NEW YORK (TheStreet) -- Privately owned Advance Publications' Conde Nast unit, publisher of iconic magazines including The New Yorker, Vogue and Wired, decided earlier in July to ditch its own data center, moving its operations to Amazon's (AMZN) clouds. The move puts under scrutiny one of the biggest problem currently faced by publishers -- legacy technical debt.
Like a financial debt that costs money to be repaid, technical debt is the cost associated to the use of old technology, said Tom Hendrickson, founder and CEO of Mitre Media in Edmonton, Alberta. Publishers who create and deliver content in the cloud have a huge financial advantage over those who don't.
Investors should look at the computer platforms used by the companies they own and measure that legacy technical debt against margins and switching costs, to see whether the companies they are buying are worth their money.
Aged technology makes it hard for publishers like New York Times Co. (NYT) to make a profit on run of network ads from Google (GOOGL) AdSense, or the ad network co-managed by Yahoo! (YHOO) and Microsoft’s (MSFT) Bing.
As a recent Adobe analysis of the Internet ad market, the tools of these two ad networks let advertisers cherry-pick target audiences while paying run of network rates for ads.
Yahoo!, which now runs multiple content sites, is gaining a huge advantage over traditional publishers by hosting on a cloud-based platform. But that message is not getting through to all publishers.
Mitre, launched in 2012 with $8.6 million in venture capital, has bought financial data sites like municipalbonds.com, bondfunds.com and dividend.com, then moved those operations from older systems to Amazon.
Once sites are hosted on Amazon, or another public cloud, profits improve invisibly, Hendrickson said, through the retirement of legacy technical debt.
The size of such debt varies by industry, Hendrickson added. Transaction processors like Visa (V) and MasterCard (MA) have special deals and contacts with banks that limit the losses due to legacy technical debt. Large customers find they can get better pricing with their distribution channels than through new entrants without such debt like Square, which is backed by Starbucks (SBUX). For the processors the threat remains in the distance.
In publishing, by contrast, legacy debt can be crippling, Hendrickson said, because customers can leave at the click of a mouse.
A Content Management Systems (CMS) is the most crippling piece of legacy technical debt in publishing, Hendrickson said. Many news sites think of a CMS as the system that lets writers file copy, but it’s much more.
"A CMS has a lot of business logic and workflow logic in it. It also has Search Engine Optimization and engagement features," meaning it can help determine whether a story gets read, or is aimed correctly through search engines toward a target audience.
Ultimately, what any publisher does is turn data sources into money, said Hendrickson. That’s not a process of writing and editing, but of organizing and presenting. "You need ways to put data into" a publishing system "then expose it to non-developers in an intuitive way."
Publishers with systems that can host on a public cloud, with software that targets and manages users as well as content, are winning in the publishing game, Hendrickson said.
Investors need to look at the computer platforms being used by their investments, and measure that legacy technical debt against margins and switching costs, to see whether the companies they are buying are worth their money.
At the time of publication the author owned shares of AMZN and GOOG.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.