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.

Wednesday, August 23, 2006

How Not to Think Strategically About the Edge, pt 1733 - Special Grouper + Sony Edition

"...Grouper will promote Sony�s content and seek to build communities of users around Sony movies and television shows, Mr. Felser said."

Sony jumps into the acquisition pond with a $65 million bet on Grouper. I'm not a huge Grouper fan, but that's another story.

The real story here is how much Sony doesn't get edge strategy - how this acquisition is likely to destroy, rather than create, value. Check the quote above.

Is there any better way to implode value creation at the edge? Imagine a Grouper focused on Sony "content". How lame would that be?

Focusing on the core, in this case, is a huge strategic error. Vertical integration is the kiss of death in an atomizing value chain - unless it is done to multiply and create market space at the edges, rather than focus on controlling a decaying core. More simply, when open is the new closed, the edge is worth more than the core.

Even more simply: Sony has decided to get 2.0, by buying a community - only to forget about the economics of the edge that are letting communities revolutionize moribund industries. community. Nice one - that's pretty high on the list of strategic errors at the edge.

-- umair // 1:05 PM // 12 comments


Hi Umair,

I think the purchase of Grouper is a smart move for a number of reasons - the p2p technology alone could bring nice value.

I don't think that was the strategic error. The strategic error (we're forecasting here) will be in their execution and implementation of the service.

Only time will tell.
// Anonymous Anonymous // 2:23 PM

Hey Fraser,

The acquisition could be valid for any number of reasons - you're right.

The error I'm pointing is the rationale for acquisition: to vertically integrate Grouper into Sony-only value chains.

No matter how well they execute this strategy, it's doomed to failure.
// Blogger umair // 7:21 PM

I don't get the sense from the article that they're only going to use Grouper to vertically integrate Sony content.

It sounds a lot like they'll continue to try to build out the site for a number of reasons:

"�My sense is that user-based content is a form of content that�s going to last,� Mr. Lynton said. �It�s a bet, no question, but it�s a bet worth making.�"

They mention that they'll simply use the site to promote sony content.

That being said, my bet is that Sony will have any number of strategic errors w/ the company and that the project will be a wonderful failure.
// Anonymous Anonymous // 8:16 PM

Hey Fraser,

Promoting Sony content = not promoting better content = vertical integration; I'm not sure how much clearer this intent could be given the quote above.

Thx for the comment.
// Blogger umair // 8:34 PM

On the edge, promotion of content isn't a zero sum game though.

Promotion of an individual source of content doesn't disclude the promotion of other content, that's what's great about the edge: the systematic break-up of content (you refer to it as microchunking), the remixing of content, the promotion of content, the aggregation of content... isn't restricted to a finite limit.

Nowhere in the article do I see reference to a plan to restrain Grouper to a vehicle that promotes solely Sony content.
// Anonymous Anonymous // 10:51 PM

In fact, if you're hold your thesis that "promoting X content = not promoting better content = vertical integration" I'd be interested in hearing your thoughts, wrt to edge strategies, on YouTube's new advertising strategy.

Does YouTube promoting select content = YouTube not promoting better content = vertical integration = you forecast the failure of YouTube based upon strategic failure
// Anonymous Anonymous // 10:55 PM

Hey Fraser,

You're right - it's not a zero sum game. But that's not the point - it doesn't have to be.

Think about it this way: YouTube doesn't own huge amounts of content across media markets - Sony does. That's the point, and where the enormous incentives to stay core while media shifts to edge will come from.

Thx for the comments.
// Blogger umair // 10:57 PM

I think the assumption that it's impossible for large content producers to benefit at the edge while having an active role in an edge-enabling service/product (microchunking, remixing, aggregating, ...) is wrong.

I don't see the two as being mutually exclusive.
// Anonymous Anonymous // 11:12 PM

Hey Fraser,

It's not an assumption - it's a fact. Just look at the media world. How many media incumbents are successful at the edge? So far, exactly zero (and we'll reserve judgment on Fox).

There's a reason for that: they have to retool their resources, strategies, and business models to be edge-centric, because the logic of the edge contradicts the logic of the core.

Think about it this way: the rest of Sony is still firmly about trying to profit from blockbusters, right? So how much value can Grouper really create? From a strategic pov, not much.

Thx for the comment.
// Blogger umair // 11:18 PM

Hi Umair and Fraser

Whilst I agree with your skepticism regarding Sony, there are examples of media encumbents who are successfully (at least begiining to be successful) at the edge.

Take for example the BBC . . . . or some other public broadcasters (down here in Australia, the ABC) which ARE retooling to take advantage - so much so that commercial incumbents (eg Fox/Murdoch) are beginning to complain.
// Anonymous Anonymous // 1:50 AM

Evidence is not created through absence of precedent. Many have failed beforehand and many will fail going forward. This doesn't mean we should preclude that the task is impossible.

Seb chan touches on something that we, fully engaged in this world, should never discount: there are encumbents who are showing that they may be thinking critically wrt to the edge.

That's a major first step, and we should respect and acknowledge that.
// Anonymous Anonymous // 2:10 AM

As another exponent of incumbents trying to follow the shift to edge: Warner Music is obviously trying to benefit at the edge through various initiatives (cordless records, asylum records, microchunking allover the space), while at the same time protecting "old format" cash flows in the blockbuster core for as long as they are positive.
// Anonymous Anonymous // 9:26 PM
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