Borrell Associates, Inc

It seems passé to say that the marketing world is changing rapidly, but it is.  And faster than ever.  A lot faster.

According to entomologists, it took nature 4.3 billion years to create the unprepossessing earwig. This is important only because some other scientists tell us today’s computing devices – the one in your pocket, under your arm, or at your desk – have about the same intelligence as an earwig.

Here’s where it gets interesting. The first semiconductor devices – “chips” with more than one circuit imprinted upon them – appeared 42 years ago. If we compare the evolution rate of the chip to that of the earwig, we get a ratio of 0.0000000097:1. That is, for every year it took to evolve the bug, it took a ninety seven hundred billionth of a year to evolve its electronic intelligence partner. If this rate continues, we’ll see chips as intelligent as we are within a decade, by 2023.

What would a world where devices are as smart as we are look like? It is impossible to envision any more than our great-grandparents could foresee the impact of plastics, automobiles, or airplanes. We are chained to the attitudes and realities of our past. Psychologists tell us that less than 1 person in 10,000 can foresee a future that’s very different than the present. Here are some examples:

• In the 1850s a renowned scientist predicted that human travel by rail would prove impossible because no one could survive speeds greater than that of a fast horse.
• In 1927 a prominent economist predicted that, if telephone connections continued to grow at then-current rates, by 1948 one in three Americans would be employed as a switchboard operator.
• In 1950, the president of IBM predicted that five computers would be sufficient to service all computing needs of North America.

Track record aside, we have to make the effort to foresee the future. Our grandparents had nearly a century to create their future. We may have less than 12 years – and parts of the future will come sooner than that. Think of how quickly the world has turned already. In the early 1990s we used acoustic modems to access AOL at a BAUD rate of 300 bps from computers that ran DOS and sported 10-megabyte hard drives. A few years later, the future of the Web as an advertising medium was still the subject of debate. Today, we have watched online disrupt newspapers, magazines, the Postal Service, book publishing and the record industry. Mobile devices promise to eliminate demand for cameras, end landline phone communication, and change the way people shop. What will next year (and the year after that) add to the list?

Here are suggestions to help your company anticipate the future:

1. Determine the parts of your business model that make your organization successful.
2. Evaluate each according to its vulnerability to change. Use scale where 1 indicates “least vulnerable” and 5 indicates “least vulnerable.” Don’t wear blinders. Don’t limit yourself to changes that have happened already. Imagine changes that have yet to occur but which seem logical based on your experience.
3. Estimate how your organization would be affected if the business model elements you rated “1” were swept away by future change.  That’s right. Base your future survival plan on changes to the elements you think have little or no vulnerability. After all, it’s not the anticipated changes that hurt.
4. Engage the best minds to help you create a plan to react to and survive the change you’ve identified.
5. Repeat this exercise. Re-evaluate your scores often. When you can’t think of anything new to add, ask others to help.

When you’re done, if you’ve done a good job, you will have developed a survival plan. Of course, you’ll never really be done. But you will have a good idea of what the future is likely to bring.

A subtle but tragic thing has happened to local online media over the last decade.

It began 10 years ago, as we emerged from the dot-com bubble burst.  The local online advertising landscape degenerated into a contentious battle between local media companies and the boogeyman – these internet pure-plays such as AOL’s digital Cities,  Microsoft’s Sidewalk,  CitySearch, Monster.com and others.  Local media companies rushed to create fast-moving digital divisions that went head-to-head with pure-plays to meet the challenge.  Remember Knight Ridder Digital, Tribune Interactive, Belo Interactive, Cox Interactive?  They were staffed with dozens of employees, yet within four years, every one of them succumbed to the gravitational pull and pressures of their internal politics and core product demands.   Some still exist, but only as malnourished servants.

The result?  Legacy media companies went from holding a majority share of all local online advertising in 2005 to less than half – 6-point drop.  Newspapers alone suffered a whopping 23-point drop in the five years since those operations were folded.

What happened?  The classic mistake:  The managers of a competitive product exerted their political influence and got control of their company’s digital initiatives. Before long, “convergence” ruled.

“I am certain that 2011 will be a year where the digital divide becomes impassable for a lot of local media companies…. These are companies who, despite 15 years of education, remain convinced that their existing broadcast or print staffs will carry their banner gloriously over the cliff to the other side.”

But don’t listen to me.  I want you to hear the hands-down expert on this topic.  That would be Clay Christensen, our keynote speaker and author of the best-selling “Innovator’s Dilemma.”   Clay, a Harvard professor who also sits on the board of a local media company, has agreed to keynote our conference in New York in March. Clay will offer guidance us on whether – and more importantly how – local media companies might survive the digital future.

Here’s the question everyone seems to have already answered without knowing it:   Is the Internet a sustaining technology to their radio, yellow pages, TV companies and newspapers, or is it a disruptive technology?  The key to how companies think about that is the key to success or failure, and the key to why some companies in the local Internet space are succeeding so well, 10 years later. Look at New York Times Co., McClatchy, and Yellow Pages Group.  Each has one-fourth of its ad revenue from digital sales.  How many companies can say that?  And some believe that figure will be 50% in three to five years.

I am certain that 2011 will be a year where the digital divide becomes impassable for a lot of local media companies.  They will be caught flat-footed, gazing at the unreachable green landscape on the other side of the gorge.  These are companies who, despite 15 years of education, remain convinced that their existing broadcast or print staffs will carry their banner gloriously over the cliff to the other side. 

Last week I found a clue to what’s happening in our year-end numbers:  Pure-play Internet companies are now equally sharing local online advertising with legacy media companies, and it seems to have stopped at that half-and-half point (see chart).  We initially thought the pure-play companies would turn into Pac-Man, gobbling up the share of local online advertising that legacy media companies were getting.  That no longer appears to be the scenario.

I think it’s a natural coming together of the Silicon Valley tech companies and the local feet-on-the-street media companies who have promotion, content and sales forces.  This natural marriage, I think, is a key to survival.  But I believe the organizational structure is a more important key.  Convergence is, generally, a bad idea.  We’ll explore that at the conference, and we have a fantastic lineup to open up the debate and settle the issues.