Archive for the ‘agency model’ tag
Last month, the U.S. Department of Justice accused Apple and a number of other large U.S. publishers of conspiring to fix eBook prices and filed an antitrust lawsuit. While most of the publishers quickly settled the lawsuit, Apple decided to fight. Earlier this week, as Ars Technica reports today, Apple responded (PDF) to the government’s accusations. Apple doesn’t mince words in its response. The company’s lawyers call the case against Apple “fundamentally flawed as a matter of fact and law” and say that the idea that Apple tried to reduce competition and fix prices is “absurd.”
In its complaint, the U.S. government said Apple and publishers like Simon & Schuster, HarperCollins, Penguin and Macmillan, who favor the so-called agency model which allows publishers to set their own eBook price, were colluding to fix eBook prices in their fight against Amazon, which favors a wholesale model that gives it the power to set the price of the eBooks it sells. The DoJ alleges that Apple and the other publishers conspired to eliminate competition in the eBook retail market.
Apple, however, argues that the government “sides with monopoly, rather than competition, in bringing this case. The Government starts from the false premise that an eBooks ‘market’ was characterized by ‘robust price competition’ prior to Apple’s entry.” Before the iBookstore, Apple says, “there was no real competition, there was only Amazon.”
Apple says its entry in the market benefited consumers, as it brought is challenging Amazon and provided consumers with choice and “innovative features, such as color pictures, audio and video, the read and listen feature, and fixed display.”
The company also argues that it is giving more power to the publishers and especially to self-publishing and smaller publishing houses.
Throughout the document, Apple accuses the government of selectively quoting Steve Jobs from Walter Isaacson’s biography (“The Government’s selective citation to hearsay from a small portion of Apple’s former CEO’s biography is irrelevant and has no place in this litigation.”).
New details that were previously redacted from a class action suit claiming Apple and two publishing houses colluded to falsely inflate e-book prices revealed that Steve Jobs personally persuaded one of the publishers to ink a commitment to the company’s “agency model.”
Agency owners, take note: your traditional team structure – the one that divides your agency into “digital”, “account management” and “creative,” among others – may be restraining capacity to innovate and expand your client capabilities.
We work with a lot of agencies and have come to recognize the challenges that leaders are facing in today’s hyper-competitive market. There are smaller agencies that have specialized knowledge in one content area or social technology. There are larger agencies that have built labyrinthine digital teams with varying capabilities, making it hard to assess one agency’s true stripes over another. It’s mind-boggling how much has changed in the agency business in the last 5-10 years and we know how hard it is compete. There are no easy solutions to any of the business challenges and it can feel like you throw good money after bad by chasing new technologies as a service offering.
What is the T-Shaped Agency?
We have been talking this year about a concept – borrowed from the early years of digital agency business models – we call the T-Shaped Agency. This is a framework for agency owners and leaders to consider as they look to invest in staff education on new technologies, package that expertise into concise service offerings that clients will understand and don’t feel filled with hype and jargon, and – get this – actually deliver on the work in a profitable and consistent manner.
How Does the T-Shaped Agency Work?
The T-Shaped Agency concept is effective when there is recognition by agency owners that their traditional model of building, pricing and delivering a service to clients is misaligned with the need for rapid and articulate innovation in their client work. Let me build a metaphor for you to frame this concept.
Think of an agency as a software package, like Microsoft Office. Clients like to purchase an Office Suite; they know they will need word processing, spreadsheets, presentation software and possibly some other add-ons that make a packaged suite very enticing as a model. It’s fairly expensive to purchase all of this software and not every employee will want or need it, but it provides an easy solution for work productivity. Over time, the need for new features in that software changes and, slowly, the software manufacturer pushes out updates to the software which requires installation and deployment by IT teams and certainly does not put critical new features in the hands of employees quickly. It’s a slow model that does not evolve quickly.
Contrast that with newer open-source web-based software services like OpenOffice. These platforms – also available as a software suite, similar to Microsoft Office – provide immediate access to new features and fast deployment of updates without a lengthy installation process. Because it’s based on open-source software, it can take advantage of a community of knowledge – some of which may be very specialized – and new features can emerge rapidly that will be useful to a large number of its customers. This is similar to the T-Shaped Agency model that we’re describing here.
Agencies are filled with vast amounts of intelligence, and while employees may have line-item duties for specific skills – like creative, web development, account management – they may also have a knowledge of a specific technology that no other employee can match. Perhaps they are a weekend warrior on HTML5 development, or a passionate video producer looking for an outlet for their creative talents. The point is these skills exist within an agency and it’s difficult to put a description on them as a service offering; to say you have a video SEO product or a WordPress guru is a bit too specific for most agency engagements. But, clients crave those skills. So you have to adapt your ability to identify who those content experts are and allow them some lateral freedom to put their skills to use. Employees love it because they feel that they’re being valued for the unique insights they have about a specific topic. Clients love it because they feel the agency “gets it” and is able to deliver consistent innovative ideas and actually get them done. Of course, many scenarios will require an agency to look beyond its own walls for specific expertise, but having an internal champion of that technology, platform or concept will still be a valuable asset.
Deploying the T-Shaped Structure
How do you go about deploying this structure? It does not have to be a watershed moment. You can start informally surveying employees and asking them what areas interest them. For some, providing a small time or training allowance to bolster their existing knowledge of a topic will be a great incentive. For others, just the chance to show off their talent and contribute to the agency’s success is enough. You can expand the concept by crafting incentives for participation and, slowly, you’ll begin to see a natural evolution in how your teams are thinking about innovation for their clients. Clients will begin to notice too, and they’ll begin to see that your agency is evolving out of the Microsoft Office mindset and adapting an open approach to innovation.
Are you using the T-Shaped Agency structure in your business?
Apple views publications the same way it views apps, which is apparently why the company pushed for the agency model when penning deals with publishers to put their e-books on the iBookstore in 2010. The attitude was revealed in a short quote from Apple SVP of Internet Software and Services Eddy Cue published in the Wall Street Journal on Monday:
“I don’t think you understand. We can’t treat newspapers or magazines any differently than we treat FarmVille.”
The Journal doesn’t give a specific date or context for the quote, but implies that it came out of negotiations with news publishers looking to work with Apple. “Despite my arguments to Mr. Cue in Apple’s Cupertino, Calif., offices last year on behalf of news publishers seeking different terms, to him there was no difference between a newspaper and an online game,” wrote the publication.
The quote highlights how Apple’s negotiation tactics can be seen as a way to simplify the company’s approach to content as a whole, though a growing number of users and government bodies now disagree with the motive. In addition to antitrust suits from the US Department of Justice and 16 US states, Apple is also facing an investigation by the European Commission and several consumer-initiated lawsuits in Canada over its alleged collusion to fix e-book prices.
Cue’s attitude toward newspapers and magazines may not be surprising to most of us today—over the last two years, Apple has managed to implement a flat policy across all its content sales that involves the seller setting the price and Apple taking a 30 percent commission. The company clearly believes it hasn’t done anything wrong by allowing e-book publishers to set their own prices, however, and has said that it’s willing to argue its case in court.
In the words of New York Times media critic David Carr: “Why the crumbling book business is worthy of so much attention from Justice while Wall Street skates is a broader question we’ll leave for another day.”
It’s the first part of that sentence that counts.
Carr’s observation appeared in his article documenting the trial and tribulations of Apple and five major publishing houses. Simon & Shuster, HarperCollins, Hachette, Macmillan and Penguin have been charged by the Department of Justice for price collusion in an attempt to loosen Amazon’s stranglehold on the e-book market.
According to the allegations, back in 2010 Apple and the five publishers worked out a deal behind closed doors to fix e-book prices and adopt the agency-model. The publishers arranged to sell their books through Apple’s iBookstore for $12.99-$14.99 (versus Amazon’s bargain price of $9.99).
In contrast to the wholesale model, where retailers (i.e. Amazon) determine the value of e-books, the agency model allows publishers to set the price and the retailer (i.e. Apple) takes a 30 percent cut of the earnings. So far, three of the five publishers have settled, leaving Apple, Macmillan and Penguin to defend in court.
This is where Carr’s throwaway line gains significance. It’s no secret that the industry is struggling to cope with technological drift: People just don’t buy books in print like they used to. Instead, as a 2011 report indicates, the future of publishing lies in e-books, while print sales are at best flat lining and at worst, dropping.
And that’s what makes this case so important. The competing business models (wholesale versus agency) will directly impact the nascent (but growing) industry.
Mark Coker of Smashwords, an indie e-book publishing and distribution company, argues that while conspiracy is never a good thing, the agency-model is far superior because it gives the smaller fish a chance to compete with the big ones.
When retailers set the price, not only does it kill competition, but authors and publishers don’t see the same profit margins. It boxes out the competition and may even lead to higher prices for consumers in the long run.
Coker also contends that the conditions of the settlement are especially burdensome because at the very moment when publishers should be given the flexibility and nimbleness to react to technological change, they’re being forced to spend money complying with monitoring requirements that will slow them down: They’re being legally mandated to stay dinosaurs when what they need is to evolve.
While this particular chapter may have come to a close, expect the saga to continue as Penguin, Macmillan and Apple do their battle in court. In the meantime, check out the Justice Department’s Competitive Impact Statement for a more technical version of the case. If you rather know how this will affect e-book pricing as a consumer, check out Paid Content’s predictions.
What do you think, is the lawsuit killing the publishing industry? Let us know in the comments section or on Twitter.
Over the past few months I’ve been working with the smart folk at Econsultancy on a project (in partnership with Adobe) to better understand the impact of digital technologies on agencies. A big reason for doing this is that, inspite of there being much chatter in the blogosphere on the future of agencies and the agency model, there seems to be a paucity of good research on how agencies are adapting to the many challenges brought by the rapidly changing communications environment.
As part of the research I interviewed a broad range of the great and the good from agencies across Europe covering many different types of agency including full-service creative, media, integrated, digital, and those that are more marketing technology focused (and incorporating the views of a number of well-known and respected voices in the advertising and media blogosphere). Importantly I think, the interviews also covered a broad range of job roles including agency CTOs, CEOs, Strategy and Planning, specialists, Heads of Innovation. The output is a 59 page report that looks at evolving agency behaviours and models, use of technology, differentiation and value creation.
As a key part of this, and in response to the feedback from participants in the research, I’ve developed a model for agency maturity in four key areas: data, technology, skills and culture. The overarching themes of this model are pulled together in a framework that references the progression of economic value model derived from Gilmore and Pine’s The Experience Economy (a HT to Richard Sedley for pointing me at it). Reapplying this to the context of agency maturity in approach to (and the use of) technology provides a useful framework for understanding the progression of agency value over time and the shift from delivering services, towards staging experiences, and eventually to guiding transformations for clients.
There are many themes that sit around this model, a number of which echo areas I’ve talked about here previously (agility of-course, structures characterised by small and nimble teams, the explosion of devices, touchpoints and data, the shift from one-way, campaign-driven mindsets to developing more participative experiences and longer-term platforms, the growing importance of earned and owned media assets). I look at what this means for the important stuff like how agencies work, the relationship they have with their clients, how they create value and differentiate themselves.
You may recall that towards the end of 2011, I did a big piece of research on client-side digital structures and resourcing (again for Econsultancy) which itself was a complex but fascinating project. So in many ways this is a companion piece to that, but focused purely on agency side. The common strand that runs throughout both pieces of research is the scale of change and transformation, and challenge but also opportunity, that was revealed on all sides.
Sixteen states have piled lawsuits on top of Apple, Macmillan, Penguin, and Simon and Schuster, four companies which were served with an antitrust lawsuit this morning by the Department of Justice.
The suit is led by Texas and Connecticut, which, unlike the DOJ, are demanding financial damages be paid. Other states include Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Vermont and West Virginia and the Commonwealth of Puerto Rico.
The Department of Justice sued Apple and publishers Hachette, HarperCollins, Macmillan, Simon and Schuster, and Penguin this morning for its new “agency pricing” model. Apple previously had a flat rate for e-books in iTunes, similar to how it charges a flat $1.29 for most songs in the marketplace. With this new model, publishers are allowed to set their own prices on e-books in iTunes, and give Apple a 30 percent cut of the revenue. In general, this is actually positive for the publishers, but it went a step further. The publishers have been accused of conspiring with Apple to agree to not sell their e-books at a lower price anywhere else. That is to say, if the e-book is listed on iTunes as $13, it can’t be sold on Amazon for $10.
This lowers competition between online marketplaces, and it’s competition that drives prices down for consumers.
Thus far Hachette, Harper Collins and Simon and Schuster are said to have agreed to settle the case with the Department of Justice. Hachette and Harper Collins are the only two to have settled with the states thus far, offering a restitution to consumers. Macmillian, however, says it will follow the cases to court.
“The terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model,” said Macmillan chief executive John Sargent in a letter today, “We made the change to support an open and competitive market for the future, and it worked.”
Court Documents from the Department of Justice
Filed under: VentureBeat
Apple was surely riding high after the announcement of their new iPad yesterday, but that doesn’t mean that everything is OK in CA if a Wall Street Journal report holds true.
According to “people familiar with the matter,” Apple along with HarperCollins, Simon & Schuster, Penguin Group, Hachette Book Group, and Macmillan are on the verge of being slapped with a Department of Justice lawsuit that alleges them of colluding to raise e-book prices.
At the heart of the DoJ’s beef with these publishers is their adoption of Apple’s agency book-selling model, under which publishers can set e-book prices on their own, but surrender a 30% cut from each sale to Apple. It’s no wonder then that these publishers would jump onboard — a presence in the iBookstore means they’ve got access to a ridiculous number of iOS devices, and can charge as much as they like in an effort to offset their payouts to Apple.
The industry’s talking heads have been more than a little outspoken about the pricing model shift. According to American Bookseller Association CEO Oren Teicher “the agency model is in the best interest of not only the book industry, but the consuming public as well.” I beg to differ Mr. Teicher — I can see how the book industry would love being able to charge whatever they want for their books, but I don’t see how you can frame higher costs for e-books as a boon for customers.
Rivals like Amazon have been feeling the heat for over a year because of the agency model adoption. Given their long life as a book retailer, Amazon sticks to a wholesale pricing model, under which they can purchase the rights to sell an e-book and determine their own selling price. While this choice (and the ensuing slate of $9.99 bestsellers) generated love among consumers, it has caused them to scuffle with publishers who think their digital editions are undervalued.
The five publishers reportedly involved in the suit are big players in the book industry, but at least one major publisher seems to have dodged the bullet here. Random House announced their intentions to switch to the agency model for their e-books at the end of February, but I wonder if that decision will stick now that the model faces legal scrutiny.
So what’s the end-game scenario here? If the Department of Justice gets their way, then cheaper e-books for you and me are on the horizon, though how exactly that sort of pricing shift could happen is still up in the air. The publishers in question are scrambling to come up with a solution that allows them to dodge legal heat while still raking in revenue. Among the ideas currently being floated is the possibility of sticking to the agency model but allowing certain retailers to offer discounts. Negotiations have apparently been going on for a while, and we’ll keep you posted if anything actually comes of them.
The Department of Justice has plans to sue Apple for allegedly colluding to fix the prices of e-books, the Wall Street Journal reported Thursday.
Until fairly recently, publishers sold books to retailers for around half the suggested cover price, and then retailers were free to set their own prices. In recent years, Apple has turned its e-books business in the iBookstore over to an “agency model,” where publishers decide how much the book will sell for at a given retailer, but must take into account the fact that Apple gets a 30 percent cut of each sale. On top of that, Apple stipulated that the publishers could not sell their e-books for lower prices anywhere else.
According to quotes pulled from Steve Jobs by Walter Isaacson, Jobs said that publishers then took the agency model to other e-book retailers and told the retailers they had to agree to the minimum retail price set by Apple’s pricing strictures, preventing other e-book sellers like Amazon from undercutting the competition. The five publishers under scrutiny for working with Apple in this way include Simon and Schuster, Hachette Book Group, the Penguin Group, Macmillan, and HarperCollins.
The DoJ believes these actions constitute a violation of antitrust law, and are attempting to settle the case with the relevant companies. If a settlement is not reached, according to the WSJ, the DoJ will sue Apple and the five publishers.
Ogilvy’s head of social media in the UK has left because he “found the agency model challenging”. Here’s his quote -
“I wanted to look for a new challenge where I can be a little bit more involved. Agencies with a lot of clients which focus on a head of social media – it’s a great move forward, but I can be spread very thin. I end up where I’m not being used to my best abilities.
“You come across the same thing at lots of agencies. It will take a bit of time with training before agencies have more specialists in this area. The expectation can be a little high for any individual to cover,” he told PR Week
Reading more of the article shows that Maz was working across 10 of the Ogilvy agency brands which is intense, especially in a market the size of the UK.
The title “head of social media” definitely comes with its own baggage but in my experience, it seems as if there are two types of heads.
The first is the big thinker, someone who can be the inspirational figurehead to the organisation, parachuting into client engagements and doing the up front consulting or hand-holding to make the client feel as comfortable as possible. Typically these are the easiest to find. They generally do a lot of public speaking, have a tonne of Twitter followers and are often quoted in the trade rags. Some have strong real-world experience in executing their work but, based on what colleagues have told me, most do not.
The problem with the first type of social media head is that he or she is not scalable. At some point you have to hand off the execution to…someone. You can’t do it all by yourself. But to hand a project off once the strategy and planning is baked means you have to have a team otherwise you end up executing and its not the best use of your time, abilities or experience. Especially if you’re being pulled across multiple agency brands and clients.
The second is lower profile and more focused on getting stuff done. On building a book of business and then a team around that business. Cindy Gallop says that the future belongs to those who make stuff – produce ideas, build teams and win business. She’s right.
Somewhere you have to make the choice – do you want to be inspiring or do you want to build a business. Because building a business is like social media. It isn’t about the grand vision. Ultimately it is about being in the trenches, winning on a day-to-day basis on every interaction you have with your community and your clients.