Back in the 90′s many of us in the tech community talked about the convergence of technology making for changes in the value chains of many businesses. Some of that was obvious as telcos and media companies started to feel the business impacts of change.
Back then many of us were quoting Marshal McLuhan and looking at how disruptive it was for firstly new media to be delivered on CD, then online and so on in an accelerating stream of technology where the content was unbundling from the media publishers.
We understood at some level that new media formats and delivery systems meant that the distribution value chain of newspapers, TV and radio was becoming uncoupled. This was a great opportunity for content creators but also a big threat for publishers.
It was only a matter of time before the long tail of convergence connected the dots all the way up to Omnicom and the big ad networks but more about that later.
Of course – that early technology had many limitations and choke points. I flew to W.A in 1993 to meet a radio engineer who had built one of the worlds first video edit system. He had come up with a way to “daisy chain” a series of hard drives together so that large video files could be edited and managed in a digital format.
One of my friends had an Apple Newton device which was probably the first touch screen PDA. It was a failure at the time but in many ways pre-empted the idea of mobile applications which later re-appeared firstly on the iPod and then the iPhone.
We know now that mobile usage of email, phone and other applications has been a huge trend in technology to the point that the new tablets ( iPads and similar) are now taking over from more traditional computers.
The difficulty with all of these earlier technology breakthroughs was in anticipating when they would break through into mass consumer markets. Twenty years later we can see that content delivery on mobile devices is perhaps the dominant technology trend of our time.
The result of all the changes in hardware, software and online content availability means that traditional publishing concepts like copyright and media access have been scrambled.
Newspaper companies were in the media business but they had become newspaper companies and so when their classified advertising revenues started to be stripped out into single focus online markets like real estate, jobs and car sales they didn’t have a strategy.
Never mind that more general classified markets like Ebay and Trademe had also become huge online traffic magnets and between those aggregators and the specialist online sites this left the mainstream newspaper sites stranded upstream without their “rivers of gold”.
Eric Beecher wrote an insightful essay on THE DEATH OF FAIRFAX AND THE END OF NEWSPAPERS Where is the journalism we need going to come from now? Ironically that article is behind a paywall now but it is well worth paying for if you want to understand the change in business models and the impact on publishers like the major newspapers.
Fairfax relied on classified advertising to subsidise its journalistic content to a much greater degree than other newspapers and so was hit especially hard by the rise of online ad competition.
Fairfax famously bought TradeMe ( equivalent to Ebay) back in 2006 for an initial payment of $700m and a top-up payment of a further $50m based on target earnings. That was a smart strategic move as it gave Fairfax an inside view of what their online ad business could have looked like.
They should have used TradeMe as a way to reinvent their business and gone on to launch in Australia where most markets are 5x larger. They didn’t because despite TradeMe being a successful business they were still thinking like a a newspaper company and their board and senior management lost the plot.
You could say the Fairfax management were incompetent (which may have been true) but by last year they just needed capital from somewhere to fight other fires and pay bills elsewhere in the organisation.
A year ago I wrote about this as Digital Futures – Fairfax makes the wrong move in NZ. What was difficult to understand was why despite digital business being up by 20% they didn’t seem to consider that TradeMe was a digital business that they needed.
So here we are a year or so later. Fairfax is in real trouble and other newspapers are the same. There is a growing trend towards subscriber based revenues and paywalls which help some publishers to keep producing top quality content but the cash cows of classified advertising have been decoupled from newspapers.
So what is next the wave of change unleashed by technology collapsing the value chain and the other convergence effects that relate to this?
That answer is advertising, more especially the way that advertising is managed by agencies and networks. Newspapers still make some revenue from display ads and other forms of advertising placement.
But as with the convergence effects of digital business on media companies and and publishers the ad companies which service those brands and clients is now being crunched. Facebook, Twitter and Google are all ultimately ad platform businesses and they are big enough to not be captured by any of the large publishers or agency networks out there.
Targeted online advertising also has a deflationary effect on marketing and ad spend as it can be more specific and less on “hard to track” branding and image based advertising.
I have worked for ad agencies on various projects over the past 20 years and in that time there has been a fee squeeze on. In simple terms high commissions have been replaced by more direct fee payments and even though the 3 big ad networks owned multiple businesses in each market anyone following the money trends could see where this is leading.
So this weekend the merger of Omnicom and Publicis was announced. These are 2 of the 3 largest networks in the world and while there are many details to work out – including account conflicts this merger is also a result of the technology convergence trends signalled way back in 1993.
The demise of traditional media companies and the growth of giant third party technology platforms like Facebook especially collapse the leverage points for many business models.
Jim Edwards spells out what these changes will mean for staff, clients and shareholders in this post Publicis And Omnicom Have Merged To Create The World’s Biggest Ad Company – Here’s The Downside
As Donald McIntyre commented on this piece “Why the mega merger of advertising giants Omnicom & Publicis impacts tech business” in Gigaom today.
“I would say media, content and technology will continue to mesh, and I would add to that the marketing, sales, PR, and customer support functions. These 7 activities are now one and impossible to separate.
The classic “Michael Porter Competitive Advantage Value Chain Functions” of procurement, production, sales, marketing and service are now: procurement, production and distribution, where distribution is done on social networks, web, mobile, and all content, advertising and PR is merged in the same activities.”
McIntyre nails it in his comment above. Convergence 2013 style is part of the big bang coming to a publisher or agency near you.
In the UK Digital economy ‘neglected by official statistics’ Thinktank NIESR found that that the UK had 270,000 digital companies, far higher than the ONS estimate of 188,000. This is also a common story as all businesses reconfigure themselves and the distribution part of their business becomes increasingly digital.