It looks like New York Times Co. CEO Mark Thompson got a little ahead of himself. Call it premature exuberance.

The Times had built major internal confidence, riding a wave of paywall-induced exhilaration, and eagerly moved on to what it had believed would be icing on the reader-revenue cake. I called it Paywalls 2.0 (“The newsonomics of The New York Times’ Paywalls 2.0”). The Times has tried to combine four magical words, squishing them together in ways no one had yet: Digital. Niche. Mobile. Paid. It’s the paid, of course, that’s the toughest part.

In that alchemy, the Times relied on deep research whose forecasts have proven close to the mark, as the Times has climbed to about 870,000 paying digital-only readers and reaped pricing rewards by combining print-plus-digital all-access subs. But the number of those who loved the Times enough to pay hundreds of dollars a year for it showed inevitable signs of peaking. The Times “little data” research projected a smaller but significant market of those would pay — if at lower dollar amounts — for different entry points into Times content.

Those forecasts haven’t come true, and in their wake, we see the substantial cut of 100 newsroom positions announced today, and a change in its niche apps strategy.

The core content and paywall strategy of the Times worked — that’s Paywalls 1.0 — but building on it has been tougher than planned. Today’s move is significant, but it’s one that should be understood carefully.

How much had the Times invested in the new strategy? While it’s impossible to parse the differing kinds of resources the newsroom added over the last three years or so, the amount of them is a number to behold. In 2011, the Times counted 1,189 newsroom employees. At the end of 2013, the number was 1,251, up 5.2 percent. Currently, it counts 1,330, up 11.5 percent from 2011. With 100 to be taken out, the 1,230 number would still be 3.4 percent higher than three years ago. It’s worth highlighting: While the overall number of newspaper editorial staffers has declined across America (down 20,000 jobs, about 30 percent of the total, in seven years), the Times has been bolstering its staff.

Those who volunteer for a buyout will receive a relatively generous three weeks of severance for each year worked. Of course, the Times will be semi-selective: “We reserve the right to say no to people who request a buyout but whose jobs and talents are critical to our mission,” notes executive editor Dean Baquet. One major question here is what the newsroom will look like when the dust settles.

Figure it this way: The Times’ newsroom needs to do two fundamental things well. First, it needs to maintain its gold-standard journalism capacity. That’s the very core of its business.

Second, it must transform its storytelling, becoming more intuitively digital, every day. Much of the newsroom increase was driven by the second priority. And, of course, the difficulty of changing newsroom culture, capability, and collaboration drove the well publicized Times innovation report leaked in the spring. Let’s recall that Arthur Gregg Sulzberger (good Capital profile), the publisher’s son, was a leader on that report and then assumed the title of senior editor for strategy in July to tackle the deep issues it presented. Now, amid the cutbacks, how will the work of culture change move forward, and how will relevant resources be affected?

Look at the Times’ newsroom numbers, even after these cuts, and it still stands apart. The content question for its immediate future: How much new content — and product — creation can be justified by business reality? That’s where Thompson’s new Times got a little ahead of itself.

Let’s look at four of the key questions to pop out of today’s move:

Is this a major business reversal?

No, the Times’ revenue is on a familiar path. If you look at the financials of the first six months of the year, reader revenue is still growing a bit and advertising is basically flat overall. The big bright spot is obscured by that big layoff number: a 16 percent increase in Q3 digital revenue, compared to 3.4 percent up in Q2 and 2.2 percent up in Q1. That’s a big number, and a hopeful one for the future as new executive vice president for ads Meredith Kopit Levien works through her massive overhaul of the Times ad operation.

Is the poor business performance of the new niche products a surprise?

Not really. When I wrote about the launch of NYT Now in April (“The newsonomics of NYT Now”), I suggested that a good baseball hitting average was the goal: “My bet is that the Times will be fortunate if one of the three new products generates substantial profits. Two would be a big win, and three would tell us that the Times has arrived at a new level of data-mastering strategery.”

So we’re clearly well short of masterful strategy, but it’s early in the Paywalls 2.0 game. Here’s what we know about the first set of these Paywalls 2.0 entries:

• The NYT Opinion app is being terminated by month’s end, after being launched all the way back in…June. At $1.50 a week, it didn’t find a separate, significant audience.
• The $2-a-week NYT Now app is staying in place — smartphone-only, as it has been — for now, though it is underperforming.
• The NYT Cooking app is staying free — it was launched in beta with the intention of charging for it — and the Times, citing audience growth, is apparently seeing it mainly as a digital ad vehicle. In fact, the digital ad growth potential — that 16 percent number — must be balanced carefully against restricted-to-pay products going forward.
• Then, there’s Times Premier, the VIP sub, which the Times is retooling. The Premier offer has seemed like a mishmash of stuff, and apparently that’s been greeted with lukewarm customer reception as well.

In the spring, I noted that there were clear stumbling blocks to success. There were navigation issues and questions about the daily adoption of a product that was kinda like (but not the same as) the full Times mobile product.

Comparative pricing is one issue, as I noted then: “The pricing of the ‘essential’ product, NYT Now, may be tricky. It’s only $2 a week, which gets you through-the-day reports plus a curated sense of what’s big news from elsewhere and the briefings. However, for $3.75 a week, you can get access to four or five times more New York Times content through its smartphone app — and full access to the NYTimes.com on the web. So a side-by-side comparison may give buyers second thoughts…The biggest, of course, is how many current non-subscribers will see enough value to pay…How large might the NYT Now segment be? There is undoubtedly a vast potential audience that could appreciate a Times fast-read view of the world, but it’s a group that may be tough to get to pay. Two bucks a week isn’t much. But at that price, NYT Now isn’t competing against other $2 products. It’s competing against the enormous freely available web.”

What do we learn about investing in news product?

The stock market — no surprise — loved today’s announcement. It was an announcement of business discipline. Call it a pivot, as CEOs like Thompson are wont to, or a sharp unexpected turn when the boulders in the road look larger than Google Maps told you.

We can figure that the 141 increase in staff in the newsroom over last 30 months cost about $12.5 million a year. Take out 100 of those and the Times saves about $9 million a year. That’s a positive financial move. Look at the wider expense context. Newspaper companies have been cutting expenses annually in the low- to mid-single digits for almost a decade now; that’s the only way they can stay profitable since they largely haven’t grown revenue year-over-year since 2005. Last year, the Times was down 2.1 percent in overall expenses, pruning in lots of places while investing in the newsroom and new products. Through the first six months of 2014, though, it’s been up 4.5 percent. Given the flattish revenue performance (more on which below), that number couldn’t hold. The Times’ operating profit for 2013 was $156.1 million, and Thompson’s already said it will be less than that in 2014.

To be clear, today’s cut is newsroom-centered. Says the Times: “A smaller number on the business side [will be cut] through a combination of buyouts and layoffs.”

The Times operates on relatively slim margins and without deep pockets, even though they’re a bit deeper than they were five years ago. Up I-95 in Boston, John Henry is investing millions in the new Globe. South of it, in D.C., Jeff Bezos is doing the same at the Post. Both see these as long-term investments, without a lot of prospect of short-term payoff. The Times simply can’t afford to do that.

So this “pivot” comes quickly — only a few months after the new niche products were introduced in the spring. Financial pressure is real, and so is a management culture that is seemingly tortured by transitions. (Witness the messes around the firings of former publisher Janet Robinson and former editor Jill Abramson.) It’s not a confidence-builder, internally or externally, to hire up quickly and then buyout/layoff quickly; after all, that’s the industry’s big complaint with Aaron Kushner’s Orange County Register roller coaster.

The Times’ lurch is a cautionary note for anyone experiencing premature exuberance about the digital future of the news business. All kinds of good things are emerging: new revenue from smarter digital ad strategies (native, content marketing, digital services, event sponsorships) and some readers will pay for digital access. But these are still uncertain flashes of light on the horizon. They’re real — but how big are they, and how sustainable?

What’s the size of the Times’ paying audience?

[Note: This section has been revised for greater clarity.]

Consider this. At the end of the last century (1999, to be precise), the Times print paying circulation stood at 1,097,200 daily and 1,682,200 on Sunday. Today, we see 1,217,201 paying Sunday print readers, 680,905 paying daily (Monday-Friday) print readers, and those 870,000 digital-only subscribers.

Let’s compare some numbers, then. Adding today’s Sunday print to digital-only, we now get 2.08 million paying readers — or a little more than 300,000 more than the 1999 high-water mark, which was that Sunday print number. Adding today’s daily print to digital only, we get 1.55 million paying readers, or close to the top print circulation (Sunday’s) of 1999.

We can take a couple of points from these comparisons. The Times has more paying readers today than in 1999. That’s a signal accomplishment. And the number of people who will pay for the Times is relatively stable, across 15 years and a whirlwind of world, generational, and news-reading change. Even though the Times can count more than 30 million U.S. monthly unique visitors and 40 million worldwide, its number of paying readers hasn’t changed a great deal. The plus side of that: There’s apparently a sizable group of people who value news content enough to pay for it, in digital or print form. The minus: That group is relatively small, and apparently not too changeable over a more than a decade. Each publisher must decide how best to find, satisfy and price that audience.

The Times — through its core digital-only/all-access offerings — has succeeded in transitioning over many people into the paid digital world, and that’s a milestone; no one would have believed four years ago that it would have more digital-only Times subscribers than print by 2014. While the Times has so far stumbled out of the Paywalls 2.0 gate, its almost four years of success at working that transition is still a newsworthy one, and a model to further parse.