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Why media companies struggle to act like tech companies

One attribute that separates the good pundits from the bad pundits is a willingness to admit it when you’re wrong, and so I want to start this piece out by acknowledging that I was wrong about The Washington Post’s ability to succeed as a tech company.

Let’s start with some context: for the past several years, WashPo has built out two separate tech platforms. The first is called Arc XP and it’s the content management system that powers the newspaper. The second is called Zeus and is a proprietary ad tech tool that makes it easy for brands to buy ads on publishers’ websites.

Under Jeff Bezos’s ownership, WashPo launched these two platforms as SaaS products that could be licensed out — in some cases for millions of dollars per year — to other publishers. In 2019, I was so bullish on Arc XP and Zeus’s prospects that I published an article titled “How Jeff Bezos is taking on the Facebook/Google ad duopoly and why it matters.”

While the first half of the piece focuses on Amazon’s advertising growth, I also devoted a significant portion to WashPo’s tech ambitions. My thesis was simple: WashPo now served as an incubator for a best-in-class publishing ecosystem that, when scaled across thousands of news outlets, could provide the reach and efficiency that had thus far eluded the publishing industry. To help make that argument, I quoted from a Nieman Lab piece by former Vice CTO Jesse Knight. Here’s what he wrote: 

If media could consolidate around a common publishing platform, it would allow players of all sizes to cut costs as well as better compete against Facebook as a media union, taking action collectively, and once and for all addressing their biggest revenue challenges.

For example, while technology exists to stop ad blockers by preventing those using them from viewing a site, most media companies are afraid that by employing an ad-blocker blocker, their visitors will simply go to their competition. But what if every site blocked ad blockers at the same time? Or concurrently deployed a paywall? Users couldn’t simply go to the competition because everyone would be rolling out the change at the same time.

On the SEO front, when Google rolls out dramatic changes to how they index the Internet, in a united media world, any adverse impact that was not content related would be felt by all companies equally, preventing the unpredictable and brutal way some companies have suffered through recent Google updates.

For developers building services for media sites — especially those that require CMS integration — the need to support hundreds of different custom platforms is a tough barrier to entry and prohibits easy scaling. Imagine having to customize software for several hundred different systems, each requiring hand-holding from the companies’ developers? Big developers can handle this, but smaller innovators struggle. The end result is that many developers steer clear of working on third-party media apps altogether. A common publishing platform would allow for plug-and-play integration, spurring far more third-party development.

Of course, that’s the pitch made by every media company that’s tried to build scalable tech products — that tools developed for their own internal use would be just as effective if adopted by those outside their own newsrooms. What I underestimated in my 2019 piece is how a product used by a single newsroom requires vastly different skill sets and resources than one that’s geared toward an entire industry.

As you can probably guess, my thesis didn’t age well. Last week The Wall Street Journal reported that Bezos was entertaining pitches to spin off Arc XP into a separate company. The reason? Its struggles to recruit top talent under its current media ownership structure:

Incubating a tech startup inside a larger company—and drawing in the investment and talent needed to build it into a larger enterprise—can be challenging … [Former CIO Shailesh Prakash] at times pushed for greater investment in Arc and argued that as a stand-alone company it could do a better job recruiting top engineers, by offering them equity and giving them more freedom to work remotely than was possible at the Post, the people said.

Zeus’s future is even more dire: Axios reported this week that it would no longer be operated as a standalone business. “Folding Zeus into The Post's existing ad sales team ends its efforts to make money by licensing its ad tech software to other premium publishers,” Sarah Fischer wrote. A day or two later, Adweek reported that Vox Media would stop licensing out Chorus, its own content management system.

These setbacks are by no means anomalies. For at least 20 years, media companies have attempted to scale their own tech beyond their core journalism operations, all with the hope of achieving Silicon Valley-level revenue growth. Over a decade ago, publishers like HuffPost, BuzzFeed, and Forbes embraced “platisher” models — the idea being that they could grow much more quickly if they opened their publishing platforms to user generated content. Of the three, only Forbes achieved consistent profitability, and it came at great expense to its journalistic brand, so much so that it’s widely derided as a spam website that’s littered with pay-for-play editorials.

So what gives? Why do media companies struggle so much when trying to make the transition into tech companies? The Rebooting’s Brian Morrissey made good points when tackling this same question:

These are different businesses, and have different staffing needs, not to mention onerous client service requirements. I remember asking one publisher hawking a CMS who was selling it. The COO stammered, “Well, me mostly.” That’s not going to do it. Enterprise technology sales are different than the churn-and-burn of media sales. The cycles are longer and more technical. As Lucas Quagliata said in The Rebooting’s Chat, “It’s just hard to balance different businesses when it isn’t core to their offering.”

Indeed, these efforts to build out scalable tech platforms seem to have a better chance of surviving if they’re spun off from the core media assets. Case in point: Megaphone. 

In 2015, the online magazine Slate launched a sister company called Panoply, the idea being that it would take the podcast expertise developed at Slate and scale it up into an entire network of shows. While that network struggled to gain a financial foothold, the hosting and ad tech platform it had developed showed real promise, and in 2019 it ditched all of its original programming and rebranded as Megaphone. That company was later bought by Spotify for $235 million and is now one of the largest platforms for podcast hosting and ad delivery.

Which brings us back to Arc XP; perhaps my original thesis about its potential wasn’t wrong, it was just a little misguided. As it turns out, WashPo isn’t an incubator, but rather it’s an albatross, weighing Arc XP down with its legacy media business models and hiring practices. That doesn’t mean that WashPo can’t be a great business in its own right, but its incentives will never align with those of a SaaS company. Quality journalism doesn’t scale like tech; in fact, that may be one of its greatest features.

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A ringing endorsement

Last week I received an email from Tony Mecia, the founder of The Charlotte Ledger:

I just watched the call on local news. (Hate I missed it live.) Really good stuff. Amazing insights. I had not heard of some of those outlets and enjoyed checking them out and seeing what they are doing. A lot of good ideas!

Just watching that one Zoom was worth the cost of an annual subscription.

You should be proud of what you are building.

He’s referring, of course, to my regular Office Hours calls with my paying subscribers. These aren’t boring webinars. They’re live, interactive calls where some of the top media operators in the world get to swap insights and network.

I’m planning to increase my subscription price in January, but everyone who subscribes before then gets grandfathered in at the current price. Subscribe at the link below and get 10% off for your first year:

Get 10% off for 1 year

Quick hits

It looks like Substack created a customized website for Bari Weiss's new media company. Is it a sign of how the platform plans to work with larger publishers going forward? [Substack]

This is a good case study on the perils of trying to build a product company on top of a media brand. [Insider]

"Subscriptions and advertising require a long time to build up. An events business, if you do it well, can be monetized right away.” [Adweek]

A Substack writer who runs his newsletter as a side-hobby played a key role in taking down FTX. A reminder that investigative journalism doesn't require the backing of traditional media; you just need an obsession and a bit of specialized knowledge. [The Atlantic]

Legacy newspaper chains aren't going to save local news. [SF Reporter]

ICYMI: How an interest in whiskey birthed a thriving media company

The Whiskey Wash capitalized on the rise of craft distilleries and is almost entirely funded through digital advertising.

Are you on Post?

I’ve been really enjoying its simple design but am having a difficult time finding good people to follow. You can find my profile over here. So far it’s the most promising Twitter alternative I’ve tested out.