Time for newspapers choose between the DEC or IBM model

It is painful to watch the steady decline of newspapers. For some, I expect we’re about to see the dead cat bounce as the economy turns around. This will only delay the inevitable. The challenge they face at this late date is immense but surmountable.

Their near death experience is similar to what Digital Equipment Corp (DEC) and IBM faced. Only IBM remains a blue chip market leader. However, IBM completely reinvented itself from a “big iron” mainframe and minicomputer driven company to the market leader in I.T. related services. There were some valuable assets that they were able to leverage but it took an outsider like Lou Gerstner to make that wholesale change happen.

Meanwhile, the vanguard company of the minicomputer era (DEC) wasn’t able to make that shift and sold at a deep discount to Compaq (who in turn was bought by HP). It’s important to recognize that IBM and DEC were in highly competitive markets. DEC along with countless other mainframe and minicomputer companies were unable to transform themselves and are mere footnotes of history. In contrast, the newspapers have largely operated in non-competitive markets by comparison. It will take a true newspaper leader and visionary to make this happen as opposed to someone just milking the cash cow until it withers and dies.

The “good news” for newspapers is their stocks are so far in the tank that there’s relatively little risk (easy for me to say!) in them taking some calculated risks. I didn’t work for IBM but my impression is they allowed the services group to have true independence from the legacy businesses IBM had. I was closer to a couple similar situations — how Microsoft handled Xbox and Expedia — so I will expand on those examples. I would argue that Microsoft’s only had two real new, stand-alone successes in the last 10 years – Xbox and Expedia.

While Microsoft has yet to fully recoup its investment, few would argue that Xbox hasn’t been a commercial success. In the meantime, it is generating a year by year profit and more importantly from Microsoft’s vantage point is having a coveted spot in millions of consumers’ living rooms.

In roughly a parallel timeframe, Expedia was incubated inside Microsoft but was running into some issues being inside of Microsoft. Rich Barton was trying to run Expedia as a company 100% focused on achieving success within the travel sector, however periodically would run into stumbling blocks. For example, organizations like United Airlines, Hilton Hotels, and countless other travel companies didn’t like what Expedia was doing to the travel market. The problem for Microsoft was that these companies were big customers of Microsoft’s software and it created internal conflict. Eventually, Rich made a compelling case why Expedia should spin out of the company and they did so. Microsoft made a nice return by selling its stock in Expedia in the public market. Unfortunately, there have been virtually no Rich Bartons in the newspaper industry.

How did they do it and what can newspaper companies learn from this?

Bill Gates and Steve Ballmer were smart enough to accede to the request of the leaders of Xbox and Expedia to have separation from the main company. That had three main dimensions:

  • Physical separation. Both the Xbox and Expedia teams were located several miles from Microsoft’s main campus.
  • Brand separation. Other than very light branding (e.g., in the footer of their website in a subtle gray font), you see little or no mention of Microsoft in Xbox. Expedia became a fully independent brand.
  • Technology separation. A pivotal early decision was to not tie Xbox to the Windows platform which is a general purpose operating system rather than something that is focused purely on gaming. I wasn’t privy to Expedia’s development details but I don’t think the technology platform was a big factor one way or another.

Smartly, both organizations did leverage at least three things from the parent.

  • They hired in great talent in to their teams. Just as important, they weren’t forced to bring people on to their teams.
  • They utilized the company’s capital to build big new businesses.
  • They leveraged the distribution capability of the parent. In Xbox’s case, they didn’t have to establish all new channels of distribution. In Expedia’s case, they had a carriage agreement with MSN that gave them a huge infusion of traffic to build their business.

Is it too late for newspapers? No more than it was for IBM in the early 90’s when many wrote them off. Will their leadership and investors have the guts to do it? I’m hearing rumblings from a few. Most are half-hearted attempts. Fortunately, there are some capital efficient ways of doing this. For example, with as many as 20,000 hyperlocal sites having formed in the last few years, a smart partnering strategy, limited capital and a distribution partnership would be a way to start.

About Dave Chase

I am the owner/publisher of http://www.sunvalleyonline.com and co-founder of www.avado.com. Avado's mission is empower the healthcare partnership.


  1. Subsequent to this being submitted to OJR to publish, Jeff Jarvis wrote a piece that picks up on a similar theme. See The Future of Journalism is Entrepreneurial. The point of my piece is that entrepreneurial activities can take place within a large corporation but it’s the exception and there’s ways to do it successfully.