Mass Media, a Problematic Business Architecture, Part 1

On last Friday an associated person drew the editors' attention to two things. Quoting Peter Drucker with "The purpose of a business is to create a customer and keep him." is a reminder anyone in business should pronounce once in while.

The pointer to Dealing With Darwin was new to us. Dealing with Darwin is a relatively new and rather interesting business economics pattern book published in 2005 by Geoffery Moore .

Let us just mention that we completely agree with Mr. Drucker in the assertion quoted with respect to business as an organizational form.*

In his book Mr. Moore suggests there are two different basic business model architectures for successfully handling innovation and the task of creating and keeping customers, calling them the Complex Systems Model and the Volume Operations Model. Mr. Moore also recommends not to mix these architectures:

The two cannot and should not mix, or share best practices. Businesses with one architecture should not covet the benefits of the other.

A first line explanation

Volume operations customers, like individuals buying coffee, sports ware, mobile music players or enterprise units buying furniture, multipurpose office software or cars, require an easy-touch, a few-sizes-fit-all approach, where customization, if available at all, is in DIY or small business personal services form.

Volume operations start with a base technology. This creates a portfolio of offerings which spread through a continuum of channel operations to a potentially huge base of customers. If the potential is reached then the buyers generate the cashflow as trickles of small transactions that unite to a mighty river at the supply side.

Sony, Volkswagen, Apple Records, Apple Computer, the application arm (but not the server software arm) of Microsoft and many regional food, say for example local cheese, companies are good examples for this business model. These companies deal in standards. Edison, Bell and Ford are famous implementors.

Complex systems customers on the other hand, like, for example, an enterprise buying a new overall IT architecture and implementation of their business processes (say Allianz) or a multinational buying cross-country, cross-media, cross-targetgroup promotion (say Coca Cola) or individuals buying a new home for their family, require an intense-touch, high-customization approach.

As we can see in Mr. Moore's diagram, the complex systems model necessitates a solutions model which involves an integration platform over legacy infrastructure elements, all bunched and connected by a technical architecture layer, a mixture of own and third party modules, a second architecture layer that maps the bottom of the system to the customer’s needs and tastes. The complexity of this alone is often too much for the customer and this in turn opens the opportunity to offer consulting and integration services as an icing on the cake.

NASA, CapGemini, Siemens, WPP, Oracle, SAP, Bouygues and many local business technology integrators are good examples for this business model and its architecture. The model does not scale infinitely but does so pretty well.

What the business architectures have in common

Everybody knows, companies have to be profitable to stay in business. We now need to return to Drucker as an unsuspicious source for the assertion that profit is not the goal of business, which is to “create and keep a customer”. Profitability is a constraint. It is needed to manage risk, crisis and survival.

How the business architecture requirements differ

• Concerning the cost and pay constraints: In complex systems revenue and margin are dominated by a complex and rather nontransparent cost structure, large gross margins and slow turnover. In volume operations on the other hand profit is achieved by lean and transparent cost structures, narrow margins and fast turnover, costs are standardized and modular.
• Concerning innovation handling: In volume operations technological innovation generates revolutionary changes in the business model. In complex systems disruptive technology is most often a direct driver, but legacy must be handled. Philips mixed that one up badly when they thought a digital consumer music device (Digital Compact Cassette) needed to handle legacy. Volume products do not need legacy handling, it only holds them back. Look at mobile music players in the 90ies and 00ies.
• Concerning marketing: Volume customers and complex system customers have very different sympathies and prejudices and therefor generate very different necessities in marketing. Sales cycles and revenue balance between first buy and post-sale are near completely different in the two models. Volume operations need the best ad campaigns and customer relationship programs they can afford. Complex Systems Services need lots of relationship work and networking from bribes to honest friendship to cross company team building.

  Complex systems architecture must orchestrate coalitions of associates to make solutions work. Subtle reputation and collective positioning is a key to this. In volume operations branding and stand-alone segment positioning is a key to working the image and brand value and as such clearly opposed to collective positioning.

Preliminary Conclusions

We now start to see why Mr. Moore so adamantly discourages the mixing of both business architectures. We could give lots of examples, positive and negative. Lets be content with 3 or 4. After 25 years in the business and great successes IBM got rid of its PC product line. Siemens never really succeeded in electronic volume operations products. Oracle although trying hard and repeatedly was never once able to successfully develop, ship or sell mass consumer products.

All of these examples are very well managed companies and have been generally successful over many years. The other way round mixing business was more rarely undertaken. Apple would be a modest example. While maybe they have - after many crises - mastered the volume model better than anybody else, whatever they did in the server, network, management and IT services area was ridiculous and doomed to fail. Amazon on the other hand, who seem to be very near to the mass consumer market is in truth coming strictly from complex system for logistics, distribution and commerce of everything and with only a very small unit to design and market Amazons own products, seems to handle the complex systems architecture requirements quite well.

Mass media, a practical and fundamental violation of the underlying principles

Now traditionally, mass media, as the name suggests and considering their main product, found themselves quite naturally in the volume operations architecture. All customers of a newspaper read the same newspaper that morning, evening and the next day. All viewers of a movie or television entertainment program used to watch the same story unfold on the silver, phosporized or LCD-lit screen. In traditional newspapers, pay TV, pay radio (including public service broadcasters), paywall websites and apps subscription fees and the sale of single media pieces still provides for a large parte of the revenue the but in free to air privately owned radiostations, TV-Stations, free newspapers and websites ad slots are nearly the only things that move money in the direction of the owner.

And so for many of these media companies money from commercials was a lot more important than sales of their media pieces, editions and subscription, which gave them a feeling they had a fundamentally superior model because price set no limit to the size of their audience which in turn became the product for their real customers, the media agencies which in turn handled the volume operations business that so desperately needed segments as large as possible of the selected target groups for their very shiny and expensive commercials to operate upon.

Until digital came along no one even dreamt of customer based ad slot customization. As a customer you'd book that slot or space, send in your hopefully sexy spot, poster or 4/4 display ad and that was that. National and regional selling was a lot cheaper and easier than what Coke and Apple had to do when conceiving and booking global campaigns.

There is a large difference between media pieces on one hand and Coca Cola, Red Bull and iPhones on the other hand though. The daily products and even building blocks (clips and articles) may have uniform rules but are still handcrafted by teams consisting of artists of different talent and performance, thus leading to the above mentioned nontransparent cost structures typical for complex systems businesses. Modern radio with its playlist dominance and product elements that can be used for many weeks and even years and online-media with its larger shares of newswire content have mastered that problem just ab bit better than TV and newspapers.

On the marketing side, once physical production machinery and transport were efficient enough, low implementation and distribution cost expanded the reach to practically the limits of language comprehension. In entertainment, without the need of speed in news content, it was even easier to consider transnational markets. Translation and overdubbing enlarged markets to culture comprehension sizes.

The complication with the three classes of mass media's customers

On one hand there has been the necessity of daily handcrafted production from the start of the mass media business model in about the 1830ies. To make things worse, the better the writers, photographers, camera operators and directors you employ the less you will be able to make them uniform and daily riable. You need those qualities though to make a difference in many market segments of the media industry. Automization, at least for commodity media pieces like sports and weather reports seem to have come a long way, but too much of it brings the danger of boredom and loosing any differentiation. For high class pieces and series computers support a lot more processes but you still need talent for which the competition is fiercer than ever.

But the real complications mass media are confronted with are set by the two classes of customers, the masses in mass media who really need the volume operations approach in lots of ever more segements and those who pay much larger sums in fewer bills, are the buyers of the eye pairs product and, accordingly, do not request the easy-touch, a few-sizes-fit-all approach of volume operations but require the intense-touch, high-customization approach of the complex system architecture.

The second class of customer is a complex mix of product promoting companies and their advisers and consultants, a sector which the media companies call the advertisement industry. The product these customers want to buy is increasingly complex. Though it is constructed out of rather uniform and simple mass available byproduct elements of mass media (time and space slots for ads), the form and set into which these elements are combined tends to be ever more complex. Those customers and the associated offers and sales stuff, if only for the complex psychology involved, belong to the complex systems architecture.

A third class of customers one are political elite groups which are bound together with media people, especially news people through a complex reciprocal interest. They also do not interact with media through market and business principles but through reciprocal interest exchanges. Quite a lot of investigation has been directed at the contradictions created by the often differing interests and tastes of the second and the third group of complex customers. The moment the second and third group require to much attention from media managers you can be sure the first and most important audience group gets bored and goes somewhere else. Brings you into a defensive vicious circle.

The troubles generated by the two different business architectures can be thoroughly felt every day but have been largely overlooked by media science and model abstraction as far as we can see. The troubles also have been smeared over a bit by the fact that large intermediate groups act in the field with a strong pretension to be able to reconcile those needs and tastes. This pretension is the ground and water they swim in. No figure, nothing to be seen. Just feelings of the participants. From the 80ies to the change of the millenium the advertising industry led the way to ever greater glory. Now they are on the defensive and do not stop to commit blunders over and over. 30 second spots before the audience can see a 30 second video. Booking youtube ads that practically every user clicks away. Booking ads that are surrounded by 4 other moving ads. Only crying, no sexiness, no attraction. But large report with figures in the millions that no one understands. Digital mad cow disease everywhere.

The Provisional Diagnosis

Let us pause here and assert that mass media companies, by their double basic business model architecture fundamentally violate one important rule (Do Not Mix!) explained in Moore's "Dealing with Darwin".

Go on to part 2 of this series

Some necessary philosophical clarifications