Challenges to business models/drivers of change

This article from the Online Journalism Blog (referred to me by a colleague) reminded me of other  drivers of change that directly challenge existing media business models.

• Internet users expect that much of the content available online is free – so why pay?
• Production and distribution costs online are minuscule compared to say newspapers and traditional broadcasting.
• The traditional vertically-integrated and independent model is not an option with the Web. I did make reference to this in the drivers of change posting earlier this month. The internet is a ‘network of networks’ where interdependency is unavoidable…and where there is no overarching centralised management system or ownership structure.

10 Things You Need to Know About the Future of Broadband – GigaOM

10 Things You Need to Know About the Future of Broadband – GigaOM

This article was written by Martin Geddes, chief analyst at STL Partners, drawing on the views of over 800 ‘industry insiders”.  There are some very interesting observations. A big concern expressed by some about the future of the telecommunications networks is in becoming “dumb pipes”. There is a more positive view expressed here, but not the usual one (ie. that telco’s can transition to be fully integrated, convergent ICT and media service companies delivery applications and content as well as communications services).

According to Geddes, telecommunications providers future lies in being specialist logistics providers for valuable data – including network provisioning (including traffic shaping) and authentication utilising multiple delivery systems.  The providers of applications and content will be willing to pay the telcos to handle the network logistics problem for them.

Voice is described as the catalyst through the anticipated rapid deployment and use of embedded voice applications as part of the everyday online experience.

Seems worthy of deeper consideration to me. If the views expressed are right, the consequences may be resolution of network incentive problems to provide higher bandwidth, as well as easing some ICT sector concerns about network neutrality.

Structural differences Australia and global entertainment & media industry

During the course of researching market developments I had cause to revisit PriceWaterhouseCoopers Australian Entertainment & Media Outlook/2007 – 2011 (June 2007).  One issue really stood out – a key difference in the Australian market compared to the global situation.

By 2011 Newspapers are forecast to lead the field in Australia (including Internet, Free-to-air TV (FTA), subscription TV and others) in terms of total industry spending, accounting for 20 per cent of the top 10 categories of spending.  The Internet is forecast to come in at second place followed by FTA and subscription TV.

Now for the global comparison – newspapers are forecast to run it at 4th place, accounting for 11 per cent of spending. Globally the leader (by a comfortable margin) is the Internet accounting for 19 per cent of revenues. Globally, FTA, subscription TV and newspapers are in the top four. 

Newspapers came in first place globally in 2006 but are forecast to fall to 4th position by 2011…while in Australia, newspapers retain “the pole position’ in the forecast period. There are other differences too (such as filmed entertainment forecast to be ranked at 1oth globally and 5th in Australia by 2011). But the most interesting one is Newspapers, Sure, the Internet is hot on the heels of newspapers by 2011 but the comparison internationally appears to be significant.

Now here’s the thing – I don’t know why. Are there any views on this?

The rise and rise of social networks

Hitwise has released an interesting report on the impact of social networking in the UK.  The report starts with a statement that social networking has “cemented it status as bona fide internet phenomenon in 2007″ and then poses a question about whether this growth is sustainable.

I would think so. People tend to value new and improved forms of connectivity – as Andrew Odlyzko has observed. Hitwise go on to disclose that social network services provide a variety of ways for users to interact (chat, IM, video, file sharing, blogging, voice chat).

In other recent research I noted Bebo has partnered with UK and USA broadcasters to provide what has been dubbed as the Open Media Platform. Professional media companies and individuals can create and upload their own content and monetise it through serving and selling their own advertising.  Bebo benefits through network effects presumably.

Who knows what  other enhanced social networking features users will be willing to pay for.

This initiative is consistent with the symbiosis between mainstream media and social media described in the 2006 Future of Media report. 

Another recent trend likely to drive the mainstreaming of social networking: mobile blogging. More on that later.

For contemplation

Here are eight drivers of change that I propose for contemplation.

1.0       Digitisation, open, distributed, global connectivity is shifting power from institutions, governments and holders of intellectual property and copyright to individuals and social networks, and facilitating new and innovative applications development, new markets and consumer choice. Commoditisation & obsolescence of carriage networks leading to investment uncertainty are the likely consequences for incumbents.

2.0              The emerging social web will continue to have a democratising impact on media production, information and knowledge sharing. Social needs (status and self-esteem, self expression, affiliation, reciprocity) are increasing being met online. Networked individuals collaborate, create, reproduce and share content and information.

3.0              Acting globally is driving the need for networked and global capabilities. No one company can act alone to create all the innovations needed to keep pace in the digital economy. No one country can act alone to solve the e-security and privacy problems that are occurring in multiple jurisdictions.

4.0       Content & audience fragmentation and ‘content for free’ expectations threatens pay-for-content business models and holders of intellectual property rights. Media is fragmenting, driven by consumers also acting as producers and the expanding array of media platforms, channels and devices.

5.0       Symbiosis of mainstream media and social media is evident through mainstream companies purchasing social networking sites, and deepening content offerings with video and user-created content to augment proprietary content. Social networks will be of more interest to advertisers/marketers.

6.0              Relentless pace of change particularly in software and applications development that continue to be the primary drivers of innovation. Developments on the horizon include Web 3.0, intelligent software agents, embedded sensor networks & pervasive connectivity, voice recognition, mobile payments, augmented reality and wide-area free mash access networks. Climate change is a driver of innovation for sustainability.

7.0              New business model development incorporating collaboration, openness and modularised value-chains. Emerging business skills include a capacity for agility and responsiveness, building networked relationships (internal and external) and harnessing network effects. Collaboration taps into collective intelligence to adapt to complexity in the digital economy. Innovation can be decentralised to business partners that work in networks outside organisational boundaries. Incentives to the firm are in cost reduction (savings in time and effort) swifter innovation and retaining/improving brand reputation.

Services provided in the once distinct industries of media, telecommunications and computing are converging. There is a blurring of traditional communications and media industries with social media and computing.

8.0              Merging digital and physical identities and places becoming the norm through a blurring between virtual and real identities. Virtual experiences are becoming an increasing important means – and for some, the preferred means – to meet social needs. The mobile internet and emerging technologies such as intelligent agents, augmented reality, ‘the internet of things’ and embedded computing will blur distinctions between the physical and digital worlds.

The Mobile Avatar – blurring identities

From today’s ChangeWaves
<http://changewaves.socialtechnologies.com>posting, Vodafone has released a new service in Second Life called
“InsideOut”. Users inside Second Life will be able to “send and receive messages on virtual mobiles to real mobile phones outside Second Life, and visa versa”.  A virtual handset is available from Vodafone’s site inside Second Life.

What’s more, users will be able to  communicate from their real mobiles using their avatar identity…another example of the blurring between virtual and real identities.

This is an interesting move, and I would suggest that voice communication between virtual and real identities may well be next.

On the subject of blurring identiies, Chris De Wolfe, co-founder of MySpace is quoted in this
article<http://www.guardian.co.uk/media/2007/dec/03/mondaymediasection.internet>

“More than ever, social networks are blurring online and offline worlds, evolving into social destinations that are driving the direction of the larger web and affecting industries like advertising, music and politics.”

These developments provide further evidence of three drivers of change:
- the mobile internet;
- established communications and media firms incorporating social networks
into their business models
- blurring of identity between the virtual and real worlds.

Emerging business models

Scott Karp has suggested five principles to guide ongoing transformation of media companies. In summary, these are:

1. Networks are now distribution channels

This is consistent with control being diluted as opposed to concentrated (eg. in a distribution monopoly as with traditional media companies). But as Karp notes, successful new media business models such as Google develop market power through harnessing network effects.people are more powerful than institutions.

2. People are more powerful than institutions 

This is about collaborative networks between individuals replacing the power of institutional hierachies. This view is certainly support by others. Here is one example from ‘Wikinomics – how mass collaboration changes everything’ by Don Tapscott and Anthony Williams:

“The new promise of collaboration is that with peer production we will harness human skill, ingenuity, and intelligence more efficiently and effectively than anything we have witnessed previously. Through the evolution of
the internet and the ‘Participative Web’ networks of participants “can be mobilised to accomplish much more than one firm acting alone”. In the digital economy, access to knowledge – within as well as beyond the firm – drives innovation and new value.

3. The best content comes from many sources

Search has taught users they and find content of their choise from mulitple sources. That is in strong contrast to a key assumption in traditional media – that readers, viewers will come to them. Successful new media business models will aggregate or provide links to content that users want.

4. Search still rules

Search rules because search engines help people to find the content they want. Search engines are currently the most successful means of monetising the web.

5. Advertising must create value

In other words, advertising online must be useful to users to work.