When I read about the private equity buyout of the ailing Chrysler group from DaimlerChrysler, it immediately reminded me of another buyout of an ailing legacy player in a fast changing industry being driven by successful upstarts — Sam Zell’s buyout of Tribune.
Thinking about it, I realized there are many analogues between what upstarts like Toyota and Honda did to the Detroit auto industry and what online and digital media is doing to traditional media:
1. More efficient product
While Detroit indulged the American obsession with gas-guzzling vehicles, Toyota and Honda pioneered fuel efficeint vehicles, including the increasingly successful hybrid technology. While traditional media companies tried to bolster inefficient packaged media, like CDs and newspapers, online and digital platforms like search and iTunes gave consumers access to precisely the a la carte content they wanted, without any waste.
2. Less expensive product
Toyota and Honda established their brands by giving consumers more for less. Online media is still wrangling with the old debate over whether information wants to be free, but Google has certainly perfected giving users more for less, by using advertising to financial all of its free services.
3. More technologically advanced product
It goes without saying that online and digital media are more technologically advanced, just as the engineering of a car like the Toyota Prius puts Detroit engineering to shame. But it’s not just advanced technology — it’s transformative technology. Driving a Prius is like searching for and consuming news and information on the web — a different in kind experience.
4. More nimble company
Detroit has been crushed under the weight of its pension and other HR obligations, while Toyota, Honda, and other foreign makers avoided such liabilities. Online publishing — witness solo blog publishing — is vastly more cost efficient than traditional publishing operations, from staffing to printing to distribution. And then there’s the ability to make money off of the long tail, which benefits all online and digital media. (Online video infrastructure still isn’t cheap, but there’s still a huge potential for high profit margins if the top line can catch up with that of the traditional video businesses.)
Does this mean that both Detroit automakers and traditional media companies are destined for extinction? Unlikely, at least in the near term, but for these legacy businesses to survive they will have to undergo a radical transformation to keep up with the upstart companies that are leading their industries into into the future.