Search is Dead

 3rd Horizon, Web 2.0  2 Responses »
Jun 282008
 

In the past three years, we have witnessed emergent signals of a radical change in the nature of the Internet. Like the transition that preceded it, where its focus shifted from its original, technological orientation to a content-centric positioning, this next phase will bring a dramatic shift in fortunes for some of the major players.

While subtle, the change is profound. The label many use to describe it – the Come to me Web – best captures its essence. To appreciate the ramification of the changes in both technology and consumer behaviour we are witnessing, we need to revisit its precursor: the I Go Get It Web. Under this paradigm, content was at the centre of the universe, and most effort was directed to targeting and luring consumers to the content. The balance of power lay in the hands of the content owners; the leading business meme advocated aggressively capturing and monetising ‘eyeballs’.

In this environment, consumers were obliged to locate and seek out content and related services of interest. Not surprisingly, search engine technologies were highly valued, as were portal-style offerings that optimised the effort-reward equation by aggregating useful content in a single place.

The dominant mindset of content owners was to publish content for a single purpose – reading – and to treat computer screens as the digital evolution of printed books. The business objective, then, was creating and disseminating read-only information, and the challenge was making that information findable.

In the I Go Get It world, ‘findability’ became the overarching metaphor, and it borrowed much from the physical business of publishing, as evidenced by the emphasis placed on replicating print layouts and making content navigable through the use of publishing concepts. That most consumers accessed content via a single device undoubtedly influenced this state of affairs. It led to ‘format’ wars, as content owners sought to lock-in consumers by mandating the use of plug-ins and other proprietary formats.

The adaptation of a physical product mindset brought with it a range of artificial constraints around content access, use, and re-distribution and, similarly, how to enhance content products via the connectedness the Internet enabled. Only now, as our understanding of the true potential of digital services matures, and as emerging technologies decentralise power, are we seeing a dramatic change in both our metaphors and use of the Web.

The Come to Me Web neatly inverts the paradigm. Users, not content or technology, are at the centre of things. They are using tools and services that bring the content to them, ready to hand, on their preferred access device.

Decoupling content from its publishing containers has enabled consumers to use, aggregate, store, re-use, re-combine, and re-distribute content. This has fundamentally changed consumers’ perception of content: it has become “my” news headlines, “my” music, and “my” weather. This changing usage, and altered expectations, has forced the growing adoption of open standards and formats, as consumers seek to ensure maximum availability of ‘their’ content. Service owners are even starting to promote open APIs, so that others can create useful tools using their content, because this is what consumers are demanding.

The main hurdle for consumers has shifted from being able to find information to being able to re-find information they have already collected. This has spawned increasing activity in the area of ‘ambient discovery’; technologies designed to sniff out clues about what you will be interested in next (as distinct from now) and present you with it before you even ask.

These changes in consumer behaviour will have significant impact on the business of the Web. We can expect to see two things: increasing audience fragmentation and decreasing site traffic. Both will remain obscured initially due to an overall rise in online activity driven (ironically) by the increasing usefulness of new information platforms.

Increasing audience fragmentation will occur because consumers will become more responsive to site and content recommendations provided by peers and new technologies, displacing the primary role of search engines in this area (which tend to concentrate traffic on a handful of popular sites). Site traffic will decrease because consumers will be able to avoid visiting the original source of content, either because the content is coming directly to them (say, via RSS) or a peer is passing it on. Given the predominance of advertising-driven revenue models, Web measurement metrics will soon evolve to address the obvious difficulties this creates.

In the Come to Me Web environment, it will be incumbent upon service providers, and advertisers to go where your audience is, not where you would have them be.

Is social media driven by a loss of faith?

 3rd Horizon, Media  1 Response »
Jun 052008
 

A few weeks ago, I was invited to speak at the Walkley Public Affairs Convention, on the issue of social media.

My presentation was titled ‘Just because everything is different, doesn’t mean anything has changed.’

In it, I sought to outline my thoughts on what were the key driving forces underlying of the growing consumer embrace of social media.

To my mind, it boils down to three converging trends – Anxiety Overload, Enforced Autonomy and Institutional Failure.

But before I get onto exploring the socio-cultural context of social media’s emergence, let me revisit my presentation’s opening point (reflected in the title), which was that although we live in a world of constant change, nothing much has really changed in the media sector.

  • Media has always been inherently social – Media has traditionally served the role of creating the a ‘conversational context’ for audiences. Social media platforms have merely created new (that is, additional) places for audiences to converse. What is different this time around is the increased visibility of those conversations.
  • The ‘blogosphere’ is, in my view, largely an echo chamber – The blogosphere is highly self-referential (e.g. Blogger A writes a blog post. Blogger B reads it, and then writes a blog post referencing Blogger A’s post and adding his/her viewpoint). Importantly, most blogs are heavily reliant on mainstream media as the conversation starter (e.g. Blogger A watches news segment on CNN, or reads article in the New York Time, or attends an industry conference, and then and blogs about it, which is then referenced by Blogger B etc.). Of course, there is original thought leadership within the blogging community, just as there are bloggers who provide first hand coverage of events (which are then echoed by traditional media). My position is that such blogs are in the minority.
  • Media business models are still based on ‘attention economics’ – It is true that the economics of media has radically shifted. Digital distribution channels have reduced distribution scarcity, which has created a more (but not totally) even playing field. However, media business models are still focussed on ‘attention economics’, as they have been for quite some time. The primary revenue model is still that which has endured for centuries: aggregate attention, then monetise through various mechanisms.
  • Consumers’ demands are driven by rapid adaptation – Yes, today’s audiences/consumers are highly demanding, but that is simply not new. Consumers very quickly adapt their expectations of products and services. Today’s shiny new toy quickly becomes an expected feature. Let me give an example. Try to recall the sense of happiness you experienced when you acquired your first car. It was probably second-hand, but for you it was bliss-on-wheels. It represented a milestone in life, freedom etc. Now imagine how happy you would be if you had to use that same car today as your primary transport. How happy would you be? As you’ve grown older, as your economic power has increased, your expectations have changed. You want something better. The same applies to all products and services. What was  a perfectly good computer 2 years ago is now perceived as a doddering device. Your 50 inch CRT TV an ancient beast. Your first broadband connection was a triumph, now you’d see it as agonisingly slow. Consumers’ constant adaptation (and thus demand for something new) has been the cornerstone of capitalism for centuries.

So, yes, while we have witnessed considerable economic, technological and behavioural change, the change isn’t really as ‘revolutionary’ as many proclaim it to be. Indeed, it is wholly predictable.

Economic Lifecycles

In the latter part of my presentation, I pointed out how long it takes for technologically-driven economic lifecycles to complete a full circle.

Your typical cycle has four stages:

  • Scientific Discovery – The stage during which science discovers or creates a new capability.
  • Technology Development – The stage during which that new capability or discovery is converted into ‘technology’ (that is, an embodiment of applied knowledge).
  • Business Adoption – The stage during which the technology is adopted by some businesses to achieve economic and/or competitive advantage.
  • Organisational Entrenchment – The stage during which the technology is universally adopted or no longer creates economic or competitive advantage.

(My source for much of this thinking is an excellent, but little known book titled It’s Alive: The Coming Convergence of Information, Biology & Business, by Christopher Meyer and Stan Davis, released in 2003)

I gave the example of how it took four decades (yes, 40 years) for electricity to become organisationally entrenched (that is, to be used within a majority of businesses and households). A few weeks after my presentation, the Harvard Business Review published an article which confirmed this thinking.

In their paper titled An Exploration of Technology Diffusion, Diego Comin and Bart Hobijn studied the adoption of 15 technologies across 166 countries and found that, on average, it takes 47 years from the date of their invention for technologies to be fully adopted.

It is an interesting exercise to look at the ‘social web’ in this broader context.

We are only really in the technology development stage of this economic lifecycle, and it may be a full 10 or 20 years – when business adoption of these technologies is in full swing – before we witness the true changes it will bring.

Social Drivers

Returning to my original point regarding the key driving forces underlying of the growing consumer embrace of social media. These fall into 3 clusters:

  • The continuing erosion of faith in institutions – In the past decade or so, we have witnessed a number of failures by the key institutions that have traditionally provided a sense of perspective and helped us to negotiate our way in the world: corporations, governments and the church. Debacles like Enron, misgivings over the withholding of information leading up to the Iraq war, and growing awareness of the failures of religious organisations to abide by that which they preach are some examples of the kind of events that have led individuals to question their faith in these institutions.
  • Increasing anxiety about the future – Individuals have a lot to be worried about, at both the personal (micro) and global (macro) level. There is plenty in our daily lives to worry about (the economy, our finances, job security, health etc.), as well as on a much larger scale (the environment, wars, terrorism, natural disasters, global pandemics etc.).
  • Technology- and economics-fuelled autonomy – As consumers and citizens, we are increasingly being told we need to become more autonomous; to take more responsibility for our well-being and futures. Governments are requiring that we take more responsibility for services that they traditionally provided – healthcare, retirement, infrastructure etc. Businesses are increasingly forcing their consumers into ‘self-service’ options – ATMs for banking, self-scan checkouts in grocery stores, automated telephony systems everywhere etc. As personal autonomy (and, thus, responsibily) grows, so too do individual expectations of, and complaints around personal control for such things.

Faced with these converging forces, consumers are making some clear choices.

In response to their diminishing faith in institutions, they have decided they should rely more on their friends (and not institutions) to tell them what they need to know.

In response to their growing anxiety about what the future holds, they have decided that they need better information filters to help them focus on what is more important to them.

In response to the expectation that they take greater responsibility, then they have decided they they will do so on their terms.

The products, services and platforms that we’re seeing emerge from the field of social media dovetail very nicely indeed with the decisions consumers are making in response to this socio-cultural context, and it is for that reason we’re witnessing such fervent consumer activity.

Digital Radio – Promises + Challenges

 3rd Horizon, Radio  No Responses »
Nov 262007
 

I was interviewed last month by Brad Howarth for an article discussing the likely future of radio advertising as the industry launches its digital broadcasting platform in 2009.

The exchange touched on a range of issues (and opportunities) for the Australian radio industry, and I thought I would summarise my thoughts here.

Key Challenges

The successful launch of digital radio services to Australian consumers has a number of challenges:

(a) Value proposition – The industry has been championing enabling technologies for the launch of digital radio services for over 20 years. Had the industry been allowed to launch a digital platform in the 80s or even early 90s, it would have been a radically new and compelling offering. Unfortunately, competing technologies and products have overtaken digital radio in the past 5 years.

There is nothing that can be offered via a digital radio device when the service is launched in 2009 that consumers cannot already do today via other mobile devices (in particular, mobile phones). The industry will have its work cut out for it in developing a persuasive case for consumers to embrace digital radio, and make the necessary investment in new receiver technology.

(b) Timelines – The average Australian replaces his or her car every 9-11 years. This is an important factoid because in-car radio listening is a major component of time spent listening (TSL) to radio. Consumers who have recently purchased, or who purchase a car before digital radio becomes a standard accessory (or a suitably attractive optional extra) may be locked out of the digital radio audience for quite some time (for at least that component of their in-car TSL).

Undoubtedly car-mountable digital receivers will be available around the time digital radio is launched, but both the value proposition and pricing structure for such devices will have to be right to ensure rapid uptake and installation – a tough ask, given the array of competing in-car entertainment options.

(c) Awareness – Digital Free-To-Air (FTA) TV services have been available in the major Australian capital cities since January 1, 2001. Both ‘digital native’ TVs and digital converter boxes have been around (and aggressively marketed) for just as long. Despite this, according to research conducted on behalf of the Australian Communications & Media Authority (ACMA), only ~30% of households are able to receive digital FTA TV broadcasts (the number of households able to receive digital FTA TV increases to 41% when you factor in those who can receive it via their pay-TV subscriptions).

Of the roughly 70% of non-adopters of digital FTA technologies, just over one third report that they live within an area covered by digital broadcasting, yet have chosen not to adopt. Two thirds report not knowing whether they live within an area with digital broadcasting coverage; that is, they are not interested enough to bother investigating their options. A full 14% of households indicated they had not heard of digital FTA TV.

Australia is renowned as a country that readily embraces new technologies. Yet after a full six years of availability (at the time the research was undertaken) and aggressive promotion by multiple players (including, of course, vendors of TV devices), Australian consumers are at best nonplussed by the digital TV offerings. Given the significant time consumers spend with TV (relative to radio), this does not auger well for a rapid uptake of digital radio technologies.

(d) Pricing Point – A further interesting point from the ACMA research into the adoption of digital FTA TV services is that 22% of those non-adopters (that is, consumers who had not adopted digital TV technologies) reported that a major concern for them was the price of the equipment needed to receive digital FTA TV broadcasts - despite digital converter boxes being available at the $50 pricing point.

This would suggest that a significant number of radio listeners will resist investing in digital radio devices until they have achieved a very low pricing point – particularly as many consumers will need to purchase multiple devices (to cover in-home, in-car and in-office etc. listening).

Opportunities

A range of potential opportunities are created by digital radio broadcasting, including the ability to augment traditional audio offerings with text- and image-based services. Most digital radio devices, for example, can receive a text-based ‘ticker’, which can be used to push out information such as the name of the current song, songs/segments that are coming up, news and weather updates and similar text/information services.

Some devices will also be able to display images, which allows broadcasts to finally add a visual element to what has long been regarded as “TV without the pictures”.

However, the major opportunities (both in terms of compelling consumer offerings and additional revenue sources) are predicated on one thing: integrating some form of back-channel.

Without a back-channel, digital radio receivers will remain, in essence, ‘dumb’ devices in a world of proliferating intelligence. With a back-channel, however, devices open the possibility for geo-targeting (of both advertising, content and services), e-commerce (at the press of a button you could buy the song currently being played, or request information about the product being advertised), and audience interaction (for instance, live polls, song requests/voting).

I strongly suspect that digital radio will not offer a dramatic increase in advertising spending. Advertisers are notoriously cautious and risk-averse. They will hold back until broadcasters can point to sizeable audience figures before directing significant expenditure to digital broadcast channels (in the same way that advertisers were slow to embrace Pay TV until audiences grew). Similarly, they will hold back on any major moves to embed interactive elements into their advertisements until data about consumer response rates is available from pilot trials.

Risks

The sleeper issue in all of this, of course, is how Internet radio (and related offerings) will impact terrestrial radio audiences as broadband and wireless networking continues its penetration into homes, offices and (eventually) cars and other forms of transportation.

Existing broadcasters face significant competition from these new, digitally-enabled content providers. Whereas previously radio broadcasters only had to contend with physically proximate competitors, and had the ‘benefit’ of spectrum scarcity and operational cost barriers, they will soon find themselves competing in a market environment with dramatically more content offerings competing for a share of audience attention.

The result will likely be that there is a larger number of major ‘broadcast’ players (terrestrial + IP-based), with a declining average audience per broadcast product.

OpenSocial – Taking social networking to the next level

 3rd Horizon, Strategy, Web 2.0  2 Responses »
Nov 062007
 

For those of you who have met me in person, you’d know that I have long been championing the need for a technology that would enable ‘profile portability’.

A key constraint with social networks is that they force you to choose. You must choose whether you will invest your time and efforts in Facebook, or MySpace, or LinkedIn, or Bebo or any of the myriad social networking services currently available.

Developing, maintaining and building your profile and social network can be a time intensive process (depending how committed you are). Social networking companies (and their investors) see this as a good thing, because it promotes (in their view) ‘stickiness’ and creates an artificial barrier to exit. The thinking is that the more time and effort consumers invest in creating their profile and building their network of friends and acquaintances, the less likely they are to abandon the site and move elsewhere, because they would be forced, in essence, to start from scratch.

What this thinking overlooks is that by creating a ‘walled garden’ around consumer’s social interactions, these companies actually introduce problems (pain) for the very consumers they were seeking to attract and retain.

For example, if all your friends are on Facebook, life is good. But if only some are on Facebook, while others are on Bebo, and others still on MySpace etc., then you have a very real problem – you need to maintain multiple profiles, and manage multiple ‘portfolios’ of social connections and interactions. The alternative is to elect to inhibit your interactions with those friends that use a different social networking service – not a particularly palatable choice.

Equally, if you maintain multiple profiles across different networks, then when you want to update your profile, you must repeat the process several times, or choose to actively maintain one or more profiles, while allowing the others to go ‘stale’. 

The social networking environment today is in much the same situation the mobile/cell phone industry was a decade ago – it forced consumers to make a choice.

Because there was no network interoperability, you had to choose a mobile network, and were forced to operate within that network. If your friends used the same mobile provider, life was good. But if your friends used other mobile network providers, you could not call or sms them. The end result was continuous churn, as consumers moved to the network that held that largest percentage of the people they needed to stay in contact with.

Equally, back in the bad days of ‘walled garden’ email services, consumers were forced to maintain multiple email accounts with multiple service providers (and thus multiple email contact databases in multiple email applications), to ensure that most (though usually not all) of their friends could communicate with them electronically. Having an MCI email address wasn’t enough. You also needed a Compuserve and AOL email address, as well as a UUCP email address to maintain a link to those who hadn’t migrated yet from BBS-based messaging services.

History tells us that consumers will not endure such forced choices for long. Just as phone, email and Internet service providers were forced to ‘open’ their networks, so too will social networking service providers.

Google, via OpenSocial, appears to be the first to offer a solution that will provide the level of openness consumers will surely demand.

With OpenSocial, consumers need only invest time and effort building a ‘master’ profile, and can use that profile to move between different social networks. Over time, we can expect a unified messaging and push communications process (in the same way that Instant Messaging services were forced to support interoperability).

The end result is that social networks will start competing at the edges – it will really become a ‘branding’ (social network affiliation as fashion accessory anyone???) and innovation play.

(If you accept this logic, it should come as no surprise that Kylie Minogue has launched a Kylie-branded social networking service – KylieKonnect.)

Consumers will choose as their primary social network that company whose brand elements they most identify with and, to a lesser (though still important) degree, that which continues to innovate to create services that they value.

Given the network-as-a-platform trend, most of this innovation will come in the form of 3rd party apps, so the real competition will be around which network secures the largest number of JVs/partnerships with apps developers, in the same way that games consoles developers are heavily reliant on securing a pipeline of blockbuster games from 3rd party developers to maintain the consumer appeal of their platforms.

Google has once again made a smart move. It isn’t too late for others to enter the play, though.

I doubt Google is really interested in ‘owning’ the social network platform. Social networking is an emotional experience, which is not something Google has been good at providing historically (search is a logical, task-oriented process).

Instead, providing the platform that enables profile migration and universal communications, as well as being able to capture a single view of each individuals’ “social graph” across multiple social service networks,  positions Google to extract yet another layer of data about people, their interests, needs and wants, which will serve to re-enforce Google’s dominance in search and targeted advertising.

Bubble 2.0 – Advertising Platform the Key to Online Domination

 3rd Horizon, Cash, Media, Strategy, VC, Web 2.0  No Responses »
Oct 022007
 

The Wall Street Journal Online published an interesting article last week titled Microsoft Fires Volley At Google in Ad Battle, which states in part:

Some industry executives believe the Internet today is facing the sort of turning point that the computer-operating-system sector confronted two decades ago: Whoever controls the technology platform for buying and selling online ads could hold tremendous power over the Internet industry for years to come — much as Microsoft was able to use its Windows operating system to shape the personal computer.

I believe this assertion is largely true – whoever has the dominant share of advertising distribution will be at the centre of power within the Internet industry, as they will essentially control the revenue spigot.

During the initial ‘dot com’ boom, the prevailing mindset (and, thus, business model) was ‘build your audience, and worry about monetisation later”. This mindset actually fed on itself, as many popular, free services launched in 1998-2000 were themselves predicated on the availability of free services (e.g. free web hosting, free comms, free downloads etc.). That is, sites that offered free services were built upon free services offered by others.

When, around 2001, the crunch came, funding dried up, and start-ups started trying to implement their (hastily devised) revenue strategies, the ‘free built upon free’ environment became a nasty accelerant for destruction.

Non-profitable companies attempted to implement fees for previously free services, with the result that those who used those free services had to implement fees to cover these new overheads. End consumers refused to bite, with the result that no-one in the value chain was actually able to cover their costs, and businesses collapsed left and right.

This time, of course, it is all different.

The dominant mindset is that advertising will pay for the services, so that they can be provided free to the end-customer. Recognising the value of this arrangement, consumers will (it is believed) be only too happy to interact with advertisers, and provide the necessary information to ensure advertising can be sold at a premium.

Whether this revenue model is the panacea many think it is is debatable. However, it is undoubtedly true that many emerging ventures will be heavily reliant upon advertising revenues to drive their business model. In this scenario, the owner of the dominant advertising publishing/distribution platform will control the levers that turn advertising revenues on and off – a very powerful position, not unlike the position of those wealthy merchants who sold picks and shovels during the early gold rushes. Regardless of whether you struck it rich or went broke trying, along the way the equipment merchants earned their fee.

No surprises, then, that Microsoft, Google and Yahoo! are fighting the good fight over who will be in the driver’s seat.

Short-sighted view of the growing importance of digital channels

 3rd Horizon, Culture, Leadership, Strategy  No Responses »
Aug 272007
 

I noticed an interesting job advertisement in the papers over the weekend. The job title – Online Communications Manager – caught my eye, as I had recently been wondering when we will see organisations  invest the same levels of resources into managing their relationships and interactions with customers over digital channels as they do, say, in-store.

I read the advert expecting to catch a glimpse of a ‘weak signal’ indicator of maturation in organisational stewardship of digital channels. Instead, I was rather appalled by what I read.

The advert, placed by a “Top 10 ASX” financial services company, describes the position and role criteria in these terms:

[Y]ou will be responsible for developing and implementing the overall online strategic framework and business rules around our front line customer websites. Acting as business consultant around web usage and measurement, you will be considered the online expect. The ability to manage key stakeholder relationships, facilitate web-based enhancements and ensure all content is succinct, thereby increasing audience cut through, is what makes you outstanding.…To be considered you will have a demonstrated background in managing websites and an online channel with a good grasp of html coding.

The organisation clearly believes their online channel is important (they speak of it requiring a ‘strategic framework’), and their sites would appear to play a role affecting several ‘key stakeholders’ in the business. Yet, the primary criteria for the role seems to be technical, rather than strategic or commercial.

Let’s recast this example into a retail context. Imagine a major retailer advertising the role of manager of a department store. This person would be responsible for ‘implementing the overall strategic framework and business rules around our front line customer sales’. S/he would act ‘as a business consultant around floor space usage and sales measurement’ and have responsibility for managing ‘key stakeholder relationships’. The person would be considered the ‘retail expert’.

Do you think the role criteria would read: ‘To be considered you will have a demonstrated background in managing a sales counter with a good grasp of retail displays’?

Not likely.

Most companies still do not believe that their digital channels warrant significant senior management oversight or leadership. Implicit in job advertisements such as this is the view that digital channels are an addendum rather than a core aspect of business operations.

Far too many CEOs still speak of developing a ‘digital business strategy’. This is a telling misnomer.

Learning from PepsiCo: Changing the Game

 3rd Horizon, entrepreneurs, innovation, investment, Leadership  1 Response »
Jul 092007
 

In 2006, for the first time in 108 years of head-to-head competition, PepsiCo was worth more (in market cap terms) than The Coca-Cola Company, even though Coke still outsells Pepsi almost 2-to-1.

In 1998, Coca-Cola’s market cap was $US220 billion and the company’s stock price was trading in the high-$80s. Fast forward to 2006, and Coca-Cola’s stock price had plummeted to near the $40 mark. Worse yet, in December 2005, Coke’s market cap for the first time in history fell below that of PepsiCo’s (see note below).

Where did Coke go wrong?

Coke failed to recognise that consumers’ emerging preference for other soft beverages – water, teas, and sports drinks – would fracture demand. Instead, they ridiculed initiatives by rivals to expand into non-carbonated drinks.

As a result, Pepsi’s Aquafina became the No. 1 water brand, with Coke’s Dasani trailing; in sports drinks, Pepsi’s Gatorade owns 80 percent of the market while Coke’s Powerade has 15 percent.

Importantly, Pepsi took an even broader view than other competitors of its core market, expanding into non-beverage markets through the acquisition of Frito-Lay Snacks and Quaker Foods; the former now controls 60 percent of the U.S. snack-food market.

In short, Pepsi didn’t out-compete Coke. It changed the game.

At some point, the Boards of both Coke and Pepsi faced the same question: How much money and attention should be focused on a new, but growing, operation that is far less profitable than the core business?

Both Coke and Pepsi’s business systems were geared to selling soda, which generated enviable margins for more than a century. The profit margins on selling other drinks paled in comparison. Pepsi made the move in response to obvious shifts in consumer demand, and reaped the rewards.

In this case, it wasn’t a technological innovation (i.e. better, fizzier soft drinks) that broad-sided Coke. It was a business model innovation (becoming a “total beverage company”).

There are some important lessons here from which any company can learn. Specifically, established companies are at risk of falling into

the same “competency trap” that Coke did – continuing to invest in their traditional core competency to such a degree that they become unresponsive to the wider market play.

(Note: As at the time of writing, the market cap imbalance appears to have been rectified – PepsiCo’s M/C was $US107.87B compared to Coca-Cola’s $US121.50B. However, this is a little misleading. PepsiCo’s shares closed at $US66.22, compared to Coke’s $US52.60, and PepsiCo had a P/E of 19.50 and Earnings Per Share of $3.40, which is much healthier than Coca-Cola’s, at 23.51 P/E and EPS of $US2.24)

 

There is no Web 2.0…

 3rd Horizon  1 Response »
Jun 122007
 

Marc Andreessen, founder of Netscape and now a software entrepreneur, has launched a personal blog, Pmarca.

He recently published an article in which he argues there is no such thing as Web 2.0.

As I responded in a comment, I absolutely agree that there is no Web 2.0 (and there most certainly isn’t a such a thing as a ‘space’).

I view current events as the continuation along a spectrum of usefulness and usability.

Back in the day (!), pre-Mosaic/Netscape, we had tools like Archie and WAIS for searching and accessing data/information available over the Internet. You would (physically) sit in front of one computer, use telnet to connect to another computer system, which would then use a tool like Archie to tap into information on yet another computer system.

The Web really just brought everything one step closer – you used a browser to go to a Web site, and that web site (through the ‘magic’ of hypertext) pulled things together for you (or sent you somewhere else to get it).

So information – or the ‘stuff’ you wanted – was only 1 step away from you, rather than 2 (or, euphemistically, 1 degree of separation, not 2).

We’re now seeing a bunch of changes converging to achieve the removal of that 1 degree of separation. We’re approaching a time where you won’t actually “go” to the Web/Internet to get the “stuff” you wanted – it will come to you (some are calling this your ‘personal information cloud’).

All the kinds of things that fall under the generally heading of Web 2.0 – tags, social sharing, folksonomies, RSS, APIs etc. – are really all about packaging, sorting, filtering and zeroing in on all of the ‘stuff’ out there that we want, in such a way that it comes to us, so that we need not ever have to go ‘there’.

So this Web 2.0 meme is really a 2/10 signal – in 2 yrs, a lot of people will be sitting around underwhelmed by what has transpired, but in 10 years, we’ll look back and point to this time as an inflection point for a profound change.

It won’t be too long before the opening position of a post like this will be: The Web doesn’t exist. (it is fading away as I type…)

What is the 3rd Horizon?

 3rd Horizon, innovation, Media  No Responses »
Apr 082007
 

So why did I name this blog ’3rd Horizon’? Because that’s kinda where I like to work.

Most companies are ruthlessly operationally-focussed – few more so than media companies, which tend to ‘live’ from ratings book to ratings book, interrupted only by monthly or quarterly sales figures. It is a tough, highly competitive world, so it is easy to forgive executives for having such a short-term focus.

But a short-term focus tends to beget short-term problems.

Ask any CEO, from any industry sector, and chances are they will tell you that their No.1 Challenge is innovation.

Innovation is the key to top-line growth, competitive advantage and keeping competitors on the back foot. Yet most companies are much better at executing their current activities in the current climate than they are at anticipating and responding to long-term changes in the business environment.

And that’s a problem.

I recently prepared a presentation for a client as part of a business case for developing an innovation capability. The first slide contained the following ‘situational awareness’ summary:

  • Revenue growth from core business units is limited in the current environment.
  • Key focus is aggressively defending revenue erosion due to growth in online budgets.
  • Shareholders / market increasingly factoring future growth options into share price.
  • Media sector under growing pressure from offshore competition and ‘discontinuous’ technologies.
  • 80%-90% management focus on operational issues.
  • Typically, 95% of new initiatives fail – even when companies stay within traditional areas of activity.

Regardless of which industry your company operates in, its size, or its relative competitive position, I suspect this is a fairly accurate summary of your current position.

Businesses tend to cluster their internal capabilities and activities into three silos, each of which addresses a distinct business horizon:

Horizon 1 – Environmental Intelligence – These are activities that provide insight into, or create capabilities with respect to, current markets for products or services. The primary focus tends to be understanding the dynamics of the market as it exists today, and where it will be in 6-12 months time. For obvious reasons, most businesses tend to devote a significant portion of their management attention to this horizon.

Horizon 2 – Operational Performance – These are activities that provide insight into, or create capabilities with respect to, enhancing operational performance in current business areas. The primary focus is increasing the sustainability and profitability of existing operations, with a bias towards actions that can be implemented or undertaken within the next 12-24 months. As companies (or markets) mature, this increasingly becomes their dominant mindset.

Horizon 3 – Future Business Opportunities – These are activities associated with exploring and discovering future opportunities – those true ‘step-change’ options for future revenue streams. Very few companies invest significant time, money or effort into Horizon 3-related activities, as the payback period tends to be more than 3 years (in some industries, it may be 5-10 years before identified opportunities can be successfully exploited).

Innovation can and does happen across all three horizons. Horizon 1 innovation tends to involve product + service enhancements or ‘tweaks’. Horzion 2 innovation tends to involve improvements in business process or ‘greenfield’ developments in related business lines. But Horizon 3 innovation tends to be more fundamental. Whereas H1 and H2 innovation happens at the product or business unit-level, H3 happens at the corporate strategy level and/or business model layer. It is thus is more challenging and, if done right, profitable.