Consumers increasingly expect good, fast and cheap. As new technologies lower barriers to entry to many industries, the price/value equation skews dramatically toward the lowest margin position, and often consumers feel like they can find a satisfactory mix of good, fast and cheap. Or, at least, “good enough”. And, when this happens, all too often the incumbent players in the market either don't see the threat looming or they dismiss it as inadequate, until it’s too late. Let’s see what lessons we can learn when examining the rise of YouTube over the past decade and a few competitive responses from within the television industry.
“Good enough” never looks threatening, at first
Imagine you were a television producer in 2006 and someone showed you this:
You couldn’t be blamed for dismissing this new user-generated video phenomenon as no threat to your business model. But as the technology quickly and continually improved, and high-definition cameras were built into nearly every mobile computing device, production quality formerly reserved for local broadcast television stations was suddenly dropped firmly the hands of virtually anyone who had the desire and time to create video content. Game on.
“Good enough” emerges at unappealing scale
When this field of new creators was unleashed on us all, they didn’t even come close to commanding the kind of viewing audiences of even the worst performing show on the worst performing cable TV channel. But most of them, fueled by creative passion, would have posted videos for no audience at all. And, as passion is at times contagious, some of those audiences became large enough to generate ad views and commensurate real life-enhancing, if not sustaining, income. The opportunity attracted more and more creators who were serving more and more niche markets with more and more content. This eventually resulted in a critical mass of tagged, related and suggested content that was capable of keeping a viewer discovering and engaged for hours at a time. And more critically for our aforementioned television executive, these creators began to influence the default viewing behaviors of the new generation who were growing up online.
“Good enough” chips away at traditional markets
As Gen Z grew up watching online video—most of it firmly entrenched in the “good enough” level of production—the connection to traditional television waned. In fact, more than 50% of GenZ can’t live without YouTube. And, according to a poll published in 2016, 30% plan on cutting out cable television services altogether.
Three smart responses to “good enough”
The democratization of technology obviously isn’t limited to video creation or consumption. This type of threat can affect any industry. But the following three strategic responses by incumbents within the video industry can serve well as templates for just about any industry.
1. “Mind the gap”
Facing the flood of ubiquitous, shareable, “good enough” video content, industry behemoths HBO and Netflix have doubled down on quality and exclusivity. Further, HBO broadened its distribution, first, via the HBO GO app tied to its traditional cable subscriptions and eventually to HBO NOW, an app-based subscription that requires no accompanying cable TV subscription.
Netflix, followed a parallel path to HBO, pivoting from a content distributor to a content creator with exclusive series like the Emmy Award winning House of Cards, Orange is the New Black, and a number of Marvel-Universe-based superhero shows, just to name a few.
The main takeaway here is that when barriers to entry become low enough, any market will inevitably become flooded with competitors at the low end. A clever tagline or ad campaign in most cases won’t help you protect your margins. A more viable position is to, in effect, re-raise the barrier to entry. In the case of HBO and Netflix, that was the level of production value/expense, but the idea applies to any business.
There is no shortage of online retailers competing on price and selection. So, Amazon raised the barrier by investing in logistics and distribution. There is no shortage of providers of homeowners insurance, so Lemonade invested in machine learning and AI to deliver an unprecedentedly easy purchasing experience. When the market gets “cheap”, invest in creating a differentiating, difficult-to-copy advantage.
2. “Do as the Romans do”
When early YouTube users started uploading snippets of their favorite TV shows, movies and music, the initial (predictable) response from copyright holders was to try and shut it down through DCMA notices, etc. Over time, some of the more progressive copyright holders realized may of these posts could be used to promote more traditional outlets of their intellectual property, as well as working with YouTube to help monetize those uploads through advertising revenue.
In this strategy, the smart move was to look for ways to use the momentum of a seemingly overwhelming force to profitable advantage. If the threat looks like an infinite game of whack-a-mole, you’re better off dropping the sledgehammer and putting some corporate swag on the mole and using it to hawk your wares.
3. “Keep your enemies closer”
In the end, numbers are numbers, and large audiences command real advertiser dollars, which in turn attracts the most deep-pocketed of incumbents. In 2013, DreamWorks Animation paid $33 million for YouTube channel AwesomenessTV. Warner Bros. placed an $18 million bet on YouTube video game channel Machinima. Even Disney eventually placed $950 million down on Maker Studios, best known at the time as the company behind "Epic Rap Battles of History" and (the now highly controversial) PewDiePie.
While this strategy can be, and has been, successful, waiting for an emerging market to mature and then purchasing an emerging competitor, already standing at the end of well-worn path to success, can reduce market uncertainty, but you should be aware that confidence inevitably comes at a premium price.
Incumbent, disrupt thyself
Ultimately, the smartest strategy in the face of emerging technologies is to always ask one question, “How could a new market entrant use this to disrupt my business?” Then, do that. If you don’t, eventually someone else will.
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