Most industry incumbents, which predate the digital era, make the common error of trying to dictate how digital disruption is managed before they truely understand all the threats and opportunities. This typically occurs when leading with an “inside out” strategy. Put simply, leading with an internally focussed strategy as opposed to starting with the customer.
The customer is now in total control of the way organisations do business and ‘digital’ has been thrust to the heart of a customer-first strategy. Businesses of all shapes and sizes are focused on ‘being digital’. As a result, regardless of an organisation’s size, every business is undergoing some form of disruption and thus digital transformation.
The rapid decline of magazines is a good example of a disrupted industry that struggles with digital business models . Before the internet, magazines were very profitable with revenue per page yields extremely high. From a consumer perspective magazines were aspirational, authoritative and a trusted source, regardless of your interests. Overall, good value for money.
However, in the space of a decade the internet began to disrupt these lucrative models, which for years seemed impenetrable. Consumers habits quickly changed coupled with the advent of social media where the rise of free timely news (snackable content) became the format of choice for consumers.
The rise of the online aggregator – Facebook & Google – profoundly changed the online user experience, especially relating to how content surfaced online . E.g. Aggregators deep link users to specific articles and bypassing the publisher’s homepage. In some instances home pages are lucky to get 5-10% of all visitations where 10 years ago they were the front door to everyone’s experiences. Moreover, users typically “bounce” or leave a publisher’s web site after spending 30 – 50 secs on a page and typically tap or click on the back button (back to Facebook, Google etc…). This chart shows the dominance and power of Facebook and Google
This material step change in consumer behaviour forced Magazine brands to relinquish distribution control and this caused anxiety and began to foster mistrust with the online aggregators, despite them advertising on these platforms and also earning revenues from ad programs like Adsense . Hence the term “frenemies”.
To make matters worse the new online content experiences were free to consumers with pure play online publishers opting to operate advertising and sponsorship led models. The rise of the likes of Buzzfeed, Huffington Post and other disruptive publishers achieved a loyal following and global scale within 5 years. At this point the magazine value proposition had continued to diminish and all of sudden the world was moving way too fast for the magazine industry.
The confluence of all these factors resulted in steep circulation dives along with the flow on effects to advertising and subscription revenues. Traditional magazine publishers like Conde Nast & Hearst pivoted and invested in digital however the broader landscape became littered with new, competitive and innovative players and inevitably shrinking the overall addressable market. Resulting in revenue pressures, increased competition and less market share to aim for.
Channel & Content Challenges – Mobile Devices
Mobile phones, the dominant screen or preferred device, limits the amount of ads on a screen. E.g Desktop screens would carry 10 ad placements on a page as opposed to 1-3 ads on mobiles. This limitation has significantly reduced banner monetisation along with consumers not taking well to interruptive banner ad formats. Within 5 years advertising blockers has reached 600 million globally and will only continue to increase. Thus placing further strain on a crowded and commoditised advertising model.
In order to make up lost ground and to win the hearts and minds of digital consumers magazine publishers invested millions into digital magazines – sold via Apple App Store and Google. This is a prime example of a disrupted incumbent re-engineering an old business model onto a digital platform. The lack of consumer take up and the subsequent underwhelming sales figures clearly demonstrated that this was never going to be the silver bullet the magazine industry was hoping for. At the core of the problem the value proposition was missing the mark with consumers preferring the free experience provided by the online aggregators. Of note, the online aggregator’s experience are well curated – providing convenience & consolidation- blending in nicely with other interests like socialising online with friends. A one stop shop if you like underpinned by a very sophisticated data strategy.
In an attempt to maintain strong relationships with publishers Apple launched the Apple News App. Apple News was originally positioned as a hybrid version of the digital magazines (immersive experiences) & offering new snackable content formats, clearly working on social and online platforms. The publishers were sold the lure of being able to use the offering as a subscription sales funnel for their print and online versions. The New York Times recently announced they were leaving Apple News and Facebook Instant Articles (similar to Apple News) . The Guardian also stating their intent to abandon some of the hybrid publishing services. Publishers claiming that the extra resource required to publish on the platforms was not warranted given the advertising or subscriptions revenues generated.
Leadership is key
Executives that can successfully manage the transition from traditional (under pressure/ tired) business models to new ones are worth their weight in gold! DTS research shows that 45% of Digital Transformation is driven by the CEO o MD.
The not so successful ones tend to waste significant amounts of time with misguided investments (invariably internally facing) whilst their consumers move on quickly to solutions that satisfy their needs in the digital age.
The key learnings are:
- Don’t force old business models onto consumers and digital platforms. Use customer insights and apply an outside in or customer first strategy.
- Become comfortable with the new paradigm where consumers and aggregators now are in control.
- Ensure your distribution strategy is a blend of on and off network elements. This notion is extremely difficult to embrace for organisations that pre date the technology boom because they have traditionally dictated or owned the entire distribution options.
- Focus on the “why” element of your business and not the “how”. Is it still relevant in the digital age?
At the end of the day technology and channels are only enablers, not the secret sauce.