Harvard Business School professor Bharat Anand explains the magic of connections with myriad charming examples and profound business lessons.
Harvard Business School professor Bharat Anand explains three critical connections – those you encourage among your users, those you find and leverage among your products, and your functional connections, that is, the choices you make and the priorities you establish. Good connections differentiate your business and protect you from imitation. Thoughtful executives, especially those in media, will enjoy and learn from Anand’s analysis.
Producers and owners of TV shows, movies, books, music, videos, social media and newspapers try to protect their investments in several ways. They build firewalls, pursue pirates who download their wares and protect the media conduit that delivers their content. Artists, producers, authors and editors believe their content sets them apart and makes or breaks their business. It doesn’t.
Connections often prove more valuable than content. Ignoring context and simply protecting popular content rather than also leveraging it can lead producers and owners to what Anand calls the “Content Trap.”
Consider newspapers. With the rise of the web and online news, thousands of newspapers went out of business. One factor that undermined those that failed was their inability to preserve their pre-internal advantage in small ads. Caught in the content trap, they focused on scoops, headlines and features – traditional newspaper content.
Network effects connect users by directly linking their purchase decisions: The value to one user from a product depends on the number of other users who have purchased it.Bharat Anand
People decide what news to read on an individual basis, but they choose a classified ad service according to what other people do. The classified ads that most people use therefore draw the most ad buyers and service subscribers. This explains the existence and meteoric rise of online classified ads services, such as Craigslist.
Amazon developed information technology and algorithms that enable it to deliver goods to buyers quickly and cheaply. It then opened itself up as a platform that everyone can use. As Anand explains, Amazon’s leaders understood that the value of becoming the world’s retail platform – with control over a massive network – is worth more than the few years of extra competitive advantage it gained before its competitors built their own platforms.
Focus on your relationships with individual customers one by one, or on the content you produce for each of them, and you’ll miss the secret of success in a connected world.Bharat Anand
Amazon’s growth exploded, as did Apple’s and Facebook’s, after they each adopted similar open-platform strategies that leveraged network effects – the critical mass created as more people contribute songs, apps and content – which brought more purchasers and users to all three platforms.
In 2011, Anand recalls, The New York Times launched a bundled digital-plus-print or all-digital subscription model that gave subscribers access to every article in the paper.
These connected-product offerings exploded because the Times left the choice of content up to its readers and priced it right. Times’ analytics showed the connections between its mostly print and mostly digital readers: Each one has an appetite for a lot of one delivery system – print or digital – and only a little of the other. By encouraging readers to use some of each the paper gained greater circulation and higher ad revenues.
The language for success in media, as in technology, is less and less about content and more and more about connections. Bharat Anand
Cable TV providers, for example, must worry about stopping customers from cutting the cord, because providers believe they’re in the content business. But, as Anand points out, they deliver only content. Cable companies make far greater profits as internet providers than they ever made in the business of bundling TV shows.
The Music Business
Artists used to go on tour to boost their CD sales. Today, cheap or free downloads drive the revenues they earn on tour. Streaming music and live concerts complement each other, as do digital music players, high-speed web connections and related merchandise.
Free recorded music became the advertisement – and, as a result, the ideal complement – for live concerts.Bharat Anand
In 2002, Apple exploited this trend – and demonstrated that a great product alone is never sufficient – by combining its iPod with the iTunes streaming service, offering one-click song downloads for 99 cents each. Apple made nothing from iTunes despite its $10 billion in annual revenues. The true purpose of its connected offer was to sell iPods.
Connections and Complements
When you face disruption, Anand advises, don’t double down on your core competencies and outsource the rest. Instead, broaden your thinking. Look for complements. For example, the Michelin tire company created its famous restaurant rating business to give people an incentive to drive longer distances to get to the great restaurants it discovered, reviewed and sometimes awarded with its coveted stars.
Look for that kind of connection between your products and services. Traditionally, manufacturers price the device cheap and charge more for the users’ addition to it. That is, printers are cheap, but ink is costly; the razor is cheap, and the blades are costly. Apple saw that its leverage was in hardware – its devices, not its music or apps. It initially engineered iTunes to work only with iPods. Amazon first made e-books compatible only with Kindle. Both relented when the advantages of opening their platforms became obvious.
Digital wildfires – the propagation of success or failure in digital businesses – come from close connections between individuals, more than the quality of content or any individual action behind it. Bharat Anand
In 2003, Warner Music wanted its sister division, Time Warner Cable, to track down music pirates and sue them. Time Warner said no. It joined with its rival Verizon to fight against divulging its users’ names. Content providers must choose their friends wisely.
The Economist magazine ignored the internet entirely at first and didn’t register a URL. With its digital content behind a paywall, The Economist flourished through the disruptive late 1990s, 2000s and 2010s, increasing its number of subscribers many times over because it continued to provide solid news and analysis, as it has for the past 150 years.
Define competition solely from the perspective of your product or content, and you’ll focus on a single class of competitors. Define it from the perspective of your customer…and you’ll see entirely new competitors.Bharat Anand
No magazine can imitate The Economist successfully, Anand contends. It demonstrates that prestige and curated consistency matter.
Consider your clients’ preferences and behavior. Determine what matters most to them, and offer the best of that. Run analytics to learn what draws them, and never focus your business on anything they don’t value.
Anand illuminates his highly functional way of thinking with sterling examples and unexpected lessons that will make you smile. He takes a professorial view of his material and presents each chapter as a handy, self-contained teaching tale, so you needn’t read them in order if you’d rather choose each chapter as it pertains to your business or interest. Anand is especially illuminating for anyone in the world of music or artistic content.
Other works on digital business include How Music Got Free by Stephen Witt; A Mind at Play by Jimmy Soni; and Information Theory by James V. Stone.