Tuesday, February 11, 2014

The UR Industry of Digital Transformation

This article first appeared on February 11th, 2014 on Social Media Today: The UR Industry of Digital Transformation

Regardless of how and when you think that your company and industry will be swept into the torrential flow of change that we call "digital transformation," I think you'll agree that the very first industry to have felt the pain of creative destruction from social, mobile, analytics and cloud (SMAC) was information, media, and entertainment (IME). And the pain is continuing to be felt today -- the means of production, distribution, business models, and the very core building blocks of how these companies operate are all being transformed by digital technologies.

It makes sense that this would be the first industry to be transformed given that the substance of the products that these companies sell are just information. Not that the publishing industry thought so -- they thought they sold papers and magazines and books. Or the music industry -- they thought they sold records and tapes and CDs. Or the film industry which thought they sold (or rented) VHS or Betamax cassettes. Or the game industry which thought they sold game console cartridges and PC diskettes...

And when they sold their information products wrapped in a physical distribution format they needed newstands and bookstores and record stores. A huge part of their businesses were devoted to how products were manufactured, distributed, and marketed in these physical venues. Thousands of people dedicated their careers to learning the skills needed to be successful in these markets.

And then everything changed. But those thousands of people and their companies have had trouble keeping up with this change. So we have seen the bookstores, the video stores, and the record stores close. We've seen newspapers and magazines go out of business. And after all of this change I still visit companies in the IME industry who are steadfastly clinging to the old ways of doing business, perhaps not even knowing (and certainly not acknowledging) that they are on the edge of disaster.

Ernest Hemingway is credited with coining the saying about change (he was talking about bankruptcy) that it happens:

"Slowly at first, and then all at once."

I heard this quote for the first time while attending a talk by Andrew McAfee, a professor at MIT with a new must-read book entitled "The Second Machine Age." In this book Andrew and his co-author Erik Brynjolfsson outline in detail how the world is rapidly being transformed by digital technologies. If you weren't convinced already, and even if you are, this is an excellent book to read to get details and pragmatic implications clear.

The basic premise of slowly at first and then all at once explains in part why companies and industries are not more clear on the change that is occurring and what they should be doing about it. In your company have you looked carefully at the fundamental changes that are occurring which will, slowly at first and then all at once, invalidate your current business and operating models?

For IME companies the changes can be summarized by three really important transformations having to do with production, distribution, and business models. There are also implications that these three things have on marketing, sales, and service -- all of the core interaction points that companies have with markets.

An interesting facet of the transformation that is occuring is that SMAC rewards the smallest producers AND the largest while invalidating the business models of those in the middle, at least those in the middle that continue to operate independently rather than forming new kinds of business ecosystems. In IME what this has meant is a growing movement across all categories of information products where individual producers have taken control of their own future and are self-publishing. Books, music, games, and even movies can now be produced by an individual or a small team. Distribution can be through social networks or can be accomplished by leveraging cheap or free digital infrastructure provided by an industry that is adjacent to the IME industry -- Internet companies like Google and computer companies like Apple.

But before we simply assume that all media companies will perish at the hands of small producers, its important to recognize that something else is happening as well -- companies that understand how to leverage at massive scale all of the information available about what people are reading, listening to, playing and viewing are also positioned well to succeed because they will become smarter and faster than their competition about what it is we want, what we will pay for, and how to curate our social communities around content in order to excel at the new digital distribution channels.

Big media companies need to recognize the change in the three areas of their business that drive a transformation in how they do business:

1) Digital distribution of content means that an entirely new set of capabilities are needed inside the company -- no more managing printing presses or boxes of books going on to bookstore tables. Instead companies need to understand how to correctly position content into the digital flows of their customer's lives. Its not just about knowing how to generate a Kindle formatted book. Its about how to engage in curating the social communities of interest around the book's topic so that the pull engine is created around each media element. That requires a rethinking of product packaging -- how can a book, song, game, or movie be deconstructed into hundreds of information elements that contribute ultimately to driving demand for the full product? How will these individual parts be distributed into all of the social and mobile distribution channels that exist and how will the be targeted to the right communities of interest? And how can the publisher partner with and empower the creators to collaborate in supercharging this distribution?

2) A direct result of the first point is that marketing and sales has to be radically transformed into an organization that is building communities -- if you are a book publisher, do you have a community of people who like science fiction mysteries with a romantic twist? There is a market and if you have built a community around this niche you can be of enormous value to the authors of such works, thus remaining in the middleman "publisher" role instead of being disintermediated by cheap or free digital distribution. What is the business of publishers anyway whether books, movies, games or music? It has always been to provide access to markets and social communities are the new markets. It will be a lot more valuable for media companies to look at community curation as a core capability than as something distributed down to the individual media property level as community knowledge and curation capabilities can be leveraged at scale.

3) And that means in order to succeed in this second area of transforming marketing and sales, companies need to start taking data and analytics a lot more seriously. This is where scale will continue to have an advantage. Why is it that Google still has better search results than any other search engine? It is because they see every search and know what we have clicked on, so they can do a better job than anyone else in learning what a good result for a given search is, based on our actual behavior. Apply this to every information type -- what can you learn about what people are reading, viewing, playing, or listening to and how much more valuable will your insights be if they are at a massive scale? Your media company can know exactly what the next hit will be if you have enough data to usefully apply predictive algorithms.

How many media companies have taken on these three challenges? Build digital distribution competencies, transform marketing and sales into community development, and invest in big data and predictive analytics... and make these core assets leveraged across the business, not isolated and independent efforts by different brand and product managers. How about your company and your industry? Are there lessons here for you as well? Every industry will be caught up in this torrential change. Are you ready for digital transformation?

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