Why Media Companies Are Being Eaten by Tech Companies

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“Data Driven Thinking” is written by members of the media community and containing fresh ideas on the digital revolution in media.

Today’s column is written by Eric Picard, CEO at Rare Crowds.

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.

Follow Eric Picard (@ericpicard) and AdExchanger (@adexchanger) on Twitter.

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13 Responses to “Why Media Companies Are Being Eaten by Tech Companies”


  1. Diego Panama says:

    Nice post, Eric. I like your railroad case study, I usually refer to the example of the steamboat business as it was displaced by railroads and only Cornelius Vanderbilt made the leap by seeing the "transportation business", not the "steamboat business"

    Agreed that media companies have to truly embrace technology, from content creation (film to digital, no more kodak!), to distribution. Distribution is the first to be disrupted but I believe there is much more to come. Curious how you are defining a media company and if you think embracing tech is a must for just parts of the media industry value chain or all of it?

    • Eric Picard says:

      Thanks Diego! I have often wondered what would have happened to Kodak if they had launched harder and earlier into digital photography, digital cameras, etc... They had the research and technology to do so - but it would have involved them disrupting themselves. That's a hard pill to swallow - the idea that you're going to release a technology and set of products that destroy your existing business. But the problem is that anything that can be built will be built by someone else eventually.

      When I'm talking about Media companies, I was particularly thinking about traditional media conglomerates that have large print, television, radio businesses (etc...). These companies are particularly vulnerable right now - as tech companies with alternate revenue streams to those of the media companies can swoop in and consume them.

      Newspaper content might not be a viable large business in 10 years - on its own. But the interaction of consumers with each other and linking to that content, and the value of news content to search and other technology businesses is vast - and might be worth subsidizing for the tertiary business models that feed off content consumption.

  2. Rich LeFurgy says:

    Great post Eric--think you are spot on. When i started working at Starwave Corporation in Seattle in the mid 90's, I marveled at how much power engineering had in the business issues of the company. For those of you who weren't there for this ancient history, Starwave created a sports site that licensed the ESPN name to become ESPN.com, later doing joint ventures to create NFL.com, NBA.com and Nascar.com and ultimately to be acquired by Disney. Starwave had a lot of ex-microsofters because it was started by Paul Allen.

    That sharing of power with engineering reminded my of the ad agency business i had just left in NYC where creatives rightfully had great say in how the agency would approach the business and what the right creative approach would be.

    If media companies (agencies included) could get this simple principle, they'd find the future a lot more wonderful.

  3. Jason Lynn says:

    Great post. One of my favorite observations was from Scott Karp when asked what the biggest mistake newspapers made - "they fooled themselves that they are in the news business, when in fact they are in the shipping business".

    This is dead on - if you want to build great software, you have to look like great technology companies that build great software. All of these have strong technical product leaders high within the organization.

    • Eric Picard says:

      Thanks Jason! I like that quote too - and I've heard someone else say "when they were in fact in the advertising business."

      One comment I've gotten on this post privately is that people think I'm talking about investing in technology or software for its own sake. What I'm talking about is the technical disruption that comes from business model shifts because of technology. And great software is by default now part of that. :)

      • Jason Lynn says:

        This is a very interesting point - and I agree with your assessment. While it is an easy cliche to think 'technology''creativity' , thus claiming media companies, being creative in nature, don't need to engage in tech, is dangerously ignorant.

        Simplistically, there are 3 main parts to media companies 1) content creation 2) content distribution 3) media transactions. It would not be hard to argue that #2 has been nearly overwhelmed by the Internet and associated tech. #1 and #3 are affected to a wide range of degrees, depending on the company.

        If a company is largely #2, then there's no way around it, you are either going to engage seriously in the technology or be a passive player. Which, as you have pointed out, gets you eaten.

  4. Larry Smith says:

    You make some great points Eric, but "Technology is the key to the future of media" has been a truism since Gutenberg invented the movable type printing press and remains so today with offset web presses and on-demand color digital printers. Technology takes many forms and the Big Media industry is a poster child for the use of technology -- 3D & HD TV, addressable cable boxes, Satellite TV/Radio, HD Radio, video billboards, NFC-enable signage, and the list goes on and very deep when you look under the covers.

    As you discussed, technology removed the distribution barrier and scarcity model to enabled anyone to make the content product available, which in turn broke the economic model. However the real technology breakthrough is TCP/IP as the internetworking standard that enabled the creation of a new communication layer, and the emergence of the interwebs. Software, in of itself, was not what's killed the media business any more than generations of poorly written and unstable software is what's killing Microsoft these days. Engineers are not the only ones needed to build a new ship.

    What matters is consumer usability and value. Creating that value on the internet or in an app store is far more critical than writing elegant code or mashing up code library scripts with 3rd party APIs and some social or collected data set. The technology companies that are winning, like Apple, are those that give great value.

    Larry

    • Eric Picard says:

      Larry, thanks for the comment!

      I agree with everything you said - I hold those truths to be self-evident. :) It seems obvious that companies must create great value to win - but you're right that this clearly isn't self-evident to everyone. :)

      Also - I would argue that "mashing up" code libraries with 3rd party APIs is a very dismissive way to describe software development. "Mashing up" software is generally a description used where non-engineers can use other people's work to build applications.

      When I talk about great engineers and massive disruption - there's no hint of "mashups" going on.

      Eric

  5. bob sacco says:

    Thought-provoking piece here Eric. Nice job.

    My take on your analysis is that you bring up a long-existing problem when it comes to building a startup company that can innovate given not only "smart people" but what I refer to the "right people." They are very different. It doesn't always require the smartest people. Once again, how do you define "smart?" The same way Google defines it? Microsoft?

    It's a team sport. Did the Chicago Bulls have five of the absolute best players in the NBA when the won all those titles? No. They had one of the best players in Michael Jordan, but they had a series of role players that made the output greater than the sum. That's my point.

    Engineers are left-brain thinkers. Yes, they understand the rules of writing software and can write “great code” but can they produce "music" with it? Do they have the creative ability to think “outside-the-box?” Yes, you point to the disdain "smart engineers" may have for peers beneath them and even more disdain for ordinary business folk that could never master the heights of the differential equations they had to endure capturing their Bachelors of Science. But I digress into issues of ego, insecurity and primadonna. “Smart” is never pure as in a test on paper. It’s real-world. It’s the ability to recognize patterns from completely different disciplines together to create something new and revolutionary.

    The key takeaway here is takes teamwork and the right combination of people to innovate, influence and emerge in the startup media business. The reality is that there is only so much engineering IT talent to go around. Hiring the prospect with the highest GPA (aka Google) does not guarantee to solve the problem. In fact, it may exacerbate it in some cases.

    If you are a CEO of a media company reading this you may want to ask yourself, "What is the personality of my startup?" Am I providing the right coaching and leadership to get all my left-brain and right-brain thinkers not just working together but sold on the company vision?" This may prove to be the most powerful option available in order to fend off being eaten by a tech company. But on second thought, last time I checked, Google is now referred to as a “media company.” Go figure…

    • Eric Picard says:

      Bob, thanks for the response! I would suggest a few things to you...

      1. Based on your description of engineers, you've probably never worked with any that fit my definition of a great engineer. Some of the most creative, out of the box thinkers I've ever known are engineers. Some of the best business people, with the most innovative ideas for disrupting industries are engineers. The best engineers I've worked with had a better understanding of the customer, of the business they are working to build products for, of anyone around them. So its very important that when I say "great engineers", people don't think I mean people with a high GPA in computer science as the criteria. And there are people in this world who are both left and right brained thinkers - and these usually are the people who break molds and change the world. There are so many examples that it's kind of hard to get started. Bill Gates and Jeff Bezos jump to mind though. Both of these guys are computer science people who moved to business.

      2. The term IT is one that has become a hot button in the technology industry. It gets used in many ways, but the important distinction I like to make is that IT (for information technology) generally is referring to the information infrastructure that runs corporation. That's internal *solutions* for employees to use - like email, intranets, corporate solutions for HR and other departments. It is this enterprise solutions engineering approach that is exactly the way that many media companies have extended to their online media properties, and that's exactly what I'm saying should NOT be done.

      There's a huge difference between a business-driven approach to developing software where the business people decide what needs to be built and the engineers execute against it - and an approach where the engineers and business people collaborate to build something amazing together. In this 'world' the engineers have just as strong a voice at the table as the business people, and this is where disruption of existing businesses comes from. Great companies disintermediate themselves.

      Bob - I wrote the following article in March 2011 - and I think you should read it. It specifically talks about the definition of an amazing engineer and how important they are for successful startups. The above article is an extension of this thesis to big companies.

      http://www.imediaconnection.com/content/28665.asp

      Eric

  6. Nene says:

    Fantastic article, Eric. I've been thinking the same thing ever since I got on the ground floor of the industry working with a team of engineers in a startup company. Since then, I've had the pleasure (rather the displeasure) of seeing old media companies or companies that run on old media models trying to adapt to the digital media world without putting resources into hiring top engineering talent.

    The IT, more tactical approach to creative problem solving in digital media just won't cut it. Especially considering the abundance of new platforms that seem to appear every month.

  7. Tom Foremski says:

    Tech companies don't understand media companies, they don't understand content production. That's why Google continues to fail at content production yet kills the economics for the entire media industry.

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