SpectatorBytes

Traditional and digital media companies have begun to recognize the need to use M&A to build their business. Acquisitions are increasingly becoming a critical source of product innovation, specialist talent (see my previous post Product Development: Specialists Win), new audiences, new customers, etc. This is a trend that I expect to become more prevalent in the coming years.

As a result of this, companies will increasingly have to deal with how to best integrate these acquired companies. To date, managers seem inclined to tightly integrate acquired businesses into their core businesses (“The Mothershp”). Some of the reasons cited to justify this approach include make businesses easier to manage, reduce internal competition among units, eliminate apparent resource redundancies, and or simplify relationship with customers.

This approach, however, I believe is not appropriate for digital media businesses. In this medium, managers should minimize formal (call it operational) integration of their companies. Digital businesses should increasingly be managed as a highly distributed portfolio of assets rather than tightly integrated operation. Here are some of the reasons why:
- Enable teams to stay laser-focused on executing their vision and building their business; also, more likely to keep founders and product leads engaged beyond the compulsory retention period
- Allow businesses to prioritize its customers need and purity of their vision over internal operational priorities. Independent players can take advantage of situations in which an acquired company is forced to change/mutate its vision for the benefit of the mothership.

- Help businesses to maintain a high degree of strategic flexibility to be able to respond to evolving market dynamics
- Creates an environment in which businesses treat all of its customers and business partners equally; This is important because businesses will tend to operate as a platform, and one that can scale. Like with any platform, a little customization is allowed for major customers (including the mothership).
- Promotes a Darwinistic mentality inside each business; mothership provides no subsidies and or operational crutches to the businesses
- Fosters cultural diversity across businesses

This suggests managers should focus on:
- Cost efficiency inside each of the businesses rather than across entire business
- Maximizing cross-promotion, collaboration opportunities and operating synergies but without sacrificing product/consumer experience
- Help each business optimize their monetization approach (regardless a monetization engine is owned or not).
- Optimizing portfolio composition; this is important as digital media businesses grow and decline much faster than in any other media

Why are things different in the digital age:

- Hypercompetition

- Pace of change is extremely fast

- Core infrastructure technologies/tools are increasingly accessible to all

- Low product development costs

Best in breed services tend to win in the Web. Operational integration usually reduces the chances of that.