Tuesday, October 23, 2012

Part 2: What business are you in?

In 1960, Harvard Business School professor Theodore Levitt wrote a landmark article for the Harvard Business Review titled "Marketing Myopia." Levitt focused on industries that were struggling at the time--among those that he used as examples were railroads and motion pictures. Levitt wrote that in both these cases, management forgot what businesses they were really in. Railroads thought they were in the railroad business when they were actually in the transportation business. As a result, they allowed competitors (trucking firms, package delivery services and air cargo companies) to take away huge portions of their revenue and leave them with the niche of slowly delivering huge quantities of materials.

Movie studios thought they were in the movie business, not the entertainment business. As a result, their management first dismissed television, then denied its impact, and then refused to make their movies available for broadcasting. It was only after most of the movie studios came close to or entered bankruptcy that they realized that they had to do business with television networks and stations if they hoped to survive.

When you're in a business for several decades, it becomes natural to think "inside the box." The barriers to entry (cost, technology, experience, customer habits, etc.) are simply too great for new entrants to overcome. Rather than redefining your business, you focus on doing what you already do less expensively. Customers have purchased your goods or services for as long as you've been in business, so whatever you're doing is working, and you should keep doing the same things. That mindset makes legacy industries vulnerable to disruptive innovators: Trucks replaced railroads, and television replaced going to the movies.

The lessons from fifty years ago are still being learned today, and nowhere more than in the book industry. Book publishers aren’t in the business that most of them think they’re in. If you talk to publishers, or for that matter, booksellers, most of them will tell you that they’re in the business of selling stacks of nicely bound paper printed with well written and edited text, and their digital simulacra, eBooks. In reality, they’re in one of three businesses: Entertainment, information or education.

Once the focus changes from manufacturing and selling books to performing a job for your customers, the definition of what a publisher does changes radically:

  1. Deliver entertainment, information and education
  2. Quickly and cheaply
  3. To PCs and mobile devices as well as to legacy media
  4. Via the Internet and wireless broadband connections, as well as legacy channels of distribution

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