Address on the effects of disruption
NZ Taxi Federation Annual Conference
2 October 2019
Remember that kid at school? The one who disrupted the class until he was sent into the corridor or everyone thought he was really cool and joined in the fun?
We were too young then to understand the effect of disruption. We certainly understand it now.
Your industry is experiencing what my old stamping ground – the newspaper industry — has gone through over the past two decades and there are lessons in what that cool kid (called the Internet) did to print media.
In fact, the parallels go back much further. Back to 17th century England. Our industries were regulated within a decade of each other.
The Licensing Order of 1643 effectively determined who could own a printing press. In 1654 an Ordinance for the Regulation of Hackney Coachmen in London was instituted. An impassioned plea by the poet John Milton saw licensing of the press abolished but licensing has been a central part of your business since the Ordinance. I’ll come back to that.
We both benefitted from technological change in the 19th century: For your industry it was the hansom cab, the taximeter, motor cabs and even the humble taxi rank. For newspapers it was the rotary press, the linotype typesetting machine, and half-tone plates that opened the world of news photography.
It’s rather alarming to think that the foundations of modern taxis and newspapers were all in place by the beginning of the 20th century. After that change was only incremental…until we were hit between the eyes by the computer age.
The US Defense Department was playing around with computer networks in the 1960s when I entered journalism, but we knew nothing of that. It wasn’t until the 1980s that computers registered as valuable tools of trade and a very bright chap called Tim Berners-Lee invented the Internet. The New Zealand Herald launched its website in 1998. It was the beginning of a paradigm change.
I’m not sure we’re allowed to have favourite economists but, if we are, mine is a Venezuelan-born British academic called Carlota Perez. She is a follower of Joseph Schumpeter, a fellow economist who gave us the phrase ‘creative destruction’ – the gale that destroys old structures and creates now ones.
I mention Perez because she is the author of some seminal research on technological revolutions and how they create new techno-economic paradigms. She has charted the history of five technological revolutions from the Industrial Revolution at the end of the 1700s to the Age of Information and Telecommunication that we are now in.
And what she has found is enlightening. The way each of those five revolutions have started, developed, consolidated and been replaced is the same. In each revolution there were changes that went beyond the introduction of new technology: the perception of opportunity spaces, changes to cost structure, and new forms of organisation.
For the newspaper industry in the 21st century that spelled Facebook and Google; for your industry it was Uber.
But let me go back a bit: The present managing editor of The Herald’s publisher NZME lambasts me for ‘giving away’ the content of the Herald when we launched the website. Of course, he has the benefit of hindsight and when I have reflected back I, too, wish we had charged for digital content from Day One. The fact of the matter, however, is that no-one…not us, not the Sydney Morning Herald, not the New York Times, … saw the Internet as more than an adjunct to our core business of putting ink on dead trees. And, even if we had had more foresight, we lacked the technical ability to charge for access to our website.
For your part, you saw app-based services overseas but were slow to see that the concept was readily transferable. Taxis in New Zealand were taxis.
We were hostage to our histories. We saw the future as an improved version of the present which, in turn, was an improved version of the past.
Unfortunately, there were people who were not bound by that sort of thinking – people who identified Perez’s ‘opportunity spaces’.
We did not identify the potential for classified advertising on the web, but Craig Newmark in San Francisco did, and the result was Craigslist and a host of derivatives that provided web-based classifieds. Our competitor, INL (now Stuff) did see the potential and bought a start-up that was the brainchild of another ‘opportunity space’ identifier – Sam Morgan. Unfortunately, short-sighted bankers saw to it that Trademe was onsold for a short-term profit thus robbing the publisher of an enduring lucrative source of online revenue.
You were in a similar position. Rather than licensing the Uber concept and applying it yourself to get first mover advantage. You waited for it to arrive.
We didn’t see the potential of interactivity. Initially, we viewed the ability of online readers to post comments at the end of stories as simply the electronic equivalent of letters to the editor. In fact, when smart-arses began posting obscenities, we came to view it as a liability. I had been using the New Zealand Computer Society’s bulletin board for some time for ‘social networking’ but did not equate that with a means by which our editorial – and advertising – content could reach a much wider audience than our print edition or website. American computer technicians did see the potential and the invention of new web-application platforms and database search engines opened the way for entrepreneurs like Mark Zuckerberg and Larry Page to launch Facebook and Google.
You didn’t foresee the potential of the mobile phone app as the most convenient way to place an order.
It wasn’t called the worldwide web for nothing, but we still didn’t see the implications of the global reach of the Internet. We were aware of New Zealanders’ attraction to overseas magazines, movies and music. We should have seen that the reach of the web enhanced and expanded this outward looking attitude and attraction to foreign brands. We did, however, come to realise the reach of our own brand during the 9/11 attacks in 2001. News websites in the US and Britain became overloaded and the BBC World Service was advising people to go to the Herald website for updates. That may have been when we understood the power of the digital phenomenon and its borderless qualities.
You didn’t appreciate that Uber was a social phenomenon. It had brand recognition in New Zealand before the first order was placed here because social media was talking about it and social media is borderless. And it had the seductive power of an international Silicon Valley brand headed by a billionaire digital entrepreneur, Garrett Camp, who entered the ranks of Top Innovators by the age of 35.
It was the same for both industries: By not recognising the opportunities, we turned them into threats.
Newspapers started to see the effects on their business more than a decade ago. At first it was relatively slow but in 2007 online advertising flicked on its afterburners and, at the same time, newspapers’ rocket engines began to flame out.
We were slow to see the implications and it was really only at the end of the decade – when interactive advertising revenue exceeded that of radio for the first time – that the rate of acceleration became fully apparent.
By that stage, Facebook had 500 million users worldwide and Google was heading toward one billion monthly unique visitors. They had reached a critical mass where no New Zealand publisher could match their commercial New Zealand audience reach.
Worse, we had reached a stage where the brand battle was being lost. Younger users, in particular, were drawn by the allure of international brands. I recall, when I later became a university lecturer, asking my students how many had read that morning’s newspaper. A very small number of hands went up. How many had read a New Zealand news website? A few more hands went up. How many had read the New York Times or Guardian websites. All the hands went up. Moths attracted to bright lights.
So how did the newspaper industry respond?
It moved to a ‘digital first’ mode of operation in which the website became the first priority for publishing the news. The newspaper came second: the place in which material could be consolidated and displayed. In other words, there was a step-change that subliminally altered internal mindsets. Digital became the driver in spite of the fact that print revenue far outstripped online revenue. Let me put that in perspective: Last year newspaper digital revenue in New Zealand was $94 million against $324 million from print advertising.
I’m not saying that there should not have been a push toward the digital market, but newspaper companies lacked over-arching strategies to enable them to rapidly replace the decline in print revenue. They did not hold all the cards they needed to – and I’m going to use that awful word – monetise their digital efforts. They were re-prioritising with no guarantees that there would be equitable substitution.
I don’t know enough about your industry’s strategic plans to make a judgement but I’ll invite you to ask yourselves that question: Do we have an over-arching strategy that gives us a full hand?
Newspaper publishers went a stage further: They played into the hands of those who were misappropriating their content through search engines and social media pages…and attracting advertising with superior analytics and programmatic advertising. Facebook and Google knew a lot about their users and could target advertising to their known likes and interests. The newspaper publishers decided: If you can’t beat them, join them.
[They played into the hands of Facebook and Google by producing material that was designed, first and foremost, to attract search and social media attention. It was on the multinationals’ terms and produced greater traffic – and revenue — for them than for the news websites.
The publishers became analytics driven – drawing on systems that collected huge amounts of data about their customers. Both major newspaper-publishing companies acquired editorial production systems that told them in real-time how their stories were trending on digital platforms. As a result, there was a marked tendency to give the public what it wanted rather than what it needed.
That reduced the news intelligence quotient. Clickbait is a race to bottom and we began to see content written and chosen in ways that had less to do with traditional news values and more to do with crude marketing. I have to qualify that. Our newspapers continue to produce some fine, world quality journalism. The standard of investigative journalism in this country has never been higher. But these are oases and their websites — and often their newspapers — prioritise content that is calculated to appeal to desert dwellers.
The result over time has been a reduction in the level of trust. Media have not enjoyed a high level of public trust for a long time but a detailed analysis this year by the Edelman company showed some worrying developments: Sub-standard quality and privacy protection while under-performing in investigative and educational functions…and over-performing in entertainment.
When these strategies failed to produce the income necessary to offset the decline in print advertising that had migrated to digital platforms, the media companies adopted additional tactics.
They tried to amalgamate to gain market size but were stopped by the Commerce Commission. You have been more successful with initiatives like Blue Bubble.
Then NZME instituted a paywall – and I declare that I’m in favour of making people pay for news. Access to premium content costs you up to $199 a year and the Herald is holding its own in website traffic but the subscription revenue is no lifesaver.
And collectively publishers have started to press government over the unfair and completely unregulated environment that Facebook and Google have carved out for themselves. They pay nothing for the media content that is appropriated for their platforms. They pay virtually no tax in this country. Both situations are iniquitous, and the government seems to be listening.
The Christchurch Call will have emboldened the Prime Minister’s belief that these megaliths can be regulated. Have you pushed hard enough to get app-based services sufficiently regulated?
By now the parallels will be obvious. But I suspect the thinking in your industry is impeded by the same historical anchors that unwittingly permeate newspaper-based media companies’ worldview.
I think media can claw back a more equitable position but, in order to do so, they must do something that sounds counter-intuitive: They need to regain a fundamental understanding of their past and, at the same time, unshackle themselves from the bonds of history.
Let me return to Carlota Perez. One of the revolutions she identified was the Age of Steam and Railways that began in 1827 with the test run of Stephenson’s Rocket. Steam was largely replaced by electricity and internal combustion, but we still have trains. Why? Because they recognise what they do better than any other any other land-based system. They move multiple units of people and goods with a single propulsion system – one that has been ungraded with each new technological paradigm. Railways have always and still do sell mass transport. What about the road train? I believe the vehicle that holds the world record for the number of trucks moved them exactly 100 metres to claim the record.
The question for us is: Do news media and licensed taxi operators know what they are ‘selling’ better than anyone else?
It’s not information collection and distribution. Facebook and Google do that more effectively. It’s not transport for hire. I can call up an Uber to take me from A to B just as fast as a Blue Bubble.
You have to go back to fundamentals because that’s what the fillers of opportunity spaces have done. They pare the issue down to core values and draw on a blank sheet of paper – or more likely an iPad.
Some media companies have done that, and they’ve found that their core value does not lie in information. That’s the commodity but what they were really selling was something else.
And you, whether you know it or not, are selling the same thing.
The New York Times knows what it is selling. It is selling TRUST. Its reporters, photographers, and editors collectively created a professional system of checks and balances that provided readers with as close a proximation of truth as is possible. Readers trust them. And in a post-truth age of government by presidential tweet, being able to trust an institution is becoming increasingly important.
And it is paying off. In February, the New York Times Company reported it generated more than $709 million in digital revenue last year, growing at a pace that suggests it will meet its stated goal of $800 million in digital sales by the end of next year. And the company has set another lofty target: To grow its subscription business to more than 10 million subscriptions by 2025. Life isn’t easy but the company is in profit and seems likely to stay that way. And it’s all off the back of trust and quality.
I wouldn’t wish licensing on the media industry, but for your industry it has created the one thing interlopers do not have: institutionalised trust. Yes, there are many more in the taxi industry since de-regulation in 1987, and the digital interlopers now have to have a small passenger service licence or the P endorsement on their driver’s licence but many members of your federation have decades of experience in ensuring that fit and proper people with relevant training drive your licensed cabs. Your right over those decades to provide taxi services has been based on a bond of trust.
Yes, you have had to face up to breaches of that trust by individuals but so, too, has the New York Times (in 2003 a reporter named Jayson Blair was fired for fabricating stories). It has preserved its reputation during controversy by exhibiting sometimes excoriating transparency. That’s the price for trust.
While other media companies have been making journalists redundant, the New York Times has been investing in its newsroom to maintain quality. It has done so because it knows trust pays dividends.
You could be working hard to prove to the public that your federation members – above all other small passenger service operators – are deserving of trust. You can run a tight, clean operation and if there are transgressions, make amends with excoriating transparency.
For a sustainable future you will need to think like newcomers with a blank iPad in Carlota Perez’s opportunity spaces. That’s challenging. But, in the meantime, investment in strengthening and promoting the institutional trust that your federation has developed since 1938 may be your version of the New York Times phenomenon. Capitalise on it.