May 07
20
Business Ecosystems
(This is the first in a series of writings about emerging business ecosystems in social networks – with particular reference to video sharing)
I have been thinking about the whole issue of getting clarity about the business ecosystem that we all operate in. And it is amazing to me that even quite senior managers in some businesses don’t appreciate how their own business landscapes may have changed since the dawn of the digital century.
And sometimes it is not obvious.
I remember when I first got into the record business I thought that once I had made a record they would naturally get played on the radio because they sounded original, and good, and particularly if I covered a known a proven hit song…
I also thought that if I couldn’t get airplay, I could work on retail relationships, or the press. Then people would find out about the music, buy the record and then it would get played on the radio. And then it would sell more….
Not smart. I was trying to do it the hard way. Because the music business, back when I joined it, had a very clear ecosystem. And the key to understanding it is that it is all about selling the idea to what I call the leverage customer rather than the transactional customer.
The transactional customer in the music business, you would think would be the consumer. But it is not. It is actually the retailer. The retailer is the guy who writes the cheques every month, who gets convinced to buy a whole load of inventory that is not in the chart, but which keeps everyone in the record company being paid inbetween the hits. Without him or her, the record company is screwed.
But the real decision maker in the value chain is the music director at the radio station. The leverage customer is the quick one stop call, who doesn’t necessarily ever pay the supplier anything. But by making a decision, the person in the leverage position in the ecosystem enables the whole machine to work.
With the advent of the Internet the music business got terribly confused. Because web sites started being able to digitally distribute content. And the record companies tried to reach out and stop them, thinking that they were trying to promote piracy. Looking through the lens from a different perspective you would realize that they were not doing anything different from what radio stations do: promoting music. If the music companies had embraced the web instead of trying to deny it, things in the music business may have worked out a lot different.
More recently, after I had sold Lake Technology to Dolby Labs, I was exposed to the ecosystem that Dolby fits into. And the surprising thing for me at that time was to find how little that company had changed over the years to understand the value chain that it is part of. To my mind, that company pays far too much attention to trying to do the equivalent in my music business analogy, of promoting to the transactional customer, rather than identifying and then promoting to the leverage customer.
Companies with real retail muscle resort to the blunt instrument of hard core interruptive advertising. And that has worked for a time.
But now we live in a new improved digital age, where all the ecosystems need to be re-evaluated. Disintermediation has made the interaction between consumer and business a complex proposition where information comes from multiple sources – most of them not traditional media.
This is the spot at which Vquence comes in.
As a company that is trying to provide a value proposition that goes beyond video search, to what people do with video, defining who the leverage customer is, becomes important for us and for the other people we touch in our ecosystem.
There are a lot of criticalities in this. Because we touch content on the way through and everywhere there is contact with content there is risk. And though we rely on our understanding of the fair use provisions of the DCMA, there are always risks that go with any engagement with content. Just as there were risks for anyone that touched digital music files, until Apple convinced the music industry as a whole that iTunes could solve their problem. (The reality is of course that less than 10% of the music that is consumed though download comes from legitimate paid for services).
The video search, discovery and socialization ecosystem is still embryonic. It will almost certainly be dominated initially by Google. But there is plenty of room for newcomers too.
Like Vquence.