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.

October 22, 2007: Network Media: Intriguing But Controversial

What do you think of "network media," an intriguing strategy built around the recognition that online media works best when it can tap into the internet's contradictory potential for both scale and targeting? One network media business getting a lot attention now is Glam. In a relatively short time and with a relatively small kernel of proprietary content, Glam has become one of the most trafficked women's destinations on the web...if you count the traffic to the network of affiliated sites across which Glam serves ads. A few weeks ago, in a post called "Is Glam a Sham?", TechCrunch wrote about the pros and cons of Glam's business model.

The big picture opportunities for network media involve four issues: the difficulty navigating highly vertical content that resides in pockets all over the web; the difficulty monetizing this content; the scale benefits of selling online advertisers as large an audience as possible; and the fact that the more targeted the ad inventory, the higher the CPMs. It's very early in the life of network media, but so far I don't think anyone has cracked the entire nut.

Glam may be farthest along. One reason I'm familiar with them is that they've hired several of my former Yahoo! colleagues to build the proprietary ad platform that is envisioned as the core of Glam's business. Building your own ad platform from scratch is time-consuming and expensive. There's no doubt that when Glam completes this project it will leverage the ad platform into other verticals, probably far afield from its current women's niche.

Another company, Name Media, is tackling the network media challenge from the perspective of what they call "digital real estate." They buy thousands of domains--photography.com is a flagship--that people might enter into a browser, fill them with content of varying quality, and monetize with ads from the Name Media network. They'll also monetize unused, or "parked," domains owned by people who join the network as affiliates. An issue with the Name Media approach is that the acquisition of so-called digital real estate isn't very scalable.

Federated Media is another player in this space.

For me, a big piece that's missing from the network model is deep audience insight. If you attract an audience to an environment you host and control, you can observe their behavior in minute detail. If your audience is spread across a plethora of affiliates or network partners, you must resort to proxies for inferring behavior and demographics (for example, clickthrough rates). I believe advertisers of the future will want to know more about the audiences they're buying, so the network strategy may need to evolve further.

Time will tell, but the network media business model is definitely a hot topic these days. Network media is part rival, part complement to social media. It would be interesting to see a company emerge that can do both really well.

February 12, 2007: Life in the Fast Lane: An Industry in Hyper Change

This sentence caught my eye this weekend when I was catching up on some reading I couldn't squeeze into the Monday-Friday timeframe: "The nation's leading advertising executives believe we are in a period of hyper accelerated change for the media and advertising world and that things are likely to speed up even more."

Aha, no wonder we're all so busy! Our industry is in "hyper change" mode. What are the implications for our operations, business models, sales, products...really, everything we do? Online technologies and options are turbocharging the evolutionary process, with community media and audience empowerment clearly in the vanguard. As the article points out, a lot of ad executives are still struggling to keep up with the media consumption and creation preferences of the audiences they're chasing.

While I certainly don't have all the answers, there are some clear implications for those of us running a media business in the hyper change environment. First, with change happening so quickly, we must operate without the long-term visibility we were used to in the old days. Mid-term is the new long-term. Second, with greater risk, we should hedge by trying more things. Hyper change is exactly the wrong time to get overly cautious. Don't be frivolous, but make some educated guesses and put a number of irons in the fire instead of betting the farm on one big one. An upside to hyper change is that missteps will quickly recede into the past, especially if they're not too large. Hyper change means you don't have to be 100% right...just make sure you're not 100% wrong.

Recognize that with change comes an educational responsibility. You may find that the burden of communicating and explaining your initiatives increases. This isn't necessarily a sign that the people asking questions lack confidence in what you're doing; maybe they're just not up to date. Be prepared with extra documentation and analysis.

When you're hiring, especially look for and value the ability to learn and grow. There's no way the people you hire today will have all the skills you'll need two years down the road. Find people who are willing to "hyper change" their own lives and careers so they can grow with your business.

Otherwise, fasten your seatbelt. If the observers quoted above are right, the pace isn't likely to slow down any time soon.

December 10, 2006: Six Takeaways for Building a Successful Online Media Business Model

For my session at a recent corporate management meeting I summarized six key points to bear in mind when you're developing the ideal model to support your online media business as you transition away from a print focus:

• Understand the online medium on its own terms and be open to new perspectives. Don't just stay in a comfort zone because it worked in the past. Online is a different universe where new rules apply.
  
  
• Strive to understand and build your strategy around the unique intersection of the special strengths of online (such as low unit and distribution costs) and the special strengths and market position of your business.
  
  
• Anticipate the need to reallocate resources and retool skillsets. Especially when you're transitioning from print to online, assume that your assets won't be deployed in the most efficient manner possible for the new medium. You will need to invest and disinvest accordingly. The sooner you start tackling this challenge the better. Similarly, assume that many core skills, such as production and marketing, will need to be retooled. Be proactive about reconfiguring your team as needed.
  
  
• Leverage the data available in the online medium to learn, grow faster, and optimize financial performance. One of the biggest changes and benefits of placing a media business on an online platform is the amount of data that's available on user behavior. Your web site is like a living focus group. Recognize that up front and move quickly to reorient your business to be data-focused. Consider hiring a data analyst to help crunch the numbers and derive actionable business insights.
  
  
• Put your audience to work for you. The online medium is ideal for managing content costs by promoting user-generated content. With a community strategy your audience will create content, monetize it through extra pageviews, and assist in audience development by inviting their friends. Don't be stuck in the one-way, push-content mentality of print. Get creative about deepening audience engagement and harvesting the potential benefits.
  
  
• Finally, don't forget to enjoy the once-in-a-career excitement of participating in creating the new industry of online media! All of us working in this field today are pioneers, developing platforms and strategies that will influence the way people give and receive information for generations. Don't lose sight of the fun and excitement of living on the cutting edge.

December 1, 2006: Economics of Paid Content Online

A lot of folks still have questions about the viablity of a paid content model online. Here's why I believe the online medium is best suited to monetization through advertising, not reader payments. It boils down to basic economics.

Harking back to economics 101, picture the fundamental economic graph, where the vertical axis is price, the horizontal axis is quantity, and the downward-sloping demand curve illustrates how, at a high price, the quantity demanded is small, but as the price approaches zero, demand grows to near infinity. Therefore, at any given price point there's a corresponding quantity and you can easily calculate total revenue by multiplying price and demand. Subtract costs and you have total profit.

But what if there was a way to monetize the nearly infinite quantity of demand for free content? That would be a gold mine and it represents the potential of the web. First, you multiply price by an almost infinite number, yielding almost unlimited revenue potential. Second, there are virtually no costs involved in distributing additional content on the web, so the incremental revenue is pure profit. This is a true media business model, where revenue comes from attracting an audience and monetizing it through advertising. It's been around for decades in broadcast and has been represented in print with controlled circulation. Now the global reach and low production and distribution costs of the internet have opened up tremendous opportunities for applying the media concept to many new types of content. In fact, the only situations online where paid content still makes sense are if (1) demand for the content is limited, but it's still quite valuable to the people who want it; or (2) demand for the content outstrips advertisers' willingness to support its audience.

As a rule of thumb online, explore the option of free content monetized through advertising first. That's almost always the lowest-cost--and very often the highest profit--alternative. Invest in audience, not an e-commerce platform and support system. Do the analysis and embrace the scale opportunities of the web. It's a new medium with a new economic landscape compared to its predecessors.