NOTE: this blog post is related to a Coursera #MOOC assignment and should be considered to a part of that particular program's requirements and context.
The End of the Cord for Comcast?
While cord-cutting has gotten a lot of media attention, it actually hasn't hurt the bottom line of traditional cable providers such as Comcast. And, it probably won’t for the foreseeable future.
What is Cord Cutting?
According to Technopedia, cord cutting “refers to the process of cutting expensive pay-television services (e.g., cable connection services) in order to change to a low-cost TV channel subscription through over-the-air (OT) free broadcast through antenna, or over-the-top (OTT) broadcast over the Internet. Cord cutting is a growing trend that is adversely affecting the cable industry.” Netflix, Apple TV and Hulu are some of the popular broadcasting services that encourage cord cutting. The cord cutting concept received a considerable amount of recognition starting as early as 2010 as more Internet solutions became available. These new media broadcasters have convinced millions of cable and satellite subscribers to cut their cords and change to video streaming.
In fact, in 2018, the major pay-television companies lost about 2.5 million television customers according to research analysts at the investment banking company XYZ. Global media research & consulting firm ABC is suggesting that it could be time for traditional pay TV services to grab a lifejacket, “as the first quarter of 2019 brought about the largest number of cord-cutters yet.”
Here's What's Happening Now in the Industry
Currently, in most situations, consumers who eliminate pay-TV subscription are not giving up on television entirely. They're just swapping from traditional cable to the new media or streaming services. That means they not only require broadband service, but they probably also desire the highest quality broadband possible.
Occasionally there's no alternative, since approximately half of Americans reside in geographies served by only one broadband provider. For those who live in a market with multiple providers, the choice has largely been to select the faster, higher-quality service provided by cable companies compared with alternative connection types available via telephone company providers (e.g., AT&T) or satellite suppliers (e.g., DISH network)
The telephone providers are losing immense amounts of internet customers, meaning that existing their subscribers aren't switching from pay-TV to internet connection services. According to company annual reports, AT&T lost 18,000 internet customers in 2018 while Verizon gained just 2,000. The larger Internet broadband losers – which most likely saw their customers switch to Comcast, Charter and other cable providers – were CenturyLink (down 262,000) and Frontier (down 203,000) according to analysts of the AAA Research Group.
Here's What's Happening Now to Comcast
Similar to the other cable operators, Comcast continues to gradually lose its cable-TV customers to the less expensive, more flexible new media streaming alternatives. Indeed, Comcast recently saw its biggest ever annual loss of such subscribers in history, with Comcast losing 120,000 subscribers during the third quarter alone according to analysis from CRFA research.
Realizing it must take action to deal with the continued success of the new media streaming competitive threat, Comcast has responded by adding Netflix to its own cable boxes in the hope it will keep its existing customers from eliminating their services. And, recently, Comcast indicated that the company launched a new streaming device for its Internet customers that enables its users to view not only Comcast's cable TV content, but also that of some competitors. Once more, the aspiration is that by expanding the set of options, it customers will resist the new and emerging options.
Here's What's Might Happen to Comcast in the Future
Looking to the future, Comcast does have a variety of options that could prove compelling. First, as described above there is limited competition in certain markets in terms of both cable and broadband Internet options. Second, when it comes to subscription services, many consumers still are avoiding the hassle of making cutting the cord because of inertia. And, third, the advent of 5G wireless technology. 5G will usher in a number of new technologies including smart cities, augmented and virtual reality and autonomous vehicles, all of which present new revenue streams for network operators. And, since 5G network deployments will require substantial investments in new antennas, stronger data backhaul infrastructure and network cores to facilitate growing data traffic and an increase in the number of connected devices, Comcast has the financial resources whereas most other new media firms certainly do not. It will be interesting to see how the “cord-cutting” phenomenon unfolds in the future for both consumers and Comcast.
Below are my raw show notes from a recent "Measured Thoughts" audio cast featuring the Chief Marketing Officer (CMO) of Deloitte.
I highly recommend this particular episode for those interested in the changing nature of marketing activities as well as how a professional services leader views marketing consulting services.
And, recordings of many of the shows are listed here: https://www.measuredthoughts.com/radio-shows
My raw show notes from the "Work of Tomorrow" audio cast focused on Journalism in the age of digital.
Full show available via iTunes:
Highly recommend it for those interested in the changing nature of work due to globalization & digitization.
What is it that is preventing you from spending more time in Box 2 and Box 3? What are the barriers that prevent you from spending more time on the future?
There are four challenges or barriers which when coupled together make is nearly impossible for a traditional financial services firm to spend more of its collective time, investment and resources in Box 2 and Box 3. The first challenge is increasing industry competition. One of my clients is a Global 50 financial services organization which offers a wide range of products such as commercial banking, retail banking, mortgage lending and other related banking services. The competition in these markets is intense and even more so with the emergence of the digital giants (e.g., Amazon) as well as the digital disrupting fintech startups (e.g., Prosper, Betterment).
Second, many industry insiders focus their short-term attention on the regulation and compliance rules that have consistently dominated management’s attention since the 2008 Financial Crisis. The consistent wave of these new rules creates demand for new Box 1 initiative which crowds out investment in potential Box 2 and Box 3 programs and experiments.
The third challenge relates to management’s predilection for short-term financial metrics. As a public company, management must satiate shareholders in the short term. This quarterly focus also limits management’s appetite for programs that don’t generate a predictable, return on investment in a timely fashion.
The fourth and final barrier to more non-linear thinking is that many financial service insiders are risk adverse by nature as well as training. Box 3 is about creating the future and thus involves a high degree of uncertainty and risk taking. Perhaps this lack of risk-taking on the behalf of traditional financial services management is the key barrier to Box 3 innovation? The digital giants and fintech upstarts do not face this barrier.
Interested in learning more about the Service-to-Product-Based Business Model?
If so, then the following #MOOC includes timely & relevant information:
Investigate determining a possible standalone product that might transform a service business into a service-to-product business using the following method:
Three business ideas are profiled below.
Interested in learning more about scarcity & flash (event) sales business models?
If so, then the following #MOOC includes timely & relevant information:
Using the market and industry portions of the seven domains framework to structure a response as to whether a scarcity apparel retailer like Zara or a flash sales apparel retailer like Vente Privée is or is not an attractive opportunity to start in India today.
Zara is considered a brick-and-mortar version of the scarcity model, whereas Vente-Privee, the inventor of the online version of the scarcity model which is referred to as a flash sales (or event sales) retailer.
The seven domains model brings 7 key perspectives together to offer a way to assess and shape market opportunities as well as the adequacy of what a management team brings to the table as individuals and as a group.
The seven domains framework defines a market as “consists of a group of current and/or potential customers with the willingness and ability to buy products – goods or services – to satisfy a particular class of wants or needs. Thus, markets consist of buyers – people
or organizations and their needs – not products.” And, analysis must be made at both macro (broad, market-wide) and micro (particular to a specific segment, one customer at a time) levels. The macro/micro distinction is important because the assessment questions differ.
According to the PwC report the e-Commerce market in India “has grown three times in four years to nearly 12.6 billion USD in 2013. And, various industry estimates project that the sector will further growth five to seven times over the next four to five years. Online retail, while today representing a small fraction of the e-commerce space is one of the fastest growing segments.” Hence, the macro-market in India is a very attractive one for retailers who offer apparel online (such as Zara and Vente Privée). This is the case even though there is a challenge to ensure that the supply chain needs of specific product segments rely heavily upon nascent logistics and delivery infrastructure support in India (at the time of the referenced PwC report).
Of course, no matter how large and fast-growing a market may be, most successful business rather than targeting the entire market, identify a much smaller segment of customers within the overall market. Using this scope, both Zara and Vente-Privee target the mass-market consumer albeit Vente-Privee has a much smaller geographic market footprint than Zara. And, indeed, in 2014 Vente-Privée USA did shut down operations due to market saturation (described below) as well as operational miscues as described in Fortune Magazine’s article titled, “Vente-Privée USA to shut down.” (3)
Moreover, secondary research indicates that India consumers do consider fashion as a key dimension of apparel choice, the typical Indian luxury shopper is more value-conscious according to the trade article, “Chinese and Indian Consumers Want Different Things From Luxury.” Therefore, the Zara model is more relevant than the most luxury-focused Vente-Privaee flash sale model in terms of customer-oriented preferences.
Unlike a market which consists of buyers, an industry consists of sellers – typically commercial organizations – that offer products or categories of products that are comparable to and close alternatives for one another. In the late 1970’s, Michael Porter characterized five forces that are powerful determinants of industry profitability which are arranged in the table below.
Although Zara and Vente-Privee are both considered retailers there is a central distinction even at the macro level. From my analysis, I conclude that the fast fashion industry that Zara competes in is pointedly more attractive than the online flash sales industry in which Vente-Privee competes. The distinction can be further clarified when considering the micro-industry level.
Originally, flash sales merchants like Vente-privee solved apparel manufacturers' problems of fashion mistakes. Manufacturers would over produce and Vente-privee and its rivals would buy it at closeout prices. And then they would re-sell it in flash sales events. However, eventually two changes materialized. The apparel manufacturers were able to better optimize their forecasts, inventories and supply chains in order which resulted in fewer closeouts. And, concurrently, the quantity of flash sales entrants was expanding rapidly, creating swelling demand for the closeouts that the manufacturers now had a reduced amount of.
Other micro-level industry competitive and economic factors include the following and favor Zara much more so than Vente-Privee:
In conclusion, based on the market and industry analysis above, I would conclude that the a Zara-like business is well suited to address the India consumer market whereas a pure Vente-Privee flash sales model is less likely to garner success.
Interested in learning more about subscription-based business models? If so, then the following #MOOC includes timely & relevant information::
Below is the module assignment as well as a sample of my investigation of current subscription-based businesses.
If nothing else, the analytical framework provides a useful mechanism to structure the problem and formulate a viewpoint.
I chose the following subscription business models in the following business categories:
Business Evaluation Criteria
Note that the highest rated business in each category is labeled in green in the table.
Analysis & Conclusions
Subscription business models are those in which the customer agrees to buy goods or services that are delivered, whether physically or digitally, and then paid for an extended period of time. As discussed in the course lecture, the long-term success of a subscription model is simple economics based on an optimal mix of the following factors:
Within the same business category, most of these businesses price their offerings within the same general range. Hence, in my opinion, the long-term success of any of these models depends on a blend of branding as well as a firm’s ability to continually offer contemporary (fresh) updates to their products and/or services. Moreover, since the pricing falls within the same general range, success also depends on a firm’s ability to offer comparably better value. For example, if Bomb Fell can offer more valuable (e.g., better clothes as the same price point) apparel to men vis-à-vis Stich Fix’s ability to do so will increase the likelihood of the former being a long-term success.
The Open Governance Index describes the control points used in an open source project across 4 dimensions: access, development, derivatives and community. The success of Google’s relatively closed Android mobile platform aside, research suggests that platforms that are the most open will be most successful in the long term.
Using the Open Governance Index (OGI) to measure the openness of The MySpace platform is revealing. The first dimension of the OGI governance criteria is (software development) access to the platform (code). The MySpace management team provided NO access to its platform. Indeed, MySpace engineers were tasked with creating each and every feature. Unlike subsequent social media platforms (e.g., Facebook), MySpace did not offer a software development kit (SDK) or open Application Programming Interfaces (APIs). Thus, MySpace was forced to innovate on its own. Therefore, MySpace scores a zero on this dimension. Or, in other words it’s a completely closed platform.
The second OGI dimension is termed development (of software developer contributions) to the platform. Since MySpace didn’t provide developer-level access to the platform, this dimension also scores a zero.
The third OGI dimension is defined as derivatives which refers to the use of trademarks used to control how and where the platform is used via enforcing a compliance process prior to distribution. Like the previous 2 dimensions, this dimension is also not relevant as MySpace disallowed any third-party distribution of its platform related components.
The fourth and final OGI dimension is community which refers to the structure and any associated tiered decision-making rights related to membership status. This dimension is also zero as MySpace management made each and every decision.
The initial success and rapid rise of MySpace was more serendipitous than by strategic design. According to the article, “The Rise and Inglorious Fall of Myspace,” one of the site's first breakthroughs, for example, came by accident. Shortly after launching in August 2003, Myspace developers realized they had accidentally permitted users to insert Web markup code, allowing them to play around with the background colors and personalize their pages, leading to the site's kaleidoscopic, techno-junkyard aesthetic, which became its trademark. Ironically, had MySpace offered its users and developers continued “access” to the platform, perhaps the platform would have survived. But, unfortunately erred too much on the side of a closed platform as it was under the pressure of monetizing as quick as possible. And, of course network effects can work in reverse as MySpace experienced as it started losing users at the rate of 1 million per month after a range of seedy content and suspect members permeated the platform.
In edX's MOOC, Platform Strategy for Business, the following question prompted a heated debate:
Does Netflix have Economies of Scale? Virality?
In short, my analysis reveals the following:
With regards to Netflix, I would argue that it has supply economies of scale with regards to its original content capability.
With regards to its distribution of non-original content, it has high fixed costs with low marginal costs. Thus, the average cost is declining in volume with more users so that more sales implies the ability to lower prices. In traditional economics, this leads to more sales, which allows even lower prices. The supply curve shifts down. However, Netflix has been RAISING prices.
I don’t see any demand economies of scale as users are NOT creating value for users? Indeed, not only does Netflix spend more money on non-sports content than any streaming provider, it also spends more than many traditional TV media companies. In 2017, Netflix spent $6.3 billion on original and acquired programming, according to data from Moffett Nathanson! So, unlike Facebook or Twitter, its users don't freely contribute content. And, I'm not certain that all media has to use Netflix as producers such as HBO offer their own streaming subscription service (e.g., HBOGo).
I would argue also that it exhibits virality as its adopters has pulled non-adopters onto the platform, i.e. converting non-users into users.
I would argue that the Netflix business model exhibits an implicit network effect in that it provides a recommender system which is based on user behavior rather than their explicit text input. Better recommendations lead to better user engagement.
For those interested in learning more about platform strategy, below is an link to the MOOC:
As a CMO, you are probably wondering if you are taking full advantage of new marketing technologies and contemporary ways of working that would modernize your organization’s marketing function. As the Chief Strategy Officer of LiquidHub, I’m interested in helping marketing executives transform the marketing function to win in the digital age. Recently, I found two articles highlighting the importance of architecting the future of a marketing organization with strategic intent.
The first editorial titled, “Building a marketing organization that drives growth today” was published in August 2017 by McKinsey. The authors advise that marketing organizations need to change in three ways. First, they need to shift their organizational model away from “boxes and lines” to a fluid ecosystem of internal and external partners. Second, they must scale agile ways of working. And third, they need to build out a set of supporting capabilities that can deliver great customer experiences.
In a recent blog post, Scott Brinker, the editor of ChiefMartec.com, frames a key question, “bit.ly/2wmmr8mWhat do marketing orgs look like in the MarTech age? Let’s find out.” The article offers three thought provoking questions. First, it asks if marketing technology is reshaping the organization of the marketing department. Second, it asks if marketing is best served by organizing around activities, channels, products, customer segments, or stages of the buyer’s journey. And, third is queries, what capabilities does it centralize. And, it concludes with an offer to participate in a survey to answer these questions and promises “some nice visualizations to reveal the different org patterns that we discover.
Drawing on these two articles and my experience advising CMOs on designing new marketing capabilities, CMOs should:
Starting today, you to need to start re-architecting your marketing organization to compete and win in the digital age.
@RayBordogna opines on "strategy" concepts.