Making money with new media begins with new thinking

new stuff confuses usI get these funny looks sometimes during meetings and presentations. It’s a sign that I’m somehow making an assumption about audience knowledge that needs explaining instead. I’ve learned to stop and go back, because thought paths I crossed long ago are just becoming apparent to many today. The great curse of downstream thinking is that it’s very hard to explain to those firmly planted on today’s path.

So, in our new series, “Making money in Media 2.0,” we’ll take these steps backwards once in awhile, because things are happening so quickly today that unless our foundational understanding is solid, we’ll make mistakes.

Every day there’s a new article somewhere blaming this thing or that for the demise of legacy media companies, especially newspapers. This is our logical minds trying to figure things out, but our logic is immersed in certain assumptions and beliefs. The Web is a marvel of humankind, on a scale with the Biblical Tower of Babel. It functions in ways completely foreign to those who’ve only understood the life that came before, so it’s quite natural for us to miss what’s actually taking place.

Where we tend to “miss” new media most is in the money-making realm. The best we can see is how the digital world is turning old dollars into new dimes, but that’s because our viewpoint is biased by history, tradition and the limited scope of our knowledge.

Clayton ChristensenIn Clayton Christensen’s brilliant books, The Innovator’s Dilemma and The Innovator’s Solution, he describes two different kinds of business innovations. Sustaining innovations are those that bring better products to an existing market. Some sustaining innovations are simple, incremental, year-to-year improvements. Others are dramatic, breakthrough technologies. “The odds overwhelmingly favor the incumbent leaders of the industry in battles of sustaining innovation,” Christensen told Howard Dresner in 2004, “whether they are simple, incremental innovations or breakthroughs.” A disruptive innovation, however,“brings to market a product not as good as the products in the current market, and so it cannot be sold to the mainstream customers. But it is simple and it is more affordable.” Disruptive innovations take root in a small corner of the market but eventually reach the mainstream. “I call that a disruptive innovation,” Christensen said, “not because it’s a breakthrough from a technological sense, but instead of sustaining the trajectory of improvement that has been established in a market, it disrupts it and redefines it by bringing to the market something that is simpler.”

The real problem for media is that the Web is a disruptive innovation while incumbent businesses view it as a sustaining innovation. This is the core issue with making money in the Media 2.0 world, and the more time and energy we spend in the sustaining innovation square peg, the farther we get from the real money in the round marketplace.

How I wish this light would suddenly flash to life in the minds of media company executives.

The primary example of this is a TV station’s website, (or newspaper website). Here, the Web is used to extend the brand of the TV station, provide new services to its viewers, and make it a better television station. There’s money to be made here, for sure, but it is just those dimes (and always will be).

Social media is another example. Local media companies set up accounts on Twitter, Facebook and now Google+ to, again, improve their central products and services, as if these were sustaining innovations. We use Twitter to notify people of our work. We use Facebook to easily interact with our viewers. We use Google+ to put multiple folks on the air at the same time. It’s all so useful in making us better media companies.

There’s a new movement underway called “Social TV,” that combines the interactivity of innovations like Twitter with shared viewing experiences in order to provide the magical marketing term “engagement.” This is fine, but it is a sustaining innovation.

People ask me about these things, and I say they’re great and that we must respond, but they do nothing to help what is essentially a business problem.

So everything we’ve done with new media so far has been to improve old media. I heard an investor say once that media companies were only interested in bolting innovations onto their existing business model, and I think that’s generally true. In doing so, however, we risk everything, because we’re missing the reality that the Web is a disruptive innovation.

This is why Christensen is so adamant that the only workable response to a disruptive innovation is the creation of a separate business unit that is free to compete with the legacy platform, even destroy it. Most companies have indeed set up separate units, but unfortunately, they are behaving as though the Web is a sustaining innovation. Incremental revenue increases can be gained through networking all the websites owned by a company, which also keeps costs down, but this has the effect of creating a specialized ad network, which can work against the best interests of each property.

Local media is a local industry, and that’s where the separation needs to occur. I’m not suggesting it can’t be managed from afar, but the more the new unit is disconnected completely from the old, the greater its likelihood of success. I don’t believe, for example, that brand-extension websites should be operated by this new unit. Unfortunately, that’s the central focus of most digital or interactive divisions of local media companies, and this is exactly what Christensen is talking about.

In Salt Lake City, Christensen protégé Clark Gilbert is running the separate division for Deseret Media. Much has been written about his successes, but even his is a hybrid that functions as both brand-extender and innovator, because he also has editorial oversight. This may be the only way media can function, but it will always be less than it could be.

In referring to Gilbert, Christensen noted his “masterful” research on the Boston market while a student of his at Harvard.

Those ones that set up a separate organization; after they got the funding and everything, as soon as they separated it, they could think, “Now who wants to learn about Boston? Who’s not in Boston? Who would like to advertise (who’s) not advertising in The Globe, and who would like to use this that doesn’t subscribe to The Globe?” All of a sudden, there are all these opportunities they can see, where when they were in the Boston Globe newsroom, they just couldn’t see those things.

Perhaps it’s best to conclude that Media 2.0 is both sustaining AND disruptive innovations. I don’t doubt there’s truth to that, but the money is following the disruption, so that’s where we need to be.

Clay ShirkyMedia 2.0 immersion also makes real the truth about our industry: we’re not in the “news” business; we’re in the advertising business,” something I’ve been preaching for years. In a new post this week (“Why We Need the New News Environment to be Chaotic”), NYU’s Clay Shirky, one of the great thinkers of our age, echoed the thought.

Outside a relative handful of financial publications, there is no such thing as the news business. There is only the advertising business. The remarkable thing about the newspapers’ piece of that business isn’t that they could reliably generate profits without accomplishing much in the way of innovation—that could just as easily describe the local car dealership. The remarkable thing is that over the last couple of generations, those profits supported the fractional bit of those enterprises that covered the news.

But all of that is changing, because the advertising industry itself is in disruption. Content marketing and promotions are two big growth categories for advertisers who behave much more like they themselves are the media today. Where are local legacy media companies in all of this? Nowhere, because we’re still functioning as though Media 2.0 is only a sustaining innovation.

This is serious stuff, folks, because it impacts our bottom lines. The solution is to arrive at the place where we’re free to disconnect making money from making news content, or at least get into the content business that advertisers are flocking to by the thousands.


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