Richard Cardran: Commercialising Ideas

Media strategist and technologist Richard Cardran talked about how to commercialise digital media ideas in the current global economic climate for his keynote speech at X|Media|Lab in Auckland on May 22.

He talked about two popular but troubling trends, free-as-a-business-model and social networks based on indirect revenue, and outlines four basic digital business models - platform, content, technology and service.  Cardran says combining two or three of the four basic models tends to yield the best results.

"The current global economic climate is the most challenging it has ever been for entrepreneurs, small and large business alike, but opportunity can always be found in chaotic times for those who can bring new thinking and passion to aging business models. Burning down the forest allows sunlight to reach the fertile ground and promote new growth."

Richard Cardran was recognised in the October 2006 Hollywood Reporter/Producers Guild of America's year end "Digital 50" as well as Streaming Magazine's "Fifty Most Influential People in Streaming."

He was one of the international mentors at X|Media|Lab, Commercialising Ideas, in Auckland from May 22-24. The lab is designed to help local digital media companies get their ideas to market.  Below is an outline of Richard Cardran's keynote presentation.

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Richard Cardran: Commercialising ideas in the current economic climate

The current global economic climate is the most challenging it has ever been for entrepreneurs, small and large business alike, but opportunity can always be found in chaotic times for those who can bring new thinking and passion to aging business models. Burning down the forest allows sunlight to reach the fertile ground and promote new growth.

Large companies are pruning their R&D efforts, eliminating “distractions” and entrenching capital outlays into prior investments centred on their perceived core business. Investment in “life support” for Zombie companies is also an unfortunate trend. As long as there are problems to be solved, innovators will be there to solve them. 

Boutique start-ups unencumbered by corporate politics can move quickly to fill the increasing gap in innovation.  Thanks to the robust digital infrastructure and powerful, inexpensive technologies, it has never been easier to develop and scale an idea. Innovators can employ inexpensive tools or content distribution opportunities to commercialize ideas without requiring millions of dollars in investment.

Two popular, but troubling trends are free-as-a-business-model and Social Networks based on indirect revenue.

Free-as-a-business-model has been the overriding trend in recent start-ups looking to provide web services based primarily on potential ad-revenue; however economic trends especially in display ad revenue are simply not enough to support a “free” business model directly.  The “remnant” ad market pays around $1 per thousand impressions, not enough to support any business model. To attract top tier rate-card advertisers, offerings need to achieve a minimum metric of 1-2 million unique visitors per month which requires an ever increasing development in fresh content, new tools, or other means to maintain and grow participation. The advertising return on investment is typically not adequate to offset the development growth curve.

A related trend is to build large audiences and high traffic through social network models that in theory make the audience build out the offering to offset direct development costs in favour of user generated content. However it turns out these models share the same problem as free web service models, but on a much larger scale. These offerings require deep-pocket investment capital and very long runways to achieve critical mass. Social networks like Facebook, Twitter and others are struggling with adequate monetization planning, built on the concept that a large audience would somehow deliver a platform for revenue. In practice, an interesting gamble but in reality revenue is elusive and far from certain. It is possible to have an exit strategy that assumes large media and technology brands will invest in or acquire successful audience-focused entities; however the ultimate monetary return is uncertain.

Today investment capital is increasingly hard to secure. Consequently, start-ups in web-services or social network business models need to be informed around sound economic principles and include integrated revenue directly into their core strategic planning.

The start-up market is also suffering from angel investment paralysis and more and more, “go-to” destination models are experiencing a similar climate as was experienced in the Dot Com death march of 2001.

So what is the scope of commercial opportunity in 2009?

Let’s examine the four basic digital business models:  Platform, Content, Technology and Service. 

Platforms are expensive and require long-term capitalization. Funding, building and most importantly - promoting a platform-based company like Twitter is most likely outside the scope of most start-ups without long capital runways and patient investors.

Content can be easy to produce and is increasingly easy to monetize thanks to syndication revenue sharing and sponsorship dollars from things like product placement.  The trend is to create virtual distribution through multiple portal syndication partners and promote the brand by creating branded channels such as a YouTube Partner Channel, in other words, go to the audience, don’t make them come to you.  It is reasonable to believe content business models have the potential to grow organically from humble beginnings and can ultimately yield reasonable returns especially for content that jumps the fence from web-only distribution and into conventional media distribution (broadcast, on-demand and home video). There are increasing examples of successful web to broadcast content migration. Content trends found in mashup and remix culture are producing exciting results.  I have an upcoming book found at Miximalism.com, and a YouTube channel; YouTube.com/Miximalism that illustrates some of the more exciting examples in Miximal content.

Technology is a very broad category that runs the gambit from garage efforts to large scale initiatives.  While tech start-ups need to develop a core proof of concept, strategic funding is a believable goal even in this economic climate.  HTML scraping and RSS filtering technologies, Semantic Web 3.0 technologies and Smartphone applications are all excellent growth opportunities - along with any technology that delivers demonstrable operational efficiencies, increased consumer value or captures direct revenue such as fee-for service, or software as a service (Saas), are very much in demand.

Direct service models are also flourishing. Ad service revenue-based networks are making money, as are mobile service applications, development /design services and metrics and marketing services. The service sector in general is benefiting from corporate OPEX downsizing in favour of levelled budget planning.

Hybrid models:

Combining two or three of the four basic models tends to yield the best results. For example: A mobile application (technology) combined with a service component (Ad network services, syndication services e-commerce or content services) is a successful model seen across many areas of potential opportunity.

Companies like Gravity Mobile are packaging applications such as Shazam and Pandora and creating cross-platform mobile application licensing that spans content, service and technology.  As a primary integrator, developer and packager, they provide turn-key application services for large carriers as well as downloadable apps for various handsets. Revenue is at the core of their business model. The company was purchased in November of 2008 by Sony as an adjunct to their Gracenote investment.

Polyvore.com is a social fashion site combining e-commerce and social networking where users can create outfits or inspiration boards to share and potentially buy the included items. Polyvore enables users to drag and drop “snagged “ clothing items from the Web to create new outfits from multiple web-scraped source materials which are tied back to the origin shopping sites - potentially offering revenue sharing partnerships. While not the intended use, the visual mash-up graphic design engine is being used “off brand” by young would-be graphic designers grabbing visuals from Google Images and creating interesting design exercises. Polyvore enables users to engage with real products and brands, while leveraging social features and widget integration to applications like Facebook, to create and distribute collage sets which also serve as user created clothing advertisements.

InfoWorld chose Perceptive Pixel as one of its top-10 tech start-ups of 2008. Perceptive Pixel offers complete turn-key solutions of tightly integrated hardware and software. Jeff Han is a research scientist for New York University's (NYU) Courant Institute of Mathematical Sciences, and one of the main developers of an "interface-free" touch-driven computer screen. The screen is based on "multi-touch sensing," which is similar to existing touch-screen interfaces but able to recognize multiple points of contact. Perceptive Pixel not only developed the hardware for the multi-touch screen technology, but engaged some of the brightest designers and engineers to develop applications and software development kits for customers to develop their own applications directly. It is the combination of both hardware and a software product offering that enables this hybrid business model and the synergy that is driving their success.

My 1999 start-up, Zetools, engineered technology applications to manage, deliver and syndicate interactive broadband experiences across a number of platforms.  We experienced a similar economic climate in 2000 as we find today. Although we tried to find investment capital, we were ultimately unsuccessful due to the dot com crash and a down market for technology investment in general. Our answer was to expand our online model into the interactive television market and add a service model to fund our continued growth and development. Many of our customers wanted our technology, but were inexperienced in media planning, Broadband UX design and syndication business models. In addition to licensing our technology, our customers such as Microsoft, AOL, Viacom, Intel and ABC television paid us to visualize business models, design, implement, integrate and in some cases even operate their broadband offerings.  It was the service component that drove our technology sales and development and delivered tangible revenue that allowed us to sell the company in 2006 to Tandberg Television, a division of Ericsson.

Disruptive change such as we are currently experiencing with traditional media offers entrepreneurs the perfect opportunity to introduce innovative solutions and applications that directly answer problems or take great advantage of emerging markets. While the practical commercialization of digital business models is likely at an all time low, initiatives such as mobile couponing, Retail multi-channel POS integration, Smartphone and SMS advertising, and Semantic Web technologies that automate, aggregate and surface ontologies for active business layers are all showing strong growth and interest by both commercial investment and strategic investors alike.

As the old growth dies off, sunlight will reach the fertile ground. Now is a great time to plow the field and sow the seeds of innovation.

Richard Cardran bio

Richard Cardran has garnered two Emmy Awards for "Outstanding Achievement in Interactive Television" and "Outstanding Achievement in Advanced Media Technology" through his pioneering vision and efforts surrounding the paradigm shift in TV broadcasting to new TV2.0 strategies.

Richard Cardran co-founded and in 2006 sold Zetools, Inc. a digital media software and services company - now the global advanced media and broadband television unit of TANDBERG Television, Part of the Ericsson group.

He has implemented leading edge strategy and projects for Microsoft, Intel, AOL, Viacom, Disney, Universal McCann, Real Networks and Panasonic as well as MTV, TV Land, Bloomberg, ABC, HDnet, Capitol Records, IFILM, Comedy Central, The American Film Institute, The Museum of Contemporary Art Los Angeles and many others.

Richard Cardran is also a published writer and sought after speaker for events by The American Film Institute, Microsoft, Kagan Research, Streaming Media, Digital Hollywood, CASBAA, NAB and others.  www.afi.com