by Adam Hartung | May 18, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lifecycle, Lock-in, Web/Tech
"Newspapers face pressure in selling online advertising" is today's headline about newspapers. Seems even when the papers realize they must sell more online ads they can't do it. Instead of selling what people want, the way they want it, the newspapers are trying to sell online ads the way they sold paper ads – with poor results.
We all know that newspaper ad spending is down some 20-30%. But even in this soft economy internet ad spending is up 13% versus a year ago. Except for newspaper sites. At Gannett, NYT and McClatchy internet ad sales are down versus a year ago!
People don't treat internet news like they do a newspaper. The whole process of looking for news, retrieving it, reading it, and going to the next thing is nothing like a newspaper. Yet, daily newspapers keep trying to think of internet publishing like it's as simple as putting a paper on the web! What works much better, we know, are sites focused on specific issues – like Marketwatch.com for financial info, or FoodNetwork.com. Also, nobody wants to hunt for an on-line classified ad at a newspaper site – not when it's easier to go to cars.com or vehix.com to look for cars, or monster.com to look for jobs. Web searching means that you aren't looking to browse across whatever a newspaper editor wants to feed you. Instead you want to look into a topic, often bouncing across sites for relevant or newer information. But a look at ChicagoTribune.com or USAToday.com quickly shows these sites are still trying to be a newspaper.
Likewise, online advertisers have far different expectations than print advertisers. Newspapers simply said "we have xxxx subscribers" and expected buyers to pay. But on the web advertisers know they can pay for placement against specific topics, and they can expect a specific number of page views for their money. As the article says "if newspapers want to get their online revenue growing again, once the economy recovers, they have to tie ad rates more closely to results, charge less for ads and provide web content that readers can't get at every news aggregation site."
When markets shift, it's not enough to try applying your old Success Formula to the new market. That kind of Defend & Extend practice won't work. You're trying to put a square (or at least oblong) peg into a round hole. Shifted markets require new solutions that meet the new needs. You have to study those needs, and project what customers will pay for. And you have to give them product that's superior to competitors in some key way. Old customers aren't trying to buy from you. Loyalty doesn't go far in a well greased internet enabled world. You have to substantiate the reason customers need to remain loyal. You have to offer them solutions that meet their emerging needs, not the old ones.
Years ago IBM almost went bust trying to be a mainframe company when people found hardware prices plummeting and off-the-shelf software good enough for their needs. IBM had to develop new scenarios, which showed customers needed services to implement technology. Then IBM had to demonstrate they could deliver those services competitively. Only by Disrupting their old Success Formula, tied to very large hardware sales, and implementing White Space where they developed an entirely new Success Formula were they able to migrate forward and save the company from failure.
Unfortunately, most newspaper companies haven't figured this out yet. They don't realize that bloggers and other on-line content generators are frequently scooping their news bureaus, getting to news fans faster and with more insight. They don't realize that on-line delivery is not about a centralized aggregation of news, but rather the freshness and insight. And they haven't figured out that advertisers take advantage of enhanced metrics to demand better results from their spending. The New York Times, Gannett and other big newspaper companies better study the IBM turnaround before it's too late.
by Adam Hartung | May 6, 2009 | Uncategorized
"In the land of the blind the one-eyed man is king." I've heard this phrase many times, and never has it been truer than today. With so many companies fairing so poorly – revenues down, profits down, layoffs – doing better than most doesn't mean you have to do all that well.
An example is News Corp. The Tribune Company is bankrupt, casting doubts on the future of The Chicago Tribune, Los Angeles Times and its other newspapers. The New York Times company threatened to close The Boston Globe unless it received major employee concessions. But even these won't save either the Globe or the Times as the headline "Boston Globe's obituary already written" comes from commentator Chuck Jaffe. Newspapers are discontinuing daily circulation, slimming down, and closing.
So when Marketwatch.com reports "News Corp. posts flat third-quarter profit" it sounds like a monumental success compared to its competitors. But it does beg the question, why is News Corp. doing so much better than its brethren? The answer lies in the multi-faceted approach News Corp. took to connecting with those who want information – and then connecting to their advertisers. While the web sites for most newspaper companies are weak products that attract few readers (or advertisers), and the writers feed only one outlet (papers) rather than multiple outlets, News Corp. stands in stark contrast with major outlets across all media internationally.
In addition to multiple newpapers News Corp. owns multiple television stations and entire networks. It is a major player in cable programming – including the #1 ranked cable news channel in the U.S. as well as networks across the globe. It is a leader in direct broadcast satellite with SKY, owns multiple weekly magazines (that all have web sites), is a major player in billboards, and owns several internet properties including MySpace.com
Across News Corp. the leadership is able to share acquisition costs for programming – including news – and the distribution – including all forms of programming outlets. News Corp.'s leadership did an excellent job of paying attention to market shifts. After starting as an Australian newspaper company it moved into all these different businesses in order to be part of the evolving market landscape. It obsessed about competitors, never fearing to enter markets others avoided – such as launching a national broadcast network in the 1980s, and taking on CNN when nobody agreed there was need for more than one 24 hour news channel. And early in the internet era it paid up to acquire MySpace in order to be a participant in the internet's growth, not just a spectator.
The leadership at News Corp. has never been shy about Disruptions – often making itself the target of many groups. But these Disruptions allowed News Corp. to open many White Space projects, teaching the company how to compete in rapidly changing markets.
And now, as several competitors are disappearing, News Corp. is doing the best in its class. While competitors are hopelessly mired in Whirlpools from which escape is likely impossible, News Corp. is merely "flat". And there's a lot to be said for "flat" results when competitors from GE (owner of NBC and several other channels) to New York Times Company are seeing their poorest results in decades – or even filing bankruptcy (like Tribune).
by Adam Hartung | May 4, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Openness
Today Yahoo.com picked up on Mr. Buffett's recent comments, with the home page lead saying "Buffett's Gloomy Advice." The article quotes Buffett as saying newspapers are one business he wouldn't buy at any price. Even though he's a reader, and he owns a big chunk of the Washington Post Company (in addition to the Buffalo, NY daily), he now agrees there are plenty of other places to acquire news – and for advertisers to promote.
I guess the topic is very timely given the Marketwatch.com headline "N.Y. Times hold off on threat to close Boston Globe". Once again, in what might remind us of an airline negotiation, the owner felt it was up to concessions by the workers, via their union, if the newspaper was to remain in business. After squeezing $20million out of the workers, the owners agreed not to proceed with a shutdown – today. But they still have not addressed how a newspaper that is losing $85million/year intends to survive. With ad revenue plunging over 30% in the first quarter, and readership down another 7% in newspapers nationally, union concessions won't save The Boston Globe. It takes something that will generate growth.
And perhaps that innovation was also prominent in today's news. "Amazon expected to lift wraps on large-screen Kindle" was another Marketwatch headline. Figuring some people will only read a magazine or newspaper in a large format, the new Kindle will allow for easier full page browsing. According to the article, the New York Times company has said it will be a partner in providing content for the new Kindle.
Let's hope the New York Times does become a full partner in this project. People want news. And the only way The Boston Globe and New York Times will survive is if they find an alternative go-to-market approach. Printing newspapers, with its obvious costs in paper and distribution, is simply no longer viable. Trying to defend & extend an old business model dedicated to that approach will only bankrupt the company, as it already has bankrupted Tribune Company and several other "media companies." The market has shifted, and D&E practices like cost cutting will not make the organizations viable.
It's pretty obvious that the future is about on-line media distribution. We've already crossed the threshold, and competitors (like Marketwatch.com and HuffingtonPost.com) that live in the on-line world are growing fast plus making profits. What NYT now needs to do is Disrupt its Lock-ins to that old model, and plunge itself into White Space. I'm not sure that an oversized Kindle is the answer; there are a lot of other products that can deliver news digitally. But if that's what it takes to get a major journalistic organization to consider switching from analog, physical product to digital on-line distribution as its primary business I'm all for the advancement. Those who compete in White Space are the ones who learn, adapt, and grow. Being late can be a major disadvantage, because the laggard doesn't have the market knowledge about what works, and why.
This late in the market evolution, the major print media players are all at risk of survival. While no one expects The Chicago Tribune or Los Angeles Times to disappear, the odds are much higher than expected. These businesses are losing a tenuous hold on viability as debt costs eat up cash. Declining readership and ad dollars makes failure an equally plausible outcome for The Washington Post, New York Times and Boston Globe. Instead of Disrupting and using White Space, as News Corp started doing a decade ago (News Corp owns The Wall Street Journal and Marketwatch.com, as well as MySpace.com for example), they have remained stuck in the past. Now if they don't move rapidly to learn how to make digital, on-line profitable they will disappear to competitors already blazing the new market.
by Adam Hartung | Apr 22, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Lock-in
Yesterday I discussed how Sun Microsystems nailed its coffin shut in the mid-1990s when it committed itself to hardware instead of following the market into software. Even though Sun was the then leader in Unix operating systems (Solaris) and internet application development (Java), the company chose to only offer its software on its own hardware (Solaris) – or give it away (Java). Had Sun recognized the market shift to valuing software rather than "systems" the company could have transitioned itself and avoided being gobbled up by Oracle – which is sure to close Sun's R&D facility and discontinue hardware sales.
Now we hear that the New York Times company behaved very similarly at almost the same time, putting itself at unnecessary risk that has destroyed huge value for shareholders and cost thousands of jobs. In 1995 NYT was worth between $1.5B and $2B. The Boston Globe recently reported in "What Went Wrong?" that same year the founder of Monster offered to sell a chunk of his new company to the Globe (which is owned by NYT) for $1million. And Monster would start cooperating with the Globe to offer help-wanted ads on-line as well as in the newspaper. At the time, help wanted ads alone was a $100million business at the Globe. For 1% of just one segment of the Globe's revenue – and a far lesser fraction of NYT sales and equity value – the company could have been part of the great migration to the web.
Globe and NYT management said no. And for the rest of the decade advertising growth remained on a tear, driving the value of NYT up to about $6.5 to $7billion by 2000. And even though the recession came in 2001, NYT's value remained in that range until 2004. But then, in 2004, early market shifts started to become pronounced. Like the proverbial snowball rolling downhill, internet usage had become a big market and advertisers were looking for lower cost and more capable options. Advertisers from auto companies to movie studies started moving ad dollars to the web – as did companies advertising for help. The value of NYT started to drop, and hasn't stopped yet. In 5 years more than $6billion of that value has evaporated – leaving the whole of NYT – including not only the Globe but the venerable New York Times worth a mere $700million (see 5year chart here). Value is dropping precipitously as losses mount ("New York Times loss widens; shares fall 16%" was headline on Marketwatch yesterday), and the company leverages its Manhattan real estate to try preserving its now unprofitable Success Formula.
When business was good NYT had the opportunity to Disrupt itself and invest in some White Space to help understand the direction of future markets. Instead, management clung to the old Success Formula and ignored impending market shifts. While the company racked up profits it eschewed investing in new projects, because there were no Disruptions causing it to consider White Space. And now that the market has shifted it very likely is too late to save the company (investor Rupert Murdoch with investments across all media, including the web, is licking his chops for the opportunity to take over these influential journals with which he has long tangled politically. Even if only to watch them decline and remove a thorn in his side.) Because of decisions made in 1995, when business was good, the nails were being driven into the coffin. Management failed to recognize how deadly those decisions were, because they were focused on Defending & Extending the past rather than exploring how markets might change.
The Sun and NYT story emphasize how easy it is to remain Locked-in. Profits during good times – often right at the peak of the business – become an excuse to do more of the same. But what we see over and over is that long-term success requires Disruptions during these best times. Companies that make the transitions don't wait for the crisis. When times are good they invest in new market opportunities, so they can learn what works and how to compete. They Disrupt their old model so they pay attention to market shifts, and invest in White Space where they learn and inform the entire organization about what's coming. Lock-in is very dangerous because it is so easy to ignore. But if you want to survive market shifts you must create an organization that can evolve with new markets. That requires you manage Lock-in by constantly Disrupting and keeping White Space alive.
PS – a note of thanks to reader Tejune Kang for pointing me to the Globe article about Monster. I encourage all readers to forward me your insights to companies Locked-in and at risk, as well as those practicing The Phoenix Principle.
by Adam Hartung | Mar 29, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership, Openness, Web/Tech
"Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones." So says Steve Lohr in " How Crisis shapes the Corporate Model" in The New York Times Saturday.
For years, many people thought of management as being all about execution. How to build plants, make things, sell those things and finance the operations of building and making stuff. In fact, whole books were written on execution, with the basis that strategy was pretty much unimportant. If you could execute well, what's the need for strategy?
But the last year has shown everyone that the world is a dynamic place. GM missed many changes, and now is barely alive. Despite a focus on execution, the CEO Rick Wagoner has been forced to step down by the administration if GM is to get more bailout money (see "GM's Wagoner Will Step Down" WSJ.com March 29) When you get behind, a "re-invention gap" emerges where the competition keeps going with the market further and further into the future, while you are left behind struggling to sell, grow and make money as you focus on execution. The longer you keep focusing on execution, the bigger the gap gets. Depending on size and competition, eventually you end up completely out of step with the market and unable to compete. Like GM.
The pressure to change with market needs is high everywhere, from banks to manufacturers to newspapers. From General Electric to Sara Lee to Sun Microsystems to The Tribune Corporation, companies that can't adapt to changes have seen their valuation hammered. And the companies we like today are those demonstrating they can adapt to market needs – like Google, Apple, RIM and Virgin. These companies are today investing in launching new products, investing in growth, rather than just trying to cut cost and execute on old business practices while waiting for the return of "better times."
Globalization is now hitting everyone. No industry, and no player in any industry, can ignore the impact of global competition in the way they compete. Today, we can wire together businesses from various service providers, with precious little investment, and reach customers quite profitably while maintaining enormous flexibility. Just ask Nike if you want to know how to "do it."
Focus, hard work, diligence – these have been the mantra for many business leaders. It makes us feel good to think that if we work hard, if we keep our eye on execution, we can succeed. But as readers of this blog have known for 4 years, those admirable qualities do not correlate to success (as academics and journalists have been pointing out when arguing with Jim Collins and his spurrious mathematical exercises). To be successful requires adaptability. You have to constantly scan the horizon for market shifts and emerging competitors that are ready to disrupt markets. And be ready to change everything you do, not just part of it, if you want to compete in the markets as they shift.
The companies, and executives, that will fail as a result of these tumultuous times has not been determined. You can keep from being one of the downtrodden if your focus remains on identifying future market needs and adapting to new competitors through White Space where you can develop new solutions. It's very possible to succeed going forward, if you're adaptive. Or you can end up like Mr. Wagoner and the management team at GM.
PS – The New York Times Company had better start reading its own material and undergo same radical adaptation of its own, or it may not survive to be a media player very soon. To steal from an old saying, it's about time that cobbler started checking his own family's shoes.
