Hal Varian, the chief economist of Google and co-author of the seminal book “Information Rules” just publishes an article on the changing economics of newspapers. The paper and his blog post is worthwhile reading.

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.

Google Comments To FTC

The Swiss private banks are under pressure to change their business model. It is not just pressure from other states that want to fight tax evasion via exchange of information on bank customers but also from employers that try to sell stolen customers’ data  to foreign governments.

The big news in Switzerland is that an informant, crook or thief – whatever you like to call him depends from your standpoint – has offered the German authorities data from 1,500 German customers of Swiss Banks that have allegedly dodged taxes. Last year, another informant stole data on 3,000 French bank clients from the HSBC branch in Switzerland and sold it to the French authorities. And in 2008, Germany already purchased data on German customers of the Liechtenstein Bank LGT. The LGT case cost the German government several million Euro but they received a far higher pay-back on its investment form all the taxes and fines that the busted tax evaders had to pay.

There will be more

And these three data thefts will not be the last. It is not only the authorities of high-tax countries like France or Germany that see their high return of investment if they buy data from informants but also there will be more willing bankers that will sell data of its customers. Why? (more…)

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.

Tradition is not a business model

The media industry is an interesting case since their traditional business model is under attack by new technologies. I use the music and the newspaper industry as cases to make my points. Although both are affected by the Internet, they face (more…)

Thinking in business models helps you in change projects, particularly in the unlearning of unwanted tacit assumptions and knowledge of the past. Forgetting what made you successful in the past is the key challenge in any change project, learning new things actually the easy part.

I am currently involved in a large change project. The company involved was living in a cozy environment. Demand was stable, predictable; project cycles were measured in years to decades and due to high entry barriers the firm was sure to “win” all business from its customers. Quality was so defined that the products lasted for eternity, most of the time longer than they had to last. Due to the heavy duty nature of its customers’ business everything was engineered to customers standards and very little of the components were bought off the shelf. Cost was not a major issue as long it was in budget.

And now the world has changed. Their customers had to change due to pressure from their clients. So the world of my firm will never be the same but since the change is coming slowly, there is time to adapt. The question is now: How can the firm change? How can it forget the habits that made it successful in the past but impede the future?

I teamed up with a coach that has a background in social psychology and constructivism. We had long discussion together but also with the customer’s management that was new on board. The question was where to start the change process.

Should we just have McKinsey, BCG or any other top consultancy fly in to have them develop a new market oriented strategy and then implement it? Our question was: Can you just implement a strategy into the heads of people that were not involved in the process? I think you can in certain cultures but not in nordic cultures. The danger is that you lose the strength any company has and particularly lose the commitment of the employees that make up the difference between a mediocre and a good to great company. You just lose the soul of the business and get mercenaries as employees. So that was not an option.

The other approach often used in change management is soft, typical HR driven. Management does some seminars on change, culture and innovation; and, what a miricale, people then will understand the need for change and then they will change. Unfortunately this is an illusion but big business for trainers and coaches. The problem here is that it sounds so right but people will consume not engage.

The problem and also the chance for our client was that they still have cash and time to change. Some units are in trouble others still earn money with the traditional way of doing business. So there is little sense of urgency (bad) but also time for a deeper change (good).

Understand your business model as a start, Understand what business are you in

Our approach was simple. We wanted to put a mirror in front of management. We wanted management to see the current situation through different glasses. (more…)

The German retail and travel conglomerate Arcandor AG formerly known as KarstadtQuelle AG filed on June 9^th 2009 for insolvency. It claims that the financial crisis is the reason. It had asked the German government in May for state aid but the government refused. But is the financial crisis the real reason for the dire situation? I do not think so. The business models of its retail activities (Karstadt and Quelle) are just dead. The management did not innovate on its business model and that is the reason for failure.

Most writers and bloggers take the music industry as a prime example for an industry that failed to innovate its core business model. But there are many other industries where failure to innovate its core business lead to their decline. A sad prime example of missed innovation is Karstadt, a large department store chain in Germany and Quelle, a German mail order powerhouse.

The Karstadt case is typical for a corporation that business model is dated. Instead of rejuvenating its business model or finding new business ideas the old business model is defended and by consolidating the industry even reinforced.

The next lesson is that all activities at corporate level like selling non-core assets do not solve your problems of an ailing business model. The solution must be found on the business level not on a corporate level. If you cannot fix it, than sell or close it early. Success in business is not defined on corporate level but by its business model!

In May 2009, the CEO of Arcandor, Mr. Eich asked for “a state guarantee to temporarily bridge the gap of the currently non-functioning financial markets.” Arcandor did not want to have any handouts nor a state participation in the company. It promised that it will repay the loan “to the last penny.” It claimed that the credit crunch is the main reason for its financial stress.

But is this really true?

The only constant in retailing is business model innovation

Retail markets in general are dynamic markets where new business models destroy old ones and create new fortunes. Zara, Aldi, H&M, IKEA or Carefour all reinvented their retail category and made their owners rich. But since the whole market did not grow as fast as the newcomers, the incumbents suffered losses in market shares and sales. (more…)

“We have to pay so high salaries otherwise we don’t get the right people” is often heard from firms even in the crisis.  Particularly the failed banking industry was very good in this salary death spiral. Salary was seen in this market as the only differentiators with great results.

I always wondered why the so highly paid managers could not find other reasons than money. Are they so uncreative that they had only the pricing mechanism as the only marketing tool in their recruiting process? Did they ever think about who they hired when money is the only reason why one should work for a particular bank? Can you develop a long-term oriented, customer centric bank when you have soldiers of fortune as employees? Have they every thought about what kind of culture they have created in this process? Have they ever thought about the customer experience they have created with a recruiting policy like that?

Well, the bankers will tell you they were driven by the short term orientation of the investors and the financial market in general. They will tell you that everybody was doing it so they had to do it as well. (more…)

I was asked lately, when it is time for a disruptive innovation or a business model innovation? When should a company try to steer away from sustaining innovations toward a blue ocean of less competition.

Well, I would like to open this question to all of you. Please, tell me when you think it is time for change. Do we need a crisis or can we do it deliberately?

Please use the comment function for the discussion.