The FT’s Online Business Model

I just had a long lunch with FT.com managing director Rob Grimshaw. He’s been in the job for about six months now, and I was interested to hear his take on everything from subscription firewalls to RSS feeds. It was clear, by the end of the lunch, that we’re not going to get anything revolutionary from the FT: he’ll tweak things here and there, and he’s possibly more open to new ideas than his predecessors, but in general he’s perfectly happy with his weird and unintuitive business model.

Grimshaw, it’s safe to say, loves the idea of charging for content. He was very taken by the fact that the FT’s print circulation didn’t fall when the cover price rose, and his general inclination is to believe that if access to FT.com is mispriced, that’s because they’re charging too little rather than too much. He used the phrase "genuinely unique content" many times, and he’s a big fan of the fact that a huge proportion of his readers get their company to pay for their subscription, which makes them pretty price-insensitive. (It’s the same phenomenon which led us to have lunch at a very expensive midtown restaurant, so I can appreciate it.)

We’ve known for a while that the market for web display ads is slowing down or even getting smaller, even as the amount of inventory continues to rise dramatically. That makes a standard advertising-driven web strategy a recipe for shrinking revenues and disappearing profits. Grimshaw has a two-pronged approach to this problem, and half of it is very clever.

By requiring registration from his readers, Grimshaw gets demographic information on some of the most important individuals in the world. And by loading cookies onto those readers’ computers, Grimshaw can target very specific ads at them. An advertiser can go to Grimshaw and ask to create a campaign designed only for CEOs and CFOs. Grimshaw can then serve those ads only to CEOs and CEOs: anybody else viewing the same pages will see some other ads.

According to Grimshaw, this business of selling ads targeted at specific groups of readers — managers in the transportation industry, say, or people with control of the budget at big technology companies — is growing fast, and CPMs are actually rising, with some advertisers paying almost $100 per thousand impressions if they know they’re reaching such a specific audience.

As a result, Grimshaw is keen on getting his readers to give him more and more demographic information, and he’s willing to give them an increased number of free pageviews in order to incentivize them to do so.

I asked if there wasn’t an easier way: couldn’t he just use Facebook’s open API, for instance, and allow his readers to sign in with their Facebook username and password, while agreeing to let FT.com access some of their Facebook information? I believe LinkedIn offers something similar, too. Grimshaw seemed intrigued by the possibility, but also resigned to the fact that since the FT has gone so far down the road of building its own database of registered readers, it wasn’t about to start complicating matters by embracing new open standards. There are certain things that Grimshaw is willing to try to outsource, but I got the distinct impression that you’re going to need an FT-specific username and password to access all the FT’s content for the foreseeable future.

Aside from targeted advertising, Grimshaw is also a big proponent of subscription revenues. Because many of his readers would pay more to read FT.com, he thinks, they should pay more. And he made some cryptic comments about soon launching a newsletter product, written by a senior FT editor, which will carry an annual pricetag well over $1,000.

That kind of thing is fine: newsletters have been around for decades, and will surely survive for decades hence. But it’s an explicit move away from consumer-focused media and into the professional/trade space. What’s more, it signals to even the FT’s most premium subscribers that there’s stuff they’re not getting, that far from being valued customers, they’re pretty much the huddled masses compared to the most exalted readers.

Grimshaw’s a fan of the incomprehensible pricing models used by airlines — yes, he actually used this example — where someone who paid $45 for their ticket can be sitting next to someone who paid $945 for the same service. He was vague about how he was going to achieve this, although he is a fan of iTunes, and specifically its success in getting people to pay small amounts of money for content. He does understand that if you just want to read one article more than your free quota, you’re not necessarily going to want to pay an entire year’s subscription. But I’m not sure that he understands just how difficult it is to get anybody online to pony up that very first penny for anything.

It did occur to me, though, that there’s a nice potential business here for Apple: it could open up its iTunes payment system, and allow people to pay for everything from FT articles to funny videos using their iTunes username and password.

Grimshaw paid no little lip-service to openness: while FT.com launched as a classic walled garden, he said, it’s now embracing the web in full. I’ll believe it when I see it, and in general I just don’t see how any subscription site can possibly do that. An open website needs both inbound and outbound links; to date FT.com has few of the former, because neither Google nor bloggers are particularly inclined to link to subscription websites, and it has confined the latter mostly to its blogs.

Grimshaw likes, in principle, the idea that the more you send people away, the more they come back; I, for one, would be quite happy to use the FT.com homepage as a launching pad which points me to the best financial news and analysis, both on its own website and elsewhere. But if people are wary of coming back, for fear of using up their precious free quota, I doubt that model will ever really work.

And there are definitely limits to Grimshaw’s appetite for openness. When I asked him about making his website’s videos embeddable, he seemed well-disposed towards the idea. But when I asked him (as I had to, I have a reputation to protect) to start serving up a full RSS feed for Alphaville, he bristled a little. That might not work, he said: FT.com makes its money through subscriptions and through ad sales, and serving up a full RSS feed serves neither purpose. I disagree, but that’s not really the point: the point is that Grimshaw seems to embrace openness only insofar as it directly boosts his bottom line. Less quantifiable metrics, such as brand value or the ability to stay relevant to future generations of potential readers, are much less important, it would seem.

That, in turn, probably explains why the FT still doesn’t have an iPhone app; Grimshaw says that one’s in the works, but probably won’t arrive for a few months yet. Such an app would have to be free, and so it’s not about to make any real money for the FT in the foreseeable future. And the FT’s brand-new mobile website, which it launched today, seems pretty bare-bones to me, not because it lacks "interactive mobile charting", but just because navigation is done only by endless scrolling.

In general, then, FT.com still seems to be a creature of Pearson, the FT’s bottom-line-obsessed parent. Grimshaw is clearly focused on maximizing short- and medium-term revenues, rather than the long-term value of his franchise. He said more than once that he was targeting the website at a very small group of readers: the 440,000 print subscribers, and maybe a couple million more international business executives. Of course he’s happy that tens of millions of people visit his website every month, but he’s staying focused on the expense-account crowd. And at a time when there’s more demand than ever for top-quality business and finance news and analysis, that seems like a short-sighted decision to me.