SpectatorBytes

Digital media organizations that think in terms of “building vs. buying” will struggle to compete in the marketplace going forward, especially when the answer tends to be “build.”

Over the past couple of years, it’s clear that one of the reasons why large digital businesses struggle to sustain growth is that they fail to maintain a differentiated competitive advantage.  In simpler terms, organizations stop evolving their skill set around the core aspects of their businesses, and try to begin to build new skill sets in non-core product areas.

Once a digital media business reaches scale in audience and revenues, a broad set of opportunities opens up to them. It is at this point in time when most large digital businesses begin to ignore the realities of the marketplace and start to lose their competitive edge. Three major behaviors start to take place:

1. The overall organization feels emboldened to pursue new business opportunities which may appear to complement their core business but for which it does not have the necessary skill set to compete in the marketplace. Good examples include: content websites, which build their own video solution, advertising networks that build their own internal production companies.

2. Product and tech teams begin to focus primarily on new product development rather than on evolution of the core products. This leads to the creation of large teams, which have diverse capabilities but limited depth.  These large, vast teams then focus on new product development rather than on integration of 3rd party innovations.

3. The organization exposes itself to competitive attacks as success tends to breed complacency. As organizations become distracted with new business opportunities, they are not able to keep pace with external market innovation. Investment in resources has been spread so thin that the core business is left exposed. In many cases, the natural reaction is to dismiss the new entrants even when they have achieved significant success. Thus, creating an opportunity for these new entrants to be truly disruptive. Think of the effect that Google Maps has had on Mapquest.

Many of these organizational behaviors are a legacy of the early days of the Web when the ecosystem of third party vendors had not been fully developed and most of the expertise resided inside the large digital companies. Now, this is no longer the case. Specialist product teams with deep expertise in areas such as publishing, video, mapping, advertising solutions, etc. tend to reside outside of the large organizations. Large digital businesses are increasingly struggling to both attract and retain top talent at all levels.

Furthermore, new product development has become so inexpensive that large companies will increasingly struggle to out-innovate the market.
As a result, it is important that organizations rethink their set of product and technology priorities to ensure that they can continue to compete in the new environment.

There are a few ways to rethink how organizations can better handle the new dynamics:

- Install an infrastructure that allows dedicated teams to operate with a significant degree of independence from one another (open platform, well-defined set of resources, clear success metrics)
- Emphasize focus on integration of new technologies rather than new product development
- Focus new product development in areas where the core product demands innovation and the external market has not invested in such innovation.
- Pursue a limited number (one or two) “new product” initiatives per year
- Stop thinking in terms of “building vs. buying.” Start thinking in terms of how to virtualize a company’s operations and organization. The external ecosystem of services is now well-developed and companies should take advantage of their expertise and innovation.

Organizational change is never easy. However, the sooner an organization recognizes the need for evolution, the higher the chances are of long-term survival and delivery of sustainable growth.

The digital media landscape continues to evolve at a significant pace, with new forces disrupting the market dynamics every 12 months. This is one of the reasons why digital media companies of all sizes continue to struggle to sustain revenue and profit growth long-term.

As I have mentioned in previous posts, digital businesses need to be in a constant state of re-invention. They must embrace disruption, consistently drive innovation, and maintain highly flexible organizational/operational infrastructures to avoid becoming victims of rapid market changes.
The recognition of this phenomenon has led me to consistently focus on identifying these new forces as they emerge. Recently, I have been thinking about the major forces shaping today’s marketplace. I have touched on some aspects of these trends in recent posts. However, I thought I’d share with you some of the trends I find most interesting.

1. Mobile computing: The growing popularity and penetration of smartphones and netbooks will have a transformative impact in the marketplace over the next couple of years. While monetization models may take some time to develop, consumer behavior will be greatly impacted. These devices expand our ability to execute computer-driven tasks by a factor of 2-3 times. We will be able to consume dramatically more content and information, watch more videos, play more games, and buy more things than ever before. Moreover, competition among manufacturers for phones and netbooks has intensified over the past 12 months. We now have 3-4 pretty robust operating systems for mobile devices, several application stores, and declining price points. Carriers are aggressively embracing these new devices as a way to push their data products and increased stickiness. I expect penetration of smartphones and netbooks to accelerate beyond current analyst expectations.  In fact, the FCC recently warned that wireless networks will soon be overwhelmed by the explosion of data usage.

2. Social discovery: We are entering an era in which consumers will increasingly discover content using a social construct, in addition to search and traditional topic-based content aggregators. Twitter has established the “follow” metaphor as a way to consume content. Several new startups are leveraging this construct to enable consumers to more efficiently discover content. In past posts, I have discussed True/Slant and Fanfeedr (using FB connect) as examples of this trend.

3. Real-time: Twitter has brought real-time experiences to the mainstream. They have set new expectations around the speed of content distribution. Prior to Twitter, content sites were expected to deliver content periodically. Now, a growing segment of consumers expect content to be delivered in real-time.  Beyond the myriad Twitter-centric startups, real-time search engines have begun to emerge. At the TC 50 conference, there were several new efforts that focused on delivering real-time news and content such as Thoora and Clixtr. I expect the number of real-time experiences to grow meaningfully as consumers’ patience diminishes and startups find innovative ways to leverage real-time experience to increase user engagement. This desire for getting the latest information “now” will become particularly important in mobile experiences.

4. Distributed innovation: The web services revolution has put innovation in the hands of many. While this has happened over the past few years, the main implication is that companies must develop new models to drive innovation. In the past, companies relied on R&D teams, acquisitions and corporate venture efforts to drive innovation. However, given the new dynamics, companies are pursuing new approaches. The emergence of partnerships between companies and venture capitalists such as FB Fund to create highly targeted funds are an example of this type of new efforts. Best Buy recently partnered with my old firm Fuse Capital to pursue digital investments. Twitter has used its open API to aggressively drive innovation around its corpus of data. This search for continued innovation is likely to lead to the emergence of companies, which will be increasingly virtual in nature.

5. Premium experiences: High-quality content has always captured a disproportionate amount of the value in any medium. The Web will not be the exception. Even though consumers are faced with an infinite number of choices on the Web, they will continue to gravitate en masse towards high-quality content. The more cluttered the Web is, the more consumers will gravitate towards high-quality/talent-driven experiences. In recent months, I have seen renewed efforts to reinvent existing services around premium models. Some of these new services focus on talent and premium content, filtering out noise, enabling richer conversations, and qualifying participants. The success of sites such as Angie’s list, Hulu, the Ladders, and WOW in recent years has emboldened a new generation of startups to focus on developing premium versions of existing services.  The challenges of the advertising model has certainly further pushed companies in this direction as well as early success of fee-based applications in the iPhone. This does not mean that these services will necessarily be fee-driven. They believe that they will ultimately be able to capture a larger portion of advertising dollars as well as position themselves to offer fee services.

6. Data-driven advertising: We have been talking about hypertargeting for quite some time. However, I have begun to see the impact of enhanced targeting techniques used by ad networks. Nowadays, the display ads in the websites I tend to frequent offer products for which I have recently expressed interest. While I have worked for many years with ad networks who claim the ability to target users with great precision, I have never experienced hyper-targeting first-hand as a user. While I am witnessing a simple “re-targeting” product, I believe we are entering an era in which the entire ecosystem (publishers, ad networks, advertisers, exchanges) recognizes the value of user data and focuses on deploying more precise, data-driven ad products in the marketplace. Publishers should be able to leverage their data and others to increase the performance of their inventory. We are in the early stages of the process and will likely see a new generation of winners emerge as ecosystem is increasingly driven by data.

Please let me know if you think there are some other major trends which deserve to be among the ones I have reflected upon in this post.

Upon learning of Facebook’s acquisition of Friendfeed, very few industry people (myself included) were surprised that Facebook needed to acquire a company to bring in talent to compete with Twitter. However, if one takes a step back, this news should have at least raised an eyebrow. Currently, Facebook is one of the hottest digital media companies and has a best-in-class engineering team. The question that should have been on everybody’s mind is: why would Facebook, of all companies, need to buy talent through an acquisition? The answer is rooted in the dynamics of digital media. The pace of innovation is accelerating so fast that large organizations can quickly fall behind in emerging areas on the Web. Acquisitions are a quick way to catch up.

This situation is not exclusive to Facebook. Most other large digital media organizations have relied on acquisitions to bring new talent into the fold. This is a pattern we have all seen for several years now. Organizations clearly benefit from embracing 3rd party innovation. So, if this is the case, why are digital organizations consistent victims of not-invented-here (NIH) organizational cultures that make it difficult to leverage external innovation? I have witnessed this first-hand as buyer, seller, and advisor. NIH is one of the primary reasons failed integrations outnumber successful ones. Cultures inside large organizations are not designed to effectively leverage 3rd party innovation. Large organizations naturally find it easier to adopt a culture that prides itself on internal innovation rather than the ability to embrace external talent.
While answering the question of why NIH tends to flourish as a culture inside large digital organizations could generate a pretty interesting post, I would rather jump ahead and make the argument that digital media companies cannot afford to tolerate NIH sentiments. The main reason is that small pools of talent can compete with large organizations on an even-level playing field and prefer to remain independent. This has created a situation where the pace of innovation in the broader marketplace is much greater than that inside large organizations. Several years ago, large organizations used to have significant advantages over small startups. They had the ability to develop proprietary systems. They had the deep pockets needed to pursue R&D projects. They had marketing dollars to promote their products.

These advantages, however, have diminished significantly in the current environment.  Given the level of web services infrastructure that exists today (distribution systems, monetization engines, marketing tools, etc.), smaller teams can drive significant innovation without requiring much capital. They can easily get their products distributed. They can access monetization engines, etc. Moreover, the upside for top talent to go at it alone is more compelling and the potential for a payoff may be greater than it has been in the past (though the overall payoffs for talent may be smaller given the size of exits). The result is a much more distributed talent pool than in the past. In the coming years, we are likely to find the number of digital outfits to grow rather than to shrink.

If these are the market dynamics, large digital media organizations would be well-served by embracing 3rd-party innovation. This means actively fostering organizational cultures that look to leverage external talent to strengthen their product experiences rather than to compete with them. This is particularly true in the post-Twitter era where open APIs can enable groups of talent to quickly leverage each other’s capabilities to rapidly create defensible ecosystems of consumer experiences. In other words, innovative companies can leverage each other’s skills to create a distributed infrastructure of services capable of competing with large, centralized organizations. In this context, large organizations are likely to struggle to keep up with the speed of product development, market testing, and innovation that these ecosystems of companies can enable.

If we agree that Facebook is in a battle against Twitter, Twitter’s ability to defend its position with limited internal resources is very impressive. I would argue that the ecosystem of Twitter-focused companies including Bit.ly, TweetDeck, Collecta, Twitpic, Tweetfeed, etc., has made Twitter a much stronger competitor than the actual size of its organization (fewer than 100 people) would have allowed.

The current dynamics reflect the evolution of open systems/platforms, which has been happening for a while. As I have mentioned before, Amazon and eBay were pioneers of this approach in the early 2000s. However, I think the evolution has gotten to a point that large digital media organizations can no longer ignore and thus NIH is not something that they can continue to afford.

This does not imply that centralized organizations should cease to exist but rather that they need to evolve into environments which foster specialization around their core capabilities, build expertise around integration and platform services, and provide adequate support to their ecosystems.

Our industry is increasingly imitating life, where it is important for companies to have friends…many talented friends. Facebook certainly realized that Friendfeed was a friendship they needed to make.

I would appreciate hearing about some of your experiences with NIH.

Recent events such as the Microsoft and Yahoo search deal, Facebook’s efforts to move from a private network to one that is public, and AOL’s imminent spin-off illustrate the challenging nature of consumer digital businesses. The constantly evolving nature of Web businesses continues to challenge most business leaders and corporations. The lack of “rules of the road” make it difficult for many managers to deliver predictable long-term financial performance. As a result, with the exception of a few businesses (e.g., Google), most digital media businesses have struggled at one time or another to deliver continued revenue and profit growth. One way to avoid this seemingly unavoidable fate is to establish a long-term “strategic framework” rather than simply putting in place a traditional annual strategic plan. “Strategic frameworks” enable businesses to leverage evolving market conditions to continuously delivered financial growth. Traditional strategic plans mainly focus businesses on extracting growth from existing businesses operations.

Establishing a sound “strategic framework” inside a digital organization is a complex process. Start ups are advantaged in doing so, as these nascent organizations are designed to embrace change. They operate under the guidance of a strategic framework put in place and shaped by their founder(s). More developed organizations find it more difficult to set a long-term “strategic frameworks” as they tend to focus on the preservation and growth of existing models.

Having said that, there are a couple of key tactics/initiatives which can help any digital business to sow the seeds for the emergence of a long-lasting strategic framework:

1.  Create mechanisms to continuously assess the implications of disruptive innovation

This first element seems plainly self-evident at a quick glance.  This task, however, can be difficult to achieve in digital environments. When I started my career as a media consultant, identifying consumer behavior trends for traditional media businesses was rather simple. The main reason for that was that traditional media businesses (cable, magazines, broadcasting) were already mature and there were robust syndicated data/research sources to help strategists identify new market opportunities. This is not the case with digital businesses. Given the nascent stage of the digital industry relative to its traditional peers, identifying changes in consumer behavior requires a deep understanding of the changing dynamics of a particular business segment (search, content production, publishing, social media). Acquiring this deep understanding is relatively difficult as only the principals in each of the business segments have access to the data needed to monitor how their corresponding segment is shaping up. Given the speed of change in the digital marketplace, this is also a critical advantage for the principals as data rapidly becomes obsolete on the Web.

Having said that, one can overcome this challenging dynamic by focusing on “fine-tuning” one’s business instincts to be able to readily identify the key data points (public and private) that prove the emergence of new consumer/business trends. Traditional business instincts do not translate to the digital media world because these businesses are designed to disrupt existing business rules. Thus, a new set of instincts are needed to anticipate and prepare for business disruption. While experience plays a key role in fine-tuning one’s instincts for digital businesses, one way to start the process is to pay close attention to how consumers and or businesses react to new disruptive business models. For example, one of the first signs of “audience fragmentation” was the emergence of professional blogs in the 2001-2003 time period. Even though Comscore did not show the change in numbers for the portals, growth in usage numbers for both blogs and search suggested that audiences were using search to find blogs and thus they were likely to fragment going forward. Search was becoming the ultimate remote control for users to access content and blogs signaled that thousands of new “content channels” were going to be created. This meant that audiences looking for consumer content on the Web were going to be increasingly fragmented for many years to come.

Google’s affiliate search business offers another example. In 2004, Google’s affiliate search revenues started to show significant more momentum compared to Yahoo’s. The two main drivers of this momentum were Yahoo’s decision not to go after the long-tail of publishers and Google’s focus on “ad relevancy”. This allowed Google to grow its publisher network much faster than Yahoo while providing superior performance. As a result, Google had put in place a much more robust marketplace by having a greater supply of clicks to offer to advertisers. Given marketplace dynamics, at that moment in time, it became a safe bet to say that Google’s monetization engine was going to be much more powerful for many years to come. This was one of the main reasons why, while at AOL, we decided not to enter the search business and focused on a different advertising product (performance display) via the acquisition of Ad.com. Google’s market dynamics were too strong for AOL to mount effective competition in paid search.

Organizations can accomplish this by establishing formal mechanisms to monitor market disruuptions. These mechanisms include the creation of product and business innovation teams, strategic advisory boards and a formal strategy development process. These mechanisms should be treated as part of the core of the organization rather than as entities on the fringe.

2. Adopt a flexible but clear “set of beliefs” to guide decision-making across the organization

This second element addresses the need for digital businesses to continuously be able to re-invent themselves in an effort to maintain or even  reignite their revenue and profit performance.  The need for reinvention has been primarily driven by the fact that digital technologies have empowered customers in ways not seen before. Free pricing, low switching costs, and convenience are at the core of consumer/customer empowerment. Moreover, new technologies are increasingly reducing friction for consumers/customers to move from one product experience to another product experience. This implies that digital businesses can be victims of the ephemeral nature of consumers/customers more so than most businesses have been in the past. With their “apparent” rapid ascent and descent, it is tempting to label many digital businesses as “fads. I believe thinking of them more as “hits”, much like a movie franchise or a TV series, is more apt because success relies on continued evolution of the product. Digital businesses need to constantly strive to reinvent themselves in an effort to remain fresh in the eyes of consumers.

Instilling the capability to reinvent the business in an organization is not easy. As companies become successful, their organizations get married to a particular “set of beliefs.” While having a clear “set of beliefs” is critical to success, the issue is that winning beliefs sets are constantly changing in the digital Web. This means that companies need to either create a set of beliefs that is flexible enough to adjust to market changes or they create the mechanisms to periodically change that set of beliefs. Companies must create an environment where their internal cultures/religion can quickly evolve to embrace emerging consumer trends.

While establishing this context for continuous change may sound difficult to implement, it really is not. One can focus around beliefs that are likely to survive changes in the marketplace. For example, a long-lasting belief can be: “aggressively leveraging technologies and new business models to stay on the cutting edge of cost-efficiency is critical for long-term success.” Leading the organization to the point that it can embrace this belief is not easy but it focuses the organization around creating a tech infrastructure that allows for easy integration of new technologies and capable of quick upgrade cycles. Another approach is to use acquisitions as a way to introduce new belief sets into an organization. Acquisitions can help an existing organization understand and appreciated the benefits and viability of new operational models. Succeeding in using acquisitions for this purpose requires carefully balancing the need for continued independence of the acquired business and desire for integration into the core business.

Ultimately, the organization needs to be able to recognize when their business is significantly challenged and have the capability and wherewithal to re-invent itself. Even if in some cases this means entering completely new businesses.

Developing strategies have always been an art and the results tend to ultimately be felt many years later. For digital businesses, however, the key consideration is the ability to develop a strategy that assumes and anticipates changes in market conditions and provides a window of time long enough to successfully execute against it.

Continuously monitoring the implications of disruptive models and establishing a clear but flexible set of organizational beliefs provide a good foundation for doing so.

Over the past few months, I have noticed a rise in large images are increasingly dominating the user interface of content websites, particularly news sites.  The Huffington Post front page illustrates this trend. Here is a comparison of the current front page (below left) versus the version when the site was launched in 2006 (below right).

Actually, it is not just about the growing presence of images but simply about the importance of photos as part of the Web experience. As bandwidth constraints have dissipated, Web designers and editors are increasing using pictures/images as a core element of the Web experience. While this flood of images is not surprising given the layout of newspapers and magazines, the presence on the Web and their ever- increasing in size signal a shift in the way the medium will look long-term versus the “link driven” layout with which we are familiar.

Images are an effective way to attract consumer attention according to Eyetracking studies. Consumers are also more comfortable with graphic-driven pages. Also, the bigger the pictures are the more time users spend time on sites. This trend is particularly important for advertisers. The new “Marquee” ad format launched by MySpace and that other large sites such as YouTube (below) are also selling is a good example of that.

The social Web is certainly likely to accelerate the change in look of the Web.  The “profile” image (a picture, logo or avatar) is becoming a key mechanism to aid people navigate through information on the Web. These thumbnails allow users to quickly assign different value to news headlines or activity “feeds.” Users can quickly decide whether or not to engage with content based on the picture to which it links. As the social networks extend their social graphs across blogs, websites, applications, etc., users will rely more and more on those pictures to travel the Web. The design of TrueSlant.com (below) offers a good example of this trend (I was an investor in and advisor to this startup).

Some search startups believe the role of images will be so dominant on the Web that they are creating alternatives to Google based on an image-centric paradigm rather than on “blue links”.  Searchme is one of those startups (see below).

Ultimately, pictures are a more effective mechanism to help consumers filter information on the Web, in particular when that information is being “pushed” to them.

Personally, I have to admit that the more pictures the better and the bigger the image the more likely I am to click through the article. What about you?

Last week, I attended Techcrunch’s Real-Time Crunchup. The event brought together many members of the Twitter ecosystem to showcase their products and several key investors to discuss their views of the Twitter phenomenon. This event helped me crystallize my view on Twitter, which is that Twitter is facilitating the creation of a new database of real-time content and information on the Web. Angel investor, Ron Conway referred to it as a new “data corpus” on the Web. Google’s index is an example of another data corpus, which contains information about sites across the Web. Navteq’s mapping information is another data corpus. The creation of a new data corpus can unlock significant value creation opportunities.

So, how is Twitter creating a valuable and new data corpus? At the highest level, Tweets are pieces of real-time data that users contribute to a database. I am not referring to the original Twitter use case of “I am enjoying a juicy burger for lunch.” I am referring, rather, to the emerging and powerful “use-cases” of users reporting on news, sharing and commenting on article links, uploading photos and video, promoting blog post headlines, tracking flight information, following financial news, etc. While these are activities that we have been doing for some time on the Web, there are several reasons why Twitter has managed to leverage these use-cases to create a new and unique data corpus:

1) Public Network: To date, these activities have primarily taken place in private networks – i.e., most people shared articles with their friends and family rather than with the overall public. Most social networks had been dominated by activity in private networks. The fact that the Twitter database focuses on public information amplifies its value because it increases the potential number of consumers for ti.

2) People-led: All of this “public” information is now being mapped to individuals rather than websites. This means that we can now use individuals to navigate information across the Web. As I have discussed in the past in the context of journalism, this is a powerful shift that suggests the emergence of “Intimacy” as one of the key differentiating elements of the Web as a commercial medium.

3) Frictionless: The experience of contributing information to the database requires little user involvement. As a result, the information is contributed in real-time and the database is constantly updating at an unprecedented speed. The myriad Twitter-centric tools (upload videos and photos, share links, etc.) make the overall experience for contributors to the Twitter database “frictionless.”

4) Optimized-for-mobile: The Twitter ecosystem of tools is becoming optimized around using phones to contribute information to the database. As the penetration of smart phones increases, the speed of growth of Twitter’ database will accelerate.

There are several key implications from the creation of this new “data corpus”. A whole new infrastructure of services/experiences needs to emerge to unlock the value of the data. This has already begun in a similar way as it happened in the Web in the mid nineties. Directory and search services lead the way (e.g., Summize, Collecta, Oneriot). Uploading tools and analytics companies follow (e.g., 12 seconds, Twitpic, Twitvid, Bit.ly). New user interfaces start to be tested (e.g., Twubs, ExecTweets, StockTwits). Lastly, a monetization model/solution eventually emerges.

Thanks to its open approach, the overall Twitter ecosystem is developing at much faster speed than we have seen before. While Twitter remains small in terms of number of employees as a company, its ecosystem of services is growing at rapid speed. Judging by the size of the Techcrunch event, it is probably safe to say that the number of people involved in developing Twitter’s ecosystem of services may be more than 1000.

There is no guarantee that Twitter’s momentum will continue or that the service itself will become a permanent fixture of the Web experience in its current form. However, the real-time Twitter data corpus will likely stand the test of time and be one of the main differentiating elements of the Web experience going forward.

Starting in early 2004 during my tenure at AOL, I with others began to advocate opening up the AOL Instant Messenger (AIM) platform. The goal was to accelerate product development by using third party developers who could work with the open platform. We had seen the valuable ecosystem of third party applications and sites Amazon was creating and thought AIM would benefit greatly from a similar approach. Because of the walled-garden culture upon which AOL had been built, it took a couple of years before we were able to “open” AIM, and when we did it, we may have not open it enough.  While AIM’s remains a strong platform on the Web, its ecosystem of applications does not rival that of Facebook, Twitter or Wordpress. As a result, it has become evident to me that merely “opening” a platform does not automatically lead to success, the degree of openness is just as critical.

Upon my arrival at AOL, several leading technologists in the organization, who shared their thinking with me, identified AIM as one of the company’s most valuable assets. These technology thought leaders referred to it as a “messaging” platform. Messaging in this context did not mean communications, but rather “real-time” transport of data. Sharing files via AIM is a good example of this. Live chat is another one. In addition, AIM’s presence engine was consistently praised and was in high demand by outside parties who wanted access to that capability. At that point, AIM generated revenues via fees from Wireless carriers and advertising, which were in no way commensurate with the reach and scale of the platform. This is what prompted us to explore an “open” strategy. We wanted to further build scale and enable innovative functionality.

As we further explored opening AIM, we identified potential additional uses of the platform. Most of the use-case examples centered on the existing desktop application paradigm. Could we have a radio product developed which could link to the application? Could we use a third party developer to add video chat to the client? Could other applications leverage presence to enhance their services and drive incremental AIM usage? In looking back, while these questions were good, the use-cases we focused on the most involved retaining control over the main mode of consumption (the AIM client) and fostering the creation of services to add value to that client-driven experience. While our focus on user experience seemed reasonable at that time, we may have unintentionally capped the potential value of “opening” the platform by limiting the number of potential use-cases. AIM APIs were not designed to enable 3rd party developers complete freedom to create new user experiences but rather focus them on simply enhancing the existing experience.

Flashforward to today, Twitter embraced a “fully open” approach and has built a strong ecosystem of third party applications in a short period of time. While the value of Twitter and its ecosystem still remains a subject of much debate, one thing has become clear: Twitter has rapidly become one of the leading social media platforms as well as the leading real-time information engine on the Web. Both of these things seem pretty valuable and their open approach has played a key role in making that happen. Third party developers have used Twitter’s open API to develop solutions, which enable a broad set of  use-cases/user experiences,  from sharing links, to uploading videos and photos, to conducting real-time searches, to following categories of individuals, etc.  I venture to guess that many of the use-cases were not initially envision by the Twitter team when they first developed their core product. However, the success of their open efforts has taken them into new areas of functionality and opportunities to create value.

Early this year, it was reported that Jack Dorsey had conceived the idea of Twitter out of fascination with AIM status updates. This led me to consider what would have happened if we had fully opened AIM’s platform and enabled developers to create completely different user experiences leveraging the existing messaging infrastructure. Would AIM have become what Twitter is today? While contemplating this question is interesting, the important lesson is that the power of “open” platforms emanates primarily from enabling the creativity of the external marketplace to create new user experiences and thus new opportunities to capture value. Open platforms allow 3rd parties to finance innovative new products which leverage the existing technology infrastructure and thus foster the creation of rich ecosystems of applications. Eventually, these ecosystems create significant competitive advantage for a product platform as new applications begin to be built on top of other applications.

However, opening a consumer product platform often appears to be risky from a business perspective, especially for entrenched competitors who have fought hard to establish their position and user base. Companies, which fully open their platforms, run the risk of inadvertently giving away too much of their asset value. Thus, managing an open platform requires a clear understanding as to where the ultimately sources of value will be (e.g., data monetization, advertising network opportunity, etc.). One also should keep in mind that revenue opportunities for open platforms take some time to materialize (Think Facebook and Wordpress).

Having said that, the benefits of open platforms are easily seen from a user perspective (after all, more functionality/applications is better than less), and from a product development perspective — where being able to tap third party creativity to discover new user experiences (as we have also seen from the iPhone app store) can add significant value to a platform. Hence, my bias is increasingly towards opening more rather than less.

We are still in the early days of “open” consumer Web platforms and the rules of the road are still taking shape. I will try to codify these rules as I see them emerge.

It would be good to hear where you land on the openness scale.

A few months back, I wrote about the emergence of the real-time Web and the impact it would have on content publishing. In recent weeks, the news coverage on the Web of the fallout from the election in Iran and the death of Michael Jackson have crystallized for me the impact of the real-time Web on news production and publishing.  We are witnessing the dawn of a new era in news: in fact, I would equate this game-changing moment to that of watching the images of “Desert Storm” on CNN in 1990.

To illustrate the revolution in the news consumption experience, I will share a personal experience from a couple of weekends ago following the news coming out of Iran. I first learned about the election protests when TV-channel surfing early Saturday morning.  I quickly abandoned the TV, turned my attention to my PC, and pulled up two news sites that I rely on for up-to-the minute news, Huffington Post and The Drudge Report. As I began to read the story, my appetite for additional information grew.  So, I went to Twitter Search to get more information, and there I received real-time updates and comprehensive coverage given the number of people, who like me, were following the story.

Once I found myself immersed in “#IranElection” a couple of interesting things happened. First, I found other sites/blogs which fellow Tweeters thought were doing a good job covering the story. There were several that stood out, including the Vigilante Journalist, NYT’s The Lede, and Twubs.com/#Iran Election. I was particularly glad to learn about Andrew Sullivan’s the Daily Dish. He was “live-blogging” the events from Iran in a way that I found pretty interesting. He was “curating” the tweetspehere and sharing what he thought were the most interesting tweets, adding videos from YouTube as they were uploaded, and posting links about interesting articles and news releases. He was updating the content every two to five minutes.

Second, this experience gave me a sense that I was as close to the story as I have ever been to the extent that I began to identify individuals in Twitter whose tweets I wanted to follow. Even though the overall “streaming” experience felt overwhelming at first, I was soon able to determine to whom I should be paying attention pretty quickly. I started to follow a couple of Iranians whose reporting on the events seemed accurate as far as I could tell. I determined this by matching their reporting to the video images that would emerge hours later.  Also, I have to confess that the Twitter community led me to find those people as it provided me with signals on whose reporting to trust via retweets, links and outright recommendations. After just a few minutes, I was getting “real-time” news coverage about the Iran elections protests. I have to say that my TV was still on in the background and I turned my attention to it a couple of times when CNN’s Christiane Amanpour commented on the day’s events.

There are several elements of my new news experience, which deserve to be called out:

- People Rather Than Brand: I found myself following more individuals rather than websites. The live-blogging experience from HuffPo’s Nico Pitney and Andrew Sullivan made me feel that I was sharing the experience with them rather than with the Huffington Post or The Atlantic. Certainly, in Twitter, I was following people, rather than news brands.

- No editor required: I found it particularly interesting that I was able to focus on facts and events that I thought were important rather than what an “editor” thought to be important.  I was creating my own storyline around the news event, relying on my judgment to filter the content I was consuming. This made consuming news a more involved activity but at the same time much more rewarding. For a big part of the day, I was “news hunting.” I guess it unlocked my investigative instinct.

- Bigger news appetite: As I got more involved with the story, my appetite for news grew. I kept on following the events on my blackberry after leaving home. I consumed news of the event for a solid 16 hours.

- Introduction of Live blogging to the masses: This is something that has happened in the digital media industry for several years now. Tech bloggers reporting Apple keynotes, conference gatherings, company layoffs, etc. I have always found the format to be really satisfying. Seeing this construct in action during the Iran election events prove to me that it will be part of the future of news.

- Use of tech tools: My news experience involved using a broad set of the ecosystem of Web tools such as Twitter and Google’s language translators, Twitpic, YouTube, Flickr, and Facebook among others.

This news experience may be unique due to the nature of the news event (as you may know, the international press was prevented from reporting on this event).  However, it does highlight how the news consumption experience is likely to evolve with the arrival of the real-time Web.

Exciting times are afoot for the newshounds in all of us.

Other than the interesting presentations by current industry newsmakers and catching up with industry friends, one of the most valuable things that I took away from Kara Swisher and Walt Mossberg’s D7 conference was a Flip Mino HD camera that I received as part of my gift bag. This simple yet  sophisticated video camera has made sharing memorable experiences with friends incredibly “frictionless.”

This has led me to think about the potential for another explosion in real-time, “social video” sharing over the next few years. Today, social networking activity evolved primarily around “status updates” as a universal behavior.  While sharing pictures and video has also been part of social networking in recent years, the behavior has not yet turned universal. Video sharing has primarily involved TV show clips rather than “social video clips.” However, as new devices and software tools make the producing, editing and uploading video process much more “frictionless,” real-time, I expect social video broadcasting will increase in popularity within social networks.

Video is a powerful mechanism of communication.  I realized this several years ago through a service that a local TV station offered in my hometown. The channel set up video kiosks around town that allowed people to create short-form confessional-like content. The channel would package this video and integrate it into their programming. These videos allowed local community members to discuss social concerns, express grievances with government officials, use their singing talents to complain about city services and in some cases embody the culture of the city via jokes or poetry. The success of this initiative was driven by the fact that the process of creating these videos was completely painless. The local TV network had set up kiosks all over town where any individual could easily record their rant of the day.

Recently, several signs have heralded the advent of this new real-time, video era. A new generation of tools designed to increase the use of video as a form of communication have been introduced. 12seconds.tv is one of the first services which aims to provide a “Twitter-like” video service that enables people to easily broadcast video “snacks’ to the their communities of friends and followers.  I must confess that I found myself unable to think of anything that could in the 12 second window. Facebook’s partnership with UStream, which makes it easier for celebrities to stream video live from their profiles, appears to be another sign around real-time/live video broadcasting.

As video recording-capable phones are added to the mix, real-time, video sharing will accelerate. There are new tools such as Posterous that aim to make uploading videos via iPhones to social networks pretty frictionless. Several other services like Twitvid and Tweettube, are making sharing videos on Twitter as simple as Twitpic has done with photos.

Thus, I expect that over time the same way that people take a few minutes to “update their status,” they may decide to point and shoot at something they see with some voiceover commentary. Needless to say, “video” will always require a bit more involvement than “text.”

Nevertheless, I expect continuous innovation in this area and thus new tools and devices emerge that will enable the process of real-time, video broadcasting much more frictionless than it has ever been.

In the meantime, I will be honing my video communication skills with the help of my Flip Mino HD.

While ownership of digital content in recent years has been en vogue thanks to the likes of iTunes and Amazon, the increasing ubiquity of full or “quasi-broadband” wireless access is likely to make streaming content more dominant over time.

The recent aggressive push by cable and wireless operators to provide fast Internet access to the Web is finally paying off. Similarly, the rapid growth in the number of hotspots has contributed to the sense (or reality?) that Internet access is all around us. In my view, the icing on the cake has been the deployment of Wi-Fi experiences in airplanes. Go-Go wireless now makes flying from New York to Los Angeles, San Francisco or Miami a unique experience.  So, it seems that  ever-ready access to the Web is all around (albeit with some connectivity hiccups which I expect to decline over the next few years if not sooner).

One of the implications of persistent access to the Web is the fact that we can now stream digital content instead of downloading it. This is relevant because streaming content tends to offer a more compelling value proposition for consumers relative to downloads. In many cases, streaming-based products are ad-supported products and thus free to consumers.  In this category, I include music services such as Pandora, CBS Radio/Last.Fm and MySpace Music, and video services such as Hulu, TV.com, and most TV network sites. In other cases, streaming-based products offer compelling premium experiences for which consumers are willing to pay for the bundle. This segment is much more nascent, so these products have yet to prove their mass appeal but show promise. In this category I would include music service such Spotify and Netflix’s video offering on the Web. These premium offerings are particularly compelling to high-consumption users who value access to “comprehensive” libraries of content, “all-you-can-eat” pricing models, and accessibility across multiple devices. As access to the Web increases around us, the number of streaming-based offerings will expand.

This emerging trend will not result in the death of pay-per-download or pay-per use models. This revenue model will likely endure as a segment of consumers will continue to demand “full control and ownership” over their digital assets. However, the increasing availability of connectivity is chipping away at “portability,” which is one of the key elements of the value proposition of “paid downloads.” As a result, we may see a change in the consumption mix relative to the current analog model where retail sales account for a larger portion of revenues in music and movies rather than rental/subscription-based businesses. In television, consumers already prefer a model that can be replicated on a streaming basis. All of this suggests that we may see consumers of digital content preferring streaming-based models rather than ownership-based ones on the Web.

Hence, content owners may want to start experimenting with models, both premium and free, that are streaming-based rather than continue to emphasize “retail ownership”-centric models. This will allow them to understand how to ultimately maximize the value of their content. My sense is that the behavior of media consumers on the Web will become increasingly much more segmented than it is in the analog world. Therefore, identifying how to extract the most value possible from different user segments will be critical to succeed long-term. The set of offerings to consumers will likely need to be more diverse than it is today. Music has certainly proven that now with the myriad of models that have emerged from online radio to limited streaming to streaming with no portability, etc.

Personally, I find myself buying less downloads from iTunes and streaming more from legal and free Websites. I have to confess that the main reason for this has to do with my coast-to-coast travel and ensuing fascination with Go Go wireless.

This does not mean that I will not pay for streaming services, on the contrary, I think that overtime I will pay for them if the product experience, bundle offering, and price point are right. Delivering a compelling premium streaming solution is not easy but I believe it will happen over the next few years. I simply think that these offerings may prove more compelling than paid downloads.

For many years now, I have written off “software clients” or “desktop applications” as viable consumer experiences. To me, the web browser paradigm is much more user-friendly and convenient. However, there are signs that suggest that “clients”/ “applications” are poised to make a comeback with users.

As a consumer, I have never been a big fan of software “clients” or desktop applications, primarily thanks to the continuous frozen screens that have punctuated my experiences with “clients” throughout the years.  To cause further annoyance, many of these clients are difficult to uninstall. Although these downloadable applications were designed to provide a better experience, like many users, I grew to distrust them. The Web browser-driven experiences proved to be much more convenient, frictionless and more importantly, a less risky alternative.

This dislike for “clients” intensified during my years at AOL, where issues with the AOL application drove user dissatisfaction with the service as a whole. However, during this time, I also noticed an interesting usage phenomenon. Core AOL users appear to prefer the desktop application to the Web browser experience. Those users who were satisfied with the “client” found the experience much more tailored to their needs and overall much more efficient. The mail experience was speedier, IM integration was more intuitive, and content sharing felt more natural.

Many developers and entrepreneurs worked over the years to convince me about the advantages of desktop software over browser-driven services. Yet, despite any of the advantages that clients offer, most consumers were reluctant to download applications and seemed to prefer browser-based alternatives.  Client-based products/services would be challenged to meaningfully scale. During this period of time, we only saw a couple of applications that bucked the trend: Skype and iTunes.

However, consumer attitudes towards downloadable applications may be poised for change over the next couple of years. The following are some of the signs and drivers:

- Clients are becoming lighter (i.e., requiring less time to download) and richer thanks to Adobe Air and Microsoft Silverlight. These lighter applications tend to create fewer issues than their heavy versions from years ago. On this, my evidence is only anecdotal.
- The success of Apple’s app store for their portable devices appears to be making users comfortable once again with downloading applications. Firefox “plugin” framework may have also contributed to this change in attitude among users.
- The popularity of Twitter “clients” such as TweedDeck, Twhirl, and Twitterrific provide a strong signal of this trend. These clients account for a significant portion (20%+) of the overall usage in Twitter by some estimates.
- Popular web services such as Hulu are experimenting with downloadable applications to enable a better user experience.
- New businesses are being launched once again around client experiences:  Boxee (video) and Spotify (music). Both of these services are enjoying significant buzz among early adopters.

Based on these signs, I expect client applications to become more popular over the next few years.  The Web browser paradigm is somewhat limiting relative to client applications. If users begin to change their attitudes towards downloads, I would expect developers to grow increasingly comfortable focusing on  developing clients rather than browser-based experiences.  Clients can enable the creation of highly tailored experiences, faster services, and more robust/richer experiences overall. The growing proliferation of computing devices beyond the PC will probably stimulate further the popularity and adoption of clients/applications.

The next-generation Web will evolve around much more sophisticated services than the ones we have seen thus far. I am starting to believe that “clients” will play a big part on the new Web.

The art of developing strategies for digital media businesses has become increasingly difficult. The dynamics of the Web continue to evolve at such rapid pace that media companies struggle to stay ahead of the curve. Changes in the marketplace force digital media players to focus on constant reinvention of their businesses. This is the reason why many digital media companies seem incapable of maintaining a consistent sense of direction for more than 12 months at a time, and why digital media leaders end up spending significant amounts of time restructuring their businesses.

The dynamics of competition in digital media have proven to be dramatically different than in most other industries.  For example:
- Hyper-competitive environment where entry requirements are declining over time (i.e., less capital, open distribution, lower user switching costs, etc.);
- Limited sources of competitive advantage (e.g., most companies struggle to retain asset/capabilities advantages over any significant period of time);
- Rapid cycles of product innovation as the market continues to aggressively fund new projects;
- Nascent revenue/monetization models which have yet to mature (i.e., advertising solutions are undergoing a significant period of change as advertisers are unsatisfied with current offerings); and
- Increasingly difficult to secure user/customer ownership given the high degree of empowerment granted by digital tools;

However, these factors do not bear sole responsibility for the lack of strategic direction by digital media players. In many cases, strategies are developed to fit market conditions at a particular moment in time. Instead, companies should develop the “strategic framework” it needs to effectively adjust its focus without losing sight of long-term strategic goals. Digital media players need to pursue strategies that allow them to rapidly change course when business dynamics change.

Amazon is a good example of a company that has put in place a good strategic framework to drive long-term growth. Amazon’s strategic framework is built around a platform play launched in 2003 with the opening of its inventory data.  The offering now includes third-party vendors via Amazon Web Services. This platform play has given Amazon permission to enter the content distribution business as well as the device business. Underlying Amazon’s success is the fact that they have enjoyed a core business whose financial performance has enabled them to expand into these new areas. Google has enjoyed similar benefits thanks to their rich paid search revenue model.

Without a robust business model, creating a long-term strategic framework and executing against it are very difficult tasks due to the lack of appetite for quick change among key industry constituents. Industry participants remain uncomfortable with the idea that the strategic value of a particular business may only last for a period of years. Advertising networks are a good example. Five years ago, advertising networks offered significant value to large publishers/portals as they allowed them to complement their brand efforts and scale their advertising business. Today, display advertising networks have proliferated and are becoming more targeted to the point that publishers may be better off optimizing across them rather than owning them. Similarly, as digital products become increasingly hit-driven with consumers (as I have discussed in the past), businesses need to constantly be prepared to make changes to their product portfolios on a dime. Sometimes, businesses that were once engines of growth can quickly turn into legacy business in no time.

These unstable dynamics dictate the implementation of a strategic framework that can be malleable but which also provides clear objectives for the organization and external constituents. A good digital strategic framework should:

- Properly anticipate how the market is likely to evolve over the next three to five years;
- Adequately identify core focus areas (i.e., areas of specialization where the company will focus on building competencies) and be specific around elements of the differentiation vs. the competition (i.e., don’t ignore the nuances);
- Provide criteria to constantly prioritize product efforts and assess/review product portfolio composition — e.g., No.1 with consumers, high-margin, systems-driven, etc.; and
- Outline initiatives designed to minimize long-term risk (e.g., hedge against lack of success of core business).

Implementing this type of long-term strategy requires a consistent vision and a focused management team. It also requires being obsessed about business and product nuances as well as remaining pragmatic about changes in marketplace realities.

Most digital media companies have not done so over the past five years, which may explain the challenges the industry faces today.

The growing number of social tools that have emerged over the past few years (MySpace, Facebook, YouTube, Wordpress, and Twitter among others) are contributing to the emergence of new type of users which I call “social leaders.” After all, in a world where we are increasingly “following” our friends, acquaintances, colleagues and celebrities, the “social leaders” are those from whom we are most interested in listening or simply those who tend to consistently “broadcast” or share information with us and their community.

The recent popularity battle between Ashton Kutcher and CNN on Twitter made this phenomenon evident. As of today, two million people are following Ashton Kutchner on Twitter. However, this is not just about celebrities. TV news people increasingly market their Facebook pages. Musicians constant promote their MySpace pages. Sports analysts promote their YouTube channels. Industry specialists blog and Tweet.

This phenomenon is not necessarily new. As communication tools have become easier to use over the past few years, these social leaders find it easier to build and maintain continuous relationships with their audiences. Social leaders can easily share their videos, daily musings, photos, thoughts on issues of interest, etc. Social networking tools have created a new class of users or, as I should say, broadcasters.

Today, the social leaders on the Web are similar to those in our “real” lives. They are our most gregarious friends, most extroverted colleagues or marketing-savvy celebrities. However, as these social tools evolve, I expect that new types of social leaders will be created and the overall numbers of social leaders will multiply. We have already seen leading gamers grow in popularity, good content curators sprout everywhere, new industry thought leaders expand their followings and “dorm-room” stars break through.

The implication of the emergence of online social leaders is that we will increasingly rely on them to help us sift through the abundance of “stuff” on the Web. They will increasingly play the role of curators of content and information for their communities. They will play the role of information editors across multiple dimensions of our lives. The amount of information available on the Web is overwhelming and so far most tools have proven inadequate to help mainstream users discover content and information on the Web that is of interest to them. Portals (Yahoo, AOL) and aggregators (Drudge Report and HuffPo) are still the most popular tools. RSS readers, while useful, have apparently failed to lure the masses.

Typical users need better forms to package information for them. Social tools have helped fill that gap. The next-gen tools such as Twitter, Friendfeed, Tweetdeck, and Twine are heading in the right direction. I expect these tools to continue to evolve and further enable “social leaders,” so that we, the happy followers, can more easily and efficiently discover and consume new content and information.

As web services and open platforms become more popular, the opportunity to change the ways Internet businesses operate is dramatic. Amazon and eBay (among the large players) pioneered these efforts starting in 2003. Today, with open source initiatives such as Wordpress and Open X, more and more companies are leveraging “openness” to enable rapid adoption and product customization.

In 2006, Facebook proved the attractiveness of the open model by opening its services to all developers. This move allowed Facebook to quickly enrich its offering with a diverse set of new features and functionality created by “friendly” third parties.

Recently, Twitter has gone a step further by allowing developers almost unrestricted access to its core functionality, thus enabling the rapid expansion of functionality that’s helping it address the emerging needs of its growing user base.  The best example of the power of Twitter’s open platform occurred a couple of weeks ago when Twitter announced their plans to launch real-time link search, only to learn that a startup called OneRiot was about to introduce an application with essentially the same functionality. The overall Twitter experience for consumers has evolved faster thanks to external product developers than if only the internal teams were responsible for it.

So, while technologists are fascinated with openness, I would argue that business folks should be equally excited. Open platforms allow the deployment of highly scalable and efficient operating models for Internet businesses.

The following are some of the key benefits that can be extracted by creating a service built around an open platform:

Product Development:  Companies can accelerate the development of new features and products. Open platforms allow internal teams within an organization to work more efficiently by eliminating bottlenecks and permission-based technology cultures (i.e., product developers need to ask for permission from most other product/feature teams to innovate). They also allow companies to easily tap external talent/specialists to accelerate product development initiatives.  The focus on highly customized/complex business development relationships should give way to allowing developers to have the freedom to easily access the platform to drive innovation. In other words, openness allows a business to easily access marketplace innovation. Implication: Greater ability to meet evolving consumer needs and deliver product innovation at a faster pace.

Distribution: Open platforms enable the creation of robust syndication initiatives (e.g., widgets, “share this” functionality). Allowing 3rd parties access to the platform can create a distribution army for the open company. This makes it easier for a product to easily become part of the overall Web ecosystem. Beyond syndication, open source can maximize distribution at a rapid rate and at a very low cost. Implication: internal product distribution teams would no longer be necessary.

Marketing: The need for traditional marketing decreases as consumers and the marketplace become more efficient arbiters of winners and losers. Given the lack of friction and inefficiency in the system, successful products do not need to spend on traditional marketing campaigns to secure consumer adoption or distribution. Companies need to seed new products with influencers through smaller, highly-targeted campaigns. As positive word of mouth spreads, open platforms allow early adopters/passionate users to drive adoption of the products. Implication: Limited need to spend on marketing.

Management: Open platforms allow management to distribute control over operations more readily. This leads to a more decentralized organization where the decision making power is in the hands of product owners and thus closer to the end user. Openness reduces the need for an organizational matrix. Smaller groups can be empowered to make decisions since they have limited impact on each other. This approach provides management greater flexibility as it can easily stop failing projects without impacting the rest of the organization.

Sales/Revenues: An open platform allows companies to easily test different monetization models, primarily performance based. Again, third party models can be evaluated with limited friction. This is particularly important because online revenue generating solutions continue to evolve. Implication:  Focus on developing internal capabilities around premium monetization and rely on third parties to handle performance unless your product requires a unique ad solution.

G&A: Lastly, openness allows organizations to be much more widely distributed. For some, distributed may mean inefficient. However, the reality is that distributed models tend to be much more efficient as you can engage productive talent pools, reduce the need for hand-off managers, and time-consuming decision-making processes. Implication: Focus on developing the right set of processes to enable a distributed model to succeed.

I increasingly think of open businesses rather than simply open platforms. Those business leaders who embrace openness are more likely to succeed than those who focus on obtaining cost-efficiencies within closed operational environments.

Please share your experience with open models.

Digital media companies would benefit from embracing technological innovation and taking proactive measures to avoid falling victim to the innovator’s dilemma. The Innovator’s Dilemma is the title of a book by Clayton Christensen in which he studies why successful market leading companies fail when faced with disruptive-innovations (i.e., simpler, cheaper, less functional products/services) in the marketplace.

One of the most compelling (and terrifying) aspects of the digital media and technology industry is the rapid pace of innovation. Every year we witness the launch of game-changing products and services. In some cases, these products capture the mainstream imagination (I don’t need to name these) while others garner the love of a smaller subset of enthusiasts. Consumers can continuously switch or update their portfolio of preferred digital products and services.

In recent years, the pace of innovation has accelerated thanks to the proliferation of competitors, rapidly declining production costs, and the establishment of standards in many areas of the industry. This trend is creating a challenge for most digital players who appear to be struggling to keep their products and services relevant with consumers in an even more competitive marketplace.
Those players who appear to be succeeding (or at least not struggling) have done so by making product and service innovation a core capability. They realize that driving innovation is essential to protect and grow their business in the long-term.

Facebook’s recent redesign illustrates the importance of making and what it takes to make innovation a core capability in the digital marketplace. In a much-publicized maneuver, Facebook completely redesigned their “homepage” experience around a real-time news feed of social activity. Some have described the new design as Facebook’s effort to adopt some of the most compelling aspects of the Twitter experience. A change of this magnitude in the user experience of a product as popular as Facebook is not for the faint of heart. It can alienate users and slow the arrival of new users.

Although this move has invited criticism across the Web from both industry pundits and users, I believe Facebook’s willingness to change its user experience in such a dramatic fashion deserves some praise. Despite its success in attracting new users, Facebook pushed forward to “innovate” its user experience to better serve an emerging consumer behavior, which Twitter seems to have unleashed. Perhaps, Facebook fears that unless their user experience evolves as fast as the market, it would be tacitly allowing the competition to chip away at its users’ attention and engagement long-term. So, regardless of the ultimate outcome of the redesign, the willingness and ability to adapt to changes in consumer behavior and consumption could prove to be one of Facebook’s primary competitive advantages. Many other companies in the space would be unwilling to take a chance such as this.

Some may argue (and probably rightly so) that Facebook was able to take this aggressive step because they do not have revenues that could be impacted by the change. If they had real dollars at risk, it is possible that they would not have taken such a step. This may very well be the case.  Unfortunately, I have seen several companies choose near-term monetization over product innovation, who have suffered for it in the long-term. In this scenario, the quest for monetization becomes a competitive disadvantage.

This has made me think that technology-driven cultures, such as Facebook, may have an edge in driving business innovation relative to their less-engineering driven counterparts. These cultures tend to put the mechanisms in place to foster and reward innovation.  In my experience, engineers are wired to drive innovation much more than traditional business managers. This “innovation” capability is particularly valuable for digital media where consumer behavior and business models are still taking shape.

This aggressive approach to innovation is a capability that media companies need to consider developing/matching. One way of doing so is to increasingly embrace engineering talent as a “core” part of their digital efforts (rather than a peripheral cost center). This implies creating product teams and organizations that effectively mix business and technology talent. It also implies putting in place product managers who have the ability to effectively collaborate with/lead engineering teams. Ideally, management would include leaders with “hybrid” experience in both technology and business. Another way of doing this is to create an environment where acquisitions are effectively leveraged to drive innovation. This approach requires a culture and organizational infrastructure which allow for external innovation to be easily plugged-in.

Doing so would help create an environment where their digital teams would increasingly focus on delivering new products and services that consistently meet the evolving needs of their customers and audiences. Fostering innovation within their own ranks would allow media companies to have a better shot at being able to compete on more equal terms with their “pure” technology counterparts.

There is no dilemma here: companies playing in digital media need to be innovators. However, this is clearly not an easy task.