Nice post Tim. I really dig the business model posts.

Reading this stuff about Nichepapers got me thinking about this from an industrial organisation perspective (think Richardson: http://tinyurl.com/n384ye). It’s been a while since I’ve read this literature so I’ll apologize in advance if some of the thoughts are sloppy.

It seems to me that the big thing that the internet has done has been to reshape coordination cost and entry barriers. Like many firms, newspapers’ traditional raison d’etre was to coordinate the integration of a product. They presided over the assembly of different types of content into the product and then, many of them, coordinated the production and distribution of the physical product. One of the drawbacks of this approach is that you inevitably end up with a rather generic product, but the economies of scale reaped in the process meant that you could provide enough depth and breadth to outweigh any loss of utility a consumer might derive from customisation. However the progress of the internet and other digital technology to date (say digital camera; cheap blog hosting technology; cheap bandwidth) has fundamentally changed the balance here on a number of levels.

1) Economies of scale are being outweighed by the reduction of entry barriers and increases in technology that have reduced the marginal cost of production. For instance you get people who have already sunk the required asset specific investments needed to become an expert in an area who can now compete with journalists in areas that interest people. Given this investment advantage, these new entrants usually have a competitive advantage in terms of the marginal cost of production and the quality of the product (e.g. for a somewhat humorous example see http://blogs.crikey.com.au/pollytics/2007/09/23/crimes-against-psephology-christopher-pearson-%E2%80%93you%E2%80%99re-nicked/)

2) Thanks to changes in technology the costs of coordinating production and consumption in this sector have drastically fallen. Consumers have now stepped into the role of product integrator (e.g. see this article by Farhad Manjoo http://www.slate.com/id/2217353/ on different ways to organise your consumption) which means the newspaper’s role of product integrator is getting increasingly threatened.

Does this mean that newspapers are dead? I doubt it. There are still some tasks that are complex enough to enable firms to compete. However, I highly doubt they’ll be the only ones competing in this space. Looks like they’ll have to get used to moving away from the dynamics of duopolistic competition.

It will be interesting to see how they do this. A couple of simple predictions:

1) More journalists will require some sort of advanced education or training in their area (i.e. increased specialisation required to respond to the increased division of labour occurring in the market)
2) More freelancing and insoucing of ‘comment’ articles, which are free.
3) Increased dependence on citizen reporting ala CNN and http://www.ireport.com/
4) The emergence of newspapers as communities. The trajectory of the Guardian is an example of this: http://www.guardian.co.uk/

Cheers!