Implementing Digital Change is tough

I had the pleasure last night of attending a small get together of industry professionals. I met the gentleman at B&N responsible for brining the Nook to market. I also met the music executive responsible for negotiating the first deal with Apple to sell individual tracks (something that was unheard of in the music industry before iTunes).

The conversation drifted into the future of books and music. Sure, the music industry was taken by storm by digitization of their product. The books industry is clearly moving in that direction but will likely move a bit more slowly.

Three things came up that were very interesting. First had to do with implementing change. For the most part, most digital business or efforts cannibalize a legacy business that is usually a cash cow. iTunes wrecked CD sales as digital books will soon wreck book sales. Companies will not move from a successful high margin business to one with smaller margins unless they are forced to. Music was quickly forced and the book industry is slowly being forced.

What they are doing now in both industries is creating uniqueness to their products - books have sample chapters from other books. CD's have hand written notes from the artist. These items make the physical product more unique. They charge a premium for these things and it is working, they claim. The problem is that industry players are not used to providing this and it may not be scalable across every product.

The second item that came up had to do with organizational design for implementing change. We talked about all the different ways it can be done: silo, breakout, embed. A lot boils down to the CEO. The CEO needs to have the courage to move from one business model to the other. Companies fail at this re-invention all the time because CEO's also have to protect their bottom line. They need to make a short term decision to hit a profit goal at the expense of a long term inevitability. Some CEO's can toe that line pretty well. Other CEO's can't. They won't move to a digital format until it "pays out" (read: newspapers). That may keep the company strong short term but then causes them to chase digital in the coming years - they leave a problem for their successor.

This is a tough one because no one can see what is coming around the bend in the digital world. I was speaking to someone at Billboard.com and he said the Facebook was the #2 referring site behind search for billboard.com. No one would have thought that even 1 year ago. Yet many companies are still struggling to find out what "to do on Facebook."

Lastly, we all agreed to digitization of products is now all about the user experience. Buying a product is simply not enough anymore, but the process of buying a product is now so important. Everything from the app store to the packaging has to be thought out. When you think about the difference between the Sony Reader and the Kindle - the iPod and the Zune - its the experience that is different. The satisfaction one gets when making a purchase and owning an experience rather than just a device.

The conversation was summed up well. Its better to move fast and imperfectly than slowly and perfectly. Given you don't know what is ahead and the road is ever changing, you need to be nimble - the adage of failing fast and moving on was thrown out several times. Big companies also have a hard time with this, the idea that digital products are iterative. They are used to creating the big product and having a big release. Digital products can't be done that way. They are leaked out quickly, tested and refined.

Great evening of conversation.

Newsdays Long Island - Pay Per wall generates 35 users

A few newspapers, notably the NYTimes being one, have recently gone about or plan to put up pay-per walls between users and their content.

I guess the thinking is that they feel their content warrants people pay for it online.

Newsday - a daily paper on Long Island did this a few months ago. The spent $4-million re-designing the site. The result is 35-sign ups and $4,000 in revenue.

Papers who have sought after content, or content that is valuable simply by its aggregation, such as financial data or trends, can likely do this. General, or even world news, will likely not work. That information is no longer sacred - it can be accessed from everyone for free. Its like buying air.

Newsday is owned by Cablevision, who also owns the cable property on Long Island as well as the Knicks and Rangers and several other media properties. Users can access the site if they have a subscription to the other property. I assume their strategy is to limit access to Long Island information unless you pay in some way to Cablevision.

This is clearly the opposite of the way things are moving. Content needs to find people - not the other way around in todays world.

Will the tablet create paid content programs

I'm not sure what Apple has planned for the tablet and the "paid content" plans with publishers - but getting people to pay for content online will be extraordinarily difficult. The NYTimes announced today it is launching a "paid metered content" program.

I'm not sure what the NYTimes can offer that I can find for free elsewhere - on another news site or blog.

The content has to be personalized and served in a way to that is meaningful to users. If it just gives users access, it will be very limited in its success.

Throwing walls and barriers to entry up on the Internet is not a strategy that has worked - AOL is the great example of that. Content is open and must be accessible.

Apple and Harper Collins to lead the way selling digital books on tablet

It will be exciting to see how people take to digital book formats. The Apple tablet can be a big boost to digital book readers: Kindle and the Nook. Apple is now teaming up with Harper Collins to test and sell books, presumably, for the tablet.

Harper Collins has always been more progressive than other publishers. They were one of the first big houses to publish lots of digital content, create readers guides and build a direct to consumer campaign.

The industry is a tough one. B&N is the gorilla and Amazon is undercutting prices and creating a market for used books. Publishers are in the business of telling people what they should read - in the new digital world, thats a tough position to be in. People want to hear what other people think not what a publisher thinks is good because they paid a big advance.

Publishers have to change their DNA from content filter to content delivery if they are going to have a home in the future. When you think about it, they don't even create the content, they just take it to market for a mass audience. Today, the audience is fragmented and there are multiple channels that publishers can't reach.

When you think about it, there is no reason why a Stephen King or James Patterson even needs to use a publisher today. They could sell direct to Amazon, B&N and sell their books online. They would probably make vastly more money and better control the print runs, which is one of the big cost drivers (printing and un-sold returns).

Publishers need to find a new home in the value chain. I hope Harper does well. I think the digital book readers will catch on in the next few years as the devices improve.

Sage Advice on Product Positioning

I received wonderful advice yesterday from a person who has taken several business from nothing to multi-million $ companies. We were talking about a new product launch I've been working on. The advice was simple - as most good advice is. He said the approach he has taken has never changed and if the questions can be answered then the product can be taken to market.

First, begin with the end in mind. Where are you headed. What do you want to be? What is the goal?

From the goal you outline your strategies for achieving that goal. What is the course, the plan of action? How are you going to "do this"?

From the strategies you then lay out the tactics. What do you need to do to get the strategies accomplished? Are the do-able? How long? Who do you need?

And most importantly, and this is where most fall down - the tactics must be measurable. Are you making progress? If not, maybe the strategy is flawed. Maybe the execution was not right. Can it be fixed or was the strategy a bad one to begin with? If the strategy is flawed the goal obviously can't be reached. No goal = failure.

Only then can you determine if a new product can stand on its own in the marketplace.

What is driving health care costs and who will pay

The health care bill has the chance to alter the personality of America more than any bill. Just like Social Security did for providing financial stability (if you want to call it that) our government wants to provide health care stability.

Its important to fix, no doubt. Families spend on average $8,700/yr on healthcare and it consumes about 18% of our GDP. Its a system that is horribly broken.

But what is driving the cost of the care? Here is an interesting paper published by the national institute of health policy that highlights the health cost drivers and where they are coming from. Its a pretty simple paper to read and if you know anything about business management if makes sense.

Price are driven by three things:

1) cost of goods and services

2) quality of goods and services

3) demand for goods and services

Sounds like economics in Freshman year....

The issue with our system is that all three are out of control. The cost of providing the goods and services have gone up. Doctors need more insurance. Specialists have exploded and charge higher rates. Nurses are in short demand and therefore get higher pay. The list goes on.

The quality of goods and services has also gone up. Anyone who gets sick and can afford to come to the US for treatment, does so - they do this because we have the best health care, the latest technology, the latest procedures and the best facilities. If you look at the charts - hospital expenses have grown tremendously mostly due to better technology and the costs associated with acquiring it. Also, the "very sick" who represent 5%-20% of hospital patients eat up 20%-50% of the hospital expenses. Classic Pareto principle.

Lastly, and this was surprising - was demand for services has also gone up. People want more treatment from their doctors and more prescription drugs. Historically this has been the case.

So, the rates go up. Costs go up and demand is up. Therefore prices go up - - economics 101.

Now, here is an interesting op-ed piece from Rob Herbert in the NYT that highlights what the bill does and where the money comes from to pay for all this (or keep the costs down - because that is what the bill intends to do - its not about coverage. It is about costs).

To grossly summarize his points - the government is betting that if we make health care more EXPENSIVE for people, they will use it less. Yes, make it more expensive for the people "who can afford it" - namely, the middle class.

And where does most of the money come from? The government is betting that companies will stop paying for insurance coverage for workers, and instead, give workers a higher salary. More income tax would be collected (remember, taxes are taken out AFTER medical costs now). The big question is, will companies pay workers more, or simply say "we don't offer medical coverage." In which case more workers will be without coverage and costs will skyrocket.

Back to economics 101 - can we control the costs of goods & services? Maybe, but for the most part doctors will likely become more specialized and more expensive. It is a natural progression. Can we stifle the quality of the care? No way. So that leaves us only one option - lower demand. Making health care more expensive will lower demand.

Unlike gas - which if you remember was almost $5/gallon back in the Summer of 2008 - health care is an elastic demand for most people, meaning, you may be able to do without some. Gas is an inelastic demand. If you drive 20 miles per day to get to work - you can't drive 15 miles and still get to work. You just pay more.

Of course, if you get cancer or you are pregnant or you are in a car accident - care is completely inelastic. It becomes a necessity. What happens when that $80,000 bill comes and you are on the hook for 20% of it?

Very enlightening. Our leaders are failing us. Demand is not what should be attacked - costs should be.

Readers Digest and the making of a content media company

A great profile of Readers Digest today in the NYTimes advertising and media section.

If you make money advertising and you do that with original content - business is tough. Newspapers and magazines clearly fall into this bucket.

On the advertising side, a space ad in a newspaper is almost worthless today. In magazines its worth a bit more but the reach has declined so much the ad has little impact.

Advertise on a web site and you can pay for specific impressions, type of impressions and even set a CPA fee so you can cap your expenses per lead. Buy keywords and you can learn how people are finding you online and refresh marketing material with the proper wording.

If you create content most of it is being consumed in places that you don't own; websites that aren't yours, blogs that critique you owe you nothing, followers agree or disagree and pass their thoughts along to thousands without you knowing. Content now is about conversation. "Lead stories" or "Cover Stories" are published and then passed around. The conversation takes place in the corners of the Internet.

Readers Digest is such a microcosm for the entire old-school publishing industry. Everything that made them strong in the 70's-80's is not useful today. Writers, distribution, printing, access to large swath of middle america. Everything you need to make you strong today, they are trying to build. But what are they building? Content web sites . . . .

Mary Berner makes $125,000/mo - an enviable sum - trying and figure out how you make money in content online. "Audience building" appears to be the new phrase, replacing what I suppose was subscribers.

The strategy she has, however, is very similar to what RD did back in the day - make the audience come to you. This time instead of magazines she is using web sites.

Content on the web doesn't work like that. People are only a click away. Content is ubiquitous. The only strategy that will work for content is one that distributes, not one that gathers. Content that is relevant, not content that is all encompassing. Content that arrives, not content that I need to go.

Content has flipped - no longer will people go to content - the content needs to find the people.

RD filed for Chapter 11 earlier this year.