Thesis project

By diggesting some thoughts and reading some more on the subject, I believe I might be on track of finding my so long sought after thesis subject!

This is my main thought that I would like to examine:

What has happened internally to media companies since the introduction of the Internet and thereby thousands of new distribution channels?

In the old days, media companies were all about traditional supply chains where news were produced in one end of the chain, printed and then delivered to the end customer in the other end. Quite straight forward, and the media company could control the entire process.

As the density of offerings have increased with the microprocessor (very cool way of saying that things have changed from “Designing Interactive Strategy: From Value Chains to Value Constellations“) the end customer’s value creation has started to take new forms. Media is consumed in new ways, via new channels (Google News, Digg.com, personal blogs and so on).

The major driver for this change has been the everyday lower external transaction costs of communication which is also the largest driver of organizing in value constellations with several smaller actors instead of in one large firm (Coase, Theory of the Firm).

What I would like to examine is this: Have the media companies (specifically the newspapers) adjusted internally to this transformation (by working more in networks with other actors) or are they still run like they used to be (by doing most of the work in-house and trying to maximize revenue from each additional channel)?

What’s great about this subject is that there is a large amount of data to be collected qualitatively and the end product might actually result in something useful for media companies!

As Chris Anderson notes in Free! it is true that you can’t compete with free in the economy of bits in the long run. If your marginal cost is close enough to zero, either you or your competitor will stop charging for the service. With the cost of storage, bandwidth and processing power halving each year, this day will inevitably come.

So, how do you compete with a good enough service such as YouTube that offers high functional quality, rich features and solves the users problem (a demand for video clips) for free? One thing is certain, price is taken out of the equation. In order to charge your users for a similar service, you would have to offer a hefty amount of extra value and somehow make sure that YouTube just don’t copy your model and offer it for free.

What you need to do is look at each part of the process that adds value to the end product for the users and firstly decide on if you could do it cheaper than your competitor (e.g. if you could stream high quality videos cheaper than YouTube) or, if in fact the customer is adding this value himself. If you can find a value-adding task that is in fact executed by the user in your competitors business, it might prove to be a deal changer. If you are able to carry out this task for the customer instead, that might be just the extra value you add to your service that beats the competition (note that this is without competing on price).

The most classic example of the opposite of this thinking is what IKEA has done to reconfigure the value constellation. By letting the buyers perform a value adding task (assembling the furniture), IKEA is able to sell it cheaper. The genius of this is that IKEA figured out that the customers value their money more than the time it takes to assemble the furniture, therefore customers take on part of the value creation while still feeling that they have done a bargain. This reconfiguration enables IKEA to keep a lower price than the competition.

But, think about what would happen if furniture was free. Would you choose to buy furniture from IKEA where you have to do some of the value adding yourself or would you prefer to get ready assembled furniture? Suddenly, what was a competitive advantage has turned into a major disadvantage.

So, how are users part of the value creation on YouTube? The most obvious example would be in their quest to find relevant and interesting material. Much of the value a user gets from using YouTube actually comes from his/her own ability to find relevant stuff. What if a competitor came up with a recommendation engine that took care of this value adding and served relevant stuff without the user having to participate in the process?

Suddenly we have a situation where the user pays for neither service, but gets more value (as in output of value minus participation in the value creating process) from the new service. That might be enough for a major shift in the competitive landscape.