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Blogging may seem old hat – but it can still be a powerful tool for a company. Consider the recent Wells Fargo / Wachovia merger blog… A merger blog? Yes, a blog all about the impending merger of Wells Fargo and Wachovia. It sounds boring as hell to me but if you are a customer, an investor, a front line employee — well, then it might very well be of great interest. I saw this on its first day because the social media circles were talking about the nifty comments box that appeared at the top of the blog (as opposed to just at the bottom).
But after a few days the blog got a whole lot more interesting and illustrative of the best that a blog has to offer in terms of reaching out to stakeholders, listening and connecting.
It begins with a simple, Obama-esque post
Once Matt introduces himself, he is clear on his intent:
The blog is about the merger and how it will affect customers of both banks (and employees)… The comments came in fast and furious… There are the standard “good for you” comments:
But many of the posts begin asking some serious questions about how the merger will affect bank policy and services. Some of these are simple (below) and some get very complicated.
Interspersed in the comments Matt and a few others are responding and answering questions:
There are people who think the blog is an extension of the soulless corporate leviathan (my words not theirs):
Matt Wadley lets it stay (good move) and doesn’t respond (they aren’t asking for a response – just an airing of complaint…) As with many healthy blogs that have a good sized audience there are critics but also defenders:
Finally, if anyone is thinking of adding a comment Wells/Wachovia have made their guidelines clear right where you comment. Including the request that all employees disclose their affiliation.
In Summary, these are some of the good practices shown on this single post:
Use “real” language when addressing business issues
Make your commenting terms clear
While these practices (and others) have been well covered in books like Scoble and Israel’s Naked Conversations — I thought that this single post summarized a lot about how blogs work (and why). I encourage you read through it (here is the link again) – there is a lot there….
This post once again reminds me that these social tools (blogs, wikis, social networks etc.) have nothing to do with technology -after all blogs are a one-click operation to set up… These tools are about shifting the dialogue from corporate-to-customer to person-to-person. In that shift there are so many things that a corporation isn’t used to (loss of power, shift in tone and the move from business contract to the social contract). More on that in the upcoming post: Relationships beat Transactions.
I have made a few changes to my Open beats Closed diagram (thanks to Hastings who commented on the original post ). Making these changes led me to realize I needed to speak about the distinction between the formal and the informal organization.
First, what I changed: I added “Formal Organization” to the “Your Company” icon in the center and “Informal Organization” next to the “Employees” at the top left. In the first version of the diagram I had simply placed “Employees” (with no added note) outside of “Your Company” That was confusing because most people think of employees as being “inside” the company. Well, physically they may be there but in terms of involvement and contribution, not necessarily.
Most organizations are not tapping into the value, talent and energy of their employees. These people might as well be outside of the business…
Amending the diagram led me to draw the distinction between the formal and the informal organization. The formal organization refers to the official titles, roles and responsibilities (the chain of command) that organizations use to produce goods or services. Managing the formal organization, while far from perfect, is the subject of focus for how companies try to improve (change a process, hire talent, restructure, change lines of reporting etc.). We have decades of experience with this type of management. That being the case the competitive advantage it provides is marginal since everyone is reading from the same few playbooks honed over the past 50 years.
The Informal Organization describes “the interlocking social structure that governs how people work together in practice. It is the aggregate of behaviors, interactions, norms, personal and professional connections through which work gets done and relationships are built among people who share a common organizational affiliation”. The informal organization exists outside of the boundaries of traditional management structure and “controls”; “how work gets done here” who is the “go-to-guy” on this issue, “what four things should you never try here” etc. Much of the power of social technologies lies in its potential to tap into the power of the informal organization by surfacing these relationships, by allowing tacit knowledge to be expressed and shared and for disparate groups to collaborate across internal boundaries.
The power of this was captured in Wikinomics with the case of Dresdner Kleinwort where,
…employees started using wikis in the IT department to document nes software in an informal pilot. Soon afterward, wikis began to migrate out of the IT department and into the broader workplace environment, where teams picked up on them as a way to get collaborative projects up and running quickly.
When DKW CIO J.P. Rangaswami learned of the process, he was intrigued by the technology’s versatility. The company went ahead with more pilots, and after just six months of usage, the traffic on the internal wiki exceeded that on the entire DKW intranet. Today the wiki has more than two thousand pages, and is used by more than a quarter of the company’s workforce. Lead users have decreased e-mail volume by 75 percent
and cut the company’s meeting times in half.
There are dozens of ways to think about unlocking the power of the informal organization… Here was another that is emerging (we’ll see how it does when it hits legal…) I was working with a Fortune 500 HR executive who said to me, “why is my department writing the job description for field managers? There are 1000 stores with managers doing the real work… they know what the job description is better than anyone here in corporate. Why shouldn’t I put that on a wiki and allow it to be edited?” What a powerful idea.
With this simple, social technology (in this case again a wiki) the executive is considering allowing all of the tacit knowledge managers know about their job to be surfaced as a jointly authored job description.
This interview is with April Allderdice, CEO and cofounder of MicroEnergy Credits. MicroEnergy Credits has developed a mechanism using microfinance institutions and GPS cell phones to allow carbon credits to reach small households in the developing world. Until now the relatively high transaction costs involved in set up and verification of a carbon trade has made the market available only to large companies.
During our interview I was reminded of another fantastic idea with similar characteristics. Simon Berry, CEO of ruralnet UK, proposes “that Coca-Cola use their distribution channels (which are amazing in developing countries) to distribute oral rehydration salts. Maybe by dedicating one compartment in every 10 crates as ‘the life saving’ compartment.” (join the Facebook group here to pressure Coca Cola) Once you plug into Coca Cola’s already-existing distribution channels the cost of delivering small amounts of vital medicines to remote parts of the world drops precipitously.
The genius of both of these ideas is that they are using something “old” to do something very new.
Imagine how many existing distribution networks could be “rented” out for their capacity to deliver needed goods/services at extraordinarily low cost. If Zappos can syndicate customer experience and Amazon can syndicate their competence at online storage and computing… Why not Coca Cola, Walmart syndicating their distribution competence.? As we begin the necessary journey to transform industry away from unsustainable consumption – this might be a step in the right direction.
The average age of the C-Suite in the U.S. is 53. These leaders first encountered the Internet in their 40s, well along their career path. 85% are male. Their medium was television – childhood diversion might have been pinball.
It is fair to assume these leaders were apprenticed in the time-honored mandates of the enterprise: control the flow of information, manage the formal hierarchy (roles and responsibilities) to control business results. Social technologies (blogs, wikis, virtual worlds, social networks etc.) invert these rules and rely on an “in command and out of control” philosophy where leaders exert influence but allow input and information to flow more freely (across roles, across disciplines, across company borders). Essentially social technologies invert the logic that has dominated the enterprise since the days of the railroad.
This inversion leads to our paradox (warning – broad generalization dead ahead). The higher you go, the less you know; people leading (at the top of) our companies have only a beginners awareness of, understanding about and facility with the tools and technologies of the social web; which are defining how new forms of value are created. Even more debilitating to top performance is that the leadership belief systems concerning the nature of work in this network economy is rapidly becoming antiquated in some critical arenas (I will soon be posting on these “seven deadly sins”).
Over the course of the next few posts I will be going into details on each. This is the second post.
Open Beats Closed:
There are two readings to Open beats Closed
There is more untapped value outside your organization than inside – those that harness that value win.
Authenticity and Transparency are the coin of the realm on the Social Web. Open companies are those that embody these principles in the way they do business.
Section One: There is more untapped talent outside your organization than inside.
Most of the “classic” Web 2.0 companies, Google, Wikipedia, Flickr and Amazon.com see their users as major contributors of value. These companies inherently understand that Open beats Closed so let’s start with them before moving to examples of more traditional companies. (Disclaimer: you could write an entire book on how each of these companies leverage the network to build their business – below are examples to illustrate a general point.)
Google registers every click on a link as a “vote” for that link. Google takes the aggregate of these votes to produce relevant search results for the next user (this is the essence of Web 2.0; programming systems that get better the more people use them). Every search conducted on Google is teaching Google how to deliver a better customer experience.
Wikipedia is the largest encyclopedia ever assembled with a staff of only twenty-three full time employees. All of the content is outsourced to volunteers and yet the accuracy of Wikipedia rivals Encyclopia Brittanica through a sophisticated set of system-imposed rules around editing. The punchline here is that you can produce quality in mass collaboration provided you have the right boundary conditions in place. For more on that check out the Harvard case study on Wikipedia.
Flickr allows anyone to upload photos but sets the default on those photos to “public” – meaning they can be shared with others. This simple switching of the default creates an enormous reservoir of public photos (read: users adding value to the collective)… Flickr then asks these same users to “tag” their photos with relevant keywords – the job of classification is outsourced to the users themselves. The result? Millions of accessible, searchable photos – uploaded, tagged and made available by the Flickr user community. Most of them will have a Creative Commons license, meaning that you are free to reuse the image with proper attribution. This phenomenon is devastating the stock photography business (source).
Try searching Flickr for nearly any image you can imagine – chances are you will find it. An example, I own a home in a remote and relatively obscure village in France – there are 246 photos on Flickr (none uploaded by me) including this shot of my front door.
Yes, my front door. While these photos may have existed before Flickr I would have had no ability to find them. This is just one example. There is an emerging world of goods (eBay) and services (Wikipedia, Flickr, Threadless etc.) produced by loosely affiliated groups of people that is becoming available to anyone with an Internet connection (1.6 billion as of this post). As Kevin Kelly noted in his interview with me, we are just beginning to scratch the surface on how people come together to collaborate and get work done.
Amazon.com was one of the first web sites to allow its users (and not just customers) to rate and review the books themselves. It turns out that ratings and reviews are extraordinarily helpful is assisting people when making a purchasing decision and have likely helped Amazon sell an enormous amount of books. Amazon supplies a simple technology – users do the rest – and each successive customer gets a richer set of reviews to help them evaluate what they wish to buy.
So what does Open beats Closed mean for traditional business?
It is not just Internet based companies that are looking beyond their traditional boundaries for contribution and innovation. Here are a few examples:
Proctor and Gamble uses Innocentive to put out calls for product development. They set parameters of what they are looking for and let others do the R&D. At this stage 35% of P&Gs new product innovations come from outside the company. Where a closed company seeks all innovation from within, an open company seeks innovation everywhere.
The New York Times recently made a decision to syndicate content from three blogs, Read/Write Web, GigaOm and VentureBeat. These blogs have a proven track record of building a discriminating audience; where a closed publisher would seek to write “all the news that’s fit to print” the NY Times is using an open strategy to harness the energy and quality content of the blogosphere. Smart move. Intuit uses the aggregage knowledge of its TurboTax users to provide guidance for other users (e.g. “60% of people in your situation decided to list their dependents when filing…” etc.). An open company harnesses the collective intelligence of its users.
On a more technical front, Best Buy recently opened a set of APIs – (for a fuller review see my Radar post from last September). An API essentially “lets Web sites make their content easily available to other Web developers, who can import it, display it on their own sites and mash it up with other material.” (source NY Times)
Giving the developer community access to all the data that feeds Bestbuy.com creates the potential of creating your own, curated site on top of Best Buy’s catalog and supply chain. Imagine top Blue Shirts running their own online stores with select merchandise that they stand behind or imagine a thousand home-theater geeks and “go-to-guys” (and girls) extending their expertise and word-of-mouth via their own online stores.
Much needed breakthroughs in ecommerce usability (product and catalog navigation, visualization, design and findability) are now open to thousands of developers to work on. Best Buy will be able to bring that intelligence back into their organization. Where a closed company might see its data catalog as something to be jealously guarded, an open company like Best Buy sees an opportunity to capitalize on the ingenuity of the developer community.
For more on APIs see here Key Insight: Leaders in this new network economy must look outside the organization for resources of all kinds. Traditional internal command and control is replaced by external influence, soft power and attraction.
Section Two: Authenticity and Transparency are the coin of the realm on the Social Web
As David Burk, CEO of Clear Ink likes to say, “The Internet is a cultural phenomenon – don’t go there without a guide.” One of the big struggles companies have when trying to reach beyond their borders is understanding the culture that they are entering. Open beats Closed is the literal injunction to be consistent with the norms of behavior on the Social Web; authentic, transparent and candid.
Violating these implicit norms (especially in marketing) can bring a rash of criticism that is spread by customers to other customers (see Walmart example here). The epidemiological terminology surrounding the web, specifically the term “viral,”absolutely applies – just as you can create an army of evangelists, so too you can bring a plague upon your house.
In the age of open networks organizations finally have a scalable (meaning efficient at large scale) means to collaborate with the outside world on a critical series of issues: innovation, product development, consumer insight etc. And, let’s face it, there are more smart people outside your organization than inside. Leading companies like Google, Best Buy and Proctor and Gamble and the New York Times are pursuing open strategies to tap into informal networks of “outsiders” to get ahead. Lagging companies are waiting for the case studies in their industry to come out before getting on board.
As we move deeper into the network economy closed companies are going to find it more and more difficult to survive against open companies. (Note: The diagram above is a first attempt to capture this in an infographic. I would love to have input on whether it captures the spirit of this post ). Based on comments from Hastings, I updated the graphic to show that the employees I reference are part of the “informal organization.” In other words, they are not part of the traditional information flow inside of an organization.
Here are four key principles for creating a stronger business in the network economy:
Listening beats Talking
Open beats Closed
Relationships Beat Transactions
Questions beat Answers
Over the course of the next few posts I will be going into details on each. If you have questions or other examples to put into the posts – please add them into the comments. Part one focuses on Listening beats Talking.
Listening beats Talking
In the network – listening is a prerequisite to learning. It is the critical precursor of everything we do – the beginning of joining conversations, building trust, learning and developing relationships.
Listening is not passive, it is another way of finding answers from new places – from customers, partners and employees outside of the traditional leadership circle. It sounds simple but the problem is that most of our companies are structured to talk – Marketing, PR, Communications departments, even tradshows and events are all vehicles for advocacy – not inquiry or information gathering. Fox, GM (yes, it is true), Salesforce.com are all examples of companies that are listening in new ways but I want to take a deeper look at what Starbucks is doing as an illustration of Listening beats Talking:
I am no fan of the company but I have been impressed by www.mystarbucksidea.com.
Taking a quick look at the interface you can immediately see what they are doing right. Users can submit any idea for consideration. Other users (and this is critical) can vote these ideas up or down and discuss them. Often the comments build out the initial idea and give it more substance or potential value. The key insight here is that the normal role of the product manager, the person who sorts through ideas and assesses their potential value, is being done by the community itself. Rather than ask and answer the question from within the company, Starbucks is using listening as a form of customer led innovation. This same idea can also be applied to many areas of your business including product development (which ideas are most important to improve customer experience of my product) and human resources (more on that below).
Once the ideas are in motion Starbucks has managers that can respond in the comments. Ideas that get a lot of votes/comments can then be put into review. As a user you can see that the idea is actively under consideration. The whole process is public; from “under review” to “reviewed” and (potentially) “Launched”
For a quick tour of all the changes and innovations that have been inspired by their customers – check out the Starbucks blog here. This is just one detailed example of Listening beats Talking. Dell and Salesforce.com have also had great results with these types of idea exchanges. On the B2B front Salesforce used the same Idea Exchange platform has has been able to deliver “four new releases [in 2007], in contrast to only two in 2006. New releases now include three hundred new features, three times as many as in previous years.” (source, Groundswell pg. 186)
Human Resources Where Art Though?
Lest you think that this is just a business-to-consumer idea – what about hooking your internal employee population up to something like this? Imagine two big buttons on your intranet, “Things we Should Do Less Of” and “Things We Should Do More Of” - “…Less Of” lists suggestion to drive down waste and inefficiency “…More Of” drives employee led innovation through suggestions on what the company should be doing. Following Starbuck’s example, all suggestions are transparent to other employees and can be voted up or down – management closes the loop by putting winning ideas under review and implementing select ones. Traditional “workout” sessions aimed at eliminating redundancies and waste that used to be conducted with a limited team together in a room can now be distributed on a simple platform accessible to all employees regardless of title or workplace. That is powerful.
How to Prepare:
In its more mature form Listening is a commitment to take action on the part of your company so if you launch something like this then be prepared to handle the “tail costs” of reviewing ideas, responding to comments and honestly committing to a few winning ideas. Also, be prepared to see some criticism aired in the open. Trust me, that criticism is already happening around the proverbial watercooler (for your employees) or in other public forums (for your customers). The difference here is that you will be able to see it and do something about it.
Next Post will focus on “Open beats Closed”(more…)
I am fascinated by what I see as Zappos’ ongoing evolution from a simple, online retailer to a leading online innovator. A few months back I wrote about Zappos pioneering what I called “Experience Syndication” with their Powered by Zappos (PBZ) service. In brief, PBZ syndicates the end-to-end value of shopping with Zappos – from the online store experience to shipping, to returns, to the call center – everything. Clarks Shoes, Stuart Weitzman and many other online sites are providing a customer experience entirely syndicated by Zappos.
Last night I saw CEO Tony Hsieh’s tweet about Zappos Insights - a paid membership site “that allows ‘Fortune one million’ companies to gain insights from the learnings of Zappos.com. The site will allow access to Zappos.com management and contacts and provide guidance and direct answers for user generated questions via video responses.”
If PBZ syndicates the customer experience, Zappos Insights is syndicating the internal business experience; providing a window into the leadership and culture that has made Zappos such a successful business. What is so radical about this is the notion that Zappos is willing to let go of the very thing that makes them so exceptional.
I think Zappos has good reason to think it can stay ahead of the crowd – Toyota shared all their manufacturing “secrets” and have been studied by other companies up-close and personal for 15 years — by sending teams and teams of people to Japan for months at a time……nobody has been able to duplicate their manufacturing success. Why? Changing people is the harder stuff – and getting your management on board with big culture shifts is incredibly difficult.
During a client meeting this week on creating an online community I was trying to understand what might motivate their customer to participate. (Principle: think of your user first when getting into any social technology like blogs, wikis, social networks and communities. More on that here). The client’s response to my question essentially was, “they save money” – hardly a rallying cry. This led me to a concept I have wanted to put in writing for some time now.
Every transaction has two components –one rational and one emotional. If you win the rational component – you get a rational buyer. If you win the emotional – you get loyalty and a shot at community. Rational loyalty is an oxymoron.
For years the emphasis of business transactions (checking in to a hotel, resolving a customer service issue, buying a product) has been on the efficiency of the transaction. Success is measured in time saved or dollars spent etc. Yet each transaction contains an emotional component that eludes our traditional metrics. Paying attention to the emotional component of each transaction (happiness, contentment, surprise, delight, insecurity) delivers the keys to the new kingdom; engagement, loyalty and community. I am not talking about a generic notion of creating a “great customer experience.” I am talking about understanding the specific emotional context in which the transaction is occurring and creating ways to emotionally connect with your customer.
Here are three stories of companies delivering on the emotional side of the transaction: 1. Zappos understands the emotional component of shopping for a personal item (in this case, shoes) online. Will they fit? Will I need to return it? Will it be a hassle? In other words, the emotional component at work here is insecurity or doubt. They proactively address these with a free shipping and free return policy. Then they take the emotional transaction to another level. When you are a first-time buyer they automatically (and unbeknownst to you) upgrade your shipping to next day air. Your shoes arrive the next day compliment of Zappos – your new best friend. There are two pieces at work here. First, the surprise of something welcome and unexpected. More importantly – Zappos has done you a favor – and in the primordial social contract, favors bind people together in mutual reciprocity. Another tidbit on that here.
Insight: Consider how you might deliver a pleasant surprise of the unexpected. Better yet, do your customers a favor. They will owe you one.
2. The Fiskateers is an online community of what might appear to be scissor enthusiasts. Scissor enthusiasts? Well, yes and no… It turns out that many people who buy these high-end scissors are actually scrapbookers… They may buy the scissors for rational reasons of quality – but when it came to creating a community, Fiskars tapped into the passions these scissor owners had about scrapbooking. They recruited four passionate users and asked them if they would form an ambassador program… These ambassadors invited other members personally – each new member received an engraved pair of scissors with their name and their number in the community. Fiskars had a goal of having 250 members in the first six months… They beat that goal in 48 hours. They now have 5,000 members. The Fiskateers have had a great affect on sales though they won’t say how much.
Fiskars delivers community by tapping into the shared passion of a small group of their customers – it isn’t about scissors, it is about scrapbooking and crafting. They also gave their members a clear sense of belonging and exclusivity (custom scissors with your community identity engraved on them).
3. Ethnography is another powerful tool in reaching the emotional side of transactions. This example of how ethnography had an impact on a hotel comes from INC magazine:
“…while the hotels had long offered packages to families, the ethnography revealed that children were essentially ignored at the hotels. Now, when families arrive, the front desk ignores the parents and checks in the kids. That tiny gesture has been wildly popular, building lots of goodwill — and promises of return visits. Thanks to these kinds of changes, leisure business is up some $500,000, Conklin says. Not a bad return on the $45,000 he spent on the ethnography.”
The rational transaction might be measured by how quickly I can be checked into the hotel (save you time, saves me money) but the winning solution is to check the kids in first. Why? Because if you make my kids happy you have made me happy. “Goodwill” is earned through the emotional transaction.
Insight: look deeper into the minute interactions you are having with your customers and there are likely some small but powerful changes to the way you interact with them.
While we think of ourselves as rational creatures, new research is finding that emotions lie at the center of our memory and decision-making skills. Recently, David Brooks gave a lecture at the Aspen Institute discussing the case of Elliot (minute six in video) who, after a stroke lost the ability to feel emotion. As a consequence he began making a series of terrible personal and business decisions (lost his wife and his business). Without emotional cues he also lost the ability to remember events. The punchline Brooks tells us is that emotions tell us what to remember, what to value and are the central organizing principle for thinking. When you frame it this way you see clearly that getting to the emotional transaction is critical to building sustained, meaningful relationships with customers.
In the course of writing an upcoming post I was reminded of an interaction I had with a senior executive in Bangkok about two years ago. We were on the 64th floor of a skyscraper having dinner- it was an open air restaurant at the very top with terrifyingly low, glass guard rails. Paydirt for an Irwin Allen location scout… You could see all of Bangkok spread beneath and while it was beautiful, it kind of made me queasy.
I remember very little about the meal or the conversation really. But in the course of talking about human behavior in organizations, this one bit of conversation has really stuck with me. He said, “If I go out of my way to get something done for a client and they say ‘thanks’ I don’t simply say ‘you’re welcome’ because that is the same as saying, ‘you are welcome to make my life painful. Go right ahead.’ Instead, I say ‘You would have done the same for me.’ With that one, slight modification we are now in the land of favor-trading and the social contract. I have done them a favor and they owe me in kind. That is powerful” It really struck me and I have found myself using it (or variations of it) in a myriad of interactions.
This is a presentation by Jeffrey Cole – Director of the Annenberg Center for the Digital Future. The center runs 30 worldwide panels where they gather research on evolving media preferences and behaviors. Each panel has 2,000 members drawn from a variety of demographics. The idea is to watch the emergence of new media as it is happening and as it is being consumed by these 60,000 panel members. httpvh://www.youtube.com/watch?v=yJHZEAjO4h4
One of the main points raised in The State of the Mediasphere is that most formats (with the notable exception of TV) will remain viable but in a smaller-than-present-day form. This isn’t too surprising but the stats are interesting:
Theatrical Movies are still profitable but have progressively gotten smaller as other choices have proliferated. Ticket Sales(in the English speaking world) in 1946 totaled 4.3 billion sold whereas in 2007 (with double the population) there were only 1.4 billion tickets sold… The market for theatrical releases have shrunk yet movies are still profitable and drive the home DVD market. 1946 was a peak year since TV came on strong in the 50s and eroded some of the market.
News business will continue its migration to an online operating model: Cole makes an argument that as newspapers move online they will shed the roughly 70% of operating costs that are attributed to printing and distribution (these costs are near-zero in the online world). I think this is a bit of a glossing over of the current state of collapse in the news business but I agree with the ultimate analysis that the news business will survive as a business — if not as a shadow of it’s former size and dominance. Looking at Schibsted as a model newspapers can see some of their future.
Music Business is the big loser. We are moving to a world of singles – not albums – which drastically reduces profits. Also, digitization has dramatically affected CD buying. In the ’80s a successful album routinely hit 15 million copies. More recently the top sellers attest to the continued erosion in the market.
2005 – Mariah Carey’s Emancipation of Mimi 4.9 million
2006 – Disney’s High School Musical – 3.9 million copies
2007 – Josh Groban’s Christmas Album 3.7 million
Cole makes a great point about Sony’s music division killing their internal effort to develop an iPod-like device (before the iPod was even in the market). As the digitization of content was eroding their business model, old music businesses decided to litigate rather than innovate.
“Television” wins big: Echoing a recent Kevin Kelly piece in the NY Times (Screens are Everywhere) “television will escape the home” and go mobile. Video content will be free of device constraints and shown wherever we happen to be - or based on personal preferences (big new movies will enjoy a first viewing on large screen TV or theater – second viewing on mobile phone etc.).
How do we make money from digital content? 2005 marked a change in people’s behavior around free content. First, there were the big issues around trust and spyware when getting content from P2P services like Kazaa and Limewire. Suddenly, “stealing” content had serious perceived drawbacks. This intersected with the first time that a simple, convenient platform for music became available; namely iTunes. Apple created a virtuous circle – connecting an intuitive piece of desktop software (iTunes) with an elegant device (the iPod) and a shopping destination (iTunes store) that all worked together. There is an enormously instructive lesson in this for companies. The music industry reacted to a changing environment by creating litigation and by publicly branding as “criminals” people that they felt should be purchasing their CDs. It appears likely now in retrospect that they misjudged — people weren’t really “stealing” music so much as migrating to a convenient method of getting music online. iTunes and Amazon are both successful (if not much smaller) models. Cole states that he forecasts the disappearance of paid music in the near future. He forecasts an ad supported model - I personally don’t see that coming in the near term.
Subscription burnout: According to Cole the average American spends $260 per month on communication services (The poorest among us still average $180 per month) that did not exist a generation ago (mobile phones, data plans, Internet, Cable TV etc.). The big point here is not how much money this represents but the fact that we are maxing out on what we can charge people in subscription fees. In Cole’s opinion it is still advertising that will drive the revenues from online content. Users are increasingly willing to pay for content but he points to advertising as the key revenue driver. Subscription based services for content is going to continue to be a hard sell (look to the death of Times Select etc.).
What then the future of advertising? With the rise of social networking and communities, advertisting is likely to get more targeted and personal. This has HUGE ramifications over how Sales and Marketing do their jobs, engage their customers on a personal level, and measure their success. Since this mode of “intimate advertising” requires a higher level of consideration – it also involves a higher transaction cost. The higher transaction cost will require more measurable results… This last point is part of the massive transition companies are making from impersonal mass broadcast models to targeted social group models of interacting with their customers. This transition requires a transformation of most of the fundamental precepts of the corporation; from a legal framework of relationship to a social model of trust and intimacy. More on that in an upcoming post.
About Joshua-Michéle Ross
I am a digital strategist focused on how technology opens new possibilities for social transformation and innovation within business. I am a Partner and Director of Digital, EMEA for Fleishman Hillard. I blog here, on O’Reilly Radar, and am a contributor for Forbes.com.