A Forrester Consulting Thought Leadership Paper Commissioned By Group Commerce Using ecommerce To Monetize Digital Content In The Media Industry

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1 A Forrester Consulting Thought Leadership Paper Commissioned By Group Commerce Using ecommerce To Monetize Digital Content In The Media Industry December 2012

2 Table Of Contents Executive Summary... 2 To Distinguish Yourself As A Media Company, Invest In ecommerce Now... 3 Know Your Limits And Find A Partner That Will Help Successfully Execute... 5 Media Companies That Understand The Tenets Of ecommerce See Results... 8 Key Recommendations Methodology , Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to [1-L49640] About Forrester Consulting Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit Page 1

3 Executive Summary Digital platforms are a necessity and a norm for media companies today, but the opportunity to monetize the efforts has not been taken advantage of. Digital revenue streams mimic that of print (traditional ad sales) despite the enhanced features that can be offered digitally. ecommerce proves to be one of the most profitable options for media companies to create a new revenue channel, enhance engagement with their audience base, and differentiate themselves from every other media company with a digital channel. The transition from exclusively offering content to offering retail alongside content is a daunting Sixty-two percent of media companies acknowledge that to become a leader in the digital space, they need to rethink the way that they are serving the digital audience. challenge for most companies and one that won t even be considered by top management but vendor solutions exist that will make the transition manageable and lucrative. Group Commerce commissioned Forrester Consulting to evaluate the way companies in the publishing, broadcasting, and media industry view ecommerce as a tool to drive online revenue. To further explore this trend, Forrester studied how prepared these companies are to add ecommerce to their portfolios. Forrester s in-depth interviews with four businesses in the publishing, broadcasting, and media industries and a specially fielded survey to 106 companies in the publishing, broadcasting, and media industries found that the majority of companies are not suffering losses from digitizing their content, but they have yet to turn it into a promising revenue stream. Key Findings Forrester s study yielded these key findings: ecommerce is a priority initiative for media companies, but few have the necessary support. It is acknowledged in the media industry that when done well, ecommerce can enhance consumers interaction with digital content, which in turn drives audience loyalty and revenue. However, few companies have successfully incorporated retail into their site as a result of budget constraints and business models. Contrary to assumptions, consumption of digital content brings positive business results. Traditional content providers have been leery of the jump to a digital platform, but media companies reported that as a result of the shift to digital content, there has been an increase in the number of paid print subscriptions, audience base, market share, and revenue generated from advertising. This gives businesses a solid platform of advertisers that they can partner with and an audience base that they can engage with to drive ecommerce on their site. Technological solutions are in demand. Media companies recognize that advanced website functionality is a key opportunity for driving revenue and report that implementing and managing a technology platform is one of the key services they would like to see from vendors. For the purposes of this study, Forrester defined the following terms as: ecommerce. This refers to activities in which the Internet is used to transact funds in exchange for products or services (e.g., shopping for, paying for, and booking a spa service on the Internet). Marketplace. This is a transaction-enabled website with an aggregated variety of products and/or services from different providers where fulfillment is taken care of by the seller, not the marketplace operator (e.g., Amazon.com). Daily deals. These specific products or services are sold at a discounted rate for a short amount of time. Deals may be launched daily, but in some cases, they are launched less frequently (e.g., livingsocial.com). Page 2

4 To Distinguish Yourself As A Media Company, Invest In ecommerce Now The majority of media companies today offer their content through a digital channel, but few have done anything to differentiate themselves from the competition. As consumers increasingly rely on media companies digital channels for content, there is an opportunity to further engage with their audience base and create a new revenue channel. Forrester found that media companies that have successfully operated an ecommerce platform have seen considerable revenue growth and audience engagement. Additionally, ecommerce is more likely than additional advertisers to drive revenues, deepen brand loyalty, and increase audience base. When going digital, media companies should be aware of the following: Digital content demands new rules of engagement. Media companies report that offering digital content has had very little negative impact on their business overall (see Figure 1). More than 50% of media companies responded that the use of Web and mobile to access content has positively affected paid subscriptions, and the majority of them have seen increases in advertising dollars and market share. There is no question that media companies must offer digital content today. The question is how they will engage with their new tech-savvy audience. To date, media companies have not taken advantage of their larger audience base and modern media platform to generate more revenue. Traditional ad revenue models suffice, but their days are numbered as consumers see digital ads as a disruption to their overall experience with the content. ecommerce, on the other hand, allows media companies and brands to engage with consumers while enhancing their experience with the content. To retain and build their audience base and advertisers, media companies must engage with their consumers in a way that seamlessly deepens loyalty and enhances discovery and that is not with an interactive advertisement. Media companies must realize that offering updated digital capabilities is as important as offering updated news. We re trying to figure out how to best engage our audience base is it s with updates, is it a blog, is it ecommerce? (Advertising director, lifestyle magazine) To stay relevant, enhancing the digital channel has to be a priority. As consumers increasingly turn to digital channels for their content and their expectations grow, media companies will need to do more than embed video in a news story. An enhanced digital channel is one that reduces touchpoints, aids in product and information discovery, and creates a convenient and comfortable experience. If media companies do not take advantage of this time while consumers digital content habits are being molded, they will not only miss a huge opportunity to drive revenue but will also be surpassed by modern media companies that take the risk to offer an enhanced form of engagement. Three-fifths of media companies responded that ecommerce will be a key factor in how they invest in technology to support content, but about half are not in a position to offer ecommerce today (see Figure 2). Focused investment now is the answer to winning market share. ecommerce turns a threatening channel into a money maker. Media companies have yet to embrace their digital platform as an opportunity for generating revenue and as a result report that they can t figure out how to make money in the digital age. ecommerce platforms that are successfully implemented alongside digital content are described by media companies as a revenue stream and an audience-engaging channel in the same way that classifieds once were for traditional print media. There are success stories that prove ecommerce enhances all sides of the business. A number of popular news, cooking, and active editorials offer marketplaces with curated products that match and enhance the content in their digital and/or print editions. Content providers that started off as a digital-only platform (not print) entered the ecommerce space early on and have seen huge success. Such companies have reported an increase in audience base, the amount of time spent with the content, and the number of unique views. Traditional media companies blame the lag time on corporate initiatives that question ecommerce as a revenue stream. The question that needs to be asked is if they can afford to wait. Page 3

5 We offer digital content because it is the only way to stay relevant in today s media world not to make money. (VP of digital content and research, entertainment media) There are not enough corporate resources allocated to developing the digital channel, so we do the minimum provide content. (VP of digital content and research, entertainment media) Figure 1 Digital Content Positively Affects Business But Doesn t Drive Revenue To what extent have consumers' use of web and mobile technology to consume content impacted the following in your business? Overall reach or audience base Overall advertising revenues Number of advertisers Market share Paid Digital Subscriptions Paid Print Subscriptions Number of pages in print editions 8% 6% 6% 1 20% 17% 31% 21% 20% 41% 21% 1 35% 24% 65% 60% 57% 66% 55% Positive impact No real change Negative impact (multiple responses accepted) Source: A commissioned study conducted by Forrester Consulting on behalf of Group Commerce, August 2012 Page 4

6 Figure 2 Digital Engagement Leads To Profitability To what extent do you agree or disagree with the following statements about your organization A digital and print subscriber is worth substantially more to us than just a print subscriber 35% 33% 5% 4% Strongly agree In the future our ecommerce strategy will be a key factor in how we invest in technology to support our content 34% 27% 11% 15% Agree Neutral Our company must rethink how it serves the online audience to become a leading digital content provider 4% 5% Disagree Strongly disagree Our organization must change dramatically to enable an ecommerce marketplace 23% 15% 3% (percentages do not total 100 because an average of 4% of respondents selected Does Not Apply ) Source: A commissioned study conducted by Forrester Consulting on behalf of Group Commerce, August 2012 Know Your Limits And Find A Partner That Will Help Successfully Execute Media companies across the board perceive a level of preparedness that is not reflected in today s market. Despite having a digital channel, media companies will likely need to further develop technological capabilities in addition to their understanding and knowledge of retail best practices. Vendor partnerships are a solution for media companies without internal capabilities and those that want to go to market as soon as possible. Knowing the following will prevent mishaps early on: Perceived internal capabilities are often inflated. The transition from content provider to retailer is challenging. Understanding what your business is and isn t capable of may be the biggest hurdle. While the majority of media companies responded that they are prepared in most areas to offer ecommerce, the market is nowhere near saturated, and half of respondents are aware that their organization must drastically change to enable ecommerce (see Figure 3). Managing a digital content platform is drastically different from managing an ecommerce platform. Additionally, deal sourcing, fulfillment, and merchandizing must be handled by a retail expert. For media companies without expertise in ecommerce, a vendor partner will be the best way to move into the new space. Developing a user experience around content is very different from developing one around products. Media companies are aware that their technology capabilities need to be updated to support an ecommerce platform. A successful vendor partnership will result in an ecommerce platform that takes into account all of the nuances of online retail including platform management, fulfillment, merchandizing, and product assortment. Forty-two percent of respondents are most interested in vendors that design and develop the user experience, while 34% are interested in vendors that implement and manage the technology platform (see Figure 4). A successful user Page 5

7 experience will incorporate best practices from both media and retail sites to ensure the reader receives product choices and content that simultaneously enhance the overall experience. When selling anything online advanced website functionality and customer experience go hand in hand to make the session comfortable for the customer. Partner with a vendor that knows how to monetize your content. Media companies have limited themselves in thinking that their content is only consumable as words and so they can t be retailers, which Forrester believes is dated. With the right vendor, broadcasters can take a radio show and spin it into daily deals offerings, or a network can take a cooking show and launch a website with recipes, videos, and a marketplace selling the ingredients and cooking utensils needed to make the recipe. A well-selected vendor will curate and create products and services that resonate with the audience base and enhance content. Musicians are starting to evolve their brand from entertainer to perfumer and designer as their revenue stream from music sales dwindle. Media companies must similarly evolve their brand as revenues from ad sales dwindle. If media companies take advantage of the unique position they are in, within five years, digital media channels will be as important to consumers for their content as they are for their products. Offering curated deals is the biggest challenge to our daily deals model, but we would not feel comfortable outsourcing deal/product sourcing because we don t trust a third party to understand our consumers. (VP, software and digital content provider and online community) We are content providers, not retailers. Products are just too much to manage. (VP of digital content and research, entertainment media) Misguided decisions negatively affect results. The majority of media companies responded that they view marketplaces as a more profitable ecommerce option than daily deals. While marketplaces can be popular, Forrester believes that this idea comes from a misconceived notion of daily deals and a hyped idea of a marketplace. While both have proven to be profitable, it is important for media companies to understand both options and decide which one will enhance their content. For media companies without ecommerce and retail knowledge, a vendor should be consulted before moving forward with either decision. A popular digital city guide successfully operates a daily deals platform that offers highly curated products and services, while an international news editorial created a successful marketplace by partnering with its advertisers to offer exclusive products. Before making any decisions, media companies must be well informed to make a decision that will make the launch successful. Page 6

8 Figure 3 Despite Stated Preparedness, Few Media Companies Have Gone To Market How prepared are you in each of the following areas to offer an ecommerce marketplace on your website? Order fulfillment 33% 22% 8% 7% Ability to embed items for sale into relevant digital content 33% 2 8% 5% Online payments and fraud management Customer service Order management capabilities Merchandising Commerce related content production & management 28% 24% 24% 32% 28% 20% 8% 7% 22% 10% 5% 27% 10% 4% 27% 17% 4% 8% 5% Very prepared Prepared Somewhat prepared Not prepared Product (or deal) sourcing Commerce technology capabilities 24% 22% 20% 16% 14% 8% 3% Not at all prepared Site operations 3 10% 3% Source: A commissioned study conducted by Forrester Consulting on behalf of Group Commerce, August 2012 Figure 4 Media Companies Want Vendors That Enhance Their Digital Platform If there were vendors that could help you enable an ecommerce marketplace or daily deals platform on your website which services would you like to see? Design and develop the user experience 42% Implement and manage technology platform Manage the customer service Product warehousing Source marketplace stores or daily deal partnerships Tailor the product offerings to match the digital content Order management, fulfillment and logistics Develop and manage the mobile offering Marketing related to the marketplace or daily deals Product or deal merchandising 34% 32% 27% 27% 13% 13% (multiple responses accepted) Source: A commissioned study conducted by Forrester Consulting on behalf of Group Commerce, August 2012 Page 7

9 Media Companies That Understand The Tenets Of ecommerce See Results Moving into the retail space demands an understanding of online retail. Media companies that do well in this space understand that operating an ecommerce platform requires an understanding of the following retail best practices: Advanced website functionality is a must. Content providers have mastered curating content, and in most cases, their sites offer little more than that. However, it is clear to innovative media companies that advanced website functionality is a growth driver. Advanced website functionality is necessary to facilitate ecommerce and enhance the customer s experience. Seventy-two percent of respondents consider advanced website functionality to be important for increasing revenue and audience base, which will only feed the accumulation of more advertisers and online retail the second and third most important ways to increase audience base and drive revenue, respectively (see Figure 5). Media companies that have seen success in this space offer an online shopping experience that is as flawless as that of an online retailer. Convenient checkout, price transparency, payment options, and shipping preferences are all pieces of the puzzle that aren t forgotten when done well. The balance between content and retail is controlled. As a media company, it is important not to oscillate from content provider to retailer. The media companies that see positive results in their online metrics (unique views, brand loyalty, time spent on site, etc.) and revenue growth through product sales maintain a balance between their role as a retailer and content provider. Media companies with a successful ecommerce platform understand the role that their content plays to drive interest in products and provide context around a purchase. The most successful media companies are tastemakers that use their content and products to drive trends and ideas. Additional context makes the shopping experience more emotional, and the media companies with high ecommerce revenues fulfill their consumers need for instant gratification when shopping by keeping touchpoints to a minimum so that conversion rates are high. Business initiatives foster investment in ecommerce. Media companies that do well in this space have an ecommerce budget and team that is comparable to that of an online retailer. Media companies are limited to content by their business model and budgets (see Figure 6). While media companies are very behind in the digital space, they are in a better position today than ever before to move forward. With a handful of media companies operating a highly successful ecommerce operation today, there are examples that prove that now is the time to take the risk and allocate the resources. Successful media companies have the budget and the support to hire a vendor to do what is necessary and utilize internal resources. With support from the top and focused investment, these companies are seeing big results. Marketing and consumer education are as important as product selection. Media companies have found it difficult to engage with their audience base on a regular basis. s, promotions, and free content have proven to be failures for many, but with targeted marketing and education initiatives, the attempts are lucrative. One of the largest online cooking community sites with an ecommerce platform drives significant traffic to its site with ed newsletters that include product recommendations. For this particular site, 75% of visitation is driven through s, which drives about one-quarter of overall sales. Until consumers are used to using the site for retail and content, educate them on what is available and how to use it. Page 8

10 Figure 5 Advanced Website Functionality Will Drive Revenue How important do you think the following are to increase your audience base and drive revenue? Advanced website functionality 35% 16% 3% More online advertisers 32% 32% 20% 11% 5% Very important A separate online store 1 27% 1 Important An online marketplace with offerings embedded in the digital content 24% 21% 14% 16% Somewhat important Curated digital content 22% 36% 7% Not important An online daily deals platform with offerings embedded in the digital content 27% 10% 1 Not at all important A separate daily deals site 17% 28% 13% 16% Source: A commissioned study conducted by Forrester Consulting on behalf of Group Commerce August 2012 Figure 6 Business Models And Budgets Are The Top Inhibitors Of Growth In your opinion, what are the barriers/challenges preventing your organization from offering better or more ecommerce marketplace/daily deals options? (Select all that apply) Limited by company business model Lacking the budget 31% 2 Lacking technology No demand for ecommerce from audience Difficult to implement Limited by current company policies Lacking vendor providers Unsure of what our audience wants at this time Limited by distribution partners None 1 15% 11% Other 2% (multiple responses accepted) Source: A commissioned study conducted by Forrester Consulting on behalf of Group Commerce, August 2012 Page 9

11 KEY RECOMMENDATIONS Media companies have an opportunity to create a revenue stream while enhancing customer engagement. Successful players will: Consider where they will be in five years if the investment is not made now. Media companies that do not move into this space soon stand to lose more than revenue. Digital media companies are increasingly innovative and move fast. Within the next five years, consumers will favor media companies that enhance the online experience by fueling information and product discovery. Realistically assess in-house capabilities across all dimensions of ecommerce. Sourcing products, marketing online, managing product content, brokering orders, handling customer service, and preventing fraud are just the top-level operational and technical capabilities required to provide an exceptional ecommerce experience. Media companies must mindfully evaluate their ability to drive a retail experience. In many cases, companies will initially benefit from working closely with partners as they develop and mature their offering. Over time, those capabilities and business processes may be brought back in-house as cost and operational considerations warrant. Integrate the content and commerce experience. Simply adding a retail tab on your website and expecting customers to find product sales is not a likely path to success. Commerce must be woven into the content and editorial experience and across all communication channels in order to bring awareness to the offering. It is essential to do this to enhance and not disrupt the consumption of digital content. Be patient. It may take time to see the real benefit that adding ecommerce to a media business has on the bottom line. Customers must grow familiar and comfortable with the marketplace while companies work to perfect the experience. It is also important to remember that online retail of any kind will capture smaller margins than traditional advertising models. Focus on curated offers. For those interested in a daily deals model, note that among consumers and advertisers alike deal fatigue is an issue. Highly relevant deals in specific interest niches are the products that most resonate. Capturing unique offers requires a team that is closely connected to the content, the brand, and the customer. Methodology In this study, Forrester conducted an online survey of 106 US-based ecommerce/digital Marketing decision-makers in charge of the digital channel at local and regional media, publishing and broadcasting companies (e.g., newspapers, book publishers, trade magazines, fashion/news magazines). In addition, Forrester conducted 4 qualitative interviews with business leaders responsible for the online channel at media, broadcasting and publishing companies. The surveys and interviews intended to evaluate the needs and expectations digital leaders have for ecommerce and how it may support additional revenue streams and advertising relationships going forward. The study began in July 2012 and was completed in August Page 10

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