Why Media Companies Are Being Eaten By Tech Companies

By Eric Picard (Originally published on AdExchanger.com, August 20, 2012)

My friend and colleague Todd Herman (LinkedIn) once wrote a strategy paper about video content when we worked together at Microsoft. Called “Don’t be food,” it was a brilliant paper that laid out a strategy for effectively competing in a world where content is distributed everywhere by anyone.  I love the concept of “Don’t be food.”  It applies to so many existing business models, but clearly where Todd initiated it – Media – it applies incredibly well.

The media business is being forceably evolved through massive disruptions in content distribution. In the past, control over distribution was the primary driver of the media model. Printed material, radio and television content required a complex distribution model. Printing presses and distribution are expensive. Radio and television spectrum is limited, and cable infrastructure is expensive. Most media theory and practices have been deeply influenced by these long term distribution issues, to the point that the media industry is quite rigid in its thinking and cannot easily move forward.

One of my favorite business case studies is the Railroads.  Railroad companies missed massive opportunities as new technologies such as the automobile and airplanes began to be adopted. They saw themselves as being in the “railroad business,” and not the “transportation business.”  Because of this they lost significant opportunities and very few of the powerhouse companies from the rail era continue to exist.

In media, new technologies have been massively disrupting the space for more than a decade. And there is an ongoing debate about technology companies stepping in and disrupting the media companies. Google is a prominent example, and its recent acquisition of Frommer’s is yet another case where it has eaten a content company and continued to expand from pure technology into media.  But Google isn’t moving into media based on the existing rules that the media companies play by – it is approaching media through the lens of technology.

But this issue doesn’t only pertain to the oft-vilified Google: Amazon continues to disrupt the book industry by changing the distribution model through the use of technology, and is clearly gunning for magazine, radio and video content as well.  Microsoft is changing the engagement model and subsequently the distribution of content to the living room via its ever-expanding Xbox footprint, and is broadly expanding toward media with Windows 8, its new Surface tablet devices and smartphones – again using technology.  Apple has turned distribution models on their ears by creating a curated walled garden of myriad distribution vehicles (apps on devices), but charges a toll to the distributors – again using technology to disrupt the media space.  Facebook, Twitter and social media are now beginning to disrupt discovery and distribution in their own ways – barely understood, but again based on technology.

Existing media models are functionally broken – and will continue to be disrupted.  Distribution is always a key facet of the overall media landscape, and will continue to be.  But as distribution channels fragment, and become more open, the role that distribution plays will radically change. Distribution is no longer the key to media – it is inherently important to the overall model of media – but it isn’t the key.

Technology is the key to the future of media. Technology can and has profoundly changed the way content is distributed, and will continue to do so. The future of media is wrapped up in technology, and this is an indicator of why technology companies are eating media companies’ lunches, if not actually consuming them in their entirety.

Media companies don’t understand technology because they are not run by technologists. And there is a vast gulf between the executive leadership of media companies and the needs to understand technology. Every media company should be running significant education efforts to pass along the concepts needed to compete in the technology space, but I’m not convinced even that would be enough to fix the problems they face.

At Microsoft I once had an executive explain to me why most of the executives running businesses at the company were from a software background.  He said something along the lines of, “A super smart engineer who can wrap his or her head around platforms and technology issues can probably learn business concepts and issues faster than a super smart business person can learn technology.”  And he was right – it’s that simple.

Business schools should have requirements today for anyone graduating with an undergraduate or graduate degree to learn how to write software, and most importantly to develop a modern understanding of platforms. These platform models are the future of distribution, and are barely understood even among many technologists. The modern platform models used broadly on the Internet and to create software on devices that drive content distribution are relatively new, and are frequently not understood by people with technical backgrounds who haven’t spent time working with them.

Bad business decisions continue to be made by media companies because of the significant lack of technology leadership in both executive and middle management. As technology evolved, the model for many years was that business people figured out “Why and What” to build and “Where” to distribute it, and engineers figured out “How and When” something could be delivered.  Great technology companies break down the walls between Why, What, How, When and Where. Engineers have just as much say in all of those things as the business people. Great technology companies don’t treat engineers and technologists like “back room nerds.”  They recognize that engineering brilliance can be applied to the business problems facing them, and that technology innovation will drive their businesses to disrupt themselves toward future success.

Media companies must evolve away from their historical strengths based on distribution control, and must embrace technology as a key principal.  And they need great engineers to do so. The problem is, great engineers won’t work for mediocre engineers. Great engineers won’t take bad direction from people they don’t respect, especially business people. And many media companies have treated their existing engineering organizations as an extension of traditional IT models, with mediocre engineering talent endemic in their organizations – frequently top to bottom.

Let me say again; great engineers will not work for mediocre engineers.  This means that the existing CTO and entire engineering infrastructure within a media company will not solve this problem. Before moving forward, executive leadership has to recognize that it is likely that their existing technology organization will fight, block and actively try to sabotage any efforts created outside of their own infrastructure. But it is very clear that without a significant change here, these companies are doomed.

For a traditional media company to compete effectively with Google, Amazon, Apple, Microsoft, Facebook, and the thousands of hot startups now competing with them, they must build world-class engineering organizations. This isn’t a light fuzzy requirement, it’s a core fundamental of their ability to survive for the next century.  These companies must evolve forward.  They must find ways to empower internal disruption.

Media companies must build startup organizations within their own internal structures that are isolated from the existing IT leadership and given bold broad empowered charters with the leeway to disrupt other teams’ businesses.  They must build a new technology driven culture within these large media companies that is separate from the existing groups, and then embrace those internal startups as the future of the company.  This isn’t easy.  It’s nearly impossible.  And this very likely will not work the first time it’s tried. But if media companies don’t commit to this kind of change, they are going to be eaten.

Advertisements

3 thoughts on “Why Media Companies Are Being Eaten By Tech Companies

  1. Martin Baer says:

    Nice piece. I think you will agree that in the space of a year ( nearly to the day ) that the landscape is very different. It me, discounting the media companies because they are not technology companies, has not proved correct. Disruption by technology is inevitable, but we’re only talking about in the wiring. Moving content to consumers is still the game, and content owners over the past year have been shown to be the makers in that game.

    • Eric Picard says:

      Thanks Martin for your thoughtful comment. I’m not sure your last sentence is fully correct. While moving content to consumers is certainly “the game”, it is clear to me that Amazon (for instance) is further along at disrupting the content companies in that front than any of them are. Similarly I believe we’ll see Google and others continue to disrupt the old guard of media companies unless they can reinvent and disrupt themselves. I’m not hopeful that any are on that path. The economics are radically shifting on the media consumption model today.

    • Eric Picard says:

      Martin – sorry for the long delay. You’re fundamentally not understanding me. Google’s revenue has exceeded that of both Newspapers and Magazines – not any one company, the entire industries. We’re talking about a much more fundamental disruption than the kind of disruption you’re thinking of. Distribution is not just about pipes, it’s not just about wires. It’s about more fundamental models. And beyond this it is about the changes in economics that technology companies are inventing – innovating around the inflexibility and complexity of the older businesses. We are seeing traditional media companies begin to operate more like technology companies – but not nearly fast enough. I’m still hopeful.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: