Does your business model strategy recognize the facts?
Leaders often fail to recognize the underlying facts that will transform their markets, which creates opportunities for disruptors who work 24/7/365 for a share of the leader’s business. The economy’s move from the Industrial Age to the Information Age created three new facts that leaders must heed. Let me use newspapers as an example of an industry that ignored facts at its peril.
FACT: Digital technology allows the creation of the same benefits at a lower cost. All markets evolve to the lowest cost solution, period. So it’s no surprise that the lower-cost way of communicating information is dominating media markets. But newspapers did not heed the call.
The Internet has demolished printing presses and scale economies as a barrier to entry into both sides of the newspaper business model (information for readers and an audience for advertisers), with new entrants offering opportunities for lower-cost reading and advertising.
The disruptive business models from new entrants got quickly adopted. Craig’s List, Monster.com, and other on-line businesses took off, putting a serious dent into newspapers’ classified ad revenue. Newspapers delayed responding, which enabled the start-ups to create widely recognized brands.
Furthermore, newspapers gave away digital news stories for free, reducing subscription revenues and making it easy for on-line aggregators of news stories to succeed.
Other new entrants (e.g., Google) took advantage of digital technology to offer advertisers more targeted and measurable advertising solutions, further worsening the newspapers’ plight. The only newspaper to avoid falling into quicksand was The Wall Street Journal. It’s narrow target market – business readers whose subscriptions are often covered by their companies – saved it.
The loss of income from traditional core businesses led to a vicious downward spiral. But rather than reinvent themselves as digital business models (as leading catalogue businesses did), newspapers merely put a digital face on the same old business model. By trying to protect their classified and print ad pots of gold, they did not play “where the puck would be,” using Wayne Gretzky’s phrase.
FACT: The Internet is fragmenting markets because it’s easier to find and serve narrow segments. Sticking with business models that serve the masses when segments within the mass market have unique needs is a doomed business approach for any business, newspapers included.
Here’s one of my favorite quotes (from Clay Shirkey) about how the fragmentation of markets impacted the newspaper industry.
“Writing about the Dallas Cowboys in order to take money from Ford to give it to the guy on the City Desk never made sense, but at least it worked. But on-line, though, the economic and technological rationale for bundling weakens – no monopoly over local advertising (that print created), no daily allotment of space to fill, no one-size-fits-all delivery system. Newspapers, as a sheaf of unrelated content glued together with ads, aren’t just being threatened with unprofitability, but incoherence.”
Sports readers no longer need to buy the local paper to read sports. Instead, they can follow ESPN networks and magazine, follow their favorite teams on team home pages, interact with other sports enthusiasts using social media platforms, or connect to SportsNews.
Newspapers totally missed opportunities for value creation as content markets fragmented. CineSport creates and sells local sports content (print and video) to 23 local media markets with ad content that targets younger generations. Why didn’t the LA Times or USA Today or NYT secure this opportunity?
FACT: The Internet is creating an unprecedented convergence of industries, creating the opportunity for more beneficial solutions.
With the Internet, companies can more easily move into new markets and design more holistic solutions to address previously unsolved problems. So we are seeing the convergence of defense and IT in cyber security and of wireless technology, genomics, medical equipment, therapeutic devices, smart phones, diagnostic algorithms and other software applications in healthcare.
To capture the convergence opportunity, newspapers could become the digital hub (the iTunes of news and information) pulling together a range of media and information solutions (some their own, others from partners) serving well-defined audience segments? As a “curator of news,” they could become the go-to site for local business leaders, moms, job seekers, visitors, etc., each with distinct information needs. This role would allow them to capture better audience demographics and build more audience commitment, both needed to sell higher-value solutions to advertisers. Newspapers may need to make some acquisitions to pull this off (e.g., a local newspaper could buy the local business news niche publication) and form partnerships with their nemesis (TV stations), but fresh business models and collaborations among media companies might just save an industry upon which democracy depends.
What facts in your own industry is your business overlooking?