free.
• People who get to articles free via links from search engines, blogs, etc.
• Technically sophisticated readers, who can get free access by evading the paywall

From whom can the paywall generate income? Technically unsophisticated non-subscribers who read a moderate amount but not via links from elsewhere. That's a big market. Legacy thinking requires generating lots more income but the ways to do it are all self-defeating.

Second, because the paywall that would be unnecessary if the cost base were addressed needs all these holes, it is unnecessarily complex. Therefore, as Philip Greenspun reveals, it is unnecessarily expensive. How did an organization one would think was tech-savvy end up paying $40-50M to implement a paywall, even if it is a complex one? The answer appears to be that some time ago, presumably to reduce costs on the digital side of the business, the NYT outsourced their website to Atypon. Apparently, they have repented and have taken the website back in-house, so the $40-50M is not just implementing the paywall but also insourcing.

These costs for undoing a decision to outsource, together with Boeing's 787 outsourcing fiasco, should be warnings to libraries currently being seduced to outsource their collections and functions.