Change is happening. You can’t avoid it. The economy is fluctuating, there is an ongoing battle to reconfigure the regulatory landscape, and the marketplace keeps shifting as new players get into the game and established players enter new markets. However, the most profound changes we are seeing are being driven by technology – the digital platform is opening up new channels, changing the ways in which we communicate, share, shop, and do business. It’s shifting the nature of our relationships to each other, our jobs, and the products & services we buy.
Ubiquitous connectivity and world-class algorithms offer consumers a facilitated shopping experience that allows them to make a buying decision with greater confidence than ever before. Social media allows users to share opinions and recommendations. It also allows those who create and distribute products to interact with the consumer in new ways, or just put an ear to the ground to understand how what they offer is being perceived. It is possible (and not uncommon) to become aware of an artist, hear examples of their work, find out what others think of that artist, and purchase their work – all without so much as getting up from your chair.
Even well-established, large firms with global reach are not immune from the fluctuating business climate. In fact, it their scale puts them at a disadvantage, since they are unable to quickly change direction. If you look at the firms who have been able to derive the most value from the digital platform, they’re either small companies or made their biggest gains as small companies. The large companies that have remained successful tend to function like smaller companies in many ways – I’m thinking of Google and Apple in particular. And the companies that still behave like large companies have lost market share, like Microsoft and Samsung.
However, if they can’t execute like a small firm, they can at least think like a small firm. In a larger firm, the decision makers are often some distance from the point where the changes in the business environment are being felt. To compensate for this, they should adopt an approach that puts all hands on deck when looking for opportunities to deliver new value to their customers. Innovation can come from anywhere; let it.
Changes In Entertainment
One area of our economy that's feeling the digital upheaval more strongly than most is the Entertainment industry. Technology has fundamentally reshaped every aspect of the business. Here's what's happening:
For the majority of it's existence, the entertainment industry has maintained a grip on its product by owning the mechanism of reproduction. Vinyl records and photo-printed movies were prohibitively expensive to reproduce, so the easiest choice for the consumer was to pay the price being asked by the provider. With advances in magnetic media in the latter half of the 20th century, the entertainment industry realized new revenue streams when it found ways to get their product into users homes and cars. Since then, the industry has been involved in a cat and mouse game with content pirates. By leveraging a new medium, entertainment opened up new revenue pathways, but inadvertently lowered the bar on reproduction. Fortunately, for the entertainment industry, magnetic media have the property that each generation of duplicate is exponentially lower in quality.
Next came optical media. With optical media, the industry found a way to reduce the cost of replication and opened a new revenue stream when the product could be re-sold to those who already owned it in a magnetic medium. Again, the methods for reproducing the content were proprietary and beyond the means of the average consumer. However, as the cost to reproduce the content came down and the technology to do so made its way into most american homes, it had the side effect of making non-revenue-generating distribution of the content possible.
Then, along came the MP3 player. Suddenly, the ability to store and listen to your entire catalog of music was within reach of everyone. This created unprecedented demand for entertainment product, but separated the content from physical media and the manufacturing technology necessary to reproduce it. Now, sharing content in its highest quality form was as easy as attaching it to an email. P2P technologies like Napster and Limewire made it possible to share it from one-to-many. So, while the marketplace was expanded, so was the opportunity to pirate content.
So, how can innovation help?
To date, the entertainment industry has been battling the issue with litigation and legislation - clinging to the "old world" notions of physical product and distribution channels. At a minimum, the business model needs to be reconsidered, but engaging the entire ecosystem in innovation exercises could yield even more inventive tactics. Here are a few recommendations:
It's probably too late to put the toothpaste back in the tube regarding the pirate-founded, community-supported channels for sharing music. The industry seems content to play legal whack-a-mole with them right now. But, a historical look shows that the battle over piracy on the high seas was won as much by collaboration as enforcement. Industry engaged the pirates in a way that turned them into a new distribution channel and the privateer was born. Perhaps the entertainment industry should work with the pirates and change them from enemies to evangelists. If it becomes easier and more profitable to work with the system than against it, it could be beneficial for all involved.
Another way to approach the problem would be to rethink where the revenue is coming from. For years, the shaving industry has been giving away the razors to sell the blades. They realized that the money was in selling the sharp part and giving away the razor locks the consumer into a platform. Why not look at content as a marketing investment in selling the consumer on a more personalized experience (events, access to artists, online communities or games, etc.). Transmedia remains a critical area of exploration for content providers. Plus, you can't bootleg a participatory experience, so it can't be re-sold by pirates.
Finally, the entertainment industry could engage the consumer in innovation exercises. Let the consumers help you discover a business model that works for everyone. Netflix famously gave away a million dollars to improve their recommendation engine - a clear path to higher rentals and, thus, more revenue. However, the industry could go beyond that and ask the music buying public to help them create whole new models for the entertainment experience through crowd-sourcing exercises. Innovation can come from anywhere; let it.
Change is happening – you can either make change happen, or let change happen, but you can’t avoid it.