Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Tuesday, May 17, 2005

How Not to Strategize, Special NYT Edition

The NYT is gonna start charging for access, essentially to op-eds and columnists. Long rationale here.

I'm pretty convinced this is going to be a textbook error of the case study kind, so let's have a bit of fun examining exactly why the deep economics of Media 2.0 dicate so.

The rise of micromedia (ie, blogs, podcasts, vlogs, etc) and connected consumption have turned the NYT's content into networked goods, which realize strong network FX, which translates into much, much greater gains for consumers than traditional print media. Put another way, micromedia expands the pie for everyone, by making media consumption in general more attractive. For example, if I comment on an article, you're more likely to read it.

One could even make an argument that the goods which have the strongest network FX are the NYT's columns and op-eds. Now, charging for access kills these network FX before they begin, because consumption is never connected, and so I can't share any info with you - network FX never emerge; and the value proposition collapses.

Note, this is not a case of dot com style free build-it-and-they'll-come strategies: it's a case of never building the value prop at all.

Here's another way to think about it: business strategy is a game of value capture and creation. How do you create the most value, and then capture the lion's share? In this case, instead of maxiziming value creation, the NYT is minimizing it.

This is an error, because such a strategy is almost sure to be dominated by one which maximizes value creation, but captures a smaller share of that value, because percentage growth is proportionately larger in the latter case.

There are many innovative ways for the NYT to capture more value from it's content. But I think they all flow from the very, very basic understanding that it's goods are networked goods, they realize network FX, and micromedia aren't substitutes for the NYT's content, they're complements to it - the source the aforementioned network FX - and this complementarity is how new value is created.

That's where they should be looking to capture value, by co-opting key bloggers or otherwise indirectly monetizing their heavily-discussed content - exactly the inverse of what they're planning on doing.

Of course the real heart of the matter is that by charging for access, the NYT destroys this complementarity and forces consumers to choose: it turns micromedia from complements into substitutes in media consumption. Instead of co-opting micromedia, they're competing with it.

That's a really bad idea, not least because increasing competition for yourself is generally not a great strategic move. But it's doubly bad because there are plenty of substitutes for the NYT's op-ed and (especially) columnists, because the price/value ratio of their offering is collapsing - so, the obvious unintended consequence of such a strategy is growing irrelevanace, and declining ad dollars.

In other words, I'm fairly sure not that many people derive as much value from Nick Kristof, Tom Friedman, and David Brooks as the NYT's strategists think. I certainly don't, because the micromedia explosion means I've got many great substitutes like Juan Cole and Nouriel Roubini, who aren't just columnists - they're experts.

-- umair // 7:30 AM // 0 comments

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