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New Business_ New Factors.ppt

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					New Business, New Factors


  Mental Models for Coping with the
  Seismic Shifts Online Creates


  Kent R. Anderson, MBA
  Executive Director, International Business &
  Product Development
  The New England Journal of Medicine
Things Have Changed
 Broadband penetrates 45% of homes
 Newspapers face $20B revenue gap
 The biggest online revenue producers
  are not content producers
 Web 2.0 has put the user in control
   The Web is now read-write
 In Japan, e-commerce beats DM
 In the UK, the Web beats print 2:1
Commercial Implications
 The Web is taking audience from all media
 Consumers are comfortable with e-commerce
 There is incredible measurability and
  accountability online – and it happens fast!
 15% of the time at home is now spent online
 Nearly all the time in the office is spent online
 Ad spending online is 5x underspent compared
  to attention available
   11x underspent with younger users
Expectations
               The
               Innovator’s
               Dilemma
               Author: Clayton M.
               Christensen
               Harvard Business
               School Press, 1997
Two Types of Technology
 Sustaining Technology: Creates
  efficiencies, maintains markets, does
  not threaten business model
 Disruptive Technology: Changes
  markets, threatens business model,
  allows new entrants to compete with
  new value elements
Sustaining Technology
 Can be difficult to implement
 Involves modernization, streamlining,
  improved efficiency
 Examples for publishers: Digital
  scanning, Zip+4 sorting, desktop
  publishing
 Often impressive improvements
 Common
Disruptive Technology
 Meets the criteria for a disruptive
  technology
 Rare
 Changes business fundamentals
 Changes how you measure value
 Alters value chains/networks
The Criteria for Disruption
     Markets not known, unknowable
     Core customers reject it initially
     Managers hesitate to recommend it
     Weaknesses are really its strengths
     Profits and prices are lower
     Perceived as underperforming
     Markets viewed as insignificant
     Shifts the basis for competition
     Technology simpler, cheaper, reliable
The Move Northeasterly

   Up-market movement
                              Established Company


                   Tendency to move up-market
                   (increase price, capacity, or other
                   metric to increase profits) over time.


     New Entrant
                                                   Time
Old Journal World


  Text

            Journal   Reader


 Line Art
 New Journal World
                         XML


             Databases
  Text


              Line Art       Journal   Reader
Animation

            Audio




                     Meta-
 Video
                     data
A Fundamental Change
 Pre-1995: Journals were hardware
 Now: Journals are software
Hardware: Monetized Delivery




Content   Distribution   Sales   Audience
Software: Monetized Use-Case




  Content   Audience   Use-Case
The Effect of Online




1975   1980   1990   2000   2005   2010   2015   2020   2025
The Effect of Online




1975   1980   1990   2000   2005   2010   2015   2020   2025
Online Changes Margins




1975   1980   1990   2000   2005   2010   2015   2020   2025
Here Come Fixed Costs . . .




1975   1980   1990   2000   2005   2010   2015   2020   2025
Fixed Costs Rise . . .




1975   1980   1990   2000   2005   2010   2015   2020   2025
Fixing Fixed Costs




1975   1980   1990   2000   2005   2010   2015   2020   2025
A More Rapid “Correction”?




1975   1980   1990   2000   2005   2010   2015   2020   2025
Software Model is Changing
May 1, 2007:

 Shrink-Wrapped Software’s
  Days Numbered
    Most revenue will eventually come from
     selling services, not software, experts say.
Software Model is Changing
 The days of selling shrink-wrapped
  software without also selling services
  are over, said speakers at a Silicon
  Valley event [in early May].
 “The industry is at a crossroads,” said
  Ray Lane, a managing partner in
  Kleiner Perkins Caufield & Byers, the
  Silicon Valley venture capital firm.
Software Model is Changing
 Software is facing the same fate as the
  hardware industry, Lane said, in which
  profit margins shrank from 70 percent
  at its peak to about 20 percent today
  as hardware became a commodity.
Software Model is Changing
 Gradually, most software companies
  will hit “a criss-cross point” where
  more of their revenue comes from
  selling services than from selling
  products, said Michael Cusumano, a
  professor at the MIT Sloan School of
  Management.
Shifts from Print to Online




  Subscription   Licensing   Advertising




     33%
     33%           33%
                   33%          33%
                                33%

      15%           60%          25%
Shifts from Print to Online




   Traffic   Intermediaries   Premium Users




    15%
     35%          50%              15%
Share of Ad Spending
            Other 26.5%                          Google 24.7%



   NYTd 1.6%

   Disney 1.7%

    CNET
    FOX
   Viacom
 2.3% (each)                                         Yahoo 18.1%

               IAC 2.6%
                               MSN 6.8%   AOL 7.8%
        IAB/PriceWatershouseCoopers
Commercial Implications
 Behavioral advertising
   Day-part targeting
   Prior visitor targeting (retargeting)
   Feature usage targeting
 Online marketing growing at 20%
  through 2008
 Pay per click
 Video ads
Licensing Content
 Institution budgets under pressure
 Conflation of library model with
  enterprise model
 Adopted standard measures too soon
 Plateau
 Part of disruption
Subscription and Membership
 Annual subscription model dying
 Pay-as-you-go more accepted
 More churn
 Retention more crucial
 Acquisition costs remain, churn
  repeats them
 Subscription whitewater
“Freemium” Sites
 Freemium business model works by
  offering basic services for free, while
  charging a premium for advanced or
  special features.
 Free abstracts, paid full-text, tables,
  and figures
 “Free” aspect is commercialized
  through advertising, sponsorship
 Popular with Web 2.0 companies
Other Trends to Watch
   Visualization
   Machine-human interactions
   Movement to the body
   GPS
   CP and not PC
   Long-tail strategies
   This is still just the beginning
Web x.0
   Connectedness
   Users managing the network
   Installed infrastructure
   Search as the OS
   Semantic structure
   Investment
   Experimentation
   Innovation
Summary
   Disruption
   Uncertainty
   Proliferation
   Experimentation
   Managing fixed costs
   Advertising as symbiosis
   Shift to software domain
   “Freemium” offerings
Enormous Potential
 “The future of media is a future of
  relentless experimentation and
  innovation, accelerating change, and
  – for those who embrace the new
  ways in which consumers are
  connecting with each other –
  enormous potential.”
           Rupert Murdoch, NewsCorp., May 7, 2007
Thank You

  Kent R. Anderson, MBA
  Executive Director
  International Business & Product Development
  The New England Journal of Medicine

				
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