You may have seen the news last week: another bastion of paid online content, Atlantic Monthly, has changed its business model and is offering all of its content online for free. Earlier this week Rupert Murdoch discussed placing more free content on his WSJ.com site, although he's still not ready to follow up on earlier suggestions that he'll reverse the staid Journal's tradition and remove the gates from the entire site.
After initial futile resistance, major newspapers including the New York Times and Los Angeles Times gave up on the paid model some time ago. Is there still anyone who seriously believes paid content is the right approach to an online media site?
Of course there are corner cases where it makes sense--if the content is highly valuable but the audience is small. But these types of businesses aren't optimized for the web, whose high fixed and low variable costs favor a scaling strategy. You also hear analogies with HBO. But bear in mind, paid cable emerged as a segmentation strategy after the broadcast medium was mature. By contrast, the internet as a media platform is in its infancy, with years of strong global growth still ahead.
I think some of the confusion results from the belief that the online medium is "just another" way to distribute content. True, but it's an alternative with a completely different cost and revenue structure. Failing to recognize and adapt to this, you will most certainly leave some money on the table. The fact that paid content worked so well in some other medium, such as print, doesn't predict that the old business model will perform just as favorably in a new environment.
I've laid out my reasons before for being such a strong advocate of most online content being free. Bottom line, to reap the maximum benefit, adapt your business strategy to the specific business environment where it's executed. One size doesn't fit all.
Thursday, January 31, 2008
Wednesday, January 23, 2008
Don't Forget the People
I was having lunch the other day with my friend and fellow UCLA business school alum, Manuel. I'm working with him on his latest venture, iPling. He summarized a key learning from his career as a serial entrepreneur: don't forget the people. Without the right people with the right skills focused on the right problems, you can't succeed. That's even more true in a startup environment, where teams are small and lack the redundancy of a larger company. Part of the volatile nature of an early-stage startup is that any failure can become a critical failure. Good team chemistry is vital.
In a startup you're often working with the smartest and most driven people, all of whom are used to setting their own agenda and proceeding according to their own best judgment. It can be tough getting everyone pointed in the same direction and motivating them to put the customary ego on the back burner for the sake of the team, even when the future of the entire organization--and the welfare of each of its individual members--is at stake. It's almost like a real-world game of Prisoner's Dilemma.
But the people equation is important in large organizations as well. In that context I'm reminded of my days at Yahoo. When I arrived in early 2002, the company was relatively small (about 2,000 employees--today, I hear, it's around 14,000) and focused in terms of rigorously screening potential hires for similar professional and educational backgrounds, work ethic, business values, and so forth. But within a couple of years Yahoo acquired some companies that weren't such a tight fit, and little effort was made to align the old and new cultures. Viewing the situation from the inside it seemed to me and some others that starting at about this time, increasing amounts of energy were diverted into attempts at negotiating culture imbalances--for example, different visions for product development, management, and marketing procedures and different sales strategies--at the expense of executing on revenue projects. Leadership didn't identify, understand, nurture, and enforce success vectors and best practices. In the end this "people problem" was one of the reasons Yahoo lost its market-leading position.
In a startup you're often working with the smartest and most driven people, all of whom are used to setting their own agenda and proceeding according to their own best judgment. It can be tough getting everyone pointed in the same direction and motivating them to put the customary ego on the back burner for the sake of the team, even when the future of the entire organization--and the welfare of each of its individual members--is at stake. It's almost like a real-world game of Prisoner's Dilemma.
But the people equation is important in large organizations as well. In that context I'm reminded of my days at Yahoo. When I arrived in early 2002, the company was relatively small (about 2,000 employees--today, I hear, it's around 14,000) and focused in terms of rigorously screening potential hires for similar professional and educational backgrounds, work ethic, business values, and so forth. But within a couple of years Yahoo acquired some companies that weren't such a tight fit, and little effort was made to align the old and new cultures. Viewing the situation from the inside it seemed to me and some others that starting at about this time, increasing amounts of energy were diverted into attempts at negotiating culture imbalances--for example, different visions for product development, management, and marketing procedures and different sales strategies--at the expense of executing on revenue projects. Leadership didn't identify, understand, nurture, and enforce success vectors and best practices. In the end this "people problem" was one of the reasons Yahoo lost its market-leading position.
I haven't worked at Google, but I hear from people who do (fellow Yahoo alums, as it turns out) that the situation there is different. As large as Google has grown, the company still maintains tight control of the applicant screening process to be sure anyone allowed through the gate complements the existing corporate values that have proven so successful. The higher the position level the more rigorous the examination, I'm told. And it's hard to argue with Google's success. They understand that having not just the "best" people, but the right ones for their organization, goals, and strategy, is a critical element in business performance.
Manuel hasn't built the "next Google"--at least not yet--but his vision is on target. There are lots of things to deal with in a startup: money, product, positioning, marketing, business strategy, and more. But as Manuel points out, don't forget the people. They're the ones who make it all happen.
Saturday, January 12, 2008
The Wall Around the Creativity Industry Is Crumbling
Last week my friend Kathleen, a fellow Yahoo alum, and I were brainstorming about ways her company, OneTrueMedia, could align products with businesses’ need to tell their stories online in text, photos, audio, and video. The idea was to empower businesses to create their own media; professional intermediaries such as video producers are no longer required. It was the latest in a series of unrelated events that have heightened my recognition of how quickly the walls that once surrounded the creativity industry are crumbling.
I’m working with another friend, Roy, to produce a book of photographs of the traditional Chinese tea houses he owns in the San Francisco area. In this case he’s planning to forego a publishing house and print the book at his own expense in Hong Kong. Distribution will be through his retail and web sites. Then a couple of days ago, a magazine publisher in the Philippines—someone I didn’t know--emailed to ask if he could use a photo I posted on Flickr from my vacation in Beijing, to illustrate an article in an upcoming issue. Not so long ago he would have had to find a stock photo or use a photo bureau. Today a quick Flickr search serves up millions of pictures by photographers from around the world.
Creativity is one of the most basic human urges. For a long time, prosperous businesses have survived as gatekeepers to the process of expressing creativity, producing it, and bringing it to market. Now the gates are being thrown wide open. Low-cost or free services available online offer production, distribution, marketing, and more. Each of us can be—and many of us already are—our own publishers.
At least for the moment, the urgency and novelty of being empowered to do something once reserved for a select elite—present our creative efforts to the masses—is making for lots of online business opportunities. I believe the ongoing democratization of creativity, and applying successful online storytelling tools and techniques from the consumer sector to B2B, is one of the important online trends of 2008.
It’s interesting to ruminate on what this trend will mean culturally, down the road. What we take for granted today as our culture’s storytelling, or art, is inevitably shaped by the gatekeeper structure that has enclosed it. Like a gated garden, it’s been rather tidy and predictable. That’s going to change when the gates come down. No doubt many will bemoan the lack of hierarchy, structure, and uniformity of the old days. They’ll probably regret the “lack of standards” when any Iowa housewife can publish a novel, or New Jersey dentist can make a feature film. I think our language itself, in both the spoken and written forms, is due to evolve.
Yet, on the flip side the tremendous voice that’s unleashed is sure to be vibrant. Audiences will be free to affiliate with the content that resonates most directly, without relying on gatekeepers to make preliminary judgments that may or may not reflect the market’s real tastes--and who also have been collecting a generous helping of revenue in exchange for their custodial role. Exciting times are ahead, with even greater need for configurable search capabilities, community input, and navigation features to help consumers make sense of it all. In other words, a new round of online business opportunities.
I’m working with another friend, Roy, to produce a book of photographs of the traditional Chinese tea houses he owns in the San Francisco area. In this case he’s planning to forego a publishing house and print the book at his own expense in Hong Kong. Distribution will be through his retail and web sites. Then a couple of days ago, a magazine publisher in the Philippines—someone I didn’t know--emailed to ask if he could use a photo I posted on Flickr from my vacation in Beijing, to illustrate an article in an upcoming issue. Not so long ago he would have had to find a stock photo or use a photo bureau. Today a quick Flickr search serves up millions of pictures by photographers from around the world.
Creativity is one of the most basic human urges. For a long time, prosperous businesses have survived as gatekeepers to the process of expressing creativity, producing it, and bringing it to market. Now the gates are being thrown wide open. Low-cost or free services available online offer production, distribution, marketing, and more. Each of us can be—and many of us already are—our own publishers.
At least for the moment, the urgency and novelty of being empowered to do something once reserved for a select elite—present our creative efforts to the masses—is making for lots of online business opportunities. I believe the ongoing democratization of creativity, and applying successful online storytelling tools and techniques from the consumer sector to B2B, is one of the important online trends of 2008.
It’s interesting to ruminate on what this trend will mean culturally, down the road. What we take for granted today as our culture’s storytelling, or art, is inevitably shaped by the gatekeeper structure that has enclosed it. Like a gated garden, it’s been rather tidy and predictable. That’s going to change when the gates come down. No doubt many will bemoan the lack of hierarchy, structure, and uniformity of the old days. They’ll probably regret the “lack of standards” when any Iowa housewife can publish a novel, or New Jersey dentist can make a feature film. I think our language itself, in both the spoken and written forms, is due to evolve.
Yet, on the flip side the tremendous voice that’s unleashed is sure to be vibrant. Audiences will be free to affiliate with the content that resonates most directly, without relying on gatekeepers to make preliminary judgments that may or may not reflect the market’s real tastes--and who also have been collecting a generous helping of revenue in exchange for their custodial role. Exciting times are ahead, with even greater need for configurable search capabilities, community input, and navigation features to help consumers make sense of it all. In other words, a new round of online business opportunities.
Sunday, January 6, 2008
And a Side Order of Strategy
As I discuss business opportunities with a spectrum of hopeful young companies it’s striking how some have a clear sense of their market niche and seem to have a decent chance of success, while others don’t measure up to the fundamentals of Business Strategy 101. It’s true, everyone can think of a company or two that “made it” without ticking off every item on the strategy checklist, but why handicap yourself—and especially, why invest time and money—with a venture that doesn’t conform to time-tested guidelines for achieving rapid growth, high margins, and market dominance?
In my observation, the intuition to build a company on a strong strategic foundation isn’t highly correlated with the management team’s years of experience or even their past success. It just seems like some folks get it. Time will tell, but I’m betting that these businesses are more successful in the long run.
Let’s review a few of the basics:
· A defensible business. If you begin to succeed, human nature ensures that others will notice, envy, and copy you. How do you defend again competition? Perhaps with patent-protected intellectual property, special expertise of your staff, or a unique business structure. Without defensibility you’re left having to outspend the competition, who have the advantage of being able to learn from your mistakes.
· Product attributes that match those of target customers. One company I talked to claimed to have a very “innovative” product. Unfortunately the innovation was to offer a complicated, expensive product to a notoriously unsophisticated, cost-sensitive customer base. Sometimes when something has never been done before, there’s a good reason. The need truly to understand customer needs and capabilities can’t be overstated.
· Market expertise. On several occasions, I’ve encountered entrepreneurs with a legitimate, modest success in a niche field who decide they want to roll the dice against a larger bet. Thinking big is a great characteristic—but past results don’t guarantee future performance. If you have a new idea, especially a riskier one in a more competitive arena, make sure you bring deep knowledge to the table, not just a win sometime in the past with a completely different customer and product set.
· Understanding of the online medium. The online environment is fundamentally different from conventional offline businesses and needs to be understood on its own terms, which include the vital role of technology, the value of scale where variable costs are negligible, the unique business insights offered by the tremendous amount of data generated by audience/customer interaction with your site, and a formidable embrace of personal empowerment. If the internet is the primary platform for your business, align your strategy and products to as many of these differentiating attributes as possible.
· Innovation. Along similar lines, the internet is driving revolutionary, not evolutionary, change. To score a win in this extraordinarily competitive space, you need to lead your own revolution. Don’t just make it a bit easier for people to do something they do already—empower them to do something that previously seemed impossible: search through a large proportion of human knowledge in a fraction of a second; sell your products in Brazil without a middleman; publish a book for less than the cost of a book in a bookstore or publish your ideas online to the entire world for free; capture the exact thought process customers went through prior to purchasing your product. Not long ago these concepts were science fiction; now they’re commonplace. Expectations are high for innovation by online companies. To differentiate your business and rise above the chatter get visionary and move the bar forward by leagues, not inches.
In my observation, the intuition to build a company on a strong strategic foundation isn’t highly correlated with the management team’s years of experience or even their past success. It just seems like some folks get it. Time will tell, but I’m betting that these businesses are more successful in the long run.
Let’s review a few of the basics:
· A defensible business. If you begin to succeed, human nature ensures that others will notice, envy, and copy you. How do you defend again competition? Perhaps with patent-protected intellectual property, special expertise of your staff, or a unique business structure. Without defensibility you’re left having to outspend the competition, who have the advantage of being able to learn from your mistakes.
· Product attributes that match those of target customers. One company I talked to claimed to have a very “innovative” product. Unfortunately the innovation was to offer a complicated, expensive product to a notoriously unsophisticated, cost-sensitive customer base. Sometimes when something has never been done before, there’s a good reason. The need truly to understand customer needs and capabilities can’t be overstated.
· Market expertise. On several occasions, I’ve encountered entrepreneurs with a legitimate, modest success in a niche field who decide they want to roll the dice against a larger bet. Thinking big is a great characteristic—but past results don’t guarantee future performance. If you have a new idea, especially a riskier one in a more competitive arena, make sure you bring deep knowledge to the table, not just a win sometime in the past with a completely different customer and product set.
· Understanding of the online medium. The online environment is fundamentally different from conventional offline businesses and needs to be understood on its own terms, which include the vital role of technology, the value of scale where variable costs are negligible, the unique business insights offered by the tremendous amount of data generated by audience/customer interaction with your site, and a formidable embrace of personal empowerment. If the internet is the primary platform for your business, align your strategy and products to as many of these differentiating attributes as possible.
· Innovation. Along similar lines, the internet is driving revolutionary, not evolutionary, change. To score a win in this extraordinarily competitive space, you need to lead your own revolution. Don’t just make it a bit easier for people to do something they do already—empower them to do something that previously seemed impossible: search through a large proportion of human knowledge in a fraction of a second; sell your products in Brazil without a middleman; publish a book for less than the cost of a book in a bookstore or publish your ideas online to the entire world for free; capture the exact thought process customers went through prior to purchasing your product. Not long ago these concepts were science fiction; now they’re commonplace. Expectations are high for innovation by online companies. To differentiate your business and rise above the chatter get visionary and move the bar forward by leagues, not inches.
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