Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.
This week's topic: The vulnerability of the "mass" anything model.
And now, the Conversation continues...
KC: I was driving the other day listening to a program on POTUS, the politics station on SirriusXM, and they were having a long conversation about how mass media remains effective especially when it comes to news and live sports - in other words, the suggestion was that in these two categories, disruption was less possible because of the nature of their existence. Which struck me as interesting in a couple of ways. First, the discussion was taking place on Sirius XM, which itself was created as a kind of disruption to traditional terrestrial radio. (Granted, satellite radio has gone through some growing pains, but as someone who drives cross country and back every summer, I cannot imagine what I’d do without it.)
The other thing that I found interesting was that I’d just read a piece in Advertising Age in which Les Moonves, the chairman/president/CEO of CBS, conceded that sooner rather than later companies like his will be doing battle with “cash-rich digital overlords” for the rights to show major sporting events. "I think they'll be part of any further deal that we do,” he said. "We will be sharing or splitting or doing stuff, but I still think of broadcast as being really important to the NFL.”
Tom Furphy: That’s interesting. The “mass” anything model has been vulnerable for a while now in favor of personalization and choice. While mass media does have certain benefits in live news and sports, I’d say that it’s far from immune to disruption by new channels.
How does Mr. Moonves think the digital overlords became cash rich? Many are receiving investment based upon the market’s belief in their potential to disrupt the mass media market. In retail, Amazon is the disruptor and investors have certainly been patient with them. They have been very good at experimenting, iterating and then deploying capital to scale. The company throws off incredible free cash flow, then reinvests it in innovation and growth.
There is absolutely no reason that CBS or any existing company cannot do this. Yes, shareholders are looking for returns. But the balance of innovation investment versus spending on the core business can be struck by companies. And shareholders will increasingly demand innovation strategies from leadership. Without it, they are in for declining cash flow leading to a gradual death.
KC: It seems to me that we’ve seen this movie before - the CEO of a legacy business talks about the “sanctity” of a traditional model, not realizing that the disruption has already begun. I don’t know about your kids, but mine would have absolutely no reaction to the World Series or the Super Bowl or even the Final Four being shown on Apple TV or Netflix or Amazon or Google. They’d just adapt…and, in fact, they’d adapt without even being aware they were adapting, because this has become second nature to them. In your role as someone who nurtures small, disruptive companies - primarily in retail - I wonder if you see senior execs being more aware of their vulnerability than just a few years ago, or if perhaps things haven’t changed that much.
TF: I would argue that our kids expect productions to be available across multiple screens. They are already experiencing it as such, even if it’s not delivered that way. My kids watch Netflix several times per week. When they are watching an event or show on live TV, they have their phones out and are snapchatting and tweeting throughout. I’m finding that I have had a second screen open during March Madness this year. I find that watching the game on the big screen, while looking at stats, scores and streaming the concurrent games on my device makes for a great experience.
To answer your question, I do think executives are more aware of their vulnerabilities today. They’ve all seen Amazon take a piece of their volume, which is now measurable in CPG. Many execs are grappling with the full extent to which Amazon has impacted them and, more importantly, how Amazon’s growth will threaten their share in the coming years.
Unfortunately, almost all really have no idea how to compete against Amazon. We’ll often see executives that say “We know we have to offer e-commerce.” But most are still stricken with incredibly long budget, decision and implementation that cause them to fall further behind the market.
It’s not easy. And a couple forces work against most retailers. First, they don’t truly understand what it is about Amazon that is pulling shoppers from them and taking their share. So they work on things like click & collect or delivery, which are obvious and important, but are not silver bullets. Second, they are not agile enough to experiment as broadly as they need to, so they miss out on opportunities. It is rare to find an executive that sees a shifting shopping dynamic, such as voice ordering, automated replenishment or predictive shopping, and is able to appropriately test and develop capabilities for their shoppers. Those executives are out there, but they are few.
KC: BTW … I give Moonves some credit for at least acknowledging that change is coming. It would be worse if he said that the day was far off in the future before major sporting events would be licensed by digital streaming services. He’s even gone farther than that at CBS, creating an “all-access” streaming service that currently is exclusively showing “The Good Fight,” the spinoff from “The Good Wife,” and plans to show the new “Star Trek” series later this year. He’s accepting, and he’s trying new iterations … which is what we talk about here all the time on MNB and in our “Innovation Conversations.”
TF: I cannot overstate the importance of iterating. Amazon is a machine at understanding the customer and innovating on their behalf. They iterate, often for years, before a capability takes root and scales in the market. If competitors, basically all other retailers, are not relentlessly doing this today, they are conceding share loss to Amazon.
The problem with fighting Amazon is that once you can measure your share loss to them, it may be too late to stem the tide. Their flywheel is already spinning – volume creates data, creates personalization and marketing, creates more transactions and engenders loyalty. While slower overall than many other categories, it’s now coming on fast in CPG and it will be painful to incumbents.
So it behooves retailers to make bold bets today. And just because a bet is bold, doesn’t mean it has to be expensive. Using partners it’s easy to make small bets toward bold capabilities, then measure, iterate and measure again.Capabilities can be scaled with more investment once they are proven. That’s how we did it at Amazon and how we do it in our companies today. It’s forced us to be patient with retailers, but it’s worked very well.
KC: Along these same lines, I got an email from an MNB reader the other day making me aware of something that I don’t remember hearing about before - a service called Amazon Channels that, if I understand it correctly, allows users to subscribe to cable networks such as HBO and Showtime on an a la carte basis … so if I want to watch “Game of Thrones” and “Homeland,” I can do so by streaming them via the Amazon app … conceivably playing a lot less than I would a cable provider and getting a lot more portability via various devices. This sounds to me like a solution to a lot of people’s problems with traditional cable providers … which, no doubt, will start putting pressure on the cable networks to stop allowing Amazon to do this. Again, this is the kind of disruption that seems made for the moment … and there’s no reason to think that anyone will have loyalty to Cablevision or Time Warner or Comcast if they can have greater control of their content via Amazon or Apple or Netflix or Google. These people all compete, but they also have a common interest, which is to build their own businesses at the cost of the people who have been doing it for a long time. And again, this strikes me as a great metaphor for what is going on in retail and pretty much everyplace else these days. Thoughts?
TF: Amazon has shown that they can be a competitive avenue for the content providers. Amazon is a platform with access to a few hundred million regular users. Within that, it has been reported that they have roughly 80 million Prime members. This makes Amazon an appealing access path for the providers. They can provide a good bid for the content and they can channel it to customers that are willing to pay an appropriate amount for the service. Amazon gets to add value to Prime and the platform overall, and customers get more value out of their relationship with Amazon. It’s perfectly on strategy with Amazon’s platform approach to meeting their customers’ needs.
In retail, we can think of manufacturers like the content providers, products like content and we can think of retailers like the cable providers. Traditionally, manufacturers have had to rely on retailers to reach the shopper. But now, thanks to Amazon and other new models, brands have a choice. Retailers are less powerful as gatekeepers than they once were. Retailers that still act this way are ripe to be circumvented by new models. These models, including Amazon, are already taking meaningful share. This is no longer a metaphor.
Nielsen says that 20% of the grocery channel and 40% of center store will move online by 2025. There is no way this will happen based upon the traditional retailer-manufacturer dynamic and the traditional shopping experience. The shift will be driven by disruptors from outside the traditional channel that improve the way shoppers discover, buy, replenish and receive products. That can happen through or around the traditional retailers. It’s really up to them.
The Conversation continues...
- KC's View: