Tuesday, August 07, 2007
Research Note: Strategic Errors Mini Case Study - TimesSelect
The NYT axes TimesSelect - finally.
We've been arguing for a loooon time - even before it was launched - that TimesSelect was a strategic error of the highest order.
It's straightforward to understand why: at current subscribers and prices, TimesSelect earns something like...$10-20 million.
That's a trivial sum.
Especially when you consider just the marginal value created by an ad-driven NYT - even with simple, low-value contextual ads. We've done this analysis for a number of clients in the last year or so.
It's on the order of $200-250 million.
This is an order of magnitude difference.
So it's utterly baffling that the NYT didn't make this move sooner - after all, this analysis isn't rocket science; in fact, it's trivial.
But the real error isn't just these foregone gains. In fact, earning $10-20mn via TimesSelect has left the NYT worse off than earning nothing at all.
There is, in other words, a much deeper strategic opportunity cost. The NYT has lost two years of building edge competencies: learning how to turn stale, inert columnists into managers of living, breathing markets, networks, and communities; learning how to redefine brands; learning how to nurture and seed deep, durable prosumer relationships; etc.
The list is nearly endless.
Ultimately, it is these new competencies that unlock the new sources of advantage.
A more concrete example: by keeping columnists - it's perhaps most powerful resource - locked up, the NYT has, in fact, drained itself of market power. TimesSelect instantaneously ceded the strategic high ground to search.
It left the NYT unable to experiment with markets, networks, and communities; unable to even lift a finger to tap new levers of value creation, like viral fx; trapped in the decaying economics of an obsolete, moribund, industrial
Though the incredible mistake that was TimesSelect has, in the simplest analysis, cost the NYT close to $500mn, the true strategic cost is much, much higher: building the new competencies that live at the edges, rather than at the core, of the firm.
Can we quantify this? Sure. We could note, for example, that because of this lack of new competencies, search, rather than relationships, drives an accelerating number of readers to the NYT. This is the living essence of decaying market power. We might then discount future cashflows in line with these numbers.
The point of this mini case study is that strategy in the edgeconomy requires dropping yesterday's tired assumptions about "monetization" - and requires deep insight into how, when, where, and why value is created.
More simply: before you can worry about capturing value, you've gotta understand how value is created.