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sábado, 28 de mayo de 2011

Book industry: a shift in power, and new players coming in.

It is amazing how when you go on the street and you find so many people saying that the web is going to change everything, from the way we interact with other people to even the way we read books. I do agree with the fact that digital is changing radically things, but what we need to understand is that even though devices or stakeholders appear and disappear continuously from the landscape of certain industry… is also truth that we focus too much on the details, and we do not try to understand  the underlying reasons why a certain change is fully accepted by society.
Let´s take a look for example to the publishing industry, specifically to the book industry and how it has changed. The size of the book industry is around €80 Billion, and is the 2nd largest creative industry in the world. Publishers expect out of 10 books to loss money on 3, breakeven in 3, and with some luck make profit only on 4 of them.  Despite 78% of the books published worldwide each year come from small and independent companies (highly fragmented), 80% of the revenues of the industry are made by 5 conglomerates (high concentration of revenues).

The traditional way of publishing books was made of two phases: content development and content distribution.  A manuscript need to be provided by the author(s), and then reviewed, improved (grammar or tweak the story) by the publisher. Following, artwork and design were developed, sales were forecasted, marketing plan was devised, and then the books were sent to the retailers. So far everything looks great, but books that were not sold were given back to the publisher (who carried with all the losses), and books that were printed and not even sent to be distributed were usually sold at below cost selling price (more losses fully covered by the publisher).  
By taking a look to the above chart, do not get me wrong I am not a publishers` defender, but it seems that the distribution channel is getting the best slice of the pie without suffering any risk.  Another stakeholder suffering from LMS (lousy margin scheme) is the one that has provided in the first place with the raw material to make business on top of that, the author.
So wrapping up, we have:
a) The publisher:  high fixed cost, every book is a new product (nothing more than a bet). Carrying with most of the risk, but still with the power of deciding which books is going to be published.
b) Author: getting small royalties compared with the selling price at bookstores.
c) Distribution channel: getting the best, by doing less.    

and now, the raise of the eBooks!
With the high penetration rate of the Internet (developed countries) as well as of mobile devices that make our life easier, portable, and ubiquituous (tablets, smartphone, eReaders), the way books were created and distributed have changed a bit. Let`s start from scratch. Still in order to introduce a new book to the market the content  must be developed and also must be distributed. So… at this level nothing seem to have change radically, right?... let`s go a bit deeper into the detail:
a)      Content must be developed and improved:
-     Manuscript: we need the author of course.
-          Improve the content: you may use a publisher or choose from a ton of specialized independent agents willing to help.
-          Artwork design, and marketing: publisher, or independent agents.

b)      Content distribution:
-          Bookstores (physical book): we need the traditional guys from the industry, who will try to get the profits but will not carry with the risk.
-          eBooktores (eBooks): they make a margin, they let you set the price, there is no inventory risk, everything is sent throuh the web so no logistics or trucks are required.  

It becomes clear by reading the above info that a stakeholder that was tremendously powerful before... might be “easily bypassed” nowadays if we decide to go for eBooks?. The author can simple hire different specialized independet agents for the different tasks to be carried out, increase his margins, and get rid of the publishers.  Despite being extremely simplistic in this analysis, this is happening for some authors/books. Authors such as Paulo Coelho have managed with their strong  brand names to publish books without having a strong publisher backing him up.  Having said all of this… we do not have to forget that:  eBooks have a major disadvantage: you want to read them? You need a device. The eReaders and tablets have three limitations, (1) they are not cheap, (2) my grandma and your grandpa don´t have a clue about how to use them, (3) depending on the language there are not many eBooks titles available, so the device with nothing to feed them is simply hardware.   

So wrapping up:
a) The publisher:  his only added value, is that can provide authors with higher visibility due to they can spend more money on marketing the product (visibility).
b) Author: they can go for higher margins, and have the power to decide how their books will evolve and how they are going to be commercialized.
c) Distribution channel: no logistics, no trucks, no inventory management.  To distribute eBooks we will need eBookstores. But what will happen with people that prefer printed books? Should we just forget about them?

New stakeholders and trends:
·         POD (Print On demand): for this you still do not need major logistics, you can use companies such as DHL or Fedex to distribute it for you to the final buyer.
·         eReaders & tablets providers: as said before, if you want to read an eBook, you need a device able to display that content. This is were the money is moving, and were the players have identified the opportunity to create walled garden ecosystem in which I provide you with the device, but also with access to my eCatalog of eBooks so you can buy easier, buy more, and more frequently.       


Social Gaming: enlarging the pool of players

Last January the size of this sector that exploded in 2010 was estimated in £1bn, and thanks to factors such as social networks is expected that will continue to grow surpassing experts´ expectations.

First of all, let`s try define what social games are (SG), and what they are not. SG are games in which players can interact and share content through the web. This emerging trend has made the gaming experience to be
transformed from a lonely, individually-played activity, to a universal social experience that can be shared with family and friends
One of the main driver of this changes comes from one of the 7 principles of Web 2.0., the fact that the user is not only willing to read content, he wants also to become a producer (“prosumer”), to share it and get recognition. When people play SG usually their scores are shown on their social networks, creating buzz, and making more people join the experience (network effect). This has changed completely the gamers´ profile by making non traditional gamers to become interested. The chart below give some hints about how even elderly people has felt attracted by this idea. Is not anymore about geeks and hardcore gamers, is about my mom and your grandpa playing FarmVille (Zynga major hit) and mocking one another.

In the past traditional companies developing games, made money by selling their titles, merchandising, rights for movies, and recently also by embedding advertising on their products (advergames). The problem is that titles for core gamers were becoming extremely expensive to develop, while companies did not have any guarantees for success. This led them to do two things, initially to focus only on AAA titles and franchises that have a proven track record of sales success, and secondly to move to other lower capital intensive projects that could be distributed on the web (less risk, higher ROI, bypassing the traditional distribution chain that was taking away a biggest chunk of revenues).

The new problem is that, the most successful SG are usually offered for free... so how companies such as EA and Disney are going to make money?. Exactly! Advergames, virtual goods, subscription or micropayments to have access to special features of the game.

As I mentioned before, is not about geeks and tech-freaks playing hardcore games, is about everybody spending an hour each day in front of their computers playing casual SG at the office, on their smartphones, or at their homes. This can represent a great opportunity for companies willing to squeeze the potential revenues that can be made with advergames... and do not be naive if you were planning to say that there is not enough money, look at Google... free services with advertising it is a very powerful combination.


viernes, 27 de mayo de 2011

Google and its next big challenge: NFC and e-offers

Google has proven great success on their business with adWords and AdSense, youtube, and also has shown to be very visionary by putting in place the necessary tools to help their Android ecosystem to grow to the extent of representing a threat to iOS (Apple). In my opinion the biggest challenge they are about to face is not on their current businesses, but instead in their recently announced (long waited) Google Wallet service and the mobile payment war that is about to start in the western countries.

Google Wallet was formally announced on May 26th, and has been thought as an open platform for the stakeholders involved (handset manufacturers, telcos, banks) aiming to create an ecosystem for mobile payment. Google has invited any player to join the initiative to partner in the development of such tech.
Wallet is based on NFC (near field communication) and is expected to become the next big thing for mobiles. Google has also mentioned that in order to boost adoption of their technology, those Android’s devices that do not have a NFC chip embedded, have the chance to add an NFC sticker to their phones to start using it G-Wallet right away.

Problems seem to have started the very same day they announced that the project will be rolled out. The first competitor to start the fight is neither a TelCo nor Apple as we all might have think, the first one is PayPal. The reason they allege is that Google hired two key PayPal former workers that were involved in the mobile payment research in this company. Even one of them, was an executive at PayPal negotiating a contract that would provide Google with a payment system for their Android store. The lawsuit that was filled by PayPal includes “stealing Paypal’s employees as well as trade secrets that could have led Google on its development of their Google-Wallet”.   

Mobile payment represents such big opportunities for handset manufacturers as well as for TelCos that instead of partnering with Google, it is expected that a major race to become the de facto standard for such industry will soon begin. Apple has announced its own initiative on this matter, even though no clear plans or schedules have being formally published.

Wallet will also enable Google to boost usage of their “Google offers” by simplifying even more the way people acquires such item/discounts.  Users can simply pick the offer they are interested on, drag it into the Wallet and that’s it, they can right away redeem it if they want. This user experience enhancement will for sure re-open the doors for Google to start competing against companies like Groupon… companies that once were unwilling to sell, now might regret.

Let´s wait and see, what is clear, is that the way in which we use our mobile phones will change drastically... again. 


lunes, 25 de abril de 2011

A framework to understand what/how to deliver services/products to the new digital consumer

I was trying to find a good framework to analyze how a company should deliver their services/products on the new Web as it has been called by many. When doing this research I came across with a KPMG's paper titled "Emerging Business Models to help serve tomorrow's digital tribes".

In the paper they explain three key steps that most be followed by a company that is currently opearating or that is planning to target the new digital tribes. The concept of Digital Tribes is the name that has been giving to the new "Web Consumer" and the way they interact, and organize based on their interests.

I would like to pinpoint some of the things mentioned in the paper.

STEP I:  Understand your value proposition
 KPMG developed a set of 20 (20 C's) elements that enable individuals and companies to understand what they are really offering to their customers. Things like convenience, content, coverage, level of customization, interactivity, customer experience, consumer reviews, are some of the C's of their list.

STEP II: Understand your target audience
  They explain how the traditional way of segmenting the target customers, segments A-B-C-D, has lost validity. The main reasons why this has happened are related with the fact that people is grouping based on their interests, and not anymore based on their age, location, disposable salary. Due to tons of personal information is now currently in the web, ultra-targeting is now possible: the service/product we are delivering can be highly customized.

Regarding how the industry  is changing, and how to cope with it, Rio Careef was interviewed and mentioned two interest elements:
    - Evolving the way we make business: innovation in micro-transactions will bring new revenue models.
    - Surviving & creating the old "bariers to entry": alliances with the parties involved (network operators, service providers, distributors, manufacturers) are a smart way to keep up with the changes.

STEP III: Finding the right revenue model
 For this section I selected the key phrases that were introduced in the paper, and that in my opinion are a good summary of the elements mentioned in the paper.
  - Pay models make only sense when the content is truly unique, or compelling. When this is not the case, advertising and sponsorship should be use in order to deliver free content to customers.
  - One of the key issues is that people believe that as a principle content on the web should be available for free.
  - Content should not drive revenue model decisions.
  - Most if the times, a single revenue model is not enough. Hybrid systems  such as the ones used by Spotify and FT, seem to be in the right track by minimizing risk and creating tailored solutions for their customer base.

 Extracted from KPMG Convergence Equalizer (Digital Business):