David Pemsel, Deputy chief executive of Guardian News & Media, recently gave a short speech about the organisation’s strategy.
You can listen to that speech here (highlights below):

As he says, what they are doing seems at first glance to be crazy. Giving content away for free goes against all traditional wisdom about what it takes to run a successful newspaper.

But the facts are that The Guardian has gone from being the seventh largest newspaper to the third biggest news website in the world. They now have online conversations with over a million people a month, revenues are growing, and they are developing strong new relationships with advertisers.

Seen through the eyes of received industry thinking their strategy doesn’t make sense.

But seen through the lens of The Escher Cycle it is very easy to understand what they are doing and why.

Our previous post looked at how giving content away for free is part of their strategy to ‘grow, deepen and retain’ relationships with readers/members. This is about applying The Escher Cycle’s ‘Customer Chain’ thinking (chapter 2).

This post looks at the changing relationships with advertisers, using the ‘Audio cycle’ thinking of Chapter 6 and the ‘fractal economy’ thinking of Chapter 7.

A third post looks at the implications for the company’s future deep strategy and the evolution of human culture.

What the Speech Says:
You can read a full summary of the speech below. In brief:

• It ranges from talking about technology issues that everyone in news media is grappling with (“Is it mobile first, is it digital first, is it global, is it video?“), to the ‘ecology of news provision‘ that David Pemsel sees the company as part of.
• It talks about how remarkable it is that so many “new players continue to come into the ‘news’ space, even though all of us seem to say “There is no [sustainable] business [model] here.“
• David talks about the “very social, very open” roots of the company 200 years ago and how well this matches to the “need to be part of the web and not just on it“, and how this requires an ‘open’ strategy, since organisations can no longer seek to control.
• David talks about the 40 million unique visitors that the website is now getting a month, and the “one million people that we are having a conversation with.“
• And he talks about the “very big deal” they recently did with Unilever.

How can we make sense of this swirling mass of data and information?

Four Key Steps:
If we want to understand the changing relationships with advertisers, there are four key sets of facts we need to focus on:

1. Customers/Consumers want something new:
   – “Consumers (and our readers) require transparency … from the media that they consume and the brands that they buy from.” (9min0sec)
   – “Consumers want all brands everywhere, whether that be that on tablet, mobile…” (9m14s)
   – “There is a high demand from consumers that brands … have compelling stories that they can engage with.” (9m25s)
   .
2. The Guardian can deliver that, in ways that people like:
   – Transparency is very much at the heart of what we do. (9m0s)
   – We have made sure, through our open strategy, that we are available across every single device.” (5m1s)
   – 40m unique visitors/month, 4.3m registered users, 1.1m signed in users, 95k paying subscribers, 1m comments/month, “A million people that we are in dialogue with.” (6m12s)
   – Stories like Edward Snowden choose to come to the Guardian. “The Guardian exists… to be able to break stories like this.” (5m28s)
   .
3. The result is a new kind of relationship with readers:
   – Through the three key success factors of transparency, omni-channel, storytellers, The Guardian positions itself as a connector between brands and their audience, labelled as “progressives”. (9m31s)
   – Price rises in print have been combined with product innovations, and circulation is up year on year (8m19s)
   – The legacy businesses of the past have monetized anonymous individuals. Now the business, particularly at the Guardian, is focused on growing and deepening relationships with individual members.  (13m51s)
   .
4. That brings value to advertisers:
   – “We take the heavy lifting away from agencies. They say which audience they want and we make sure that is delivered across mobile, tablet, and paper.” (11m29s)
   – “That drives up GRPs and brings down CPMs.”  (11m29s)

The World According to Advertisers:
To understand why this is happening we need to see the world from the point of view of advertisers. (By this I mean both the corporations like Unilever, and the ad agencies who work for them.)

Any product manager or account executive who wants to run an ad campaign is going to have to go through the four steps of the Audio cycle:

1. Understanding:
   – the objectives of the ad campaign, and understanding consumers – who they are, what they want, how they will likely respond
2. Designing:
   – a campaign (a mix of print, tv, radio, online media) that will achieve the required objectives, plus designing the advertisements to run
3. Implementing:
   – buying space across a variety of channels (print, tv, radio, Internet) that will most cost effectively achieve the campaign objectives
4. Operating:
   – delivering the advertisements to consumers

This is outlined across the top row of the chart below.

Under the traditional way of doing business:

1. Advertisers (corporations and agencies) use demographic groups (such as ABC1C2DE, ‘yuppies’, ‘millennials’, and ’empty nesters’) to define and understand likely audience behaviours
2. Advertisers define the campaigns and advertisements that will reach and affect the targeted groups
3. Advertisers select and purchase the mix of channels that will reach the desired audiences
4. Newspapers (and tv, radio, internet sites) broadcast deliver the advertisements they are told to, when they are told to.

Under the emerging Internet model this changes dramatically.

As David Pemsel says, The Guardian is now developing deep relationships with specific individuals. This gives much greater granularity than was available before.

So instead of targeting anonymous groups of people, and selecting channels that they hope will reach those individuals, The Guardian is able to “do the heavy lifting” and deliver ads to specific individuals according to more detailed characteristics than was possible before. In addition, they are also able to measure whether those ads are seen, and (to some extent) measure the impact that each ad has (in terms of an action taken or not taken by the viewer).

The benefit to the advertiser is that they can be much more precise about who they target. They can also waste fewer resources delivering adverts to people who aren’t interested. And they can measure more effectively which ads work, and which don’t.

If we add this to the diagram, then we can see that visually The Guardian is taking over some of the traditional roles of advertisers and agencies:

 

The Guardian can do a better job, more cheaply in:

• Selecting which platforms can best deliver ads to targeted individuals (‘implement’ phase)
• Delivering those ads to those platforms via those platforms to those individuals (‘operate’ phase)
• Gathering data about consumer behaviour, both in relation to the specific campaign and more widely, in a way that can feed into the design of the advertiser/agency’s campaign. (‘operate’ and ‘understand’ phases)

This leaves advertisers with the reduced/more specialised roles of:

• understanding/defining campaign objectives
• understanding consumers (using data increasingly supplied by The Guardian), and
• choosing which channels (including The Guardian) can best deliver the campaign objectives.

The more The Guardian is able to ‘grow, deepen and retain‘ its relationships with its audience/members (in comparison with other media channels) the more advantage it has in negotiating with advertisers.

This is the deep structure of the emerging landscape of what David Pemsel calls the “ecology of news provision”.

This is classic Escher Cycle territory, which we shall examine in a third post.

---

---

Highlights of the speech:

• “Is it mobile first, is it digital first, is it global, is it video? [These are issues that] all of us are grappling with all of the time.” (0min 40s)
• “We were very social and very open 200 years ago … producing a weekly newsletter … because we felt that there needed to be a new agenda… and that was the most potent way to spread messages around. Still very much at the heart of everything that we do.”) (1m5s)
• “The competition becomes ever more fierce, ever more interesting. But all of this gives us a great opportunity to see how and where we exist in this ecology of news provision.” [See graphic, right] (1m42s)
• “And as much as people might talk about the advent of ‘Is news really important?’ and ‘Is there a sustainable business model?’, it is remarkable how many new players continue to come into the ‘news’ space, even though all of us seem to say “There is no business here.”” (2m0s)
• “All of that gives us great confidence that this is a market that we should be in and which we should celebrate.” (2m25s)
• “We have had to change considerably in … this complex market.” (2m35s)
• It used to be about filling a certain number of pages, with content and advertisements, day after day. And clearly that model has changed. (2m43s)
• We face calls for pay-walls, “But we believe ‘open’ is the best expression of how content should travel within this new digital space.” (3m23s)
• “It is a time where brave organisations can no longer control. It is a time where you need to be ‘part of’ the web and not just ‘on’ it. And therefore we have taken the principles of open and applied that to the way we distribute our content.” (3m45s)
• “We have made sure, through our open strategy, that we are available across every single device.” (5m1s)
• The results: 40m unique visitors/month, 4.3m registered users, 1.1m signed in users, 95k paying subscribers, 1m comments — “A million people that we are having a conversation with and in dialogue with.” (6m12s)
• And stories like Edward Snowden choose to come to the Guardian. “The whole principle of why the Guardian exists… is to be able to break stories like this.” (5m28s)
• “We have combined price rises in print with also delivering [innovations] back to our readers… Cook, Tech Monthly, Do Something … And as a result of that our circulation is up year on year.” (8m19s)
• “It is clear, post recession, that all consumers and our readers require transparency … from the media that they consume and the brands that they buy from. And transparency is very much at the heart of what we do.” (9m0s)
• “Also there is a strong desire from consumers to ensure that all brands are everywhere, whether that be that on tablet, mobile…” (9m14s)
• “And also there is a high demand from consumers that brands do have compelling stories that they can engage with.”  (9m25s)
• The Guardian believes that they “fit very cleverly across those categories: transparency, omni-channel, storytellers.” And as they chart shows, they see themselves as a connector between brands and their audience, labelled as “progressives”.  (9m31s)
• And all of this led particularly to the very big deal they did with Unilever. (9m46s)
• “In terms of storytelling, with the launch of Guardian Labs we are getting much much cleverer at being able to provide Open Ideas to our clients and agencies, rather than just selling space.” (10m4s) (“Guardian Labs aims to work with companies to create marketing campaigns that go beyond buying advertising space online or in the newspaper. This could include campaigns that integrate brand messages with multi-media editorial content – and other forms of native advertising.” “Offers brands bold and compelling new ways to tell their stories and engage with influential Guardian audiences.“)
• “One of the things we are all grappling with … is quantifying the impact of advertising within these very special places such as the Guardian. Increasingly, the context of how much the customer [already] values the brand does now need to be considered in the way in which we value advertising within this space. All trying to make sense of how do we think about time spent, relationship, etc.” (10m15s)
• “We are all trying to make sense of time spent, interaction, attitudes, trust, influence etc.” (11m0s)
• “And in response to that we created our own planning tool (‘Audience not Platforms’) which allows agencies to buy audiences and then we optimise that across our different platforms. That meant we could take the heavy lifting away from agencies — they would just say which audience they wanted — and we would make sure that was delivered across mobile, tablet, and paper. And that would drive up GRPs and bring down CPMs.”  (11m29s)
• Financial impacts: Eight quarters of consecutive revenue growth, digital revenues grew by 20% in 2013-14 (following 30% growth the previous year), total revenues have grown 5% and the revenue contribution of digital ads is 50%. ”  (11m56s)
• They have £850m cash in the bank to invest going forward. ”  (12m54s)
• A core part of their strategy going forward is ‘Grow, Deepen, retain’ which we examined in the previous post. ”  (13m23s)
• The legacy businesses of the past have monetized anonymous individuals. And now the business, particularly at the Guardian, is focused on…how do we translate people on to right hand side. ”  (13m51s)