Disruptive Innovation and Its Impact on the Media Industry
Disruptive innovation is a technology-driven paradigm shift
that alters the economics and, potentially, business model
underlying a business' products, services or operations. The
term was coined by Clayton Christensen, author of The
Innovator's Dilemma. The Internet and World Wide Web are
prime examples of technologies that have spawned disruptive
innovation in myriad markets. Examples include IP telephony
(e.g. Vonage), downloadable music (e.g. iTunes), search
advertising (e.g. Google), streaming media (e.g. Netflix),
financial transactions (e.g. PayPal, E-trade), personal and
business communication (e.g. gmail, Skype, Net Meeting) and
electronic commerce (e.g. Amazon), just to name a few.
The entire media industry is in the midst of significant
disruption resulting from the shift in content from analog to
digital representation (digitization) and the ability of the
Internet to deliver all forms of digital content together with
real time, interactive capabilities. Digitization offers new
ways for media companies to reduce costs and unlock more of
the intrinsic value of their content. However, when coupled
with the pervasive consumer adoption of the World Wide Web,
digitization is also driving transformation in how media is
delivered and consumed that is disrupting the fundamental
nature of traditional media delivery channels and the
relationships between purveyors of media content, advertisers
and media consumers.
Media companies are grappling simultaneously with the
challenges of automating and streamlining their operations,
ferreting out new revenue opportunities and fending off a host
of new competitors offering alternatives to media consumers.
And the clincher is that the advertising model upon which much
of media depends is being turned on its head by the Internet.
The problem is no more apparent than in traditional print
media, which is almost entirely dependent upon advertising
dollars. Content historically read from the printed page has
increasingly moved to the electronic Web page. Newspaper and
magazine circulation is declining and, with it, advertising
revenue. A simple question one might ask is why the
advertising dollars don't follow print content to the Web.
The answer highlights the dilemma for newspapers:
Dollars in newspaper advertising turn to nickels (or less)
online.
To understand why this is the case, consider how advertising
is delivered over the Web. An ad presented to an individual to
read, view or listen to is called an impression. Advertisers
pay varying amounts per impression, depending upon a variety
of factors including the audience and modality. Each time a
consumer clicks on a Web link there is an opportunity to
present advertising impressions. Millions of people clicking
on millions of links create billions of potential advertising
impressions (inventory) each day.
Web site owners compete with each other to sell their
inventory to advertisers. With a vast universe of impressions
available, the laws of supply and demand reign and advertising
costs less online than that delivered through paper, radio and
television. Despite the efficiencies in production and
distribution that newspapers gain from publishing online,
there are still costs to produce quality content. Many of the
newspapers' competitors, like YouTube, Facebook and Twitter,
however, have very little or no cost to produce content. Their
users create content for them, for free. As a result, these
advertising competitors can sell their inventory for less than
the newspapers and still make a profit.
The "net-net" is that it is unlikely that media companies can
recoup the cost of creating content and make a profit from
online advertising alone. A more likely scenario is a balance
between advertising and subscription fees. Will consumers pay
for content? We believe that for the right content at the
right price, they will, and that this, in combination with
advertising revenue, will provide a profitable online business
model for media companies. That is the good news. The bad news
is that we believe that not all media companies will
successfully navigate the transition. There are likely to be
fewer, perhaps far fewer, content providers in the future.
About Us:
West Indies Digital is a digital media advisory services and
(soon to be) product company that assists media clients in
transitioning to the digital age. These are very challenging
and perilous times for the media industry. Digitization and
the Internet are shaking the foundation of the advertising
market and, with it, one of the primary media business models.
The web as a content delivery vehicle has changed the playing
field, introducing both new opportunities for growth and new
threats to traditional media. Strategic decisions are being
made now that will significantly impact a company's future.
West Indies Digital provides products and services to help
digital media companies develop and grow one-time and
subscription-based revenue models around the content they
provide. The principals of West Indies Digital have decades of
experience in the information technology industry. Their
careers span the advent of disruptive innovation driven by the
personal computer, graphical user interfaces, network
computing, digital media, the Internet, hosted application
services, software as a service and cloud computing. The
principals have held senior executive positions with Fortune
500 companies such as IBM, GE, AT&T and Sun Microsystems
as well as small, venture and private equity-backed companies.
They have plied their skills with companies providing online
services for print and broadcast media, online advertising,
electronic commerce, network computing, and business and
system software development. West Indies Digital principals
are highly skilled in Internet and digital media strategy. We
can help your company chart a successful path to the future of
digital media.
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