Guardian CEO David Pemsel tells us why Google and Facebook are all take and no give
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But Pemsel, who joined The Guardian as chief marketing officer in 2011, is agitated about something. For just a moment, his relaxed tone pinches with tension and, against the wishes of his corporate communications chief, he fixes Google in his glare. The US technology giant has just poached two of The Guardian's product development team and Pemsel wants to vent.
"Where we have good relationships with them [Google]. Where we genuinely partner and innovate, great things happen. At the same time, there's a huge impact on our business model and, also, at times, there's an impact on our ability to retain talent," he says. "In the last two weeks we've lost two very good product people to Google and that just makes the dynamic of the relationship with them that much harder."
Pemsel says his views on Google, or indeed Facebook for that matter, depends on "what day of the week it is." Today, he is wound up. "Just a bit," he nods. This is excellent news for me. In his first big interview since being promoted, his disquiet translates into a fulsome and honest appraisal of The Guardian's relationship with these two internet monoliths.
Why Google and Facebook are all take and no give
Putting staff poaching to one side, we focus on Pemsel's biggest gripe with Google and Facebook: The impact they have had on The Guardian's digital advertising revenue.
Former Guardian editor Alan Rusbridger said the tech giants sucked up £20 million ($24 million) of the newspaper's online earnings last year. Pemsel says he's "not entirely sure" where Rusbridger got this figure from, but the facts are this: The Guardian's digital turnover fell 2.3% to £81.9 million ($100 million) in the 12 months to April 2016.
Enders Analysis chief executive Douglas McCabe said at the time that this was "truly unexpected." It contributed to The Guardian's total revenues falling 3.7% to £209.5 million ($256 million).
"The ad model is as broken as it's ever been," Pemsel argues. "All programmatic trading has reduced yield, it does not value context, and it has allowed a very efficient approach to targeting. This has meant that Google and Facebook have been able to hoover up a huge amount of digital ad spend."
The former ITV executive says The Guardian is "clearly being hurt" by the market changes, but believes there is no point complaining this is "unfair." What Pemsel is doing, however, is reevaluating the newspaper's relationship with Google and Facebook.
The Guardian, for example, is a Google AMP (Accelerated Mobile Pages) and Facebook Instant Articles partner. But Pemsel says it is "hard to dissect" the contribution these initiatives make to its bottom line.
"This is serious stuff now, and spending time with all platforms is a serious part of our job, but we've got to be a bit more focused about what it actually delivers," he explains.
Are the Google and Facebook partnerships all take and no give? "I think it is," Pemsel says carefully, but he stops short of threatening divorce. He also makes clear that there is not a "deliberate intention to undermine our impact on the world" and points to genuine collaborations, such as the virtual reality projects it is creating for Google Cardboard.
One thing that would make a big difference is data. This is nothing new, of course, and Google and Facebook are traditionally reluctant to hand over user information to publishers. Pemsel is not giving up hope: "I don't think we'd resign ever to any battle."
The Guardian's "anonymous-to-known" reader strategy
The Google/Facebook issues matter so much to Pemsel because it goes right to the heart of his and editor Katharine Viner's three-year vision for The Guardian. Big traffic is no longer the only game in town - The Guardian wants to get to know its readers better than ever before.
Pemsel calls this the "anonymous-to-known" strategy and it is a fixture of our hour-long conversation. "Understanding the behaviour of regular readers and knowing more about them constitutes probably the single defining metric for the business," he explains.
The Guardian is building up a picture of regular readers through analysing cookie behaviour and first-party data. The newspaper is also ramping up its membership strategy, which encourages readers to make a monthly donation in return for a number of benefits.
Readers can sign up to three different tiers, the most expensive of which (£60/$73 a month) allows "patrons" access to events and, soon, the platform to suggest pieces for The Guardian's year in review book Bedside Guardian. The combination of these initiatives is unlocking revenue and helping readers feel closer to the paper they love, Pemsel explains.
He says regular reader numbers are up 30% on last year, although he won't divulge a regular user number. This, he adds, is allowing The Guardian to have more meaningful conversations with advertisers and is turning the newspaper into a "platform for action." One example was a deal with SEAT, where The Guardian took data on how many people engaged with the car maker's adverts and converted them into test drives.
It is why he prefers to focus on the fact that The Guardian has 75,000 members, rather than April's record traffic figure of 155 million unique browsers. Pemsel forecasts that members will swell to 100,000 by the end of the year.
Pemsel says membership is being signposted through articles including Gary Younge's series of US election despatches from the town of Muncie, Indiana. He says readers have been invited "into the process of storytelling," suggesting issues Younge could explore. "This is the definition of an organisation genuinely understanding it's relationship with its readers," he adds.
Members won't get exclusive content, however. Pemsel views this as a step towards a paywall, which is not on the agenda - for now. "We don't rule out paywalls and metered paywalls - we don't ever rule those things out. At the moment, however, that is not within our three-year plan," he explains.
The "unvarnished truths" about The Guardian's future
Nevertheless, The Guardian plans to secure a third of its revenue from sources other than advertising and sales by April 2019. This is critical to the company's ambition of breaking even at an operating level in the same year. It's a £79.8 million ($211 million) shortfall that has to be closed and, alongside the growth plan, Pemsel has been busy stripping 20% out of business costs.
He described it as the "unvarnished truths" when he set out the efficiency plans to staff in January. It has resulted in 270 staff taking voluntary redundancy and Pemsel introducing a new objectives and key results (OKR) process across the business. Going the way of The Independent and shutting down the printing presses is not on the agenda for now, but Pemsel does say The Guardian is "transitioning out of print" in the long-term.
The OKR method was, ironically, borrowed from Google. It involves Pemsel and Viner agreeing the company's key objectives every three months. Sources have told Business Insider that the relationship between the pair is functioning better than any previous Guardian chief executive and editor.
Guardian chairman Neil Berkett last year praised the "outstanding partnership" between Pemsel's predecessor Andrew Miller and Rusbridger, but Pemsel admits that it has been historically "quite difficult" for The Guardian chief executive and editor to agree on a single vision for the company. Its constitution states that commercial is always "one step behind" editorial, but this has changed.
The Guardian is owned by charity the Scott Trust, which was established in 1936 to support the newspaper's independent journalism. The Scott Trust's cash pile fell nearly 9% to £765 million ($935 million) in the 12 months to April 2016, leading to predictions that The Guardian could go bust in under a decade if its losses are not stemmed.
Enders Analysis boss McCabe said in July the only way The Guardian can hit its break-even target is to "take the costs down significantly more." Pemsel says the goal is "achievable," but will require vigilance. "You can't rule out looking at the cost base again," he adds.
But Pemsel doesn't want to be the chief executive that "only talks to the cost base." Innovation has to part of the narrative. "There's that amazing quote that to win, you need to be experimenting faster than the competition," he says.
It explains why he is so grumpy with Google for poaching his staff. But more than this, it's a recognition that The Guardian will have outsmart these tech giants if it is to claw back lost revenue.
"The change in our business is unrelenting," Pemsel says. "To face up to some of the challenges that all news organisations are having, particularly The Guardian and what it needed to do, has frankly been a joy because you're doing it in partnership with editorial. It's been a good year."
Spoken with a marketing man's optimism, securing the future of The Guardian will be his toughest sell yet.