What the Media Industry Can Teach Us About Digital Business Models

It has been a great 20 years for U.S. media innovators, with hundreds of billions of dollars created by companies that are helping democratize content production and distribution while developing new ways to connect advertisers and customers. Google and its disruptive advertising model leads the pack with a $370 billion market capitalization, but consider also companies like Facebook ($225 billion), LinkedIn ($25 billion), Twitter ($24 billion), TripAdvisor ($11 billion), and Yelp ($3 billion).

Of course, for most traditional publishing incumbents, “great” is not the word that springs to mind. The U.S. newspaper industry has seen widespread bankruptcies and significant job losses. Only a handful of companies that primarily focus on traditional print publications still exist, such as The New York Times Company, E.W. Scripps, McClatchy, and A.H. Belo. The combined market value of those four companies? Less than $5 billion.

Why has this been the best of times for some in media and the worst of time for others? The answer reveals the critical role business models play in determining competitive winners in times of disruptive change.

Media executive Jeffrey Zucker once famously quipped that media companies embracing online disruption faced the unappealing prospect of “trading analog dollars for digital pennies” (Zucker now says it’s closer to quarters than pennies). The basic point was that online advertising was too small, and that transaction sizes were too insignificant to be anything other than a step down for companies used to rich cash flows.

But there is nothing inherently wrong with digital pennies, if you have the right business model. After all, media disruptors have shown paths to profits by amalgamating large numbers of small transactions – from Google Adwords to Facebook’s hypertargeted ads. Zucker’s dilemma only exists if digital pennies, nickels, dimes, or quarters are running through analog business models.

And that’s the crux of the challenge that traditional media has faced: grappling with digital disruption requires reframing the challenge from a technological challenge to a business model one. Unfortunately, that makes the problem harder, not easier, as business models are often hard-wired in what our colleague Mark Johnson dubs an organization’s rules, norms, and metrics, making shifts difficult to execute.

Read the rest at Harvard Business Review.

Scott D. Anthony is the managing partner of Innosight. 

Source: New feed

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