'Participatory media', 'Convergence', 'Web 2.0': call it what you will, the media and technology industry, smarting from a decade of change, is in the midst of yet another revolution. Words by Tim Stafford.
Leading futurologist Paul Saffo has called the development of the web the "social dynamite" that could lead to the "erosion of the intellectual commons holding society together." Heady stuff.
But his assessment waves the revolutionary banner a little too ardently. Although there is genuine disruptive change at its heart, this change is accompanied by evolutionary, consumer-driven trends that make it sustainable and viable. Of even greater importance to investors is the belief that both established media and technology companies and the sector's new stars are forecasting solid revenue potential from the emergence of Web 2.0.
But what is it? Let's start with the revolution. Wikipedia, a collaboratively created online encyclopaedia and child of this "new media age", describes Web 2.0 as "a generation of internet-based services allowing people to collaborate and share information online in a new way." As Andrew Hartley, managing director of August Equity says: "It's the ability for users to interact and deliver enhanced services across a variety of devices. This is the world of the user harnessing collective content."
Visit www.youtube.com, www.myspace.com or the latest addition from the UK, www.videojug.com. Each of these sites is generating millions of pages of content built by consumers with specialist interests, rather than traditional creators of media content. They offer advertisers the prospect of targeting an ever more defined group.
Traditional media, both online and offline, exhibit a "broadcast" model: one producer replicating content for the many - the audience. That audience could range from the millions switching on to watch an East Ender n'er do well meet a troubled end, to the readership of a specialist trade magazine.
Web 2.0 works on a mirror image of this. New technology allows anyone with a broadband-connected device to share sound, video and written content. The consumers of media are increasingly the producers of media. In November 2005, Pew Internet & American Life Project found that 57 per cent of American teenagers create online content - be it text, pictures or video.
This obviously has profound implications for media companies and their established business models. Advertising, their main source of revenue, is predicated on the idea of having a large captive audience consuming the message. Lose the ability to deliver the audience and question marks are raised about your business model. Media investors are examing their future options and shareholder value as the core audience wanes.
This theme is accompanied by two mutually reinforcing consumer trends: the increasing take-up of broadband access and a cultural transformation that pits the PC against the TV as people's favourite "leisure time" box. This is borne out by an Ofcom report. The industry regulator's survey says: "a new 'networked generation' is turning from television, radio and newspapers to online services. Television is of declining interest to 16-24 year-olds; they watch one hour less of TV per day than the average."
At the same time, technology companies are facing changes to the traditional software product development cycle to assemble commonly available components (like Dell has done in hardware) and focus on providing software as a service (eg, www.salesforce.com). This enables almost continual updates, very cost-effective scaleability for users and availability on a variety of devices.
The most visible aspects of the "revolution" so far have been delivered by a scion of mainstream media, Rupert Murdoch. First, in July 2005, he acquired MySpace, a social networking site, and poster child of Web 2.0, for $580 million (£304 million). He then linked up with media's hottest star, Google: the online search company inked a deal guaranteeing News Corporation $900 million in revenue by 2010 from using its search and lucrative advertising technology on News Corp sites, including MySpace.
Deals such as this, carried out by mature profit-making businesses, have led commentators to proclaim this era distinct from the '90s dot-com boom. So, how should companies respond? "Every business must understand the challenges and how it will create opportunity to grow shareholder value in the face of perceived threats and new business models," says August Equity director Steven Clarke. As Clifford Jakes, chairman of August Equity portfolio company Imagine Publishing and a former chairman of the UK magazine industry body, the Periodical Publishers' Association, says: "The internet is obviously here to stay and these new applications of it, like MySpace, offer lots of fresh opportunities."
"Companies are aware of the internet as a channel," says Olivier Wolf, head of PricewaterhouseCoopers' corporate finance media team. "But they are less aware of relevant business models. Few successful online business models were started by an established media company."
Hartley, Wolf and Jakes all agree that brand credibility is of paramount importance in an environment where media production has been demystified - and where any mistake in information provision will be publicised almost instantaneously.
"Media brands are here to stay, they've been around a long time and are trusted," says Wolf. "However, some will fall out of the market during this shake-up. Google, for example, has become a trusted brand and Google News is now a trusted aggregator of news content."
Jakes says traditional media companies' brand strength puts them in pole position. But this is no time to be complacent, as David Weinberger, a blogger and fellow at Harvard University, points out. He says mainstream media companies "don't get how subversive it is to take institutions [such as the broadcast of mainstream news from one to many] and turn them into conversations. The mainstream media are in a good position to get things wrong. Participatory media is not a publishing phenomenon, but a social one."
Despite this, it would take time - and a lot of missteps - for a brand such as The Times to lose credibility online. "People will trust mainstream brands for a long time to come," says Wolf. "However, they will be challenged by niche players offering their own content and/ or new models of delivery."
The only certainty is that there will be winners and losers. "Five years' experience has taught us traditional media can be isolated from new online business models," says Wolf. Media, then, is facing yet another brave new world. The difference this time seems to be that, driven as it is by strong consumer trends, it won't mirror its late '90s chimerical counterpart. But the rest of this world's topography has yet to be determined, says Hartley: "People just don't know yet, there is no map.
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