Push me, pull you

Cost. It’s more than just the price paid. We also pay in time and effort. Money, time and effort — we weigh all of them when we’re deciding what to buy and how.

In this series of posts, we’re noodling our way through  Thales Teixeira’s findings, as presented at the 2017 New England Newspaper Convention. The title of his talk was “Responding to Digital Disruption.” In it, he introduced a new lexicon to describe strategies that have caused the rise and fall of business models.

“Cost” is an old word we need to think of in a new way. Two new concepts we also need to learn are “integration force” and “specialization force.”

In their paper, “The Decoupling Effect of Digital Disruptors,” Teixeira and Peter Jamieson define the integration force as “the sum of all the benefits received and effort avoided through ‘one-stop shopping.’” Integration forces strengthen the link between two consumer activities.

Specialization forces act in the opposite way, weakening the links. “Specialization forces tend to arise from opposing benefits, such as a retailer that offers a wide variety of goods and in-store service, important at the searching/sampling stage versus those that offer low prices and product availability, important at the purchase stage.”

Here’s the key quote from Teixeira and Jamieson’s paper: “Whether consumers couple or decouple adjacent stages depends on the net effect of the integration and specialization forces.”

Lost yet? Hang in there. Let’s put it all together with an example. His name is Joe.

Joe is not computer literate. He has a smartphone, but uses it only to make and take calls.

Joe wants a new TV. He drives to Best Buy, talks to a salesperson, looks at various models, compares their prices and makes his choice. Could he get it cheaper elsewhere? Maybe. But the time and effort costs associated with leaving Best Buy, driving to another store, parking, walking in and finding the model he wants aren’t worth the $20 he might save. So he buys his TV at Best Buy.

In Teixeira’s lingo, the integration forces exerted on the link between Joe’s browse — buy activities was strong, so the link held. Best Buy made the sale.

Let’s add a wrinkle. Joe’s daughter teaches him how to use an Amazon app on his smartphone before he goes to Best Buy. He drives there, talks to a salesperson, evaluates various models (showrooming) — and then he uses the Amazon app to compare prices, make his choice and buy from Amazon.com.

Once Joe knew how to use Amazon’s app, specialization forces weakened the browse—buy link. The forces arose from the opposing benefits offered by Best Buy and Amazon. In Teixeira’s words, Best Buy offered “a wide variety of goods and in-store service, important at the searching/sampling stage.” Amazon offered “low prices and product availability, important at the purchase stage.”

In our next post, we’ll talk about what Best Buy did to counter Amazon. Stay tuned.

This is the fifth in a series of posts reviewing a presentation given by Thales S. Teixeira, Harvard Business School professor, at the 2017 New England Newspaper Convention. If you’d rather read Teixeira straight, visit his working knowledge papers. To read this series in order, please view:

1. Time for a new recipe — Why do digital disruptors succeed?
2. Breaking apart the product — Disaster by another name: unbundling
3. Attacking the weak links — Decoupling the stages of consumption
4. Newspapers aren’t the only target — Decoupling disrupts all kinds of business models

Newspapers aren’t the only target

Where were we?

Oh yes. We were talking about the research findings of Thales Teixeira, as presented at the 2017 New England Newspaper Convention. Which is to say, we were talking about digital disruptors, how they wreak havoc, and what can be done to fend them off — or become one of them.

In this post, we’re going to review examples of decoupling. That’s Teixeira’s term for breaking a link between consumer activities that have traditionally been done together. It’s how the disruptor succeeds.

As we run through Teixeira’s examples, we’re also going to characterize each consumer activity. Does it create value for the consumer? If not, does it capture value for the producer? Or does it just erode value for the consumer, without capturing value for the producer?

Example 1, TV

The traditional chain of consumer activity for watching TV is: watch a program (creates value), watch a few ads (captures value), watch a program (creates value).

In their paper, “The Decoupling Effect of Digital Disruptors,” Teixeira and Peter Jamieson explain that TiVo, a maker of digital video recorders, enables viewers to skip the ads, “in effect separating the consumption of these two sequential activities.”

Why did TiVo succeed? Because it decoupled the activity that added no value for the consumer from the activity that did, and offered that one to consumers separately.

Example 2, radio

The traditional chain of consumer activity for listening to radio is:

1. listen to a song you like (creates value for you)
2. listen to an ad (captures value for the station from you)
3. listen to a song you don’t like (erodes value for you; doesn’t capture value for station)
4. listen to promoted value, a song the station was paid to play but one you don’t like (captures value for the station from you)

Pandora decouples steps 1-2 from steps 3-4. You can listen to only those songs you like, or are likely to like. So valued is this personalized music service that consumers are willing to listen to ads (step 2), or, for a small monthly fee, listen without ads (which completely decouples step 1 from the other steps).

Example 3, car ownership and use

The traditional chain of consumer activity for someone who  wants to drive a car is to conduct research, choose a vehicle, buy it, use it, and maintain it.

Turo, an online matching service, has decoupled the activity that creates value, driving the car, from the rest of the steps in the chain. Turo will help you find and rent the car of your dreams, one that’s owned by another person.

The sharing economy, notes Teixeira, decouples the value-creating activity of using from the value-eroding activity of owning.

The bottom line

“Viewed at a broad level,” writes Teixeira and Jamieson, “it is clear that decoupling is pervasive and poses a major threat to incumbent players in many industries. The media and entertainment industries are the most obvious targets for decoupling (as they were for unbundling) because the digital nature of their products allows for piecemeal delivery of content and because they have long relied on unnecessary value-capturing activities to generate profit.”

This is the fourth in a series of posts reviewing a presentation given by Thales S. Teixeira, Harvard Business School professor, at the 2017 New England Newspaper Convention. If you’d rather read Teixeira straight, visit his working knowledge papers. To read this series in order, please view:

1. Time for a new recipe — Why do digital disruptors succeed?
2. Breaking apart the product — Disaster by another name: unbundling
3. Attacking the weak links — Decoupling the stages of consumption

 

 

Attacking the weak links

Oh, they’re crafty, those digital startups. They look at business in a new way, and they find the weak links.

That’s what we’re trying to do — see the newspaper business in a new way, find those weak links. We’re reviewing the findings of Thales Teixeira, a Harvard Business School professor, as presented at the 2017 New England Newspaper Convention.

As discussed in our last post, Teixeira attributes the first wave of digital disruption to the strategy of “unbundling.” Digital start-ups unbundled newspaper content, separating it out and offering it up, piecemeal.

Teixeira attributes the second wave of digital disruption to the strategy of “decoupling.” He defines it as “the breaking of links between consumer activities that have traditionally been done together.”

Consider the evaluate — choose — purchase — consume steps that often occur under one retailer’s roof. Once upon a time, to buy a TV, you’d go to Best Buy, and:

• talk to a salesperson and look at different models (evaluate)
• make your selection (choose)
• buy it (purchase), and
• take it home and begin using it (consume).

Now, Amazon and Pricegrabber apps have broken the evaluate — choose link. Using an app, you can compare prices online and make an online purchase while you’re still standing in the Best Buy store. (That customer behavior, by the way is called “showrooming.”)

I don’t know about you, but I need to run through more examples of decoupling until I can easily see the stages, the links between them, and how and why they broke. First, though, we need to add one more concept, the valuation of each activity, or stage.

Decoupling separates the stages of a buyer’s decision-making process, some of which create value for the customer and some of which do not. According to Teixeira’s findings, each stage or activity, either:

• creates value for the consumer,
• captures value for the producer, or
• erodes value for the consumer without capturing value for the producer.

This is an important concept to grasp, because Teixeira has found that decoupling disruptors that decouple and offer value-creating activities seem to be highly valued in the marketplace; those that decouple and offer value-eroding activities earn a relatively low valuation; and those that decouple and offer value-capturing activities seem to be valued in the middle.

It’s also an important concept because, once you get it, you can more easily see why a decoupling strategy worked, disrupting the target business model.

Think about it, and stay tuned.

This is the third in a series of posts reviewing a presentation given by Thales S. Teixeira, Harvard Business School professor, at the 2017 New England Newspaper Convention. If you’d rather read Teixeira straight, visit his working knowledge papers. To read this series in order, please view:

1. Time for a new recipe — Why do digital disruptors succeed?
2. Breaking apart the product — Disaster by another name: unbundling

Breaking apart the product

Think of the traditional newspaper operation as a production pipeline. At the end of the pipe, the product pops out each day, the newspaper. A reader buys it and gets a whole bunch of information, all at once.

Startups first cracked the newspaper business model by using digital technology to offer pieces of that information at lower cost to readers. Shopping for a secondhand table? Look on craigslist. Buying a house? Realtor.com. Restaurant review? Check out yelp. Latest news? Google.

That business strategy has been dubbed “unbundling.”

“New digital players grabbed the opportunity to distribute news, music, movies, etc., online and deliver only what people wanted to consume, even if that meant just a portion of the full content,” explains Thales S. Teixeira and Peter Jamieson in “The Decoupling Effect of Digital Disruptors.” “This unbundling of content was the hallmark of the first wave of digital disruption.”

Unbundling doesn’t just happen to newspapers, the authors point out. “Apple’s iTunes unbundled songs from albums. Amazon’s Kindle unbundled chapters from books.”

Small comfort. Well, we’re not looking for comfort. We’re looking for answers. And one lies in the pattern discerned by Teixeira, this strategy called unbundling.

To understand it better, let’s revisit two more ideas introduced in our first post on Teixeira’s findings.

First, the concept of consumption as a series of separate stages, or activities: evaluate — choose — purchase — consume. Someone buying a TV, for example, might:

• go to Best Buy, talk to a salesperson and look at models (evaluate),
• make their pick (choose),
• buy it (purchase), and then
• use it (consume).

Key point: unbundling occurs at the consumption stage.

Second concept: Each activity in the consumption process can be of one, and only one, kind. The activity either:

• creates value for the consumer,
• captures value for the producer, or
• erodes value for the consumer without capturing value for the producer.

Second key point: unbundling separates value-creating products.

Clear as mud? We’re trying to understand the challenges the traditional newspaper faces using a new vocabulary. Stick with us. It will be worth the work. More tomorrow. …

This is the second in a series of posts reviewing a presentation given by Thales Teixeira, a Harvard Business School professor, at the 2017 New England Newspaper Convention. To read the series in order, please view:

1. Time for a new recipe — Why do digital disruptors succeed?

Time for a new recipe

This post begins a series that will chew on a plateful of powerful ideas. They were presented by Thales Teixeira, a Harvard Business School professor, at the opening session of the 2017 New England Newspaper Convention.

The title of Teixeira’s talk was “Responding to Digital Disruption.” It held your humble host rapt. For the thought quickly occurred — by applying Teixeira’s ideas to our discussion about news models, we might actually get somewhere.

So here we go. We’ll start where Teixeira ended up. He concluded that:

• customers disrupt markets, not start-ups;
• the disruptive ingredient is business model innovation, not technology; and
• there is a common approach to disruption — it is not idiosyncratic.
  

In other words, there’s a pattern there.

In case after case, no matter what sort of business was targeted — from newspapers to big box retailers to service providers — Teixeira has found that digital disruptors succeed in the same way, for the same reasons.

Disruptors succeed because they find a way to:

• unbundle content that is traditionally offered together, or
• decouple the stages of consumption,

offering consumers, in both cases, something for less, in money, time or effort.

Just what the heck are the stages of consumption, you ask? You already know them: evaluate and compare, choose, purchase and consume. Each involves activities than can be only one of three types:

• an activity that creates value for the consumer,
• an activity that captures value for the producer, or
• an activity that erodes value for the consumer without capturing value for the producer.

Decoupling separates one activity from another.

It’s rich food that Teixeira dishes up. In the next posts here, we’ll review his lingo, explore his ideas and findings, and then apply it all to the business with which we are concerned: news.  If you’d rather read Teixeira straight, visit his website and his working knowledge papers. But please return here to add to the conversation. Thanks!