SpectatorBytes

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.