8 lessons in how to disrupt yourself from Schibsted
Recently, Frederic Filloux at MondayNote wrote a very insightful piece on the digital strategy of Norwegian publisher Schibsted. Schibsted owns a few of the biggest European online classifieds sites like Le Bon Coin, Finn.no and Blocket and a range of other online classifieds sites, most if not all of them immensely profitable.
To give you an idea of how strong Schibsted is online: Le Bon Coin currently ranks fifth in France, right behind Google, Google France, YouTube and Facebook. Blocket ranks 8th in Sweden. FINN.no ranks fifth in Norway.
Schibsted puts the lie to the idea that publishers don’t “get” the internet. Schibsted got the internet as early as 1995, when its management came to the conclusion that ‘classifieds were made for the internet, and the internet was made for classifieds’.
We interviewed Sverre Munck, who was Schibsted’s CFO between ‘94 and ‘98, and who was a present both when the company adopted the motto about classifieds and the internet, and at the meeting that Filloux describes where Le Bon Coin was launched. Today, he’s Schibsted’s Executive VP of Strategy and International Editorial.
LESSON 1: Get a deep understanding of what new technology means for your industry
What sets Schibsted apart from many publishers, it seems to me, is that apart from trying to figure out what it would mean for the publishing and news business, they very quickly understood that the internet would have much further reaching implications for their business.
Q: It’s a great slogan: “the internet is made for classifieds and classifieds are made for the internet”. Do you remember how Schibsted figured this out?
Sverre Munck: “Oh, we didn’t coin that phrase back then, that took us a while longer. But we did grasp the idea very early on. We thought: the internet will completely change the way people conduct their buying and selling. We were convinced of this in 1995, which was very early. Much of the debate about the internet back then was whether the “open” www or the walled gardens like AOL would win in the end. So we had the right idea, but it was only that: a starting point. You then have to execute on it. And that was a lot harder.”
“Our first attempt to make money from online classifieds was a project called “vis-avisen”, a play on the Norwegian word for newspaper (avisen) and “to show” (vise). It was a project within one of our newspapers, and it didn’t work well. Possibly because the classifieds on the site were basically PDF versions of print ads. While we were going nowhere with vis-avisen, we saw startups race to get classifieds sites up for verticals like cars and real estate. Stepstone (now property of Axel Springer, ed.) was a Norwegian startup who went after the jobs vertical. QXL was leading the charge in auctions.”
LESSON 2: Spin out new business ideas to protect them
Munck: “We had to do something if we didn’t want to fall behind, so we split the classifieds from the newspaper, and allowed it to compete with its own parent brand. And – what in hindsight was a necessary and logical decision – we gave it a new brand. We really broke it off from the very strong print brand Aftenposten, to allow it to become a separate brand – FINN.no, which means ‘to search and to find’ in Norwegian.”
“Looking back, it was obvious and intelligent. And I’m not ashamed to say that, at the time, I argued that we should keep the newspaper brand. Which would have been a huge mistake.”
It was now 1998 or 1999, says Munck. “FINN.no had to start from zero, but we had good influx of ads from our newspapers, and the good user interface and user experience gave it very rapid traction in the consumer market. Very quickly, we outpaced the competition to become dominant not only in cars, but also in jobs, real estate and eventually miscellaneous classifieds.”
Q: But at that time, FINN.no was a paid classifieds site?
Munck: “Yes. Our primary target were professionals selling real estate and cars, who could put their entire inventory on the site. The classifieds were sold as an “upsell” of the print ads. Later, we abandoned that and started selling them separately. Within the cars segment it took about a year and a half to go from a situation where we sold about ninety print ads for ten digital ads to the other way around.”
FINN.no could profit from Schibsted’s strong position in newspapers – especially regional newspapers – around the country, says Munck.
Munck: “We took one vertical after the other – jobs, cars, real estate. We were the strongest classifieds site in all categories. So naturally, we wanted to expand to other countries, and we went after Sweden next. We had a morning paper and an evening paper there, so everything seemed in place to repeat our success from Norway. We cloned the tech and went to Sweden.”
“But we had difficulty getting the upper hand in our fight with Blocket, which was already active there. We were growing, but they grew faster. As we were launching FINN.se, we were already negotiating with Blocket, so we thought: let’s step on the gas a bit, but we didn’t really succeed. So we finally decided to acquire them outright.”
LESSON 3: If you believe that your vision is correct, don’t hedge your bets
This is a classic lesson from ‘Good to great’: Schibsted had a deep understanding of what the classifieds business would mean in a couple of years, so it made a big bet at the time, buying Blocket for what seemed a huge amount of money at the time.
Q: Blocket was a startup at the time – was it making money?
Munck: “Yes, a bit. Blocket had annual revenues of about 4 million euros at the time, and it had a positive margin, but the price of about 18 million euros that we paid for the site was considered “crazy” back then. But I can say that it was our best acquisition ever. Blocket has revenue of about 70 million euro today, for a 50 or 55 percent gross margin.”
The Blocket model differed from the Finn.no model. And as the owner of both sites, Schibsted could compare what worked best. Finn.no tried to sell paid classifieds to interesting verticals like car sellers and realtors. Blocket on the other hand attacked the classifieds market by going after the free, miscellaneous classifieds first.
After a few years of experimenting, Schibsted decided that the Blocket model worked best for growth. Munck lists some of the advantages: “It was quick to launch. It required no staff, except some programmers and some online marketing expenses, and there was no sales or fixed cost.”
LESSON 4: When you find the model, scale
Here’s how Filloux describes that meeting:
It all starts in 2005 with a Power Point presentation in Paris. At the time, Schibsted ASA, the Norwegian media group, is busy deploying its free newspapers in Switzerland, France and Spain. Schibsted wants its French partner Ouest-France — the largest regional newspapers group — to co-invest in a weird concept: free online classifieds. As always with the Scandinavians, the deck of slides is built around a small number of key points.
To them, three symptoms attest to the maturity of a market’s online classified business: (a) The number one player in the field ranks systematically among the top 10 web sites, regardless of the category; (b) it is always much bigger than the number two; (c) it reaps most of the profits in the sector. “Look at the situation here in France”, the Norwegians say, “the first classifieds site ranks far down in Nielsen rankings. The market is up for grabs, and we intend to get it”.
Munck chuckles when he’s reminded of the article: “Ah, yes, I read Frederic’s account of the meeting. I remember it well. I was there. The lessons we shared there were based on our 6 months of experience in Spain, and our Blocket acquisition. After that, it was an effort in scaling, and getting the product and the operations right.”
Here’s a picture with all Schibsted’s classifieds properties. If they all follow the FINN and Blocket trajectory, they’ll make a lot of shareholders happy (via Frederic Filloux):
Q: You almost literally followed the recipe for innovation from Clay Christensen’s classic “The Innovator’s Dilemma”: set up a separate entity to go after a market that was undesirable and low margin from the perspective of its newspaper business. The new brand was allowed and even encouraged to cannibalize the older, higher margin parent company Aftenposten.
“Yes, although I don’t think we read that book at the time – I think it might not have been published at the time. At the top level, the decision wasn’t that hard. Our thinking was: our newspapers can’t be both on the attack and on defense. So it made sense for us. On the operational level, it was much harder to get it accepted. The sales managers for the newspapers had budgets to make, so they were quite eager to say: we’ll do the online sales too. But we knew that they would consider the business opportunities too small to aggressively go after them, so we said – uncharacteristically top down for our company – we said: no, we’ll do it like this.”
LESSON 5: A spin out and spin in can be used as tactical tools – you can use them in sequence or parallel as the situation requires
Schibsted is not afraid to spin out and/or spin in, based on what makes sense economically. Schibsted also spun out VG.no very early on, and allowed it to compete with its parent brand, the print newspaper.
Munck: “It was a separate digital company for 13 years – for reasons that made a lot of sense editorially and commercially. Recently, we integrated them again – but: we spun out a new mobile subsidiary. The thinking was the same as before: forcing the mobile unit to operate in the parent brand would end up with them being squished, and the budgets that they are going after wouldn’t be deemed worthwile inside the larger operation.”
LESSON 6: Concentrate on the upside instead of worrying about the downside
Schibsted even radically shut down print operations when it felt they were not profitable enough – or even when they were still profitable but declining.
Munck: “In 2006, I think about 60 percent of our turnover from classifieds in Spain came from the print side – the Anuntis operations. When we did our valuation, our print operations were profitable but declining. Every quarter, we pruned our portfolio. And in the fall of 2008, we decided that we would shut down the remaining print titles in Spain that were still profitable – they were generating a few millions in profits, but we closed them down and we laid off 300 people. And I will tell you: it was the right decision, and it wouldn’t have hurt to do it earlier.”
“For two reasons: instead of worrying about the future of print, it allowed us to focus on developing the online business. Instead of waking up and worrying about what you did in your print business last week, you can concentrate on what you will do online this week. All of your capacity becomes available to grow the digital business.”
“That, in and of itself, would have motivated the move. But we found that typically, when you run print organizations, your sales organizations are located in the cities where your print activities are located. We suddenly saw that we were underinvested in some areas with good markets, but we didn’t invest there because we had no print presence. With the print gone, we could put our sales people where the market was. This allowed us to grow in all classifieds in Spain despite an overall decline in the market.”
Well, not all the classifieds, says Munck – jobs is a tough one in Spain. “When the job market declines two thirds because of the crisis: that’s hard.”
Q: The question is: will Schibsted stop publishing altogether at some point? Why bother with media when you can get profit margins of over 50 percent in digital?
Munck “We still have media houses for our news organisations, and we still believe in media as a business. Of course, there’s big debates right now in our home markets because we’ve been laying off a lot of people in the newspaper business. But what sometimes gets lost is that we’re also hiring people – be it people with different skills. We do believe that we can have a solid news business, and a relevant one in terms of being important contributors in the public debate.”
“So we could have said: we’ll harvest and then goodbye, but it’s not that we’ll follow the same strategy everywhere as we did in Spain. We keep pruning our portfolio, and we have to keep ahead of the cost curve, but we are investing heavily in digital. And we can see fabulous growth in mobile, even in real terms. We have now more digital revenue in Sweden than offline revenue – since January.”
“The big challenge right now is to get users to pay. There will be no silver bullet, but we’re trying all kinds of different things. We introduced a paywall in Norway for a regional newspaper. If you don’t pay, you only get access to the front page and generic news. But more specialised, regional content is behind a paywall – which we need to find a better word for, because “paywall” seems to say that you should stay out or something. In Sweden, we’re experimenting with a paid model for one of our tabloids – there’s a freemium model, but also a € 3 per month premium section.”
LESSON 7: fight to protect your strategic assets
How does the “content glut” affect Schibsted? There is so much inventory out there that it’s driving ad revenue down for everyone who uses ads to monetise. Music services are monetising with ads, forums, blogs – everybody. At this rate, ad space will become almost free soon.
Munck: “We do feel the content glut – it’s hard not to. We’re trying to figure that out right now. We have some pilots now to learn how we can move from being an originator of content to a curator and potentially an aggregator. With regards to the ad inventory – we’ve again established a new company in Sweden to do all the sales for all our brands. We don’t have a tradition in that.”
“But right now we’ll try to impose very strict policies to third party networks who harvest data on our properties. They collect data about our customers through cookies, and then buy bulk traffic elsewhere to target those customers. That is of course not what they bought when we made a contract. We made an agreement to display your ads, not to harvest data on our users. That’s a fight we’re taking to the media agencies. And it’s a big fight, but it’s one that the media companies should be willing to fight.”
I once heard a TV industry professional say that “whoever controls the distribution controls the market” in mature industries. Shouldn’t that give you the upper hand in that fight?
Q: Will mobile make it easier for publishers to make money?
Munck: “Yes and no. If you use native apps, Apple keeps all that info about users to itself and doesn’t share it with the publishers. But also: the tech is just not there yet in mobile. There is a lot more info potentially about our users – we have it, but we should be able to use it.”
LESSON 8: don’t talk about the next big thing until you’ve made a boatload of money from it
You made a big bet on classifieds, which turned out to be the right bet. What’s the next big thing for Schibsted?
Munck: “We’ve recently set up a single Schibsted payment and login service – so we have a single customer view on everything from classifieds to newspapers. We should be able to use that to give special offers – both editorially but also with targeted ads. If you sign up as a digital subscriber, the login and payment engine is our own. That’s a big deal, and we hope to use it to build up one of the biggest national consumer databases. And we are growing nicely there – we just passed 1.5 million users two days ago, as a matter of fact.”
Q: To be honest, payments sound more like they’re a nice to have, but not the juicy, low hanging fruit that classifieds on the internet were.
Munck “Yes, but I don’t think that there’s a silver bullet, as I said. We’ll have to do a number of things, and we’ll have to combine multiple smaller revenue lines. In my view: it will be complicated. The classifieds is a tech business. The news business will become a tech business, but it will be different, with multiple brands and multiple user situations.”
Q: So there’s not one Next Big Thing Schibsted is working on?
Munck: “Oh, we’re always looking for the next big thing. But I’m sure that we’d try to make money off it before we talk about it (chuckles).”
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