“The real path to success is not greater reach, but greater engagement”

Harvard Business School professor Bharat Anand on using the internet to foster customer interaction

Bharat Anand, author of The Content Trap: A Strategist’s Guide to Digital Change and professor at Harvard Business School, argues that the largest opportunities for businesses seeking to leverage the power of the internet lie in fostering interactions among customers, and creating complementary businesses rather than just seeking widespread distribution of their traditional products. In an interaction with Outlook Business, he points out why a successful digital strategy is about being connection-centric than being content-centric.

How can media companies break away from the content trap in a digital world?

There are two challenges nearly every business faces today: getting noticed and getting paid. The content traprefers to certain common behaviour or mindset that organisations tend to exhibit when competing digitally, in trying to solve these challenges. For instance, internet is primarily seen as a distribution channel for existing content or product. This is how we thought about the internet for a long time — and many organisations still frame its benefits in these terms. But this benefit just scratches the surface of what ‘going digital’ offers. Think about it in this way: if we characterise organisations as hub-to-spoke operations — the product or content from the hub is distributed to consumers in the spokes, then the power of the internet isn’t just about reaching more spokes, but leveraging two other types of interactions. The first are spoke-to-hub interactions: what distinguishes the internet from prior technologies such as TV and radio is that consumers can more easily interact with organisations, they can tell them what they like or do not like about their product, they can produce content themselves, and they can provide more information on their preferences and tastes which can then be used to personalise offerings. The other, and perhaps even more important, benefit comes from spoke-to-spoke interactions — where consumers, or buyers and sellers, can interact not just with the company and the product it offers but with each other. This type of ‘user connectedness’, rather than merely greater reach, is the real power of today’s digital technologies. And we see this idea reflected in virtually every successful digital business: from social networks to marketplaces, app stores, review sites, communities, and so on. What needs to be fixed is that companies should stop thinking merely in terms of selling more products, and focus more on how to best enable productive interactions between their buyers, or between buyers and sellers.

Now, the benefits of connections have sometimes been framed in contrast to, or in tension with, existing strategies: product versus platform, content versus community. I think this can be misleading. Traditional organisations aren’t just going to abandon their existing model, nor should they. Great content or product still matters. But looking for ways to build user connections around your existing content or product can be very productive. Conversely, the opportunity cost of ignoring this can be large, as many businesses have discovered.

This is the first expression of the content trap — focusing too much on content and product, and missing user connections in the process. A useful question to ask in trying to escape this trap is: are there opportunities to enable connections between your buyers for spoke-to-spoke interactions or networks? And how can you embed these into your product design? 

You have mentioned in the book how a media company in Norway found an opportunity in a volcanic eruption. What did you find most interesting about this story?

The Norwegian Scandinavian company Schibsted has been around for about 150 years, yet is one of the few media organisations in the western world to have successfully transitioned to digital. Part of this success came from entering, and then winning, in the online classified market. But their approach to covering news has also been different, and how they covered the volcanic ash crisis in Iceland in 2011 is a good example of this. The typical stories that a news organisation puts out during a crisis like this — when ash from the volcanic eruption spread all across Europe — might center around how the crisis began, what geological formations gave rise to the eruption and the likelihood they’ll occur again, the health implications of the ash, the weather patterns and how quickly the ash might disperse. All these stories are reasonable, but it turns out they weren’t of immediate interest to readers. Why? Because all air travel was disrupted as a result of the ash spreading, and people were stranded. What Schibsted noticed early on was that readers were posting messages on its website asking, ‘How can I get from Oslo to Trondheim? Is anyone going?’ People simply wanted to figure out how to get from point A to point B. Within seven hours, Schibsted’s IT team created an app called Hitchhiker’s Central, whose only function was to allow people to easily share information on ride sharing with each other. The app became so popular that it was used all across Europe. In other words, the most popular ‘content’ wasn’t a story written by Schibsted’s journalists, but by an app whose ‘content’ was input by readers. This experience sparked a fundamental question within the newsroom that Schibsted now asks when covering any major crisis: ‘how can we help readers help each other?’ This is what I found most interesting: that the principles for online success for Schibsted’s newsroom are the same principles behind its online success in classifieds: recognising and enabling ‘spoke-to-spoke’ connections between its users. 

Media organisations in India tend to be more proactive during catastrophes — setting up help lines, creating funds and so forth. So, can you narrate an example where things could have been different?

Take demonetisation which was obviously a big event. Now, to cover a story like this, there are many different angles one can choose to report on. One angle is, for example, tracing through the implications for GDP growth — perhaps important for investors? Another angle is focusing the story on certain sectors that might be severely affected — which is relevant and important to people in those sectors. At the other extreme, however, a simple question for the common person is: I want to know where I can exchange money, at which banks are the lines long or short, what are their hours, etc. Depending on who your audience is, what you write ought to be quite different. And the tools you create will be quite different too. Schibsted’s ride-sharing app isn’t really about ride sharing. It’s a metaphor for creating tools that allow users to connect on things that they care about. Don’t think product first, think customer first. Don’t think magazine first, think multi-platform.

And yet, Schibsted’s approach, you argue, is not necessarily the blueprint for digital success, as you point in out in the book. 

Indeed. While the broad aspects of Schibsted’s approach are rooted in certain important principles (such as creating and amplifying user-to-user connections), the specific, concrete ways in which these principles express themselves may be quite different for different media organisations. Consider The Economist, whose approach towards digital is a mirror image of Schibsted’s. While Schibsted was early to move online, careful to separate its digital organisation from print, quick to produce new online content, aggressive in hiring outsiders, active in creating links to other stories online, and free, The Economist was virtually the opposite of this in every respect — it was slow online, never really separated digital from print, staffed digital with print insiders, chose not to have any links to others, and charged readers a substantial amount for its online content. And, remarkably, it has been quite successful over the last 15 years. Why? The resolution to this puzzle is that these choices aren’t isolated ‘best practices’ that are independent of each other — much as it’s tempting to view them as such — but instead are highly intertwined choices; and they arise, ultimately, from the differences in value proposition that each outlet offers its readers in the first place. So while Schibsted’s value lies in breaking news — and being faster than anyone else — The Economist’s value lies in helping its readers escape from breaking news and clutter. They go to The Economist for a consistent perspective on the world that they can’t get anywhere else. It’s this proposition that leads to all the other choices it makes. So what can seem puzzling at first — for example, not having any links to other content on the web — turns out be a direct consequence of what value proposition it offers its readers. And that’s the real lesson here: context matters. And it’s more important than ever to recognise this when crafting digital strategy.

This is another expression of the content trap: the tendency to look for generic digital best practices that you can adopt and apply to your business, rather than taking the time to craft strategy that’s tailored to your context. It’s very common to see companies embrace and mimic some successful practice that their rivals have adopted, only to find out later on that it doesn’t quite work so well for them. After The New York Times launched its successful digital paywall some years ago, more than a hundred other newspapers launched paywalls, believing this was their salvation. Most didn’t work. It’s a simple idea: Context matters. But it’s surprising how often we ignore this. 

You have mentioned about the importance of complements. Can you elaborate?

Take the case of the music industry which saw CD sales decline considerably as piracy exploded in the early 2000s. Well, it turns out that piracy wasn’t the real culprit — much of the decline simply reflected the transition to a new format for music content: digital. Indeed, if you compare the rates of decline of CDs to those of earlier formats — vinyl and cassettes — when the new format came along, they look virtually identical. Now if format change is at the root of CD declines, the important strategic question to ask is not how to eliminate piracy, but how do you make money in the new digital format? As we now know, there are very many ways to do so. One is hardware sales (of MP3 players and iPods). Another is broadband internet access — demand for which skyrocketed as digital formats and sharing took hold. A third, and perhaps the most interesting for the record labels is concert sales. Until the mid to late 1990s, the price of concerts more or less tracked the rate of inflation. After piracy took off, concert prices exploded. Why? Because 30 years ago concerts were priced low — to serve as the advertisement for you and me to go and buy the CD. Now, as the price of music has become harder to control, that relationship has flipped. Cheap music becomes the advertisement to go to the live concert, which is harder to pirate. 

Music is a ‘complement’ to all these different products and services — hardware, broadband, concerts. And what’s important to recognise is that as a complement gets cheaper, demand for your product increases. If complements don’t exist, you want to create them as it forces you to think more expansively about the business you are in. It helps you to follow where the value is going, rather than defining yourself too narrowly as a business. Hardware, software, content, advertising, and e-commerce are all complements to each other. This is one way of interpreting the ongoing battle between the various digital giants. 

Another recent example of a company that has found new value in live events is The Atlantic, which now generates roughly 20% of its revenue from them. They started out a few years ago with one event; today that business has 50 full-time employees organising and managing over 150 events. Why this trend? Because the magazine’s distinctive element of curation has extended into the live events business. And, digital expansion is driving more people towards these events. 

This example reflects the third expression of the content trap — and it comes from focusing too narrowly on your core product or competence. Focus can be good when it comes to efforts to improve quality, raise prices, or fight off threats — but it can be detrimental if you ignore complementaries with adjacent products or services. The music industry was so focused on fighting piracy in its core CD business that it missed the large value creating opportunities in complementary arenas: notably, concerts and live events. 

So the ways to break out of the content trap are to focus not on content or product alone, but on connections, complements, and context.

The big challenge in digital is about making money. So, what is the endgame? 

There are certain important lessons here from what we’ve seen with media and technology organisations by now, and how to make money online. First, there’s no ‘one right answer’ around the question of digital endgame. We have seen an array of models that can work, each appropriate for different contexts: advertising and micro-payments can work when you have scale (such as Facebook and Google), a la carte pricing work when you have truly differentiated content, subscriptions work when you have enough of it (like with Netflix). Strategies of price discrimination — charging different customers different prices — are useful when customers differ substantially in their willingness to pay (like with news paywalls or in-game apps and virtual goods). In other cases, like with networked products, you may charge one ‘side’ of the market and not the other (like with classifieds or marketplaces). The point is that the right endgame depends on the strategy that’s right for you. 

Second, a common tendency in organisations is to jump to the question of pricing, and how to make money, too quickly without clarifying how they would create unique value for customers. If you are not able to create value for customers, you won’t be able to charge for it. Financial metrics ought to follow strategy, not precede it. 

At the same time — and this is a third point to keep in mind — it’s rarely a good idea not to have some understanding of possible business models upfront, or postpone these discussions entirely to later on. For example, often times companies appear to chase online growth for the sake of it — with the optimism that somehow growth will translate into viable business models later. It often doesn’t work. Financial success rarely comes from hope. And increasingly, companies are realising that the real path to success is not greater reach, but greater engagement. It will be reasonable to sacrifice reaching many for the engagement and loyalty of a few. 

You are seeing these same issues and widely different models for what works — play out in online education, as well, both within Harvard and beyond, it seems? 

What we are seeing in online education today has many parallels to what we have seen in other sectors like the media. Some online providers have chased scale, and are now trying to figure out what business model can work once they have large numbers of learners. Others have eschewed scale and focused on increasing engagement of certain targeted groups of learners, whom they can now charge. Some are creating marketplaces and platforms, relying on third-party providers for content. Others are creating content themselves. Again, there’s no one right model that will emerge; there’s a place for different solutions. And as you say, we are seeing different approaches within Harvard itself, depending on the types of learners we are pursuing. The important question for any online provider of education to ask is: What’s the problem you are trying to solve? And how does your answer to that problem offer something truly unique and different to the learners? Merely putting content, and more of it online, isn’t going to be the answer for online education. That’s the content trap. We have to think harder about the experience of learners — the demand side of the problem, so to speak. The opportunities for coming up with creative, thoughtful solutions -— not just in online itself, but how this blends with residential education — is massive. While we’ve had some success with these questions in offering online courses at Harvard Business School, we are in the very early stages of this endeavour today and it’s exciting. 

So, what should we expect going forward for businesses trying to compete digitally? What predictions would you make?

As I wrote in the introduction to the book, one exercise I try not to indulge in is predicting the future. Most predictions turn out wrong. The important thing here is to focus on sound decision-making. What is sobering is that many of the decisions we make turn out to be based on assumptions or beliefs that are rooted in the wrong interpretation of popular events, in the wrong narrative. After 25 years of digital impacting media and entertainment, the dominant narrative still is that the internet destroyed newspapers because of cheaper and faster online content, and that it destroyed music because of piracy. Both these narratives are wrong. It’s important to understand what happened here, so that we can reshape the assumptions to take informed decisions, and avoid the traps that afflict so many companies.