by Adam Hartung | Jul 21, 2009 | Current Affairs, eBooks, General, In the Rapids
I've blogged before about the decline in book readership. In fact, the number of book stores has dropped some 20% in the last 3 years. It's not that people don't want to be learned. Rather, people no longer prefer to carry around a full length paper book. What was no big deal has become large, cumbersome and heavy. This isn't how we described books until we started reading everything imaginable on electronic devices. The new solutions made the old approach less desirable. The market shifted. And if books weren't available electronically, people would read other things which are available electronically.
Amazon wisened up and launched Kindle to meet this market shift. Good move, it allowed Amazon to keep growing while traditional format product sales declined. Now "Barnes & Noble launches on-line Kindle challenge" is the Financial Times headline. While Amazon keeps pushing new content onto Kindle, including newspapers and magazines, Barnes & Noble is maximizing the platforms it can reach electronically. Their solution, more software than hardware today, allows them to immediately offer 700,000 titles electronically. They now boast the largest on-line book store – somewhat eclipsing Amazon's early success. And their hardware device is yet to come.
Should Amazon be worried. I don't think so. The market for e-reading is growing extremely fast. With each new product generation the traditional market share shrinks as more people convert. At this stage, these companies are merely helping the market grow rather than competing with each other. That's the wonderful part about growth markets, – about being in the Rapids – there's so much new demand that it's less about competing head-to-head than about expanding the market by meeting more and more needs. Instead of slogging it out in trench warfare – which is the traditional book selling market – you can offer more features and ways to differentiate – thus growing the market. For both Amazon and Barnes & Noble this is a very, very good thing. It breathes growth into their businesses by moving into the shifted market space.
Borders was actually first to this market, linking up with the proprietary eReader from Sony. But Borders didn't move hard into the new market. As the weakest of the 3 leading book retailers, Borders should have moved fast to get out of the dying brick-and-mortar stores. Then used those resouces to take an early lead in the new market space. But the leaders at Borders kept trying to Defend & Extend the old business, and moved too slowly on the new business. Instead of getting out of the dying business, and becoming #1 in the growing business, they waited. Oops. Now Borders is again the weak competitor – and at grave risk of extermination.
The market is shifting. Congratulations to Amazon and Barnes & Noble for moving into the shifted market space. Quickly we'll be seeing fewer and fewer book stores on the street, as this business (similar to music) will become largely an on-line business. And better for us all. With cheaper books and other reading materials, maybe we'll continue to be even better read than previous generations.
Soon publishers and authors will have to step up to this shift. We all know that newspapers and magazines have been slow to adjust to this market shift. They should be begging for distribution on the Kindle device – and pushing B&N to get their device out even faster so periodicals can be distributed to them. Or maybe get their issues into the B&N software so people can read them on their laptops, netbooks or iPhones. The publishers, from newspapers to books, have been slow to understand this changed market. They, like recording publishers, are locked-in to the physical product (the CD for music, and paper for publishers). The winners will be those who move fastest to the new market. Sure, some people will always want print. But the market for digital is simply going to be lots, lots bigger. Best to get into that market today and figure out the new business model.
by Adam Hartung | Jul 20, 2009 | Current Affairs, Defend & Extend, eBooks, General, In the Whirlpool, Leadership, Lock-in
Years ago there was a TV ad featuring the actor Pauly Shore. Sitting in front of a haystack there was a sign over his frowning head reading "Find the needle." The voice over said "hard." Then another shot of Mr. Shore sitting in front of the same haystack grinning quite broadly, and the sign said "Find the hay." the voice over said "easy." Have you ever noticed that in business we too often try to do what's hard, rather than what's easy?
Take for example The New York Times Company, profiled today on Marketwatch.com in "The Gray Lady's Dilemma." The dilemma is apparently what the company will do next. Only, it really doesn't seem like much of a dilemma. The company is rapidly on its way to bankruptcy, with cash flow insufficient to cover operations. The leaders are negotiating with unions to lower costs, but it's unclear these cuts will be sufficient. And they definitely won't be within a year or two. Meanwhile the company is trying to sell The Boston Globe, which is highly unprofitable, and will most likely sell the Red Sox and the landmark Times Building in Manhattan, raising cash to keep the paper alive.
Only there isn't much of a dilemma here. Newspapers as they have historically been a business are no longer feasible. The costs outweigh the advertising and subscription dollars. The market is telling newspaper owners (Tribune Corporation, Gannett, McClatchey, News Corp. and all the others as well as The Times) that it has shifted. Cash flow and profits are a RESULT of the business model. People now are saying that they simply won't pay for newspapers – nor even read them. Thus advertisers have no reason to advertise. The results are terrible because the market has shifted. The easy thing to do is listen to the market. It's saying "stop." This should be easy. Quit, before you run out of money.
Of course, company leadership is Locked-in to doing what it always has done. So it doesn't want to stop. And many employees are Locked-in to their old job descriptions and pay – so they don't want to stop. They want to do what's hard – which is trying to Defend & Extend a money-losing enterprise after its useful life has been exhausted. But if customers have moved on, isn't this featherbedding? How is it different than trying to maintain coal shovelers on electric locomotives? This approach is hard. Very hard. And it won't succeed.
For a full half-decade, maybe longer, it has been crystal clear that print news, radio news and TV news (especially local) is worth a lot less than it used to be. They all suffer from one-way communication limits, poor reach and frequently poor latency. All problems that didn't exist before the internet. This technology and market shift has driven down revenues. People won't pay for what they can get globally, faster and in an interactive environment. As these customers shift, advertisers want to go where they are. After all, advertising is only valuable when it actually reaches someone.
Meanwhile, reporting and commentary increasingly is supplied by bloggers that work for free – or nearly so. Not unlike the "stringers" used by news services back in the "wire" days of Reuters, UPI and AP. Only now the stringers can take their news directly to the public without needing the wire service or publishers. They can blog their information and use Google to sell ads on their sites, thus directly making a market for their product. They even can push the product to consolidators like HuffingtonPost.com in order to maximize reach and revenue. Thus, the costs of acquiring and accumulating news has dropped dramatically. Increasingly, this pits the expensive journalist against the low cost journalist. And the market is shifting to the lower cost resource — regardless of how much people argue about the lack of quality (of course, some [such as politicians] would question the quality in today's "legitimate" media.)
Trying to keep The New York Times and Boston Globe alive as they have historically been is hard. I would contend a suicide effort. Continuing is explained only by recognizing the leaders are more interested in extending Lock-in than results. Because if they want results they would be full-bore putting all their energy into creating mixed-format content with maximum distribution that leads with the internet (including e-distribution like Kindle), and connects to TV, radio and print. Pricing for newspapers and magazines would jump dramatically in order to cover the much higher cost of printing. And the salespeople would be trained to sell cross-format ads which run in all formats. Audience numbers would cross all formats, and revenue would be tied to maximum reach, not the marginal value of each format. That is what advertisers want. Creating that sale, building that company, would be relatively much easier than trying to defend the Lock-in. And it would produce much better results.
The only dilemma at The New York Times Company is between dying as a newspaper company, or surviving as something else. The path it's on now says the management would rather die a newspaper company than do the smart thing and change to meet the market shift. For investors, this poses no dilemma. Investors would be foolhardy to be long the equity or bonds of The New York Times. There will be no GM-style bailout, and the current direction is into the Whirlpool. Employees had better be socking away cash for the inevitable pay cuts and layoffs. Suppliers better tighten up terms and watch the receivables. Because the company is in for a hard ending. And faster than anyone wants to admit.
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by Adam Hartung | May 24, 2009 | Current Affairs, Defend & Extend, General, Lifecycle, Television
One of the hardest things for leaders to do is recognize market shifts. The tendency to remain focused on Defending & Extending what was always does is so great that market shifts which demand change are overlooked in the urge to improve what was always done – even as results fade.
An obvious example is Playboy enterprises. "Playboy denies report of $300M price tag" was a Chicago Crain's headline, as rumors that the company (now publicly valued at only $90M) was being shopped for a new owner. Playboy was founded as a "lifestyle" media company intended to meet the emerging needs of "sophisticated" adult males in the 1960s. To the surprise of many publishers and government leaders, Playboy became a huge success. Its magazines outsold expectations. The company grew by opening clubs in major cities where businessmen entertained. Even resorts were founded as vacation destinations. As the company expanded it moved its headquarters from Chicago, where government officials disliked the hometown anomaly, to LA. And the company acquired a 727 as the corporate jet. As revenues and profits expanded, the company went public. As recently as 2000 the company was worth nearly $1.2billion (chart here).
But, the market changed. Women entered the workforce as one primary contributor to the clubs becoming passe, leading to their close. Likewise, the resorts closed as competitors – clubs catering to young men and couples, such as Club Med – did a better job of meeting their needs. The magazine became less and less viable as market shifts led to a split between pornography magazines for those who wanted photos and serious mens journals ranging from Stereophile and Autoweek to GQ. Market shifts ranging from America's attitudes about how to treat women, to what was needed in a serious current events or hobbyist journal, left the company's products less and less interesting. As the founder aged, the company lost track of its primary target and failed to identify a new target market. And the new CEO, the founder's daughter, was unable to develop future scenarios identifying a viable direction – or products – to keep the company growing.
At this point, Playboy has no clear market, has suffered from decades of declining revenue and profits, and investors have no reason to expect an improved return on investment. Why anyone should want to buy the company, especially as we observe that all print journalism is shrinking dramatically, is unclear. Playboy is at the vanguard again – but this time of demonstrating the end of print media and the losses capable from ignoring market shifts. Had Playboy long ago dropped the salatious pictures and moved itself toward a growing readership – providing insights to men's lifestyle issues in sports, fashion, electronics, autos or any number of topics – it had a chance of maintaining its success. But now the brand represents a complete out-of-synch with market needs and is more likely a negative than a positive; of no value. Playboy leadership should take the money and run, distributing what it can to investors, from whatever fool is willing to throw away its money on an acquisition.
Meanwhile, a recent Wall Street Journal Blog was titled "Skype Gets the Oprah Treatment". The WSJ blooger seemed perplexed that Oprah Winfrey's show would choose to run an entire episode by interviewing people on Skype. His implication was strongly that the episode was some sort of technology endorsement in disguise.
But, to the contrary, we can see where Ms. Winfrey and her producers are much smarter than her media CEO counterpart at Playboy. This episode gave viewers a firsthand experience with new technology which is available and usable by her target audience. People were able to recognize how the technology works, and why you would use it to communicate with others – possibly in remote locations.
Although Ms. Winfrey is "50ish" her company is keeping her product very current. Her audience is learning how to use new technology that will help them be better connected to family or business associates. And save money doing so, compared to traditional telephonic tools. Ms. Winfrey and her leadership team could continue to do what they always did, but this kind of new show helps them keep Harpo Enterprises and one of its products – The Oprah Show – in the forefront of competitivesness. That's why Harpo can lay claim to reaching even more people in Asia and Europe than in the USA! Thus Harpo keeps viewer numbers high, and advertisers willing to foot the bill.
Harpo Productions and Ms. Winfrey are demonstrating their willingness to shift with the marketplace. They are trying new things, and are willing to branch out with changes to stay connected to markets as they shift. Doing so is a requirement in lifestyle products, like media. She benefits her customers by willingly shifting with the market, and those lucky enough to work for Harpo or supply the company, will benefit by its willingness to remain connected to changing markets – by staying on the forefront.
Many CEOs and their leadership teams would do well to understand the failure of remaining Locked-in, like Playboy did. And to recognize the value of remaining abreast of market shifts and keeping products current with changing market requirements, like Harpo Productions and is famous CEO. Sometimes being criticized for being too avant garde is a good thing, because it shows you aren't afraid to change in the pursuit of keeping current with market shifts.
by Adam Hartung | Apr 14, 2009 | Books, Current Affairs, Disruptions, General, In the Rapids, Innovation, Leadership, Lifecycle
Last week I blogged about how Segway and GM were taking all the wrong steps in launching the PUMA. Today let me explain why Amazon is the mirror image – doing the launch of Kindle correctly. Kindle is the new "electronic book" from Amazon which allows people to download whole books, or parts of books, onto a very small, light and thin device where they can read the material, notate it and even convert it to audio. Even Marketwatch.com is bullish in its overview of the product "Amazon's Kindle, e-books are future of reading."
Firstly, Amazon recognized it had a Disruptive innovation and didn't pretend this was a small variation on printed material. Perhaps "over the top" a bit with the PR, Mr. Bezos called Kindle the biggest revolution in reading since Gutenberg invented the printing press. This bold claim causes people to realize that Kindle is something very different than anything prior. Which it is. Kindle is not like reading on a PC, nor is it like reading a book, nor is it like reading a magazine or newspaper (should you download those). It's different, and it requires buyers change their habits. By highlighting the uniqueness of the product Amazon doesn't undersell the fact that users really do have to change to enjoy the product.
Secondly, the product isn't being run through some high volume distribution that will struggle with the uniqueness and potentially low initial volumes. Amazon isn't trying to sell the product today at Best Buy or Wal-Mart, which would demand instant volume in the millions supported by huge ad spending. Something which would not only be expensive, but probably would not meet those retail expectations. Instead, Amazon is selling the product itself and closely monitoring volumes.
Thirdly, Amazon isn't pushing Kindle as a product for everybody. At least not yet. Amazon isn't offering Kindle for $20, losing a huge amount of money, and saying everyone needs one – which would likely lead to many people buying a Kindle, deciding its not for them, and then throwing it away to wait a very long time before a repurchase – with lots of negative comments. Instead, Amazon prices Kindle at $359 and targets the product at early users who will really benefit. Like the heavy volume book reader. This allows Amazon to build a base of initial users who will use the product and provide feedback to Amazon about how to modify the product to make it even more valuable. Amazon can cycle through the learning experience with users to adapt and develop the product for a future mass market.
Fourthly, the Kindle doesn't come with 30 options to test. It has just a few. This allows Amazon to learn what works. And add functionality in a way that tests the product. Amazon can add features, but it can also drop them.
Will Kindle be the next MP3 device. Probably. How long will it take? Probably not as long as people think. Because Amazon is introducing this innovation correctly. Publishers, authors, book readers and other application users are all learning together. And while traditional paper publishers (from books to newspapers) are waiting to see, Amazon is preparing its new products to "jump the curve" on these old publishers. It's not hard to imagine in 3 or 4 years how authors might go straight to Amazon with their writing, for publication as a Kindle-only product. This would be incredibly cheap, and open the market for many more authors (books or periodicals) than have access today. Since the cost of reading drops precipitiously (due to no paper) the pricing of these new books and periodicals may well be a few dollars, or even less than a dollar. Thus exploding the market for books the way the internet has exploded the market for short-form blog writers.
Even in a recession, people look for new solutions. But capturing those new customers takes careful understanding of how to reach them. You can't act like Segway and dump a strange new product onto users with mass distribution and a PR highlight reel. You have to recognize that Disruptive innovations take better planning. You have to find early customers who will enter White Space with you to test new products, and provide feedback so you both can learn. You have to be honest about your Disruptive approach, and use it to figure out what the big value is – not guess. And you have to be willing to take a few months (or years) to get it right before declaring your readiness for mass market techniques.
Amazon did this when it launched on-line book selling. It didn't sell all books initially, it mostly sold things not on retailers shelves. It didn't sell to everyone, just those looking for certain books. And it learned what people wanted, as well as how to supply, on its journey to Disrupt book retailling – later about all retailing – and build itself in to the model for on-line mass retail. Following that same approach is serving Amazon well, and portends very good things for Kindle's success.
