It seems like a no-brainer in hindsight, but 10 years ago there was plenty of debate about how newspapers should respond to the birth of the World Wide Web. Classifieds have proved to be the key ingredient to a decade of success.
In the mid-1990s, most newspapers started posting news and all their classified advertising on the Web.Classified ads on the Internet were an instant success:
• One-fifth to one-half of newspapers' web traffic proved to be people going to look at online classifieds.
• Newspapers were able to increase the price of their classified ads because of the increased - and inexpensive - extra reach provided by the Internet.
• By posting their classifieds online, newspapers were able to strengthen their franchise, attracting more classified ad buys and readers in both print and online.
Simply by posting classifieds online - and raising rates - newspapers usually became the most dominant online marketplaces in their trade areas. The combination of advertising and news allowed newspapers to "own" the local online franchise.
Classifieds were key to profitability. Borrell Associates recently reported that 83 percent of the newspapers the company surveyed reported having profitable online editions. (At TownNews.com, we believe the figure is even higher. I don't know of any of our online papers that aren't profitable.)
The Borrell study found that the average newspaper online edition produced revenues of $17.70 per unit of circulation. The smallest newspapers earned about $3.64 per unit, or $36,400 for papers with 10,000 circulation. Larger newspapers, according to the Borrell research, had average revenues of $27.10 per unit, meaning a paper with a 200,000 circulation brought in $5.42 million from the Web in 2003. The Borrell study cited classifieds as being key to newspapers' online success - but noted there is a decreasing reliance on classified revenue. Borrell said 73 percent of online newspaper revenue came from classifieds in 2002, while only 60 percent came from classifieds in 2003. (I believe the presence of classifieds created a marketplace that allowed newspapers to sell other online advertising, including banners, Top Ads, directories, etc.)
While there has been good success, newspapers have seen erosion of their classified business - online and in print - because of Internet competition - especially in the three main vertical categories, employment, auto and real estate.
National competitors - such as Monster.com, Realtor.com and Autobytel - have been able to become serious players in the classified marketplaces. The very nature of employment, auto and real estate advertising makes this revenue vulnerable to competitors not even imaginable 15 years ago.
Newspapers have been fortunate. They controlled content - classified ads - that they could post to the Web to create online marketplaces.
That effort was largely sufficient in the first decade of the World Wide Web.
The challenges for the next decade will be more onerous for these reasons:
1. Established national classified competitors now have strategies to "go local." That means Monster.com wants to sell ads for dishwashers and burger flippers. That means local real estate agents will spend more on the Web than in print. That means car dealers will have increasing opportunities to reach customers via the Internet. Google will be able to use its search technology to match advertisers with customers.
2. Technology has improved. In the past decade, most folks have had to access the Internet via slow-speed dial-up modems. Soon more than half of U.S. households will have high-speed Internet access.
3. More and more consumers are comfortable using online to shop. The children who grew up playing Nintendo are growing into young adulthood. They will think online first, print secondary.
I think newspapers' biggest challenge in the next decade will be culture. Too many newspaper executives try too hard to use online to defend print revenues. That often makes newspapers too slow to respond to changing technology and customer demand.
(Marc Wilson is general manager of TownNews.com. He's reachable at marcus@townnews.com.)
