business models & the three horizons

Here’s a very good talk from John Temple – the former editor of the Rocky Mountain News, discussing how the paper went out of business:

Lessons from the Rocky Mountain News – Presentation at the UC Berkeley Media Technology Summit at Googleplex in Silicon Valley from John Temple on Vimeo.

(there’s a transcript of the talk on Temple’s website too…)

There are several interesting points in this speech that relate to issues that we’ve been discussing here recently. The Rocky Mountain News had its first online venture in 1990 – so clearly their problems weren’t due to the fact that they ignored the internet, or couldn’t see its potential importance. Here’s why that first online version was shut down though:

The service was shut down after about 9 months, but not before scooping the paper on the start of the First Gulf War, reporting 12 hours before the paper landed on most doorsteps that the war had begun. The project was halted, I was told, because “we just couldn’t show that it was having any measurable impact on retention of print subscribers and it wasn’t producing revenue. Right from the start, new offerings were measured by what they did for the core product, not on their own merits. A big mistake.”

This is one of the reasons that three horizons thinking is useful. When you innovate using the three horizons framework, the first horizon involves implementing innovations that improve your current operations, horizon two innovations are those that extend your current competencies into new, related markets, and horizon three innovations are the ones that will change the nature of your industry. For a newspaper in 1990, developing an online product was definitely H2/H3 type innovation. One of the classic problems with H2 innovation in particular, however, is that firms tend to measure success in this arena using metrics that are more appropriate for H1 ideas – and that is exactly what the RMN did in this example. It is essential to find measures of success for H2 ideas that are more appropriate for the riskier, more speculative markets that you are moving into.

All of the further web forays by the RMN suffered problems similar to this one:

The message to the newsroom at that time regarding the Web site: “Do not let it interfere with the print edition.” And as managing editor, I made sure that we kept our focus on the print competition.

We knew the Web was a place we needed to be. But we didn’t have a clear strategy. Mission. Or objective. It was a “complement to the paper,” as we said in our initial “About us” page.

Which brings me to Lesson 3: You have to have a strategy and you have to be committed to pursuing it. We perceived the Web site as a newspaper online, as a complement to the paper, not as its own thing. That’s not a strategy.

This shows how firms get trapped in a dominant logic. Dominant logic is the idea that once a firm develops a successful business model, if they are not careful they end up simply replicating this model across all future endeavours. This is dangerous when you are dealing with H2 and H3 innovations. One of Temple’s prescriptions is very useful in this respect:

Ask yourself: Without R&D, how are local news companies going to get out on the edge and develop new offerings? Now that newspaper companies are filling the bankruptcy courts, they’re scrambling to find ways to survive on the Web. But their efforts seem mostly about making money off their current offerings. You don’t see them developing Yelp, YouTube, Twitter, Facebook, etc. I think they still could develop successful new services. But it would require something they haven’t historically done, research and development. The Rocky looked to other newspapers and news sites to assess how it was doing. We should have been looking more closely at pure-play Web operations.

He is recommending that newspapers should look for business models that do not simply map their current operations onto the internet (dominant logic thinking), but rather they should be developing completely new services. This is exactly correct. I hope that he gets a chance to apply these lessons in a new context, because I believe that his thinking is heading in the right direction.

(Thanks to Mark Coddington for the pointer to this talk)

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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