NYU Stern Professor Vasant Dhar, an expert in the strategic implications of information technology, warns that the publishing industry will be the next “carcass” if it doesn’t embrace a new business model, and he proposes what this new model should look like. And it involves devices such as the upcoming iPad and the Kindle.
“Publishing executives have an unprecedented opportunity to grow the industry. Yet, what they are doing is defending their old business model – which, frankly, is now antiquated,”says Dhar. “The two are mutually exclusive.”
Dhar, who conducted the first study to quantify the economic impact of user-generated content for the music business, cites the music trade as a perfect example of an industry that failed because it was unprepared and resistant to adopting new technologies. Instead of focusing on providing their customers value and reasonable rights of usage, they became obsessed with preventing piracy, and it cost them dearly. He argues that publishers should adopt a more market-back-focused business model that welcomes technological innovation.
“Executives are disconnected from their rising consumer base,” the professor says. “They underestimate the power of and the cultural shift that has been brought on by emerging technologies.”
Dhar explains the drivers behind the technological shift:
° Moore’s Law. which states that raw computing power doubles every 18 months, making general purpose devices capable of rendering content at high quality
° The increasing level of digitization of virtually all types of content and the explosion of user-generated content: data on the Internet doubles every three months, and roughly 20 hours of new content is currently uploaded every hour on YouTube
° The modularity of software, which makes it easy to build new applications: while software productivity languished for decades, it has now kicked into high gear as object-oriented software makes it easy to plug-and-play self-contained modules into high-quality systems very quickly
Taken together, the three drivers are powerful disruptors of existing business models. Dhar suggests the publishing industry implement a digital strategy based on simple pricing and digital rights aimed at growing the market of readers.
“Increasingly, consumers prefer electronic delivery of their content. Publishers should tap this market and see it for what it is — growth,” he says. “Would you rather have a piece of a growing market even if it’s a smaller percentage than before, or try and hold onto a larger piece of one that is crumbling?”
All the evidence to date suggests that defending obsolete business models isn’t a good idea, he says. His paper, “Information Technologies in Business: A Blueprint for Education and Research,” was published in INFORMS in 2007 with NYU Stern Professor Arun Sundararajan. The full paper is available for download at: http://isr.journal.informs.org/cgi/content/abstract/18/2/125 .