Are technology advances wrecking your business?

I’ve just got off the train from a city appointment – a relatively rare occurrence for your predominantly home-office based correspondent.

So it’s equally rare that I get to read those free commuter tabloids that litter the carriages of our public transport (truth be told, I wasn’t reading one at all but just happened to spot a headline over the shoulder of someone who was).

“Ruin of the book industry” the headline screamed.

Not being able to resist, I snatched up a copy from the seat opposite and perused the article in question.

My immediate suspicion was that it was about online retail giant Amazon’s eBook enabled tablet Kindle.

As it turns out I wasn’t far off the mark.

Amazon turns publisher

The story was in fact about Amazon. Not about Kindle, but the fact that it is now going one step further and actually becoming a ‘book’ publisher, having launched four new publishing arms dealing with everything from first-time writers to romance.

Business gurus would describe this move as ‘disintermediation’ – the act of removing “middle-men” from the distribution process.

They might also describe it as “vertical integration” – owning as much of the supply chain as possible. In this case (working in reverse) distribution, retailing and now publishing.

What are the chances they might go the whole hog and start writing the books as well?

Owning the value chain

There’s certainly nothing new in this. Great businesses have been vertically integrating since the dawn of business itself.

Vertical integration is how business people like music mogul Michael Gudinski made his fortune.

Not only did he own the record company, he managed the bands that signed up to it, published the music they recorded and in turn organised the tours that promoted it.  Then he made the T-shirts and merchandise they sold during these tours.

In other words, not only did he have his fingers in the pie, he owned the entire bakery.

And from a business perspective it makes perfect sense. Out of the one transaction (or in Mushroom’s case, act) you can attract multiple streams of revenue.  Whilst ‘amortising’ your overheads over several business units.

The article went on to report on the outcry from traditional publishers, claiming Amazon’s move would “undermine demand for traditional print books and put increase pressure on small and independent publishers that are struggling to survive”.

Nothing personal, it’s just business

While like many I hate to see some endearing aspects of these industries disappear (like favourite record and book stores), the reality is that organisations like Amazon are doing two fundamental and quite legitimate things:

1. Taking advantage of technologies which are available for every business to embrace.

2. Leveraging their existing business assets and relationships to create a new business opportunity.

From a business perspective they are simply doing what businesses are designed to do: Maximise their returns to their shareholders.

But what’s all this got to do with you and your business?

Probably a lot more than you care to imagine.

Because what technology (and in particular the internet) is doing is completely transforming ancient business models into shadows of their former selves.

Some industries turned upside down

No two industries have been affected more than book publishing and the music industry.

Not only has the internet changed the way their fundamental product (books and albums respectively) is found and purchased, but how it is also distributed. 

So profound has been this shift, that its incumbent major players have been caught with their proverbial pants down, allowing competitors they could never have dreamt of to move in and steal their valuable market share.

In music it came from computer company Apple. In book retailing it came from aforementioned start-up, Amazon. In business directories it came from another start-up, Google.

What these upstarts did was take full advantage of their competitors’ focus of protecting their previous business models to quickly reinvent the value chain, aggressively launch and eventually dominate their markets.

And it could happen to you!

As we’ve pointed out in this blog many times before, nowadays it’s critical to gain a thorough understanding of new technology and what it is capable of doing to your industry as soon as possible so that you have plenty of time to adjust your business strategy to deal with the inevitable change.

Where the barriers to embracing the technological changes are too great, smarter business operators either opt out of the industry altogether or identify ways that they can use their skills and knowledge to their advantage and reinvent their business accordingly.

But the lessons here are not just about technology. The business world can throw up significant changes from any number of sources – from (as we’ve recently seen) economic to natural calamities.

Smarter businesses simply identify the change and plan their moves well before their competitors even sniff the change in the weather.

And no amount of complaining about big new competitors is going to change that.