Escaping the Internet Commodity Trap

by Rowan Gibson

The Internet is like a black hole that relentlessly sucks in, digitizes and democratizes content of every kind. While that may be generally good news for consumers (hey, look at all the great stuff we can now get for free), it has turned out to be unbelievably bad news for the content providers. Ask anyone in the print media business, or the music business, or the movie business. For at least the last decade, industries that primarily produce content have been struggling hard to find a viable new financial model in a world where internet users (particularly the young generation) don't expect to pay for anything they read, listen to, or watch. As one popular mantra puts it: "Content is no longer king". The fact is, content distribution is now king. Power has shifted to the content aggregators - think Google, YouTube, Digg.com or iTunes - and to new media platforms like Amazon's Kindle reader or the Apple iPad. So how exactly are content providers supposed to make money in an era of rampant digital commoditization? The only option they have left is to innovate like never before; to reinvent their industry business models before they become obsolete.

I remember talking to Kevin Kelly, co-founder of Wired magazine, back in 1995 about the future of the Web. He told me he viewed the Internet as a "planetary-sized copying machine" and added that "trying to stop copying on the Net is impossible." Indeed, within a week of my latest book "Innovation to the Core" being published in Chinese, there were at least two websites in China offering a digital version of the book for illegal download. Consumers clearly win - why buy the physical book when you can get the digital file for free? But in terms of book sales and royalties, the author (i.e. me!) and the publishers lose out entirely.

That's why the book publishing industry is feverishly exploring a variety of new business models. One option is to sell eBooks direct to customers, cutting out middlemen like distributors and retailers, and building a community around the books and authors. Since eBooks have a relatively low price tag, the hope is that consumers will be willing to pay for the genuine article (a la iTunes) rather than download an illegal copy, especially if it comes with social-media-enabled tools that help them discuss and share the book with others. Another option is to make the eBook itself a richer multimedia experience (with audio, video, hyperlinks and so forth) rather than just a text-based medium. Instead of embedding all of these media in a single digital file (which would still be relatively easy to copy and distribute illegally), publishers could give consumers a code when they purchase the book that offers exclusive access to a dynamic, integrated online application environment.

A similar challenge faces today's music business. Over the last decade, music labels, retailers, and the artists themselves have seen their revenues fall off a cliff in an era when teenagers can - and do - get all the music they want for free. Last year, 95% of music downloads were still from illegal file-sharing sites. And although Apple is now the world's biggest music retailer, its iTunes store has never been a massive revenue producer. Instead, it simply serves as a provider of low-cost content for the iPod, helping to drive sales of Apple's premium-priced music player. So far, the latest trend - cloud-based, streaming music sites like Spotify, Rhapsody and Pandora - has not been very helpful to the music industry either. Until now, these sites have employed a free-to-users, ad-supported model which doesn't generate much money for the labels or the artists. As an example, it's estimated that a million plays of Lady Gaga's popular song "Poker Face" on Spotify only earned her a paltry $167.

Frankly, I'm not too worried about the artists because most of them make their money these days on concert revenue and merchandising, not on the sale of recordings. And since people go to live concerts to hear artists performing songs they already know, it's actually in the artists' interests to have their music distributed as widely as possible, even if it's for free, in order to generate a lot of fans. Yet what about the music labels? How can they possibly compete against free downloads? Only by finding innovative new ways to add value. That's what MusicDNA is all about. It's a new digital file format that contains not just music but additional content such as lyrics, images and interesting info like interviews, tour schedules, or updates to the artists' social network pages. Anyone who downloads the file illegally would miss out on all these extras. So MusicDNA offers hope that the industry can open up new revenue streams. It may also point the way forward for Hollywood studios as they look for ways to battle illegal movie downloads.

Another victim of the Internet commodity trap has been the traditional news media industry. According to a new survey by the Pew Internet and American Life Project, more Americans now get their news from the Internet than from newspapers, and three-fourths say they primarily learn of news via updates on social media sites like Twitter. So as readers (closely followed by advertisers) make a mass exodus from print to digital media, 'The Press' as we know it seems to be going the way of the dinosaur. In the face of mounting bankruptcies, mass layoffs and plunging advertising sales, some publishers have already thrown in the towel. As an example, McGraw-Hill recently signaled their despair by selling off BusinessWeek at the bargain basement price of less than $5 million.

So is there any hope for this ailing industry? Some think it might still be possible to go back to the old 'paid content' model. Rupert Murdoch, illustrious media mogul of News Corporation, has been making headlines over the last year with his plans to erect a pay wall around his media. And, if it works, others will almost certainly follow. An analogy could be the advent of cable TV in the 1960s and 1970s. At first, very few believed that anyone would be willing to actually pay for TV shows and movies after spending decades watching them for free. But today the average household in North America pays about $50 a month for Pay-TV, so why shouldn't the same principle work for the Internet? There is also new hope on the horizon in the form of emerging digital media platforms like Kindle and Apple iPad, that promise to bring fresh revenues to the news industry by charging readers to access publications in an exciting new way.

Gordon Crovitz, former publisher of the Wall Street Journal, has co-founded a company called Journalism Online to help newspapers find new payment models. These range from micropayments - where readers pay for individual stories - to "freemium" models like the one used by the Financial Times, where readers can view 10 free pages every 30 days.

One of Rupert Murdoch's properties, The Wall Street Journal already charges readers US$119 a year for an online subscription. The WSJ is also experimenting with a new kind of media mix that takes it beyond the written word. Last September, its Digital Group rolled out News Hub, a twice-daily video news series. In January The Wall Street Journal Network delivered a record 5.5 million streams, with about a million or so views being generated by News Hub. This February the group launched Digits, a video series focused on technology which streams live each weekday, and plans are now in the works for several other original live series.

As whole industries see their traditional business models sucked into the Internet commodity trap, their only hope of escape has become radical innovation. For content providers of every stripe, success and survival in the future will be based on the ability to fundamentally rethink, re-imagine and reinvent themselves by innovating around who they serve, what they provide, how they provide it, how they make money, and how they differentiate from the rest. Stewart Brand's maxim may have famously stated that "information wants to be free", which is at the heart of utopian Internet democracy, but the cold reality is that every business has to make money. That means that whether you produce books, newspapers, magazines, music, movies or TV shows, somebody somewhere has to pay somehow. Figuring out who that could be - and how the financial model would work - is one the greatest business battles of our age.


Related Articles - "Content is No Longer King" - Part 1 - Part 2 - by Stephen Shapiro


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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Video Interview - Dan Pink - Author of "Drive"

by Braden Kelley

I had the opportunity to interview Dan Pink, author of the new book "Drive" at a biznik event last night. If you're not familiar with biznik, it is an online community for entreprenurs and the independently employed. Instead of just stopping there, Biznik organizes several in-person events and an annual conference called Seattle BizJam (which I spoke at in 2007), and allows members to organize their own free or fee-supported events. I think Biznik is great and they are headquartered here in Seattle.





Dan Pink was interviewed on stage during the event by Warren Etheredge and some of the highlights from my tweets last night included:

• "A good book is a basket of ideas that is refined and spread through conversation."


• People are more likely to donate blood for altruistic reasons than for cash. Offering people money moves things from the social realm to the economic realm and behaviors and expectations change. Same is true when you begin imposing a fine on parents picking their kids up late from day care instead of people feeling obligated to be there on time.


• There is great absurdity in how open source developed if you look at it in terms of economic motivation, but the mastery drive is so strong that people participated (even without an economic incentive).


• Even though biznik has an even male-female split, more women turn up for the in-person events than men.


• People who sculpt their jobs to broaden them beyond narrow responsibilities, find more autonomy and job satisfaction.


• "Annual performance reviews are dumb. People need more frequent feedback. Imagine professional athletes only getting feedback on their performance only once a year."


• The carrot-stick approach is the wrong approach when it comes to creative, thoughtful work - non-algorithmic work.


• Using the carrot-stick approach with teachers or students is wrong. Dan Pink's solution for the education problem would be to raise teacher base pay and make it easier to get rid of bad ones.

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Do you have a Corporate Innovation System?

by Rowan Gibson

Co-authored with Peter Skarzynski, CEO of Strategos, in close collaboration
with well-known strategy guru Gary Hamel, I believe that "Innovation to the Core" (Harvard Business School Press) is by far the most important thing I've ever done.

Lots of people have been asking me for a synopsis of the book, so here goes...

Could you describe your company's "corporate innovation system"? Ask this question inside most organizations and all you get is a blank stare. It's obvious that, in the vast majority of firms, innovation is still more buzzword than core competence.

Yet a few leading-edge players - including GE, IBM, P&G, Whirlpool, Shell, Cemex, Best Buy, and W.L. Gore - are demonstrating that large industrial organizations really can tackle the challenge of innovation successfully in a broad-based and highly systemic way.

What these companies understand is that it's entirely possible to make innovation an "all-the-time, everywhere" capability, something that becomes part of the organization's bloodstream - just like quality, for example.

Instead of ascribing innovation to a mysterious mix of happenstance, individual brilliance and the occasional bolt of lightning, the first thing we need to do is demystify the innovation process. If you want to create a high-performance "innovation engine" inside your organization, you need to recognize and address three cultural preconditions for making breakthroughs happen: creating time and space in people's lives for reflection, ideation and experimentation; maximizing the diversity of thinking that innovation requires; and fostering connection and conversation - the "combinational chemistry" that serves as a breeding ground for breakthrough ideas.

Next, you need a methodology for systematically generating novel strategic insights - these are the raw material for innovation breakthroughs. There are four specific kinds of insights that enable innovators to discover new and unexploited opportunities of real value. These are: company and industry orthodoxies that deserved to be challenged, trends and discontinuities that could potentially reshape the business landscape, competencies and assets that could be leveraged to create opportunities beyond the boundaries of the existing business, and emergent but as yet unaddressed customer needs.

Once your company has built a foundation of novel strategic insights using these four "lenses of innovation", the next step is to "crash" various insights together to see if the collision opens up new opportunities for innovation. Radical business innovations are almost always the product of "creative collision" - i.e. they are based on a combination of insights, ideas and domains that don't usually belong together. It is also imperative to examine each component of your company's (or your industry's) business model, using insights from the "four lenses" to uncover opportunities for industry reinvention.

In addition to this ongoing insight discovery and ideation work, which should engage as many minds as possible across your organization, the goal is to open up the innovation process to your extended network of customers, suppliers and partners, involving all of these constituencies in the search for new growth opportunities.

Once your company is using all these available means to improve the quantity and the quality of new ideas entering its innovation pipeline, you should make sure you are employing the right evaluative criteria at every stage of the opportunity development process, so that you avoid prematurely killing off potentially valuable ideas. The most important question to ask first, for example, is not "What's the expected ROI?", but "How BIG is this idea?" - based on the understanding that it is radical (rather than incremental) ideas that tend to deliver breakthrough performance.

It is also crucial to build mechanisms for rapidly reallocating resources behind new growth opportunities, as well as an "innovation architecture" that gives strategic coherence and consistency to your opportunity portfolio. You want to make sure your innovation pipeline is robust enough to nurture, manage and commercialize the ideas your organization decides to pursue, and that it is capable of managing growth opportunities with very different timescales and risk profiles. You are also going to need a comprehensive set of metrics (linked to management compensation) that is designed to measure innovation performance - including inputs, throughputs, and outputs.

Finally, to drive innovation to the core, you need to put the necessary systems, structures and processes in place to make innovation a self-sustaining enterprise capability and a tangible core value. This requires four interdependent and mutually reinforcing components that need to come together to institutionalize innovation: visionary leaders and organization aligned around a common vision of innovation; a disciplined approach to building innovation capabilities across the organization; a systematic approach and supporting tools to enable idea generation, pipeline and portfolio management; and a collaborative, open culture that rewards challenging the status quo.

Do all of this and your innovation outputs will soar!

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Rowan Gibson is widely recognized as one of the world's leading experts on enterprise innovation. He is co-author of the bestseller "Innovation to the Core" and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson.

Electronic Readers Hit the Big Time

Amazon Kindle, Sony Reader, Barnes & Noble Nook

by Kevin Roberts

Fear of new technology is not new. In 1982, the king of all Hollywood lobbyists, Jack Valenti, told the US Congress:


"I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone."


Hysteria aside, the movie industry was utterly convinced that the advent of video cassettes would destroy the film industry. 30 years on, video and DVD have had the opposite effect - far from undermining the industry, they are integral to its ongoing profitability. How could Hollywood keep producing so many films, at such great cost and such variable quality without the "straight to DVD" option? Even the notorious box-office bomb, Waterworld, almost broke even in the end, thanks to DVD sales.

There has been similar angst about the fate of books and the publishing industry since the arrival of the Internet and new technology like e-readers. In 2007, the US National Endowment for the Arts reported a "remarkable decline" of American reading habits, its chairman saying that it would damage the civic, political and economic fabric of the country. The New Yorker chimed in, quoting sociologists who claimed that "reading for pleasure will one day be the province of a special 'reading class', much as it was before the arrival of mass literacy." The Boston strangler strikes again!

E-readers are all the rage this holiday season. Industry experts forecast that Amazon will sell 900,000 Kindles in the last two months of 2009. The Sony Reader and Barnes & Noble Nook, which sold-out before it even hit the shelves, are also on a tear. There was a lot of skepticism about e-readers in the first couple of years, and a lot of doomsayers who thought they spelled the end of the written word.

The truth is that technology has ended the monopoly of bound, mass-produced manuscripts we call books, and expanded choice for readers. We can read on the computer screen, on dedicated e-readers like Kindle and Nook or on our cell-phones.

We love books for the stories and the emotional power, the insights and inspirations. Who ever puts down a great book and says, "Wow, I loved the paper-stock, and the font was awesome!"

People who love reading will read more than ever before - I know I do.

Circumstances, mood and moment will determine how and what we read - the Kindle is great for plane trips or train-rides; the cell-phone works well for a quick catch-up with emails or news, and nothing (for me, at least) will beat the pleasures of a book on a beach, or a bookshop on a rainy afternoon.


Editor's note: Will Apple go after the e-reading market with the rumored Apple tablet?

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

Does BN Nook Compete with Amazon or Starbucks?

by Steve McKee

There has been a flurry of news lately about Barnes & Noble's new e-reader, the Nook. It will compete head on with Amazon's Kindle and Sony's Reader, offering additional features such as limited book sharing and newspaper subscriptions. If successful, of course, those features will be matched by the Nook's competitors, just as Barnes & Noble has matched their price points.

It's fascinating to watch these three powerful companies--the dominant bricks-and-mortar bookseller, the dominant online bookseller, and a long-dominate electronic industry player - compete in this new arena. And word is that Apple's e-reader isn't far behind, which will further mix things up (and will be good for us all).
I couldn't help noticing, however, a little aside in a recent Wall Street Journal article about the Nook. The article was talking about how Nook users would be able to receive discounts and other special offers when they walk into the store, a smart use by Barnes & Noble of its one true competitive advantage over Amazon. But the piece went on to say this: "Eventually, the company says, customers will be able to read entire e-books for free inside the physical store."

Read entire e-books for free? Why would Barnes & Noble want to give away content? How's this for a reason: the company may have up its strategic sleeve the idea that it can become the other Third Place.

Starbucks has always been an appealing place to linger, and many people go there to enjoy a good read as they nurse their lattes (most Starbucks locations sell a handful of newspapers and books to encourage just such behavior). While Barnes & Noble has in recent years been adding coffee bars to many of its locations, they have always seemed to be somewhat of an afterthought and secondary to the company's primary purpose of selling books. But by offering free in-store content with the Nook, Barnes & Noble seems to clearly be saying that this is they place they want people to linger. And Since none of us can be in two places at one time, Starbucks and Barnes & Noble may increasingly butt heads.

It's a fascinating world in which we live, where two previously unrelated companies can wake up and find themselves arch-competitors, and it's fun to watch such changing dynamics unfold. Keep your eye on Barnes & Noble as it continues to take advantage of its physical locations (the one thing its current big competitor, Amazon, can't match). In combatting one foe it may have just picked a fight with another.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Can Brilliance be Borrowed?

by Mike Brown

I attended the KC Small Business "Think Bigger" luncheon recently when guest speaker David Kord Murray discussed his new book, "Borrowing Brilliance." The tome covers 6 steps (defining, borrowing, combining, incubating, judging, and enhancing) to build from others' ideas.

While several people afterward expressed frustration with Murray's presentation and demeanor (some of the frustrations were very justified), he shared a number of valuable points. Here's my take on the highlights he covered (thus the designation of this piece as a guest post of sorts):

• To get to a core issue, Murray suggests asking, "What's the problem above the problem we're considering?" This is a different and helpful way of expressing the question, "What are we trying to achieve?" He cited an old, but relevant, example. In the 1920's, Ford defined the issue as building the cheapest car. GM identified a more fundamental issue: making cars affordable. Its problem definition led to auto financing's introduction.


• Murray expressed a clear disdain for unfettered brainstorming, claiming stronger ideas emerge when more judging is involved. He has a point, in that once you've moved from divergent to convergent thinking steps, solid evaluation approaches do push you closer to more readily implementable ideas.


• In using different perspectives to look for analogous ideas, Murray shared a borrowing continuum to look for ideas in Same, Similar, and then Distant domains (i.e., your industry, a related industry, a radically different industry). This concept has been discussed frequently in Brainzooming (and the "Taking the NO Out of InNOvation" ebook is structured similarly), yet this was a new, actionable way of expressing the approach.


• He talked about "aha moments" occurring in the shower so frequently because we've typically minimized conscious thought, allowing the sub-conscious to sift through raw materials it's been fed. I haven't tried scheduling a group creative team meeting in the shower yet, but it again emphasizes the value of changes of scenery and activity in ideation.


• Murray passed along an interesting factoid: Walt Disney conceived Disneyland not as an amusement park, but as a movie starring the park's guests. Instead of "rides," mini-movies were then developed in which guests star for a few minutes. I'd never really thought about it, but it makes perfect sense. It's also a great example of selecting a rich core concept and using it throughout the innovation process to create strategically consistent implementation.

All these are helpful insights. Now here's one for new authors (i.e., David Kord Murray): when a well-known local bookstore (i.e., Rainy Day Books) helps co-sponsor your appearance, maybe your closing book slide should feature its logo along with (or even instead of) the major online bookseller brands you chose to feature. Just saying.

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Mike Brown is an award-winning marketer and strategist with extensive experience in research, strategy, branding, and sponsorship marketing. He's a frequent keynote presenter on innovation and authors Brainzooming!

Beyond the Amazon Kindle

I came across a video on BNet on the future of ink. Electronic ink (aka electronic paper) is the display technology powering the Amazon Kindle and pretty much every other serious digital book reader out there. The technology is also being tested with store signage in Wal-Mart and was used to power a multimedia panel on the cover of Esquire. If you're not already familiar with the technology, or if you'd like to see more, watch the video below:



The key question in my mind is not what has the technology been used for so far, but what other imaginitive uses can people come up with that will improve the quality of our lives?

What do you think?

@innovate