Impact of Social Media as Disruptive Innovation in the Media Industry Daniel MacTiernan, last updated 3/30/08 Value Network – the

context within which a firm identifies and responds to customers needs, solves problems, procures input, reacts to competitors, and strives for profit. The unique rank-ordering of the importance of various product performance attributes defines the boundaries of the value networks. Within the media industry, consider the following two value networks, each with a different set of product performance attributes: Mainstream Media (i.e. Journalists) 1. Credibility, Authority 2. Brand Awareness Social Media (i.e. Bloggers) 1. Social Interaction (Collaboration) 2. Immediacy 3. Personal Context

Social media is a “new market disruption” because it is an emerging market segment that was not initially served by existing incumbents in the mainstream media (MSM) industry. Discussion communities, blogs, and wikis started out providing services to consumers who otherwise would not have been able to create and deliver information via community process.

Area of Displacement – today, social media is now encroaching on the MSM market for audience. For the first time since the advent of newspapers, traditional news organizations are “facing competition from nonnewspapers, that are providing the same essential services they have, but are doing it in a different way.” (Mike Masnick, 03/27/08).

Customers that value credibility, authority, and brand from their media outlets drive the MSM value network. Customers that value specific, niche content and a forum to contribute are associated with the social media value network. From the concepts described by Christensen in “The Innovator’s Dilemma”, because the MSM market leaders (Dow Jones) compete in one value network, they are precluded from competing in the other value network. Why can’t the MSM market leaders compete in the social media value network? Firstly, they are bound to there customers needs – they must check and edit facts before publishing; secondly, the social media market is not yet defined and doesn't afford the margins that make sense for the big players; thirdly, the social media services are not viable competitors and do not yet present risks to MSM firms. These reasons will lead the major, dominant news providers to stay away from social media (or embrace halfheartedly). This will leave the new entrants to focus on alternative consumers which value different "product performance attributes" and rank collaboration and immediacy over credibility and brand. So the "innovators dilemma" is that the market leaders are making all the right business decisions (listening to their current, high-paying customers; staying away from risky new markets; avoiding low margin customers, etc) but will still fall to the new entrants once the social media outlets can support the level of reliability and brand awareness that mainstream customers require. In summary, the social media value network is a new-market disruptive innovation that will overturn the MSM value network by successively moving up-market through performance and marketing improvements until finally displacing the market incumbents. At such time, credibility and brand awareness will no longer remain competitive advantages and the MSM participants will succumb to new entrants. The Difference Between Social Media Disruptive Innovation and Sustaining Innovation: Disruptive Innovation – innovation that breaks down the distinction (boundaries) between value networks. In the example above, the social media value network arose from new entrants focus on citizen-generated content. Once these vendors move up-market through performance improvements, they will eventually be attractive to customers in the traditional media value network, and thus break the distinction between value networks and displace the market leaders.

Sustaining Innovation – innovation that perpetuates the distinction (boundaries) between value networks. Online video and personalization are examples of sustaining innovation in traditional media. They are fighting the social media revolution with features, instead of following it with alternative, social products/services designed for entirely different customers. • The Innovator’s Dilemma, Clayton Christensen 1997 Six Months In, And 600 Posts Later… The Worlds of Blogging and Journalism Collide, Erick Schonfeld - TechCrunch 03/30/08 Distinction Between Bloggers, Journalists Blurring More Than Ever, Mark Glaser - MediaShift 02/28/08 The News Business Is Dead; Long Live the News Business, Mike Masnick – TechDirt 03/27/08

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