Legacy media is at great risk of losing against tech culture. This is because incumbents miss a key driver: an obsession with their own mortality. Such missing paranoia gene negatively impacts every aspect of their business. 

At the last Code conference (the tech gathering hosted by Walter Mossberg and Kara Swisher), Google co-founder Sergey Brin made a surprising statement (at least to me): Asked by Swisher how Google sees itself, Brin responded in his usual terse manner: “There is the external and the internal view. For the outside, we are Goliath and the rest are Davids. From the inside, we are the Davids”. From someone who co-founded a $378bn market cap company that commands more than 80% of the global internet search, this is indeed an unexpected acknowledgement.

Sergey Brin’s statement echoes Bill Gates’ own view when, about fifteen years ago, he was asked about his biggest concern: Was it a decisive move or product by another big tech company? No, says, Gates, it is the fact that somewhere, somehow, a small group of people is inventing something that will change everything… With the rise of Google and Facebook, his fears came true on a scale he couldn’t even imagine. Roughly at the same time, Andy Grove, then CEO of Intel, published a book with a straightforward title: “Only the Paranoid Survives“. Among my favorites Grove quotes:

“Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing.”

Still, Intel wasn’t paranoid enough and completely missed the mobile revolution, leaving to ARM licensees the entire market of microprocessors for smartphones and tablets.

This deep-rooted sense of fragility is a potent engine of modern tech culture. It spurs companies to grow as fast as they can by raising lots of capital in the shortest possible time. It also drives them to capture market share by all means necessary (including the worst ones), and to develop a culture of excellence by hiring the best people at any cost while trimming the workforce as needed while obsessively maintaining a culture of agility to quickly learn form mistakes and to adapt to market conditions. Lastly, the ever-present sense of mortality drives rising tech companies to quickly erect barriers-to-entry and to generate network effects needed to keep incumbents at bay.

For a large part, these drives stem from these companies’ early history and culture. Most started combining a great idea with clever execution – as opposed to being born within an expensive infrastructure. Take Uber or AirBnB. Both started with a simple concept: harness digital tools to achieve swift and friction-free connections between customers and service providers. Gigantic infrastructure or utterly complicated applications weren’t required. Instead, the future of these companies was secured by a combination of flawless execution and fast growth (read this New York Times story about the Uber network effect challenge). Hence the rapid-fire rounds of financing that will boost Uber’s valuation to $17bn, allowing it to accelerate its worldwide expansion – and also combat a possible price war, as stated by its founder himself at the aforementioned Code Conference.

Unfortunately, paranoia-driven growth sometimes comes with ugly business practices. Examples abound: Amazon’s retaliation against publishers who fight its pricing conditions; Uber bullying tactics against its rival – followed by an apology; Google offering for free what others were used to sell, or distorting search results, etc.

Such behaviors leave the analog world completely flummoxed. Historical players had experienced nothing but a cosy competitive gentlemen-like environment, with a well-defined map of players. This left incumbents without the genes, the culture required to fight digital barbarians. Whether they are media dealing with Google, publishers negotiating with Amazon, hotels fighting Booking.com or AirBnB, or taxi confronting Uber, legacy players look like the proverbial deer caught in the headlights. In some instances, they created their own dependency to new powerful distributors (like websites whose traffic relies largely on Google), before realizing that it was time to sue the dope dealer. (This is exactly what the European press is doing by assigning Google before the European Court of Justice invoking antitrust violations — a subject for a future Monday Note). The appeal to legislators underlines the growing feeling of impotence vis-a-vis the take-no-prisoners approach of new digital players: Unable to respond on the business side, the old guard turns to political power to develop a legal (but short-lasting) containment strategy.

In the media industry, historic players never developed a sense of urgency. The situation varies from one market to another but, in many instances, the “too important to fail” was the dominant belief. It always amazed me: As I witnessed the rise of the digital sector – its obsession with fast growth, and its inevitable collision course with legacy media – incumbents were frozen in the quiet certitude that their role in society was in fact irreplaceable, and that under no circumstances they would be left to succumb to a distasteful Darwinian rule. This deep-rooted complacency is, for a large part, responsible for the current state of the media industry.

Back in 1997, Andy Grove’s book explained how to deal with change :

“The implication was that either the people in the room needed to change their areas of knowledge and expertise or people themselves needed to be changed” 

Instead, our industry made too few changes, too late. Since the first digital tremors hit business models ten years ago, we have been through one or two generations of managers in traditional media company. It is amazing to see how the same DNA is being replicated over and over. Some layers are moving faster than others, though. The higher you go in the food chain, the more people are penetrated by a sense of vital urgency. But the rank-and-file and middle management are holding back, unable to exit their comfort zone.

Earlier this year, the French newspaper Liberation chose the outdated slogan: “We are a Newspaper” in reaction to its new owners ideas (read this story in the NYT). Last week, Liberation opted to appoint as it editor-in-chief one of the strongest opponent to digital media (he is just out from the weekly Le Nouvel Observateur which he gently led into a quiet nursing home, leaving it worth next to nothing).

The gap between the managers of pure digital players and those who still lead legacy media has never been greater. Keenly aware of their own mortality, the former rely more than ever on brutal street-fight tactics, while the incumbents evolve at a different pace, still hoping that older models will resist longer than feared. For old media, it is time for a radical genetic alteration — if performed down to every layer of the media industry.

frederic.filloux@mondaynote.com

 

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