2012: Finding Our Edges

December 15, 2011

Mayan calendar cartoon2012 is upon us, and assuming we survive the end of the Mayan calendar and all the renewed Armageddon rantings that we'll (again) hear in the months leading up to 12-12-2012, it's going to be one of those treacherous years of profit and rejoicing for local media companies.

Treacherous?

That's right. There'll be record political spending, which will mask the very real decay of the mass media business model. Everything will appear to be "working." Why explore new opportunities, the thinking will be, when we're looking at potentially a record revenue year? Contrary views will seem insane, which is what makes the year so treacherous.

"Aprês moi le dêluge," 2012 screams, because 2013 isn't going to be pretty. We can view 2012 as take-the-profit-and-run or as the last year we can really do something about our business conundrum, because this revenue can be used to fuel a transition — a shifting of our business model from our core competency to our edge competencies.

Umair HaqueI first became familiar with the term "edge competencies" in 2004 while studying the work of Umair Haque. He's the brilliant Harvard economist and author of the widely-heralded book, The New Capitalist Manifesto. Haque is so "out there" that he often makes up his own words to express bigger ideas. At the time, he was running a blog called Bubblegeneration, and its archives are still a monument to some truly creative thinking. I'll let him define the meaning of "edge competencies:"

In a world of cheap coordination, the edge - the boundary between the firm and the external - is the new core. That's because, counterintuitively, the strategy that dominates the shrinking core is to leverage the edge: not to simply build complementarities between internal sources of value creation, but between both internal and external sources of value creation...edge competencies are focused on learning how to utilize the universe of value outside the firm — leveraging value creation external to the firm.

Value moves to the edgeThis can be at first a very difficult concept to grasp, but grasp it we must. Like the old saw about the hammer seeing every problem as a nail, those of us with a mass media core tend to view problem-solving through some form of using content to gather crowds, into which we can slip (unwanted) advertising messages. This model will simply never again produce revenue growth. Never. We must find our edges.

In addition to a core competency, most companies have capabilities that exist at the fringes, where consumers eventually take over. It's often the place where the organization exerts its final influence. Hence, the "edge." In media, edge competencies would include things like our passion for informing the citizenry, the marketing value of our legacy product, our people — especially in news and in sales, our brand, our reputation, our knowledge, our roots and so forth. Exploiting edge competencies is unfamiliar territory for those whose whole lives have been spent using edges to support the core, which, for mass media, is mass marketing.

John Hagel and John Seely Brown of the Deloitte Center for the Edge are among the world's leading authorities on business models in the world of edge competencies. The "center" for the edge is their humorous play on the concept. These two people view the major shifts in business from an edge perspective:

Edges tend to be risky places: There are no well-established road maps. Order, to the extent it exists, routinely dissolves into chaos, only to reform again in a very different pattern. Market meltdowns and business failures are commonplace. Relationships form quickly on the edge, because people have less confidence in going it alone and are more inclined to seek out others to help them sort through the challenges and share the risks and opportunities created by edges.

John HagelEdges are ideal for innovation, according to Hagel and Seely-Brown. They tend to attract risk-takers, and that brings people who are not only open to ideas, but more willing to act on them, even if they haven't been tested yet. Hagel wrote in 2008 that "edges today are folding back in on the core much more rapidly than ever before," and he gave an example:

Think of the telecom industry — it wasn't so long ago that wireless networks were a minor edge to the wireline networks. Now, many younger customers only own a cell phone and are somewhat puzzled about why anyone would own a fixed line phone. Voice communication used to be the core of all telecom networks but now data has become the core of network traffic.

So, there is an even more compelling reason to participate on the edge. If the edge becomes the core, edge advantage soon becomes core advantage. Those who remain focused on the core risk being blindsided by new forms of advantage that emerge first on the edge. To use another meaning of edge, participating successfully on the edge will be essential to developing and sustaining a strategic edge.

So our top advice for local media companies as we look ahead to 2012 is to push energy to the edges of our business, especially as it relates to the burgeoning personal media revolution — what Jay Rosen calls "The Great Horizontal." The barriers to entry into the media world have fallen to zero or near zero. Everybody's getting in on the act, including the people formerly known as the advertisers — you know, those people with money to spend in efforts to recruit new or repeat customers. Cost is simply not a factor in this explosion, but knowledge is, and knowledge is something we possess by the bucketful.

Who knows better how to "make media" than professional media companies? Who's better qualified to lead or even host these activities at the local level than trusted local media companies? Whose people are best positioned to lead in the development of personal media than those experienced professionals employed or otherwise engaged by professional local media companies? Who has the mass media muscle to teach and bring these things about? Professional local media companies. The potential here truly boggles the mind.

DISRUPTING MEGATRENDS TO CONTINUE IN 2012

At AR&D, we follow six Media 2.0 megatrends, big cultural shifts that are much better predictors for media than any technological development or breakthrough concerning the monetization of scarce content. These provide a useful view of the bigger cultural picture, which then enables us to skate where the revenue puck is headed instead of where it's already been. Those who skate "to" the puck are doomed, for the damned thing is always moving.

  1. The Personal Media Revolution — 2011 witnessed the use of personal media by real world protesters to overturn governments abroad while protesting inequality at home. More people will take up the tools of media in 2012, but even more importantly, those who already have will find another year of use disrupting the status quo even more. I've coined this the "Evolving User Paradigm," and it's a bigger disruptor than technology itself.

    Increasingly, those who've benefited most from the hierarchies of yesterday will find their worlds disrupted further, and this includes entertainment, education and more. The power to make media used to be scarce, and this was our value proposition. That's gone forever, and while we can still make a case for our professionalism, even that is being challenged by talented amateurs unencumbered by history and tradition. And, most importantly, a rather big sector of the personal media revolution is the people formerly known as the advertisers.

  2. Social hyperconnectivity — This megatrend is producing a world where institutions have a tough time participating for many reasons. People connect with people, not companies, and the language of hyperconnectivity is foreign to the "perfect front" of the business world. Transparency and quality of product matter completely in this world, whereas the projecting of a polished "front" is what's required in the so-called real world. This is especially tough for media companies, whose people can function better in this world than the media brands themselves.

  3. News as a Process — The ongoing unfolding of events and issues that make up what we call "news" in the 21st Century continues to occur publicly as a result of Megatrend #1. The Web affords the opportunity for journalism to become a real-time experience, and we can expect a refinement of this model in the year ahead. At AR&D, we call it "Continuous News," and it's a way of life moreso than a product or service. That's because the news doesn't live in a neat package at the end of an 8-hour workday; it's always alive with the ebbs and flows of history in the making. Long form journalism still has its place, but it is a weak substitute for real-time news online.

  4. Movement of Ad money to "Promotions" — This Megatrend, perhaps more than the others, is why any realistic view of the health of traditional media reveals decay at the core. By 2016, Borrell Associates projects that money spent by businesses on the Promotions category will triple the amount spent on advertising, which is a two-edged sword for legacy media companies. On the one hand, this is money moving away from traditional forms of advertising. However, there's also a huge opportunity here as stated above. And again, the Evolving User Paradigm comes into play here, because every year that local businesses experiment with new opportunities, the better and more sophisticated they get at it.

  5. The Shift from Wired to Portable — Borrell data also clearly points to the next Megatrend, one that is a real problem for local broadcast companies.

    We're forecasting that 88% of all local online advertising will be viewed on tablets, smart phones or GPS-enabled laptops by 2016. The transformation will be akin to the switch from VCRs to DVR players, perhaps relegating the market for desktop PCs to craigslist and yard sales.

    This is doubly problematic for broadcasters. One, these devices are vastly more "personal" than big computers, and the jury is still out about our disruptive ad methods. Two, the market demand for wireless broadband puts the spectrum "owned" by broadcasters at risk. It's a fight that's not going away, because the entire "video" industry is itself shifting to the Internet.

  6. The Shift from Bundled to Unbundled — As the mass media paradigm developed over the decades, we've learned how to make money through bundles, whether that's by bundling advertising with scarce content or bundling programs with other programs to make a network or a cable company. A music CD is a great example of bundling one hit with 11 other tunes, so that companies can boost the price of that one song. Technology has enabled The Great Unbundling, and media is no different. The problem, of course, is that we make our money via the bundle, so we resist what consumers want, and so it goes. This Megatrend is here to stay, and we fight it at our own peril. We need, instead, to be exploring opportunities in the unbundled world.

    Comedian Louis CK recently did just that by paying for and offering to his fans a DVD of a performance at the Beacon Theater in New York. He offered this directly to fans for $5 without any digital rights management (DRM) attached ("No DRM, no regional restrictions, no crap. You can download this file, play it as much as you like, burn it to a DVD, whatever."). As of this writing, he's sold over 130,000 copies with gross revenues of $650,000. Unbundled from the grasp of a recording company, Louis CK made more money and provided a great product to fans at one-fourth of what it would have cost otherwise and without any restrictions.

    The unbundling of communications products is hurting the industries who profited most from the bundles, and this Megatrend, like the others, is only going to continue.

Each of these Megatrends hits at the core business proposition offered by mass media, and that's the real problem for legacy media companies in 2012. While we're basking in the glow of political and Olympics revenue, we need to be taking a hard look in the mirror, for these trends aren't going away.

Edge competencies may seem like some business school jargon babble that's meant for classroom philosophers, but that's because the concept is so foreign to our instincts and training as top-down, mass market masters. Life in the network is different than the life outside, and the network is where everything in the world of communications is heading - and fast.

We must find our edges. They offer safe harbor for the years to come.