Twitter is the real winner in the FriendFace buyout.

On first inspection of the FriendFace deal, with Facebook paying $150Million (In stock/cash) for Friendfeed it looks like Twitter just lost a potential buyer in Facebook and might be limited to brokering a deal with Google or Microsoft, or actually having to find a way to monetise Twitter on their own.

All is not lost though, Twitter was never a good deal for Facebook, the price was too high and the benefits were limited for Facebook (who was looking for someone they could integrate into Facebook, not an external site separate to the Facebook ecosystem). For Twitter, giving up sovereignty to Facebook was never an option, and there was never a strategic fit between the two companies.

So for Facebook, Friendfeed was by far the better buy. Not only does Friendfeed integrate better into the Facebook environment (Facebook has been copying Friendfeed UI elements for a while now) but because of it’s stagnant growth despite continued innovation (Growing 0.26% in July Vs Twitter’s 16%) Friendfeed was brought to the auction table at a bargain basement price.

What is important to keep in mind here was Facebook bought Friendfeed not because of its user base, but because of it’s technology. Which is where twitter wins out of this deal.

Why?

After being bought out by Facebook, Friendfeed has no future as a stand alone product anymore. Sure there are ruminations about the site continuing, but the exodus has begun and Friendfeed users, unsure about the future of the site, no longer trust Friendfeed to exist in a years time. With this cloud over the future of the site, investing their time through continuing to use Friendfeed has a limited payoff and they are looking for alternatives.

Facebook has made a land grab for disenfranchised Friendfeed users with ‘Facebook Lite’ but given that these users just lost their ‘home’ because of Facebook, this is a psychological impediment to moving to a Facebook property.

Where will they go?

Twitter.

Why Rupert Murdoch’s decision to charge for content online could save the news industry.

After Rupert Murdoch made the decision to charge for online access to content across his suite of newspapers online properties, there was considerable consternation across the Internet. With many armchair pundits in the blogosphere/twitter-verse crying foul at the idea of charging for content online that was previously available for free, citing their own usage expectations and a belief that the content isn’t worth paying for given the perceived drop in journalistic standards and cost cutting amongst newspapers. While I have considerable time for the case against changing to a cash for content mode, I believe in Murdoch’s case it has merit and might actually save the hemorrhaging news industry. Here’s why;

Charging for content online suddenly makes printed newspapers relatively less expensive

So you are running a newspaper company, what is your biggest cost? Sure journalists salaries figure in here somewhere, but it is the actual printing presses and distribution networks that are the significant cost centres in a newspaper operation. With declining readerships of actual newspapers over the last 10 years, advertisers are paying less for space than they used to, and less income is coming in from actual newspaper purchases and the fixed costs of running the printing press aren’t getting any lower and such make up a larger proportion of your total operating costs.

In order to make purchasing an actual news-‘paper’ a more attractive proposition for consumers, one way to drive that change is to make other sources of news relatively more expensive. If you charge for the online version of your newspaper, the actual printed version becomes an attractive option for consumers who had moved to the previously free online alternative. This will drive a percentage of readers back to the paper version and patch up the hole in the traditional newspaper component of Murdoch’s enterprise. For how long, this is debatable, but in localised markets where Murdoch’s papers have near monopolies over content/distribution, it will have a larger effect than in more competitive geographies.

Murdoch doesn’t own the entire news industry, many news sites will remain free and become profitable (or at least, lose less money)

Assuming that all the readers of Murdoch’s online properties do not continue with the site in a cash for content capacity, their eyeballs and the advertising revenue they represent will venture elsewhere. What this means is that free online news sites that were really struggling to meet their costs with a drop in online advertising revenue (exacerbated by the GFC) will be able to stop the revenue bleed with a greater share of the news audience. This ‘tiering’ of the online news audience is good for everyone provided that Murdoch can make a compelling value proposition for readers of his sites to pay for content that they unable to find elsewhere (Ideally, shifting the focus to quality journalism in lieu of the click generating sensationalism seen now).

Will all this save the news(paper) industry?

Maybe. In the long run the competitive forces of citizen journalism and sites such as wikinews will continue to place downward pressure on the operational costs of running a newspaper. With the costs of distribution online almost zero there is nothing stopping an upstart news operation running out of a garage to unseat a large monolithic operation such as News Corp if they can’t continue to offer a decent value proposition while charging for content.

At the very least, this decision will breathe some life back into printed newspapers until some industry shake out has occurred and people adapt to the new online news landscape. This might just buy Murdoch some time to regroup, will it be enough?

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