Author: Michael Fauscette Posted: January 31, 2012 1302 views
A couple of recent events and some commentary around them got me thinking about the current state of business, the pressure to change and how companies respond to the need to change. Change impacts people and organizations in many different ways, depending on how the person or organization is "wired". Some resistance is natural but sometimes, at least at the strategic level, companies have to face the fact that they must change to stay healthy. That applies to people too I guess, but that's altogether  a different subject.

If you've heard me speak on social business you probably have heard me talk about what I believe are the fundamental change drivers in today's deep business change cycle. Those factors are at the intersection of changing culture and changing technology, and I'm not sure one exists without the other. I think that our current change cycle, the move to an information based economy, is as large as the cycle that moved our world from agrarian to industrial and will have the same far reaching effect. The Internet or at least the open, nearly free connectivity it provides. is, of course, at the root of most of the changes, It's the information super highway that facilitates new business models and new ways of interacting.

Anyway, back to the events that started this thought process.  First was the recent fight to stop some bad IP protection legislation called SOPA / PIPA, or actually the extreme efforts of the movie industry lobby to try and force them through. The second event was the appointment of the new CEO at RIM, Thorsten Heins. Both of these events tie directly to companies or industries that appear to be in extreme denial over their current business models or product direction and come across as a fairly severe case of change aversion.

In the case of RIM, first I should say that I'm very much outside looking in and like many analyst have been pretty critical of the fact that they squandered such a lead in the smartphone market by not listening to what customer's wanted and by assuming that they knew better than those customers. What makes it so sad, I think, is that the company was truly innovative and led the way in wireless communications, and eventually the smartphone market.  Anyway, I hope that I'm wrong but it seems to me that taking an internal candidate, particularly the one person who oversaw the failing product portfolio over the last five years (his former title was Chief Operating Officer, Product Engineering and was responsible for the Blackberry product portfolio worldwide), might not be the best way to reinvigorate RIM. Now that may be harsh but give this video a viewing and see what you think. This may just be a new CEO trying to rally the troops, but if these quotes are any indication of his real feeling about RIM and the job, well: "At the very core of RIM is the innovation. We always think ahead. We always think forward. We sometimes think the unthinkable. And that is fantastic" and this "If we continue doing well what we're doing, I see no problems with us being in the top three players worldwide in the next years in wireless". I'm reminded of the famous quote: "insanity is doing the things the way you've always done them and expecting the results to be different".

Now for the movie industry. Last night I went to see a movie with my daughters. I'll be the first to admit that the outing associated with going to a movie at a theater is a part of the experience, along with the big screen, snacks, etc. But for some reason last night the whole experience irritated me. The ticket price for the three of us, $36 (my youngest is now 13 so no more children's tickets). Snacks, about $23. While getting said snacks the counter person insistently tried to up sell me from my small soda and small popcorn to a much better "deal" for only a little more....yeah, about that, I really don't need a 64 oz medium soda and a medium popcorn in a grocery bag. On top of the up sell (his job, so no hard feeling, except maybe for the attitude for the sacrilege of not wanting his "deal") he won't shut up about the new movie loyalty card. It seems for the mere price of $12 a year I could have true movie bliss, discounted movie tickets and all...really, a loyalty program you charge for? So, finally in the theater, I settle in for my movie. Over 35 minutes later I finally get through snack bar ads, mobile phone ads, have your next meeting here ads, etc. and we finally can enjoy the coming, slip in one more snack ad and then on with the show (>45 minutes after sitting down, and no, we were only 5 minutes early for the advertised start time). So let's see, I drove to the theater, paid $49 and spent over 45 minutes watching commercials to see a pretty good movie 9 months before I could have rented it on iTunes for $4.99 in high def...hmm. Or maybe it would have been on Netflix, where I pay $8 a month for unlimited streaming, of course who knows how long a wait it is for the movie to be available. So basically I'm paying $50 + gas to see a movie sooner and with commercials that wouldn't be there if I had waited and watched it in the comfort of my own home?

The Internet changed so much, and particularly for content distribution it is causing a huge disruption. You see, using a nearly free medium that is increasingly available to anyone as the distribution vehicle is working out very well for many businesses. Now the ugly downside to digital distribution is, of course piracy. I've spent so long in the IP business (software) that I can't bring myself to download pirated movies and music but they are out there. You have to wonder though, particularly when it comes to movies, is the business model largely at fault? Are studios creating an  abnormal environment of scarcity that makes pirating more attractive? You also have to wonder if they are not, themselves, missing a huge business opportunity to leverage the disruption to their advantage. Using a new distribution model that allowed individual choice of when, where and how a new movie is viewed, seems to me like a way to increase revenue, not decrease it. I realize that it might (or probably would) disrupt the current distribution model, but that's what happens when business models are pressured into change. It would also make movie theaters focus more on the customer experience and less on extracting every last cent. I'd pay $4.99 (I already do) to rent movies, actually I'd probably be willing to pay a small premium on new releases for some reasonable period of time, if I could choose to watch it on iTunes, Netflix, cable on demand, Roku, Amazon or any other channel that might become available on the Internet. Fred Wilson wrote about this idea here.

As an interesting case study, take a look at comedian Louis CK's recent experiment with his Live at Beacon Theater special. In a bold move by an artist, he decided to produce and distribute his performance himself, rather than go the direct to HBO or some other corporate controlled route. Louis' distribution model, simple, make it available online for $5 paid via Paypal (and now Amazon as well). No DRM, no restrictions, just pay, download and do whatever you like with it after that. The results, well, after the release in December he made over $1M in 12 days. The site and video are still up and presumably he's still making money from it. Did it get pirated, of course, but in fact in the Torrent comments many people attributed buying the download to watching the pirated version first. Louis was very satisfied, he more than covered his production costs, kept some for himself and gave a good portion of the proceeds to charity. If he had gone the direct to HBO route would that have prevented piracy? We all know the answer to that. Perhaps he would have made more money with the broader promotion efforts of a big studio, who knows; but as long as the artist and his fans are happy, who cares? New business models for changing times.

 Business is in a change cycle and how businesses deal with that change will determine the next round of winners and losers. Ignoring the changes around you is not a business strategy (or at least not a good one). Four major tech trends, cloud, mobile, social and big data, are having a widely felt impact, accompanied by cultural and business model changes. The Internet itself provides much of the underlying foundation for many of these changes. It can connect people to people and information, and provide a new distribution and sales channel that extends a businesses' reach well beyond geographic boundaries. In the case of all digital content (movies, books, music, performances, etc.) the Internet opens up a wide variety of business model options, if only companies look outside of the past.


About the author >

Michael Fauscette

Michael Fauscette leads IDC’s Software Business Solutions Group which includes research and consulting in enterprise software applications, collaboration and social applications, software partner and alliances, open source, software vendor business models, cloud computing and software pricing and licensing. He also provides thought leadership in the area of social applications and the transition to the social business. With extensive executive experience with software vendors ranging from large enterprise companies to small Silicon Valley start ups, Mr. Fauscette brings a unique perspective by relating research data and trends to the overall strategic focus and go to market strategy of application software companies. Prior to joining IDC, Mr. Fauscette held senior consulting and services roles with seven software vendors including Autodesk, Inc., PeopleSoft, Inc. and MRO, Inc. Mr. Fauscette is a published author, blogger and accomplished public speaker on software, social business and software services strategies.

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