by Adam Hartung | Sep 16, 2010 | Current Affairs, Defend & Extend, Food and Drink, Innovation, Leadership, Lock-in, Openness, Web/Tech
Summary:
- Businesses usually try defending an old solution in the face of an emerging new solution
- Status Quo Police use “cannibalization” concerns to stop the organization from moving to new solutions and new markets
- If you don’t move early, you end up with a dying business – like newspapers – as new competitors take over the customer relationship – like Apple is doing with news subscriptions
- You can adapt to shifting markets, profitably growing
- You must disrupt your lock-ins to the old success formula, including stopping the Status Quo Police from using the cannibalization threat
- You should set up White Space teams early to embrace the new solutions and figure out how to profitably grow in the new market space
When Sony saw MP3 technology emerging it worked hard to defend sales of CDs and CD Players. It didn’t want to see a decline in the pricing, or revenue, for its existing business. As a result, it was really late to MP3 technology, and Apple took the lead. This is the classic “Innovator’s Dilemma” as described by Professor Clayton Christenson of Harvard. Existing market leaders get so hung up on defending and extending the current business, they fear new solutions, until they become obsolete.
In the 1980s Pizza Hut could see the emergence of Domino’s Pizza. But Pizza Hut felt that delivered pizza would cannibalize the eat-in pizza market management sought to dominate. As a result Pizza Hut barely participated in what became a multi-biliion dollar market for Domino’s and other delivery chains.
The Status Quo Police drag out their favorite word to fight any move into new markets. Cannibalization. They say over and over that if the company moves to the new market solution it will cannibalize existing sales – usually at a lower margin. Sure, there may someday be a future time to compete, but today (and this goes on forever) management should keep close to the existing business model, and protect it.
That’s what the newspapers did. All of them could see the internet emerging as a route to disseminate news. They could see Monster.com, Vehix.com, eBay, CraigsList.com and other sites stealing away their classified ad customers. They could see Google not only moving their content to other sites, but placing ads with that content. Yet, all energy was expended trying to maintain very expensive print advertising, for fear that lower priced internet advertising would cannibalize existing revenues.
Now, bankrupt or nearly so, the newspapers are petrified. The San Jose Mercury News headlines “Apple to Announce Subscription Plan for Newspapers.” As months have passed the newspapers have watched subscriptions fall, and not built a viable internet distribution system. So Apple is taking over the subscription role – and will take a cool third of the subscription revenue to link readers to the iPad on-line newspaper. Absolute fear of cannibalization, and strong internal Status Quo Police, kept the newspapers from embracing the emerging solution. Now they will find themselves beholden to the device providers – Apple’s iPad, Amazon’s Kindle, or a Google Android device.
But it doesn’t have to be that way. Netflix built a profitable growth business delivering DVDs to subscribers. Streaming video clearly would cannibalize revenues, because the price is lower than DVDs. But Netflix chose to embrace streaming – to its great betterment! The Wrap headlines “Why Hollywood should be Afraid of Netfilx – Very Afraid.” As reported, Netflix is now growing even FASTER with its streaming video – and at a good margin. The price per item may be lower – but the volume is sooooo much higher!
Had Netflix defended its old model it was at risk of obsolescence by Hulu.com, Google, YouTube or any of several other video providers. It could have tried to slow switching to streaming by working to defend its DVD “core.” But by embracing the market shift Netflix is now in a leading position as a distributor of streaming content. This makes Netfilx a very powerful company when negotiating distribution rights with producers of movie or television content (thus the Hollywood fear.) By embracing the market shift, and the future solution, Netflix is expanding its business opportunity AND growing revenue profitably.
Don’t let fear of cannibalization, pushed by the Status Quo Police, stop your business from moving with market shifts. Such fear will make you like the proverbial deer, stuck on the road, staring at the headlights of an oncoming auto — and eventually dead. Embrace the market shift, Disrupt your Locked-in thoughts (like “we distribute DVDs”) and set up White Space teams to figure out how you can profitably grow in the new market!
by Adam Hartung | Aug 11, 2010 | Defend & Extend, Food and Drink, In the Whirlpool, Leadership, Lock-in, Television, Web/Tech
“Playboy’s Circulation drops 34%” is the Chicago Tribune headline. Is anyone surprised? If ever there was a brand, and business, that was out of step with current markets it has to be Playboy. That the business still exists is a wonder. But let’s spend a few minutes to see why Playboy has fallen on hard times, and what the alternative might have been – and could still be.
The Playboy Success Formula is really clear. Since founded by Hugh Hefner, the company has focused on titillating the male libido with a magazine that focused on pictures of naked women, videos of same (physical videos, on-line videos and television), radio talk shows about sex, and alternative lifestyle issues such as recreational drug use. At one time this was unique, and in a male dominated 1960s it was even tolerated. Although never mainstream, the business was very profitable early in its lifecycle. Thus the founder kept doing more of the same, building a small empire and eventually taking the company public.
But the market shifted. Larry Flint and others ushered in a new era of pornography altering the market for prurient, sexually oriented material. Women in the workforce – and I’d like to think a heavy dose of decency – made public toleration of such material unacceptable. You couldn’t read a Playboy at work, or on the airplane, and you wouldn’t have a business lunch at their clubs. Other magazines sprung up to deal with men’s interests in automobiles, clothing, music, sports, etc. in a more acceptable – and for most people more significant and intelligent – manner. Other lifestyle publications were developed that discussed illicit drug use and non-traditional ways of life more directly, explicitly and with greater advocacy. The advent of cable TV and then the internet increasingly made access to the key features of Playboy’s product readily available, very inexpensive (often free) and targeted at niche audiences.
Yet, despite these many market changes, Playboy’s founder and his daughter, the company CEOs for 40+ years, steadfastly stuck to their old Success Formula. They kept thinking that people wanted those “bunny eared” products. They talked a lot about the heritage of Playboy, how it broke ground in so many markets, and opened the door for lots of new competitors. But they kept doing what the company always did – including foisting upon us the ever aging founder as a “role model” for male menopause and the anti-family aged entrepreneur. Playboy today is what it always was – and there simply aren’t a whole lot of people with much interest in those products any more. Nobody mismanaged the brand, the market just walked away from it. Sort of like the demand for Geritol.
Playboy focused on its core. And now its on the edge of bankruptcy. The company keeps outsourcing more and more of the work, as the staff has dropped to nearly nothing, cutting costs everywhere possible. Sales continue to decline, and the brand looks like it will soon join Polaroid and Woolworths on the heap of once famous but floundered companies. Playboy’s fatal mistake wasn’t that it was started as a prurient men’s magazine – but rather that for 40 years its leadership kept Defending & Extending that original Success Formula despite rather dramatic market shifts. Now, today, Playboy is a sour lemon that not many a marketer would want to be stuck promoting.
But – it didn’t have to be that way. Just imagine if you’d been given control of Playboy 30 years ago. What could you have done?
As soon as Hustler hit the newsstands, and the first women’s right protests developed – including the early push for the Equal Rights Amendment – it was clear that the future of the magazine was in jeopardy. Instead of doing “more of the same” could you have considered something else?
The growth of women in the workforce meant a lot of new opportunities. Why not jump onto that bandwagon? If you’re really at the forefront of “lifestyle” issues, as the leadership claimed, then you would have identified that women in the workforce meant something new was brewing – a group of consumers that would have more cash, and more influence. And not only would that be an appealing market, but so would the men who would be adjusting to new lifestyle issues as homes became dominated by 2-worker leadership.
Playboy was well positioned to be Victoria’s Secret. At a time before anybody else was really thinking about a significant market for attractive and comfortable lingerie Playboy certainly had the leading edge. Or, even more likely, the water carrying publication for Dr. Ruth-style discussions about sexuality. There was an emerging market for information targeted at increasingly affluent women about automobiles, stereos, apartments, resume writing, job hunting and even at-work etiquette — all topics that had been the dominant discussion areas for Playboy’s historically male readership. Had the leadership at Playboy opened its eyes, and scanned the horizon for growth markets being developed as a result of the trends which were negatively impacting it, these leaders would have been able to create a bevy of scenarios that were filled with opportunities for growth.
It’s hard to imagine today Playboy being anything else. But all that stopped stopped Playboy’s evolution was a commitment to its “core” – to its old Success Formula. That the CEO for over 20 years was a well educated woman is testament to the power of “core” philosophy versus a willingness to look at market opportunities. By keeping Playboy’s Success Formula tightly aligned with her father’s founding ideas she quite literally led the company into smaller and smaller sales with less and less profit. The big loser was, of course, investors. Playboy is worth very little today as Mr. Hefner hints at making a bid to take the company private once again.
Singer was once a sewing machine company. But when Japanese products surpassed Singer’s product capabilities and achieved a cost advantage in the 1970s, Singer leadership converted Singer into a defense contractor. And Singer went on to multiply its value before being acquired by General Dynamics.
IBM was an office machine company famous for mechanical typewriters and adding machines. The founder said he would never enter computers. Fortunately for employees and shareholders the founder’s son took the company into computers and the company flourished as competitive typewriter companies such as Smith Corona – stuck on the core business – disappeared.
There’s a time for lemons – in your tea or on a salad. But when markets shift, lemons just turn sour. If you want to succeed long-term you have to shift with markets. And that might well mean making significant change. Adding water and sugar to the lemons is a good start – as lemonade is less about lemons than what you’ve added to it. After you open that lemonade stand, see where the market leads you.
No matter where you start, every day offers the opportunity to head toward new, emerging markets. No matter what your historical “core” you can literally become any business you want to become. Coke was founded by a pharmacist who wanted to boost counter sales in his store – and it was worth a lot more than the pills he was constructing. Those who develop scenarios about the future prepare for market shifts, understand the competitive changes and use them to identify the opportunities for a new future. Then they use White Space teams to move the business into a new Success Formula. Anybody can do it. You could even have remade Playboy. So what’s the plan for the future of your business? More of the same …. or …..
by Adam Hartung | Aug 2, 2010 | Current Affairs, In the Swamp, Innovation, Leadership, Web/Tech, Weblogs
Things are tough for the printed word these days. Not for writing, or demand for information. That is doing great – with more volume than ever! But the issue is “printed” material. Clearly, the format is changing. But are business leaders changing with it?
The Los Angeles Times reported “Amazon.com Says It’s Selling 80% More Downloaded Books Than Hardcovers.” This is a big switch. Clearly Kindles are making a big difference as people are buying a lot less paper, and reading a lot more bits. Do you remember when your colleagues all said “I want a book, I don’t want to read looking at a screen?” Do you remember when businesspeople actually printed their emails? Clearly a sentiment gone by the wayside.
Accuracy in Media reported “U.S. Newspaper Circulation Dropped 30% Since ’07.” And it’s a global phenomenon, with the U.K. down 25%, Greece 20%, Italy 18% and Canada 17%. Fully 2/3 of major countries are seeing newspaper demand decline. No wonder Tribune Corporation, publisher of The Chicago Tribune, Los Angeles Times and Baltimore Sun, as well as others, is having such a hard time emerging from bankruptcy. Every month this looks more like the buggy whip business. Can you really expect the company to survive?
Amidst this backdrop, magazines have a dire future. I can remember when browsing magazines was the norm, and trade magazines arrived in my inbox daily. Often 60 or 100 page affairs. No longer. Magazines have disappeared like rain in the Sahara. Their savior is supposedly to go digital, but according to TwistedImage.com magazine leaders are at a loss how to proceed. In “The Media Disruption Within” Mitch Joel describes how a panel of magazine publishers are approaching the industry change mostly with despair that the internet is here – and no concerted effort to define a new model. Lock-in was prevalent as they kept hoping for a return to the good old days for print publishers, which we know is never going to happen.
So today the New York Post reported “Mag Publishers, Apple in Subscription App Scrap.” Most of us can acquire newspapers for an iPad issue by issue – but subscriptions aren’t possible. The magazine fears it will be the big loser – and rightfully so. If Apple controls the subscription and delivery, why couldn’t it repackage? Where would Apple stop, and what value would the magazine actually deliver? Since iTunes changed music buying, how many people buy albums? It would require the editors and publishers be really sharp to know their market – something most gave up a long time ago when they turned to focusing on narrow content for their “core product” and trying to maintain their “core competency.” Neither of which are very “core” any more.
We all want news that’s exactly what we want, and we’ll simply go to Google to get it. Who published it isn’t nearly as important to readers any more. Nor is the packaging. Pretty soon Amazon via Kindle, Apple via iPad, and we can expect a Google tablet to do the same, can start packaging up the chapters of various books for readers giving them just what they want. And with that they can link off to source articles from newspapers and magazine archives – or to current events. The role of publisher will get a lot less clear, as writers and editors can go directly to the electronic distributor with content.
Into this fray is an interesting new approach reported by CNBC.com, “Rupert Murdoch’s New Digital Game Changer?” The claim is that News Corp. is preparing an all-new interactive product designed just for on-line and mobile users. It wouldn’t be a re-treaded newspaper. Text, photo and video designed just for the medium. Now that would be the right way to go about preparing for 2020. Unfortunately, the way News Corp. handled MySpace.com doesn’t give us a lot of comfort this will be a truly White Space project. But if it is, it might just be the start of toward the product which will be journalism in 2020.
If you’re in publishing you have no choice but to get White Space going. The intermediaries – from the tech companies to new-age publishers like HuffingtonPost.com – are moving forward. The business as it used to be is gone. But the demand for news – for content – is bigger than ever. It will require a new business model. A new Success Formula. And this is clearly a case of change or die. The world will never again be as it previously was.
Even if you don’t think of yourself as a publisher – you probably are. Do you put out customer literature – like user or repair manuals? Do you put out sales literature? Do you communicate with investors or industry analysts? If so, how do you “publish” your material? Paper? Packaged pdf? In today’s world, an advantage can be created by moving quickly to what’s new.
Today there are a plethora of luxury automobiles on the market. These beautifully high tech luxury machines have manuals that can run 500+ pages! It is impossible to figure out how anything works by trying the manual! Why don’t manufacturers of $60,000+ cars have a Kindle (or iPad) built into the console? Those cost less than a set of brake pads today, they can be updated automatically, and are interactive.
Are you thinking about how you could use a $100 device to make life easier for your customers and supply chain partners? Or are you printing? If you’re printing, what’s your budget? How much would you save if your salespeople, customers, etc. were given a Kindle? Or iPad? Can you afford not to be thinking differently about your future?
