Bad Competitors and Cherry Pickers - a lethal combination
By Tom Foremski - May 17, 2006
As more and more business products and services become digital, they become vulnerable to what I call "cherry pickers." Competitors can target highly profitable businesses because those businesses provide a high price umbrella.
IBM for example, spawned a massive "IBM mainframe compatible" industry three decades ago, because of its high price umbrella on mainframes.
Those companies with highly profitable business groups are sometimes using those profits to help support less profitable, sometimes rarely profitable, business groups.
Hewlett-Packard, for example, has over the years managed to use its highly lucrative printer business to help it support its PC business, and its information technology business. It could be said that H-P's sales of printer ink, at various times over the past decade, have subsidized its other business groups for many years.
And that's why H-P's most valuable intellectual property is the design of its printer ink cartridges--which prevents copycats providing printer ink at sharply lower prices.
H-P has managed to stop cherry pickers from running off with its printer ink business and allowed it operate large, rarely profitable business groups. Those business groups have provided a lot of value, to customers, to employees, and to their surrounding communities around the world.
But other companies, other industries, haven't managed to stop the cherry pickers. That's especially true for the media.
Google News is a good example of a media cherry picker. When launched in 2001 Google News quickly became a fabulous success. It was the first aggregation of news stories copied from thousands of news organisations, and published in a very accessible user interface. Google News scans thousands of mainstream media news sites, copies and publishes the headline and the first paragraph and a photograph. It is a very good service.
It's an extremely low cost for Google, the news stories are harvested by machines, and they are presented by machine. At the bottom of the Google News home page you will find this text proudly displayed:
The selection and placement of stories on this page were determined automatically by a computer program.
Google News was one of the first services it launched, one of many dozens today, yet it does not monetize this service. At last week's GOOG press day, its executives were asked if they would monetize news, the answer was that it was on the list, but that there were some more important projects that would be monetized first.
One of the journalists asked, where on that list is Google News? Eric Schmidt showed a little exasperation when he answered, saying, that it is obviously below the cut off point...
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May 17, 2006 | Permalink | Comment | Category: Mediasphere | Subscribe to SVW
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Comments (2)
One of the best practices I ever learned was to "ask why? five times" before you start solving a business problem. Asking why helps you find the root cause and keep managers from implementing solutions that are sure to fail.
When you write "Newspapers paid for their journalism by selling advertising. Today, that newspaper advertising performs very poorly except for some large brands" I wonder if anyone has
asked why this is so five times. Why does it perform poorly? (One likely answer is "Because it doesn't meet the client's expectations.") and Why doesn't the advertising meet the clients expectations? would be the next question in that thread.
At the root I think you'll find that very few newspapers can say in specific, measurable, and accountable terms exactly what their clients expect. And I'll bet if you look at the last two decades of doing business you'll find very few concrete examples of new ideas designed to improve advertising ROI or even simple client satisfaction.
The good news is it's not too late to start. New media is headed down the same failed track.
Posted: May 21, 2006 10:02 AM
Google is the world’s largest publisher because it gives advertisers market segments no other single publisher’s advertiser supported journalism could deliver.
Had the world’s content producers decided against allowing Google free access to their web sites, Google wouldn’t have had sufficient content to organize, aggregrate and package for resale.
Content producers continue to allow Google access to their sites because Google in turn gives them access to markets they wouldn’t have been able to reach or afford otherwise.
Posted: May 22, 2006 10:12 AM