Thursday, July 31, 2008

New Media Disintermediation of Traditional Business Structures

The Boston Consulting Group, in their Harvard Business School publication examines the impact new information technology will have on business strategy. The authors of the work, Evans and Wurster (2000, p 72) describe the disintermediation wrought by the new media as a “technology [that] allows for the richness/reach curve to be displaced, allowing new players to offer greater reach and greater richness simultaneously.” This results not in a re-segmentation of the old business but in an industry transformation to a new model.

This is happening with newspapers, a dismantling and reformulation is underway driven by the relentless economics of the new media. In their consulting work with Newspapers, The Boston Consulting Group (p 42) has observed that “Newspapers exist and can survive and profit as intermediaries between journalists and readers, because of the economies of scale in the printing press.” Journalists had no direct access to readers.

Newspapers are vulnerable to new media at critical points in their value chain. The most critical being classified advertising, which is a natural for on-line publication. As Evans and Wurster note (p 42) “classifieds account for about 40% of a newspapers revenues and only 10% of its costs…. If classifieds are lost, most newspapers would become financially unsustainable.”

This is the impact of new media on the existing business world. When its existing value chain is unraveled, companies in general, but newspapers specifically for this post can no longer subsidize poor performance of editorial or political commentary by combining them with other links in the chain. The profitable links of old that at one time were capable of carrying dead weight are now under relentless profit pressure.

Evans, Phillip and Thomas Wurster (2000). Blown to Bits. The Boston Consulting Group. Harvard Business School Press.

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