THE CONTENT TRAP A STRATEGIST’S GUIDE TO DIGITAL CHANGE Anan_9780812995381_3p_all_r5.j.indd 5 9/1/16 8:09 AM
THE CONTENT TRAP A STRATEGIST   S GUIDE TO DIGITAL CHANGE  Anan_9780812995381_3p_all_r5.j.indd 5  9 1 16 8 09 AM
CONTENTS Preface Introduction ix xv Part I: Classifieds—User Connections 1. A Tale of Two Geographies 2. The Real Problem with Newspapers 3 7 3. Networks 12 4. Schibsted 24 5. The New York Times Paywall 38 6. Television: Connecting Streams 50 7. Crowds 62 8. Cost-Based Connections 9. Chinese Connections: Tencent 10. Create to Connect 71 84 96 Part II: Concerts—Product Connections 11. Jerry Maguire 12. Music 101 104 13. Apple and Complements 110 14. Four Lessons About Complements 115 15. A Detection Challenge 126 16. Spillovers 141 17. Getting Noticed 153 18. IMG 175 19. Expand to Preserve 186 Anan_9780812995381_3p_all_r5.j.indd 13 9/1/16 8:09 AM
CONTENTS  Preface Introduction  ix xv  Part I  Classifieds   User Connections 1. A Tale of Two Geographies 2. The Real Pro...
xiv | CONTENTS Part III: Context—Functional Connections 20. A Digital Contrast 21. Connections and Strategy 22. From Atoms to Bits 191 204 213 23. A Strategy Process for All Seasons 230 24. Dare to Not Mimic 256 Part IV: Everyone’s a Media Company 25. Advertising—The Promise and Debates 261 26. Reimagining Advertising 280 27. Education at a Crossroads 299 28. Creating HBX 309 29. From Strategy to Launch 318 30. Education: What Lies Ahead 341 Afterword 345 Acknowledgments 351 Selected Bibliography 355 Notes 363 Index 397 Anan_9780812995381_3p_all_r5.j.indd 14 9/1/16 8:09 AM
xiv   CONTENTS  Part III  Context   Functional Connections 20. A Digital Contrast 21. Connections and Strategy 22. From At...
1 A TALE OF TWO GEOGRAPHIES SCANDINAVIAN WARRIORS Norwegian winters start early. November 12, 2001, was another frigid arctic day in Oslo, with temperatures below zero. Inside the modest redbrick headquarters of the Scandinavian media publisher Schibsted, there was a distinct chill as well. Schibsted’s board was convening to determine the future of CEO Kjell Aamot. During the previous two years the company’s main newspapers, Aftenposten and VG, had seen revenue declines as Web competitors siphoned off readers and advertisers. Schibsted’s own online operations, started more than six years earlier, were growing but had little to show for themselves—investments far outpaced returns. And the recent bursting of the Internet bubble had seen Schibsted’s stock crash and then languish. Aamot later summarized the situation with customary candor: Everything was going wrong. We saw major loss-making initiatives all over the place—seven years of losses. When the bubble burst, we had a loss of approximately $200 million in Norwegian kroners and that was a huge loss for us. That was absolutely my responsibility. The board of directors very much felt we should close down some activities. Most members were of the opinion that I should resign. Ultimately, it was only the support of Schibsted’s main shareholder, Tinius Nagell-Erichsen, that allowed Aamot to continue. But the crisis shook the company’s senior managers, resulting in greater pressure to clarify their Internet strategy. As a print-media firm struggling to reckon with the threat of the Internet, Schibsted was not alone. Hundreds of newspapers around the world were engulfed in a digital wildfire. That year The New York Times announced cuts of up to 9 percent of its workforce; between 2001 and 2006 it lost more than half its market value, and by 2012 the loss was more than Anan_9780812995381_3p_all_r5.j.indd 3 9/1/16 8:09 AM
1 A TALE OF TWO GEOGRAPHIES SCANDINAVIAN WARRIORS  Norwegian winters start early. November 12, 2001, was another frigid ar...
4 | THE CONTENT TRAP 75 percent. The Washington Post shed 23 percent of its newsroom, and similar cuts occurred at The Boston Globe. Articles with titles such as “Who Killed the Newspaper?” (The Economist, 2006) and “Mourning Old Media’s Decline” (The New York Times, 2008) cropped up everywhere. But as these events continued to unfold, something strange was happening back in Oslo. Starting in 2003, Schibsted began to make money on its online operations. A little at first—and then more and more. By 2006 the publisher’s online operations accounted for 35 percent of operating profits. In a stunning reversal of events, Schibsted had, first shakily but then unmistakably, turned around. The Economist noted that while 2005 had been “miserable” for most newspaper companies in the Western world, Schibsted’s performance was “a rare exception,” making it one of the only newspapers to have turned online into a profitable business. In 2011 Schibsted declared operating profits on its online businesses of roughly $220 million—nearly 60 percent that of the entire group. CHINESE VIRTUAL GIANTS Six thousand miles southeast of Oslo lies Shenzhen, one of China’s fastest-growing cities. Three decades ago it was a farming and fishing village with a few thousand people. Today it is an eleven-million-person metropolis. Most of its growth was triggered by the creation of a Special Economic Zone in 1979. Shenzhen is now a manufacturing hub, the financial center of southern China, and the home of companies with globally recognized brands, like Huawei and ZTE. Despite this engineered growth, the most famous company headquartered there arose from homegrown entrepreneurs Pony Ma and Zhang Zidong. In 1998 these two young computer science graduates of Shenzhen University started a company to take advantage of China’s Internet boom. Tencent began operations uneventfully, engaging in service work for local telecom operators and paging centers. Like many other local start-ups, its main approach to product development was to copy from the West. It did so well: Its first product, the free instant messaging (IM) service OICQ, was a near-perfect replica of AOL’s ICQ (an acronym for “I Seek You”). In addition to an easy-to-navigate communications platform, OICQ offered useful add-on features such as chat rooms and a mobile service. Within three years the service, renamed QQ, was the leading IM provider Anan_9780812995381_3p_all_r5.j.indd 4 9/1/16 8:09 AM
4   THE CONTENT TRAP  75 percent. The Washington Post shed 23 percent of its newsroom, and similar cuts occurred at The Bo...
A TALE OF TWO GEOGRAPHIES | 5 in China, with more than 50 million users. The entry of copycat providers did nothing to slow it down. Instant messaging is a business that’s very hard to monetize. Many have tried—and failed. And Tencent launched at the same time as hundreds of other Chinese start-ups. But while most of those ventures struggled, Tencent’s offerings grew from instant messaging and its associated iconic penguin mascot to an impressively broad suite: a social networking site, a news portal, a mobile platform, single- and multi-player games, and a microblogging service. Its most recent product, WeChat, was a mobile app that combined voice chat (similar to Skype), photo sharing (similar to Instagram), social network features (similar to Facebook), e-commerce capabilities (similar to Amazon), group messaging, and walkie-talkie features into a single offering—for free. By 2015 Tencent’s products and services were used by more than a billion Chinese, who accessed them through mobile phones, personal computers, and Internet cafés. Like many e-commerce sites, Tencent gave consumers the ability to purchase clothes, pets, guns, and food, but with one important caveat: All Tencent’s products were virtual goods existing only in the online world and purchased predominantly with the firm’s virtual currency—“Q coins.” Against this make-believe backdrop, Tencent’s financial strength was hardly imaginary. In 2015 revenue neared $16 billion—similar to Facebook’s and more than three times as much as LinkedIn’s and Twitter’s combined. In April 2015 the firm’s market capitalization passed $200 billion, making it the fourth most valuable Internet firm in the world, behind Google, Facebook, and Alibaba. How does a Scandinavian newspaper company find lucrative revenue streams online when everyone else is struggling? How did Tencent overcome the brutal odds of starting as a free IM product and then translate its advantage there into numerous product categories over the next fifteen years? How does it get users to pay for products that exist only in an imaginary world? And what generalizable lessons can we draw from these examples? On the face of it, the stories of Schibsted and Tencent could not be more different. One firm resides in a Western developed economy, the other in an Eastern emerging market. One exemplifies traditional media, the other was a digital start-up. One is run by executives with more than thirty years of experience in media, the other by thirty-somethings who’ve never known anything but the Internet. But the stories are inextricably linked. Anan_9780812995381_3p_all_r5.j.indd 5 9/1/16 8:09 AM
A TALE OF TWO GEOGRAPHIES   5  in China, with more than 50 million users. The entry of copycat providers did nothing to sl...
6 | THE CONTENT TRAP The link isn’t the superior quality of products or the ability to innovate and bring new offerings to market first. The link is the ability to recognize and manage connections across users. This principle—user connections—is a critical concept for media, technology, and Internet organizations. But few get it right. To unpack the concept, let’s start by returning to newspapers. Anan_9780812995381_3p_all_r5.j.indd 6 9/1/16 8:09 AM
6   THE CONTENT TRAP  The link isn   t the superior quality of products or the ability to innovate and bring new offerings...