Strategic Partnerships – Case Example

What if your biggest customers would move along the value chain and become your competitors too? This is what has just happened in the Finnish real estate online advertising markets. It is also a great example of the power of strategic partnerships, which should be considered more often in many companies.

Background
For years Oikotie.fi (Sanoma) and Etuovi.com (Alma Media) had almost equally strong position in the online real estate classified advertising market. Together they basically dominated the market and the real estate players had to use them even though the biggest agencies operate their own sites.

A few years ago MTV3, a broadcaster owned by Swedish Bonnier, entered the market by introducing their own portal called Jokakoti.fi. Despite being the #1 commercial TV-channel with a strong online operation, the site did not attract enough content or traffic, thus lacked real momentum to catch the big ones.

In 2010 the five biggest real estate agencies, representing up to 80 percent of the agency market, declared being unhappy with their ever-growing online marketing costs, namely in Oikotie.fi and Etuovi.com. Less than a year later the agencies made a bold strategic move and partnered up with MTV3, making Jokakoti.fi a joint venture of a leading broadcaster and the five biggest real estate agencies.

The key value sources
To simplify things a lot, one could say that the value proposition of a successful classified marketplace is built from following items.

1. Vast content database, that attracts (free) traffic to the site. Without content, the visitors will search for alternative sources of information.
2. Massive amount of traffic to attract more content to the database.
3. Strong cost efficient marketing tools. Here the strong owned media assets have been emphasized, because each of the players has equal opportunity to buy traffic and use intelligent social media strategies.
4. Known and trusted brand is a source of direct traffic.
5. High usability might have a crucial role if the players have an otherwise similar value proposition.
6. Sales performance and trustworthy customer relationship alongside with value adding sales packages makes a difference even in the digital media world, where advertising space can be bought and placed by self service.

Strategic value shift
The two value maps below illustrate the strategic logic of the partnership between the big agencies and Bonnier’s Jokakoti.fi. The “after” refers to the time right after the joint venture was launched. To keep the maps readable, the agencies are treated as a one entity, although it is question of several players. Please consider the ratings as indicative.

1. Database size: Agencies brought in a content mass that MTV3 didn’t have access to. Moreover, while bringing in the content to Jokakoti.fi, the agencies took major parts of it away from Sanoma’s Oikotie and Alma Media’s Etuovi. It would have been very difficult, if not impossible, for MTV3 to build up the content database matching the size and quality of Etuovi and Oikotie. The big agencies, on the other hand, had separately quite big content databases, but alone not even close enough to bypass Etuovi or Oikotie.
2. Own media: MTV3 is a very strong marketing channel, whereas the real estate agencies are mostly dependent on purchased media. This allows the cost savings the agencies were originally looking for.
3. Traffic: The huge amount of unique content and prime time TV campaign attracts traffic. The content became partially unique after the agencies withdrew big chunks of it out of competing services.
4. Brand: Just getting more relevant content and creating a visible partnership with marquee agencies has a positive impact also Jokakoti’s brand value. Naturally the simultaneous marketing campaign have to be taken into account.
5. Usability: We believe that the usability in this case is not a game changing factor.
6. Sales performance: The work of Jokakoti’s sales team will be much easier, as the marketplace they are selling is much more attractive, amid the growth of traffic and content volume. However, both Oikotie.fi and Etuovi.com have a strong and longstanding relationships with independent agents and the franchisees of the big chains, and they have a strong multi-channel product offering in their portfolio.

Results and questions
In terms of database size, Jokakoti became the leading site just after few weeks. They are also gaining traffic very fast (Source: TNS Gallup) and, if the trend continues, can bypass the leading players very soon.

Knowing that online classifieds can be very a profitable business, it is most probable that this partnership will have a direct impact to the bottom line of the competing sites. Even if the agencies would continue with the old players, there would have to be price reductions. There are also other relevant questions to ask:

1. It is rather unlikely that Etuovi and Oikotie will just wait and see what happens next. On the contrary, they most probably are actively trying to work out their next moves. How about moving in the value chain towards the business of agencies?
2. Some of the agencies are franchise networks where the local entrepreneurs have a lot of decision power and this can be the soft spot of the strategic partnership. Making a compelling offering for the franchisees, Etuovi.com and Oikotie.fi may have a real opportunity to erode the decision of the chain management. This, in turn, could keep the database-size difference in control. Active sales, good offering and close customer relationship matter in the digital business too.
3. The consortium will use a lot broadcast TV as their main marketing channel. Will linear mass media focus be the winning concept even in the mid-term or shall there be new entrants relying more on social marketing strategies?
4. Does the agency partnership last long and does it have opportunity costs? Partnership between competitors is not necessarily easy in the long run. They still need to differentiate themselves from each other, otherwise the door is left open to a new agile players with a different value proposition.

The jury is still out and we don’t know how this will end. What we know that status quo is being challenged.

Becoming a Design Thinker

This post was originally published on the ExtremeFactories Project site. The purpose of the project is to develop an internet-based platform implementing agile management methods for business innovation processes in industrial SMEs. Vaibmu Ltd is one of the consortium partners.

Introducing systematic innovation management tools for SMEs is an inspiring and challenging task. However, it also raises questions about the risks of introducing new ways of doing into companies that could be described as “process virgins”.

“How to introduce analytics driven systematic innovation processes in a small creative furniture design company without killing the essence of the business: creativity?”, “Does every company need systematic innovation tools in the first place?” and “What kind of change should the new tool bring into a small organization?”. These are valid questions.

Roger Martin may answer at least the last of the above questions. In his book, The Design of Business, he introduces the term “design thinking”, which balances analytical thinking and intuitive thinking, enabling an organization to both exploit existing knowledge and create new knowledge. This is how Martin describes how to become a “design thinker”:

Rather than being cowed by a reliability-oriented world and becoming a prisoner of it, the design thinker develops a stance that puts a priority on seeking validity and making advances in knowledge, even if that stance places the thinker at odds with the organization’s culture. In addition to mastering tools for analyzing the past and using that analysis to predict the future, the design thinker develops the capacity for observation, for seeing features that others may miss.

That makes a lot of sense and the ambition level of the ExtremeFactories Project should be set accordingly. Helping SMEs to become “design thinkers” makes a motivating target for the whole project.

Business Model Frameworks

This post was originally published in the ExtremeFactories Project site. The goal of the ExtremeFactories project is to develop an online based innovation management tool that especially serves the needs of industrial SMEs. It is hard to think why the tool couldn’t be applied in any organization regardless of its size.

Being able to direct creativity into areas where it is are most needed is one of the key value needs of the target customers. Another need is to have a flexible and light framework for planning the idea’s execution. “How the value added will be delivered for the customer with profit”. One good way to serve both of these needs could be a business model framework integrated in the ExtremeFactories’ tool.

The table below lists key elements of three different business models: A) Johnson et al, B) Osterwalder et al and C) Lindgren et al. Now, listing only the key elements is just scratching the surface and all of the frameworks are comprehensively analyzed in the NEFFICS project and their report as well as the other references are recommend for further reading (see references below).

As one can see, in terms of key elements, the above-mentioned business model frameworks are really close to each other and share common elements, notably the “value proposition”. There are differences though, however there were some good reasons why they were selected:

The Johnson et al model puts special focus on key resources and processes, or let’s call them building blocks of “key success factors”. Some very similar approaches split the key resources further into i) Assets and ii) Capabilities (people, skills) especially to underline the role of human resources.

Osterwalder’s model seems to contain all the necessary elements needed of a comprehensive business model. Moreover, they have successfully made the framework easy to understand and easy to communicate through their visually outstanding book and introducing a business model canvas concept. Making things understandable and useful is a great value proposition as such.

Lindgren et al emphasizes the role of the value chain in the business models. It follows more closely Porter’s value chain model than Johnson et al and Osterwalder et al.

Business model frameworks could be seen as a means of communication: a good business model unifies the daily language by providing a formal name and structure for the critical business elements. This in turn, helps to focus on ‘critical things’, thus supports both continuous improvement and innovation. Flexible business model frameworks are beneficial tools for the SME segment and therefore will be taken into account in the ExtremeFactories Project.

References:
A: Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann: Reinventing Your Business Model, HBR, Dec 2008
B: Osterwalder A, Pigneur Y: Business Model Generation – A Handbook for Visionaries, Game Changers and Challengers. John Wiley and Sons, 2010
C: Peter Lindgren, Rasmus Jørgensen, Yariv Taran, Kristin F. Saghaug: Deliverable D 4.1 Baseline for Networked Innovation Models, NEFFICS Consortium, 2011

Magazine vs Book Publishing

Some time ago we read that digital downloads of books have surpassed paperback purchases. The growth of e-reading has been very rapid and, naturally, this has a tremendous impact on production, logistics and retail processes within the book publishing business. However, it seems now that the actual writing and the consumption -browsing pages and reading text- of books will remain pretty much the same.

How about magazines? It seems that the first tablet versions are already taking the product from a “reading and browsing” experience to some other place -audio, video and instant interaction-. From the consumer point of view, we are obviously talking about two different competing products, which differ from each other from the creative process to the production to the final act of consumption.

It is implied that the migration to e-reading will lead “just” to an enhanced purchase, storage and consumption experience. However, this doesn’t seem to be the road-map for magazine publishing. We at Vaibmu see that magazine publishing will face more radical changes than book publishing. We see two optional paths:

1. The consumers will re-allocate their time, now spent in magazine reading, towards new digital product types as tablets. In this scenario, magazine publishing process as we now know it will disappear
2. “Tablet reading” will be a part of the internet surfing experience, but the consumers will still appreciate magazine-packaged content, albeit enhanced with a rich media experience. This would mean changes in the editorial processes, but the magazine business as we know it would continue to flourish.

What do you think will happen to magazines?

Moscow’s Guild of Press Publishers Expo – Russia’s Media Market Event

Vaibmu attends Russia’s largest media event, the Guild of Press Publishers Expo in Moscow, Russia, celebrated at Swissotel in November 16-17, 2010. Vaibmu was invited to participate in a very dynamic session focused on the evolution of print media in the digital age, presenting with key stakeholders of the Russian media industry. Over 2,500 Russian media executives and professionals attend the Expo every year, which is organized in cooperation with the World Association of Newspapers & IFRA.

The day’s sessions – vigorously moderated by the Deputy Sales CEO of Argumenty i Facty Publishing House, Marina Mishunkina – included the following presentations:

• Market & Trends: Media Advertising Market, results of H1 2010 by Lilia Vladimirova, TNS Media Intelligence
• Prospects for Advertising in Print Media by Marina Mishinkina, Argumenty i Facty Publishing House
• Positive & Negative Attributes of Newspaper Advertising by Violeta Rodionova, ZenithOptimedia
• Trend Formers & News Media Advertising by Georgy Mikaberidze, AFS – IMG PH
• A New Era of Classified Advertising by Clara Llamas, Vaibmu Ltd.
• Russian Digital Classified Ad Market by Sergey Osipov, Delovoy Mir Publishing House
• The Potential of Free Advertising Information Press by Alina Diokonova, VA-Bank
• Special Interest Media: New Forms of Interaction with Advertisers by Lidia Strekneva, GameLand
• New Models of Advertising & 3D by Dmitry Ogurstov, Komsomolskaya Pravda Publishing House
• Marketing 360: Complex Ad Campaigns Using Events by Anton Shishkin, Metro Newspapers Russia

You may download Vaibmu’s presentation in English here and in Russian here.