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Having survived the holiday season, we now turn to the year ahead. Based on our consulting work with clients over the past year, we think the following trends are likely to be among the most important drivers for information businesses this year:
1. New competitors will emerge
We've been telling our clients for a while that their most serious competitive threats are as likely to come from new players as from established competitors. New online companies can now start up on relatively little capital and can operate with different business models that are free from the costs or organizational burdens of established companies. Furthermore, as companies like Google have demonstrated, newcomers often enter information businesses using different approaches, such as extending workflow applications by adding content to software, rather than the other way around.
2. Controlling content, applications and distribution will become imperative
The recent notion that "content is king" is dead. Content alone is no longer sufficient for success. Applications, typically in the form of workflow tools and analytics, have risen to nearly equal importance in many cases. To those key ingredients, we add one more: distribution. Increasingly, information companies recognize that they must control their own distribution, and not rely on third parties. The value of controlling distribution is not just that it eliminates the costs paid to middlemen. More importantly, it puts the information company into direct contact with its users, the most important source of insights that lead to market leadership. Information companies will therefore increasingly strive to win the trifecta of content, applications and distribution.
3. The pay wall will stand
Online advertising was one of the biggest stories of 2007, evidenced by the growth of online advertising revenues, emergence of new forms of advertising, and the voracious acquisition of online advertising companies by Google, Yahoo, Microsoft, and AOL. Yet for all of that activity, the business and professional segments of the information business have been largely untouched. Paid content remains the rule for business and professional users, especially as such content becomes increasingly embedded in critical workflow applications used in healthcare, science, law, financial services, construction, manufacturing, energy, and other industries.
4. Content producers will adopt open-source approaches
Wikipedia established the viability of content that is created and maintained by users, rather than by publishers' editorial staffs. Commercial databases have been untouched to date by this open-source mode, and even worked to try to prove the inferiority of such approaches as compared to traditional, centrally-controlled approaches. However, we are now aware of several information companies that are considering opening their databases so that their users can make entries to supplement or correct the publishers' own data. While processes must be worked out in these cases to maintain the integrity of the data, the value of leveraging the resources of the user community appears too compelling for publishers to deny much longer.
5. M&A activity will center on strategic deals
2007 was a very active year for M&A activity in the information industry. Many of the largest deals were done by private equity firms, not by information companies. While the credit crunch may make these deals harder, the information industry is full of small- and mid-sized companies that can be acquired with the capital that private equity firms and large information companies already have on hand. Therefore private equity firms as well as strategic buyers may content themselves with acquisitions of companies that are small enough that they can be bolted onto or folded into their existing operating companies, rather than large, "platform"acquisitions.
We caution that the only prediction we can make with complete certainty is that our predictions will be wrong, at least to some degree. How wrong? We'll be back at the end of the year to conduct a self-assessment. Happy New Year!
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