Strategies for a discontinuous future.

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Thursday, November 17, 2005

Research Note �
Edge Competences and Media 2.0: Newspapers Mini Case Study

There�s been a lot of attention focused recently on the plight of newspapers, in the face of falling circulation, and an exploded universe of competitors, both new entrants like startups, and lateral entrants like Google. But asking what decision-maker should do should do is to ask the wrong initial question.

Newspapers are canaries in the coal mine. The economic shift that is disrupting the structure of the media industry is deep and pervasive; within the next five years, it will touch all consumer-facing industries. What's happening to newspapers should serve as a warning signal to players across markets that the deep economics of consumer-facing businesses are undergoing radical change: change as fundamental as that which marked the shift from the industrial to the knowledge economy. To understand this change, let's define the problem the news market is facing.

The publishers, like the rest of the media industry, are facing a radical shift in industry economics; a structural disruption. Barriers to entry have been vaporized, as have switching costs. At the same time, the market power newspapers could exert over content creators and advertisers is eroding.

The fundamental reason is discontinuous drops in coordination costs, driving a micromedia explosion. Micromedia is driving ambient media consumption, bringing down iron curtains of distribution which kept media audiences segmented and advertising targeted. At the same time, the micromedia explosion has exploded the supply of content, forcing newspapers to compete for attention with entirely new kinds of media � blogs, podcasts, vlogs, machinima, and communities, to name just a few.

This is difficult industry in which to maintain profitability. But there is a relatively simple solution: to reshape industry economics, by leveraging new kinds of resources and competences.

What news execs need to do, then, is to not just adapt to a new set of industry economics, but to actively reshape them. How can they begin doing so?

Not by searching for new business models. The age-old models of advertising and subscriptions can � and are � generating strong revenues in the Media 2.0 industry. This point is intuitive; we only need to consider AdSense to understand why.

Newspaper publishers, fundamentally, must build and/or acquire new resources which can provide new sources of value creation. At the same time, they need to begin developing edge competences, to drive this value creation from those resources.

Doing so is straightforward � even paradoxically intuitive. News executives must invest in the new media value chain. When the value of old resources is exhausted, smart players shift investment to resources that can generate new value. Those that fail to do so will, as their competences and resources are devalued, see near-total margin erosion and defection.
What are the segments of this new value chain? As we've outlined, microplatforms allow prosumers to create personal media. Smart aggregators syndicate and distribute it. Reconstructors build individualized �casts of media for communities of connected consumers.

At the same time, to maximize value creation from these resources, news execs must focus on developing edge competences. Consider the core competences of traditional newspaper publishers � finding, writing, and checking stories, publishing, and selling ads.

Both of these core competences are getting � and will continue to get � increasingly devalued as value shifts away from core competences � information-based specialization � and to edge competences � coordination-based specialization.

That is, the costs of building such core competences, by acquiring information that drives learning and specialization gains, have largely been atomized; and so, the returns that flow from them must necessarily decline. For example, consider how frictionless the information necessary to specialize in publishing content and selling ads has become.

Instead, the newspaper industry should focus on building edge competences � leveraging coordination to drive new sources of specialization gains � in the same deep sets of organizational learning: finding, writing, and checking stories, and selling ads. How? Fundamentally, by making the resources involved in these activities liquid and plastic � leveraging cheap coordination to drive new sources of value creation from new resources in the emerging Media 2.0 value chain.

Consider a newspaper industry player who had invested along the new media value chain � in a microplatform, and a reconstructor; and who had also developed strong edge competences in making ads, publishing, and finding, writing, and checking stories plastic.

Such a player would be actively reshaping industry economics. By controlling microcontent, they would be exerting strong market power over buyers and suppliers. By being able to leverage new kinds of distribution � individualized �casts of microchunked content � they would be able to massively raise switching costs, as well as entry barriers. The net effect of such a player would be to capture much of the value that is shifting away from the core of the value chain, and towards the edge.

This is not a revolutionary proposition. It is simply recognizing the changing nature of media itself; recognizing that as discontinuously new technologies and changes in consumer preferences reshape industry economics, so execs must invest in new resources and develop new kinds of competences.

At the same time, what�s happening to the newspaper industry is the writing on the wall; a sign of things to come. The tectonic structural shifts that it is going through are going to affect all consumer-facing markets in the next five years.

This is because those structural shifts are driven by a fundamental change in the deep economics of those industries: that coordination has become discontinuously cheap. Cheap coordination is what drove the micromedia explosion to reshape the economics of the media industry; but it is not confined to markets like newspapers, radio, and television.

In fact, it is a structural shift in the way we produce and consume goods � one with implications for players across consumer-facing industries. Edge competences dominate the economics of cheap coordination, by letting players leverage it � instead of getting hypercommoditized and disrupted by it.

You can find more info about Bubblegen�s Media 2.0 & Micromedia practice here, more info about Bubblegen�s Edge Competences practice here, or find contact details here.

-- umair // 4:10 AM //


I think you�ve misjudged the value proposition the news media offer. While the news, from a production standpoint, used to be about �finding, writing, and checking stories,� today its about fictions, trivia, and opinion. Not only are fictions, trivia and opinion cheaper and easier to produce, but the consumer seems to prefer them. Why?

Because it is no longer the case that consumers value what the traditional news media conveys. Rather it is the mere conveyance of the news, the social authority, that many consumers value. And this authority springs from the very 1.0ness of the traditional news media.

So the traditional news media�s value proposition is changing, delighting some consumers while infuriating others. Obviously this creates opportunities for alternatives the infuriated consumers might find attractive. Enter media 2.0.

This means that the news media of media 2.0 and1.0 are actually not in competition with each other; they each offer a different value proposition to different consumers who are motivated by different values. So what we�re seeing, I suspect, isn�t market disruption, but rather an abrupt realignment as media 2.0 enables what was a single news media market to cleave itself into two more internally harmonious markets.

Of course, I might be too cynical about the state to journalism today.
// Anonymous niblettes // 8:23 AM


Even if what you're saying is true (and I doubt it absolutely), I'm arguing something different: publishers, like the rest of the media industry need new resources and competences to do even that - deliver relevant opinions/social authority in a 2.0 market.

If you wanna argue sociology, I would say that news has to become a little more hyperreal, but that's a topic for another time (google it if you're bored).
// Blogger umair // 9:09 AM

You made the claim that "the media industry, [is] facing a radical shift in industry economics; a structural disruption� and that "discontinuous drops in coordination costs [are] driving a micromedia explosion" which is powering this structural disruption of traditional news media economics.

I simply doubt your claim of disruption because media 2.0 is not undermining media 1.0. The traditional news media (at least here in North America) is doing a superb job of shredding its own credibility and consumption within some market segments while as a result strengthening its authority and consumption within others.

We disagreed on what value the news media offer. But I stand by my assertion that the traditional news media are increasingly selling �authority,� specifically authority that affirms their target market segments� current beliefs and prejudices. And since authority comes only from the centre rather than the edge I doubt media 2.0 has much to offer here.

Indeed Jayson Blair, Karen Ryan, Alberto Garcia, Dennis Miller, Stephen Glass, Bill O�'Reilly, the DoD, and the Family Research Council special Catherine Crier wrote about that you linked to a few days ago, all tend to agree that it is comforting and authoritative fictions which are becoming the stock in trade of traditional news media (cheaper to produce, and their target market segments seem to prefer them).

So, the problems traditional news media are facing are largely self-inflicted, even perhaps intentional. And while Media 2.0 may be a beneficiary, I can�t see how they are the cause of or even a relevant contributor to these problems.

I�m assuming you�re referring to Eco when you talk about hyperreal. But like a drug addict in search of higher highs I think culturally hyperreal is no longer enough, and we�re after an even harder drug. I think the Bush admin (now there�s a can of worms) has proved fiction is just the drug we need to replace hyperreality. Of course this is just pure opinion.

Anyway, back to work.
// Anonymous niblettes // 9:07 PM


Thanks for the comment.

Dude, we are still talking about two different things.

I am pointing out that economically, the media industry is indeed being disrupted - figures across media markets tell us this much. I think you're talking more about the media industry's loss of cred.

I actually agree with that point, about media shredding itself.

But I would argue that 2.0 amplifies this process, by making it cheap for bloggers (etc) to coordinate and help really slash at flaws like Jayson Blair and now Bob Woodward when they are exposed.

Without micromedia, I don't think, for example, the Judy Miller scandal would have caused as much damage to the NYT as it has,
// Blogger umair // 3:22 AM

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