“What business are you in?” sounds like a simple question. But it’s not. How you define your business determines which direction your firm can go. Based on your answer, you define and limit your strategic options.
In a company, the business model is defined by a dominant group of people. They have a common understanding of what business they are in and how they create value. However, the business model is not an absolute reality. It’s a social construct of dominant opinion makers, e.g. your top management. This is important to understand.
By taking a different look at your business, and thereby challenging your dominant logic, you can identify more and different strategic options for your firm. But beware; by doing so, you are also challenging the top dogs in your firm.
Life is not that simple. Changing perspectives by xkcd.com
How you define your business depends on the dominant logic of your management
Considering the definition of what a business model is, it seems easy to describe the business model of a company. You can use the business model canvas (Alex Osterwalder‘s or mine) and then you describe how value is created. Often we assume that regardless of who describes the business model, we will end up with the same description. This is a mistake.
The articles goes well along my analysis of the newspaper market, where I argue that just a transfer of the paper business model to the Internet does not work since the business model of traditional papers is unbundled by the Internet. A newspaper is three businesses (content, advertising (selling of readers’ attention) and classifieds (bringing demand and supply together) bundled together by paper. And on the Internet, the glue of paper does not exists any more. So the revenue model of newspapers will not work on the Internet.
Varian argues that newspapers actually never earned money with news from their frontpages but from special interest sections like Automotives, Travel, Home & Garden or Food & Drinks. These sections attracted contextually targeted advertising which is much more effective than non-targeted advertising like you have in the news section.
And in the Online world, special-interest sites attract the search-engine traffic and not general-interest sites like the Internet pages of newspapers.
Well, when you follow his arguments than a mere transfer of the traditional business model to the web will never work for newspapers.
Simply put. The Internet is different. It has different economics and therefore you have to adapt your business model to the changing economics. Either you do it or you die! And this not only true for newspapers but also for other industries.
[update March 29th, 2010] Seth Godin writes in his blog what it means when the economics are changing in the publishing industry. He highlights the possibility that great authors have the potential to lead their own tribe. They will not be bond to the paper publishers any more. The text is worthwhile reading since it shows new business opportunities for authors.
[update August 5th, 2010] Google posted another paper on the subject. It comments in this paper the Federal Trade Commission’s News Media Workshop and Staff Discussion Draft on “Potential Policy Recommendations to Support the Reinvention of Journalism.” The paper is definitely more interesting than the title.
The newspaper industry is suffering these days. Besides the economic crisis that leads to less advertising spending the traditional business model is under attack by the Internet. The large papers have reacted with large Internet activities that attract a lot of traffic. But the revenues of the online ventures are not sufficient to compensate for the decline in print. So what shall they do?
I had the pleasure recently to be invited back to my university, the University of St. Gallen, to give a speech on business model innovation in the media industry. Prof. Martin Eppler was so kind to sponsor the discussion. I used 8 theses to present my thoughts. Below you find the slides of my presentation.