The Retail Future of Media and Advertising
[written 2006]
John du Pre Gauntt
During the second half of 2005, the irresistible force of convergence smashed head-on with the immovable object of today’s media and advertising industries.
The immovable object lost.
That issue settled, the two core questions are A.) what fundamentally changed?, and B.) what constitutes competitive advantage in this new environment?
I contend that convergence flips competition from a property-based model of owning or exploiting titles or channels to a service-based model of owning or exploiting knowledge of customer preferences. In a world of infinite digital shelf space, media and advertising is going to start looking a lot more like consumer retail.
I believe that media companies and advertisers can no longer base their business on owning content *consumers* whose experience is defined according to a content type, media channel or technical device. Instead, media companies and advertisers must learn to serve *customers* who could be viewing, listening, reading, playing, or manipulating a given piece of content wherever they want, any time they want, on any device they like.
Thus, the lasting impact of convergence is the penetration of retail e-commerce into the previously cushy world of media and advertising. Media and advertising executives might dream that convergence enables them to re-sell or re-purpose existing content or campaigns for new money. But that is sugar water masquerading as mother’s milk. After the novelty phase is past, they or their replacements will have to rip the guts out of current operating procedure lest convergence-native competitors do the job for them. Media and advertising executives need only observe how e-commerce rocked travel & leisure, financial services, home electronics, real-estate, automobiles, and a host of other consumer touching industries to grasp what a retail future really means for them.
The march toward consumer retail for media and advertising is inevitable because once an economic good or service can be digitized, transported and experienced on-demand; push-oriented business models that depend on scarcity must yield to pull-oriented models that help people navigate a world of abundant choice.
This is convergence acting as a solvent on traditional media and advertising. Executives are rightly terrified. The past decade saw skepticism on their part about convergence because it didn’t come as a signature innovation that anyone could see. Instead, convergence arrived on little cat feet via hundreds of innovations that rode on broadband IP combined with the habits of a network-native customer base who were in elementary school when convergence first crossed the radar screens of Hollywood and Madison Avenue.
But the digital tribes have grown up and have profoundly different perceptions of media value. They produce, share, experience, and manipulate content as well as opinions about goods, services, and ideas without immediate recourse to incumbent media and advertising outlets.
Convergence as glue
However, convergence also enables mass customization, which is good retailing by another name. The amateur social networks have figured out what most professional media and advertising firms have failed to grasp: creating value is not simply the ability to solve a content, distribution, digital rights, or monetization problem. It’s about understanding and serving a new kind of audience, stupid!
An early pioneer was MTV. Strictly speaking, MTV doesn’t fund artistic development, distribute the network signal, or sell music direct to the consumer. Yet, MTV became huge in the global music industry because it was highly skilled at programming music video content to fit and enhance the lifestyle of its audience. By clearly understanding (some might say manipulating) its audience, MTV owned first place in a demand chain — -and called the shots accordingly.
More recently, search engines such as Google or Yahoo! along with e-tailers such as Amazon or eBay have created major, profitable businesses through gathering customer demographics and activity data as their fundamental capital stock. They refine that raw material into real assets through digital conversations with customers in the form of searches, transactions, reviews, loyalty programs, and other forms of interaction. While these conversations are enabled by digital technology, their core business value is retail in philosophy.
In each case, the thrust of product and service innovation revolves around optimizing how customers find what they want, in a format they like, at a price they are willing to pay — -anytime, through any device, and on-demand. Back-end production and fulfillment systems exist only to add value to that experience.
Like Janus, these companies face in two directions simultaneously. The front end accumulates demographic and psychographic information to marry with activity data to place the most relevant suggestion, and thereby help the customer navigate abundant choice. The other face looks upstream to orchestrate multiple supplies of product, content and services to deliver on expectations of an on-demand experience.
To execute on that brand promise, these companies have built powerful infrastructures of processes, databases, networks and applications. But their business isn’t about owning an infrastructure. It’s about mining and packaging their infrastructure’s institutional memory so as to end up in the right place, with a good offer, when the customer is most receptive.
To know a lot of little things or one big thing
So how should today’s media companies and advertisers compete in a world where customer knowledge on the front-end and orchestration on the back-end is what drives value?
I say that media and advertising companies had better adopt more of a retailer’s mind-set. Content creation, production and distribution are now sub-sets within the swatch of new activities such as product placement, cross promotion, dynamic pricing, bundling with tools, individualized service, identifying and engaging communities, rewarding loyalty, running specials, all of which are retail best practices that media players and advertisers must customize to their world.
Owning titles and/or media channels will remain important. But they will no longer define what is media, what is advertising, who wields market power, and how they use it.
Many, if not most, of today’s incumbents will counter that media and advertising are unique (the burden of proof is on you) or I’m simply re-stating the obvious. Perhaps. But until the day I can call CBS Sports customer support to fix the camera angle I ordered for the Superbowl or qualify for a free preview of an exclusive motoring channel for new BMW owners, I don’t buy what they’re trying to sell — -namely that incumbents ever thought much past the idea of pushing inventory to an audience trapped by distribution channel walls.
However, I do know that by the early 1600s, European castles became virtually impregnable to cannon fire, a situation that persisted right up to the 19th century. But the castles declined nonetheless because their primary advantage — -the ability to organize and control trade within a well-defined area — -couldn’t compete with the new factories and industrial culture that drew tenants and talent off the farm and into the cities. Once the exchange of goods, services and ideas happened outside castle walls, these grand structures became only so much overhead.
Today’s situation is similar. No cash, debt or stock-led frontal assault will likely breach the walls of today’s consolidated media and advertising incumbents.
And it doesn’t matter a tinker’s damn.
During the next decade, look closely for those companies that have internalized the distinction between owning exclusive titles/channels and serving loyal customers. They will be the ones controlling the most wealth and power in a converged media economy.
