Opportunities in the music industry for a digital marketing agency

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“It’s a digital world after all”

Opportunities in the music industry for a digital marketing agency

Joyce Eikelboom

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“It’s a digital world after all”

Opportunities in the music industry for a digital marketing agency

The author is fully responsible for the contents of this paper; the copyright rests with the author.

Author: Joyce Eikelboom Rijksuniversiteit Groningen

Faculty of Management and Organization First supervisor: drs. R.W. de Vries

Second supervisor: J.M. Mol Media Catalyst B.V.

Supervisor: Sophie-Kim Chapman Amsterdam, July 19^th, 2005

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3 Preface

This research report marks the closing chapter of my study International Business at the faculty of Management and Organization at the University of Groningen. The thesis is conducted on behalf of Media Catalyst and reports on the opportunities for a digital marketing agency in the music industry. The research has taken place over a period of 6 months ending in May 2005.

A continuously changing world lies at the core of this research. Technology has always been the catalyst of innovation and even in the 21^st century this is proving itself once more. Seldom have consumers experienced a more rapid development of technologies such as the internet and the mobile phone, and for businesses these technologies open up a world of possibilities.

Digital marketing firms have come into existence in the slipstream of the internet, and are increasingly gaining terrain on the traditional advertising agencies. The challenge for these firms lays in their potential to differentiate themselves from their competitors, as well as in their power to convince the leading companies of this world to innovate their marketing communications. This research report aims to give Media Catalyst the insight to exploit its potential and use its power within a particular market of leading entertainment brands.

Without a number of people, I would have not been able to deliver the report as it lays before you today. First of all, I would like to thank my supervisor from the faculty, drs. Rudi de Vries. Even though he and I met under strange circumstances, where I had been working on my thesis for four months already, his input and quick responses have helped me finish my research properly and timely. I would also like to thank my second supervisor, Joeri Mol. In many ways he has helped me to finish up my study, thereby keeping my future as ‘a working girl’ in mind. Last but not least I must thank several people from Media Catalyst; the company I had such a wonderful time at while doing my research. Many people there have welcomed me with an enthusiasm and kindness that I could not have expected when I started there in November 2004. My gratitude goes out to Hans for giving me the opportunity of doing my internship at Media Catalyst in the first place. I think he has shown me what entrepreneurship is about. Furthermore, I would like to thank the leader of ‘the all-singing, all-dancing girls’ team’: Sophie-Kim. Thank you for helping me out with determining the exact content of my thesis, but thank you even more for proving that women will be ruling the workplace within the next decade! My last thanks go out to the rest of the client services team who have patiently listened to my sob stories about my research, tried to pretend that they like talking Dutch with me, and showed me the ins and outs of Media Catalyst.

Joyce Eikelboom

Amsterdam, July 19^th, 2005

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Management summary

Media Catalyst is a Dutch based and privately owned agency that offers digital marketing and interactive solutions. Since its foundation in 2001, the company has grown from three to forty employees. It was not until last year when the dependency on one major client, Sony Ericsson, was reduced by attracting new business customers. The goal for 2005 is to add new clients to the portfolio of Media Catalyst, specifically high-profile consumer brands that are in line with the clients that the agency is currently serving. A prerequisite of these brands is that they display a certain amount of progressiveness in the use of the internet and mobile phone for their brand communication and distribution of their products. Given the numerous online and mobile opportunities and ventures, as well as the presence of strong brands within this market, the music industry has been indicated to be an attractive one for the attracting of new clients.

The way to proceed in an area which is still relatively unknown to Media Catalyst is however unclear. In order to come up with a proper business proposal, research into the market as well as into Media Catalyst’s own competitive advantages, is necessary. The following research question has therefore been formulated in order to enable the management of Media Catalyst to successfully attract particular new clients within the music industry:

Research question:

“Which companies in the music industry are the most progressive in the use of internet and mobile phone as marketing and distribution channels and in what way can Media Catalyst best support these companies with the marketing of their products and the communication of their brands?”

Research Design & Method

In order to answer this question properly, the research has been split up into four parts:

1. Internal analysis 2. Competitor analysis 3. Environmental analysis 4. Customer analysis

Based on semi-structured interviews with key employees of Media Catalyst, an analysis of the organization provides an overview of the strengths and weaknesses of the company. These strengths and weaknesses are compared with the main competitors of Media Catalyst in order to determine Media Catalyst’s competitive advantages. Findings from scientific articles combined with external documentation such as market reports, annual reports and publications of consultancy or branch organizations are the input for the environmental analysis. This part concludes on which trends and developments and trends are taking place with regard to the technological and sociocultural aspects of the internet as well as the mobile phone. The last part of this report describes which customers in the music industry display what level of progressiveness regarding digital marketing. This is based on semi-structured interviews with different managers as well as on external information such as the company’s website, annual reports and other market researches.

Results

Based upon the internal analysis of Media Catalyst, it was found that the organization is highly flexible, displays a strong dedication to the client, and has at its disposal a strong partner network as well as a high level of mobile expertise. Especially these last two characteristics are what set the company apart from its competitors. Large digital marketing agencies such as Clockwork and Lost Boys seem to match or maybe even outweigh Media Catalyst’s competencies at every point. They display a strong dedication to the client also,

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5 have a more diverse client portfolio and offer products such as content management systems.

Their mobile expertise is however not something they pride themselves on. Other smaller agencies lack the access to strong partners to improve the quality of their digital offerings that Media Catalyst has. Akamai, Cyber Com and Teleca deliver respectively e-business architecture, application management and application development for PC and mobile devices.

The weaker characteristics of Media Catalyst are the lack of a clear strategy formulation, the low level of structured processes within the organization, and the absence of a proper marketing as well as research & development function.

The environmental analysis learns that digital marketing agencies are considered to be working in a very dynamic environment. Technological developments take place at a high rate which makes it hard to distinguish the difference between hype and a true business opportunity. On a general level, all these developments seem to be about delivering more advanced content at a faster rate. Broadband for the internet as well as for the mobile phone is leading to more (advanced) applications. Besides online entertainment in the form of gaming, downloading music and films, and shopping, online video advertisement and ‘media meshing’

are results of the increased bandwidth. Especially this last development seems interesting, since it entails consumers watching television and using the internet at the same time, which means a convergence of two of the most influential media of this time.

With regard to the mobile applications, researchers are still debating on which one(s) will become the most popular. Signs are pointing in the direction of mobile television, mobile tags, a mobile wallet and mobile advertisements, mainly because in Japan these applications are already proving themselves to be of interest to the consumers.

From the customer analysis it becomes clear that both MTV Networks and Universal Music display a fair amount of progressiveness with regard to the internet and mobile phone for marketing and distribution purposes. The traditional incumbents of the music industry such as the record companies and television station are being challenged by new online music retail platforms such as iTunes, illegal services such as Kazaa, mobile handset producers that are eating away profits and an ever smarter consumer that is starting to dictate what is being broadcasted. This difficult environment is making all the music related companies rethink their strategy, not only MTV Networks and Universal Music. The other record companies however (SonyBMG, EMI, and Warner Music Group) have not yet acted upon this environment as the first two mentioned have. They already implemented a new website, appointed a number of new employees to their new digital marketing strategy and are widely exploring their mobile opportunities. Even though the option of distributing musical content via the mobile phone is being implemented already, marketing and brand communication via the mobile channel is not being done yet.

Conclusions & Recommendations

Based upon the results of this research, it can be concluded that Media Catalyst can best support MTV Networks and Universal Music with their brand communication and marketing of their products by means of ‘media meshing’ and/or mobile advertising.

The competitive advantages of Media Catalyst centre on their flexibility, mobile expertise and strong partner network. Since these assets are what set the company apart from its competition, these are the ones to focus on and exploit. Both ‘media meshing’ and mobile advertising require the collaboration of a digital marketing agency and either a traditional advertising agency or a network provider. This first partner option would still have to be explored, however Media Catalyst already has access to over 24 network providers via their partner Teleca.

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6 Both MTV Networks and Universal Music are the best options for Media Catalyst to target in the music industry. These two companies display the most interest in using the online and mobile channel for marketing purposes and have already started to implement the changes in their strategy. They appear to be the most progressive and therefore most open to innovative digital marketing solutions.

The three main recommendations for Media Catalyst regard their internal need for strategy formulation; the necessity of more structure in the organization; and the way to proceed with the conclusions on the customer analysis. Even though the company has existed for four years already, a clear strategy has not been formulated. It appears that the focus is on delivering value through achieving ‘customer intimacy’ however this has not been a choice but rather a gradual development. In order to guide the company in its growth process, a clear strategy formulation is recommended. The long-time dependency on one client has not forced Media Catalyst to properly structure certain processes and functions. This is now causing a lack of attention for marketing, research & development and some difficulties with personnel management. It is recommended to improve the structuring of these mentioned areas in order to guarantee the high quality and innovativeness of offerings. The last recommendation suggests that in order to obtain new clients in the music industry, Media Catalyst needs to focus on displaying its competitive strengths, as well as be very much aware of the developments that are taking place in this industry. In order to support these companies with their digital marketing through ‘media meshing’, Media Catalyst is recommended to explore the option of partnering with a traditional offline advertising agency.

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Chapter 1. Introduction

This chapter will serve as an introduction to this research and to the organization of Media Catalyst. The chapter starts with a short description of Media Catalyst in §1.1, followed by the research background in paragraph 1.2. The management problem stems from the background and will be discussed in §1.3. This paragraph together with the literature review of §1.4 serves as the input for the main research question and sub questions in paragraph 1.5. The last two paragraphs discuss the research method, design and data collection (§1.6), and research limitations (§ 1.7).

1.1 Media Catalyst

Media Catalyst is a Dutch based independent and privately owned organisation that offers digital marketing and interactive solutions. Three people founded the company in 2001, attempting to set up an alternative to the traditional large web agencies whose bureaucratic structure seemed to make them inflexible. Sony Ericsson has been the first and main customer of Media Catalyst over the last four years. Sales volume has increased every year, reaching an annual turnover of over four million Euros in 2003. The headquarters comprises over forty employees and is located in Amsterdam. Media Catalyst also has a subsidiary in Los Angeles and a sales office in New York that, combined, total nine employees.

The ambition of Media Catalyst is “to be the expert in digital marketing and interactive solutions, at the forefront on how the world is changing, using the optimal combination of marketing and technology to be the most fit for the job and come up with the optimal solution” (Brand Strategy Media Catalyst, 2005).

The company offers digital solutions to internationally oriented companies to support them with their marketing strategy and brand communication via the internet, intranet, extranet, mobile devices and kiosks. Offerings that are provided by Media Catalyst are for example digital strategy & business analysis, digital branding, user centred interface design, application development, and systems integration. Business analysis and project managers back up the different production areas such as visual design, technology, and information architecture in order to achieve a synergy that delivers digital and interactive solutions to businesses. The following figure indicates the phases of the primary process. A particular project starts with an analysis of the client’s business. A thorough understanding of the clients’ requirements is necessary to come up with a good solution. Once it is clear what the clients’ wishes are, the design and development of the solution can begin. Evaluation of the solution is continuously necessary. Before the final implementation, testing will be done in order to check the quality of the solution.

Figure 1.1: Primary process

Currently the organisation is doing several projects for multiple clients, of which Sony Ericsson is still the biggest. World Press Photo, Schiphol and Yamaha have recently been added to the company’s portfolio.

Evaluate

Vision & goals Analysis Design Develop Test

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9 Media Catalyst has an extensive partner network in order to achieve the flexibility and innovativeness that are considered key principles of the organization. The company works with Akamai’s Edge services to design ‘on-demand’ e-business architecture solutions. These claim to be better performing, highly scalable, and more cost-effective for customers.

Applications for PC and mobile devices are developed by Teleca AU System, a Swedish IT services company, which are combined with Media Catalyst’s platform services and interface design. Especially for the Sony Ericsson account, Media Catalyst has worked together extensively with Cybercom, a key partner that delivers IT solutions, consultancy and application management.

1.2 Research background

Since 2001 when the company was founded, Sony Ericsson has been the main client of Media Catalyst. The first project for the international phone company was to design the website of the new company that had come into existence because of a joint venture of the entertainment company Sony and the telecommunications company Ericsson. Several projects have followed since then, such as the design and development of an intranet, a retail portal and several campaign sites. Sony Ericsson has been the only major client in Media Catalyst’s portfolio up until the beginning of 2004 when the website for World Press Photo was designed and deployed. The relationship between Media Catalyst and Sony Ericsson has been one of great dependency.

Even though Sony Ericsson has provided Media Catalyst with its reason for coming into existence, and even though the relationship has been fruitful over the years, the dependency on one major client is no longer a preferable situation. In order to grow and establish an international presence, it has become the ambition of Media Catalyst to increase the number of clients it is serving.

The focus of business development for the Amsterdam office is on large international companies in the Benelux. The scope of the projects that these companies have fits with Media Catalyst’s benefits and usually matches the desirability to work with forward thinking people that want to deliver high quality. ‘Forward thinking’ is an essential part of attractiveness of potential new clients; ‘early adopters’ are preferred clients.

The new business strategy of Media Catalyst is to approach companies that are in line with their current customers first, because of the knowledge and experience they already have in these markets. The target groups are high profile consumer brands in general while a distinct segmentation comprises the following verticals (Howarth, 2005);

- Transportation - Telecommunications - Media & Entertainment - Consumer electronics - Retail

1.3 Management problem

The rapid growth through serving one large international organisation has led to a situation where Media Catalyst still has some difficulties with the process of developing new business.

The organisation has grown ad hoc and needs to move out of this position into a more structured environment with a balanced combination of clients.

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10 When taking into consideration the new business strategy of Media Catalyst and current high- level market developments in the area of internet and mobile devices, the music industry has been indicated to be an interesting vertical to analyse in order to gain new clients in this area of business.

Since Media Catalyst does not offer standardized products, but solutions, the only way to attract new clients that do not approach Media Catalyst themselves is to come up with creative ideas and suggestions to the innovators and early adopters of businesses. In order to present new clients with proper business proposals, these ideas and suggestions need to be based on a profound insight in market developments, technological and consumer, as well as on extensive knowledge of the potential clients’ adoption level of the internet and mobile devices for marketing purposes.

To match Media Catalyst’s capabilities with market developments and customers’ demands, an internal and external analysis is necessary.

1.4 Literature review

In order to structure the conduct of this research, an extensive review of literature needs to take place.

Developments in information technology have opened up opportunities for innovatory organizations such as the dot.com companies. According to Johnson and Scholes, an innovatory organization has the ability to ‘change the rules of the game’ (2002, p.28). The success of this type of company is dependent on two things; (1) a willingness to challenge the status quo in an industry, and (2) an awareness of how the company can extend its resources and competences to create new opportunities. These two requirements imply an understanding of a company’s environment, as well as an understanding of the in-house capabilities of the company.

Internal analysis

A company must have the strategic capability to perform at the level that is required for success. This capability can, according to Johnson & Scholes (2002), be defined by either looking at the organization’s resources or by establishing what its core competences are.

When defining the organisations capabilities by resources, this means analysing the level of availability, uniqueness, and threshold of the resources. The shortcoming in using resources to establish organizational capabilities is that resources can usually be imitated or traded. To properly underpin an organisation’s competitive advantage, a thorough analysis of an organization’s core competences is preferred (Johnson & Scholes, 2002:156).

Hamel and Heene argue that a competence is “a bundle of constituent skills and technologies, rather than a single, discrete skill or technology” (1994: 11). To be considered a core competence of a company, capabilities need to meet five requirements (Prahalad & Hamel 1990, Hamel & Heene 1994):

1. an integration of skills

2. more than a(n) (physical) asset 3. deliver customer value

4. competitor differentiation 5. gateway to new markets

Core competences have the ability to differentiate the company from its competitors and form the basis for new business development (Prahalad & Hamel, 1990).

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11 At organisational level, a company’s strengths are related to functional areas. In order to analyse these strengths per functional area, Alsem has drawn up a list that comprises the following elements (2001:203):

• Production

• Innovation

• Management and organization

• Personnel

• Finance

• Marketing

These items form a checklist to evaluate the core competences within the different functional areas.

In order to survive and be profitable, a firm needs to pursue a particular strategy and control a set of core competences that set the organization apart from its competitors.

Competitor analysis

A competitor analysis serves to identify current and potential competitors and to gain insight in the expected behaviour of these competitors. The goal is to determine what the relative strengths and weaknesses are compared to the own organization.

Within this analysis, five phases (Alsem, 2001) can be distinguished:

1. identification and choice of competitors 2. identification of goals of competitors

3. identification of current strategies of competitors

4. identification of success factors and the strengths and weaknesses of competitors 5. future strategic behaviour of competitors

A comparison between the internal analysis and the competitor analysis sheds light on the relative strengths that one firm might have. Beside these internal strengths, a company needs to be aware of what developments are taking place within the industry environment (‘the status quo’) and how these developments are to be put to use.

According to Aaker (2001) an external analysis serves to identify all the relevant aspects outside of the organization that can imply opportunities or threats to the company. A full external analysis consists of an environmental, market, competitor and customer analysis. A market analysis is not part of this research, since Media Catalyst has already indicated to see the music industry as an interesting market. Determining market attractiveness is therefore not a goal of this research.

Environmental analysis

According to Fahey, the environment of an organization comprises seven segments;

demographics, life-styles, social values, technology, economy, and the political and regulatory milieus, (1983: 51). A more common categorisation of elements of a company’s environment is known as the PESTEL framework, where distinction is made between demographic, economic, sociocultural, technological, environmental, and political factors (Alsem 2001, Johnson & Scholes, 2002).

Analyzing the environment on a whole is practically impossible, making it necessary to determine which segments are to be analyzed in detail (Fahey, 1985). A part of the goal of this research is to determine which technological and consumer developments are taking place and how they might affect future business propositions. This implies that of the environment, only the sociocultural segment, and the technological segment will be part of this research.

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12 Conceptually, the process of an environmental analysis consists of four analytical stages;

1. scanning 2. monitoring 3. forecasting 4. assessment

1) Environmental scanning is ‘aimed at alerting the organization to potentially significant external impingements before they have fully formed or crystallized’ (Fahey, 1985:38).

2) Monitoring the environment entails noting specific patterns and trends that are taking place.

3) Forecasting is concerned with developing plausible projections of the direction, scope, speed and intensity of environmental change, while the last part of the analysis, 4) assessment, is about the identification of how current and projected changes will affect the strategy of an organization.

There exist two distinct, though interrelated approaches to environmental analysis; the outside-in approach which adopts a broad view of the environment, and the inside-out approach, which adopts a narrow, focused view of the environment. Dependent on a) the time frame and b) the size of the firm, it is determined what type of approach shall be used within the analysis. Smaller firms that are working on a short time frame usually use the inside-out approach (Fahey, 1985).

Based on that, the inside-out approach will be applied within this research.

The end result of an environmental analysis is insight in current, high-level, trends and patterns in a firm’s environment that might affect the strategic proposition of the company.

Customer analysis

By means of a customer analysis, different customer segments can be defined including their motivations and unmet needs (Aaker, 2001:42). It has already been defined that the music industry is the segment of subject, but it still needs to become clear what their motivations and unmet needs are. More specifically, it is necessary to identify to what extent potential clients (customers) are interested in innovatory products or ideas.

Research on the adoption levels of innovatory products goes back to 1943 when Ryan and Gross investigated the diffusion of a, highly productive, hybrid seed corn among Iowa farmers (cited in Rogers 1997: 6). They concluded that it took 14 years for this type of seed to be used by 100% of the farmers.

Rogers (2003) has extended this study to a more general analysis on the diffusion of innovations:

“Diffusion is the process by which (1) an innovation (2) is communicated through certain channels (3) over time (4) among the members of a social system. Diffusion is a special type of communication concerned with the spread of messages that are perceived as new ideas”.

In reference to (1), an innovation is defined as ‘an idea, practice, or object that is perceived as new by an individual or other unit of adoption’ (Rogers, 1997: 6). Communication channels (element number 2) are the means by which messages are passed on from one individual to another.

Within this research, emphasis is put on the third element of diffusion: time. Innovativeness is the degree to which a unit of adoption is relatively early in adopting new ideas.

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13 There are five adopter categories:

a) Innovators: these are the first 2.5 % of individuals in a social system to adopt an innovation. The innovator launches the new idea in the system by importing the innovation from outside of the system boundaries.

b) Early adopters: these are the next 13.5 % of individuals in a system to adopt the innovatory product or idea. This category has the greatest degree of opinion leadership in most systems and serves as a role model for many other members of the social system. The early adopter decreases uncertainty about the innovation by adopting it, and then conveying a subjective evaluation of the new idea to near-peers via networks.

c) Early majority: the next 34 % of adopters adopt new ideas just before the average member of a system. They follow the innovators and early adopters with deliberate willingness, but seldom lead.

d) Late majority: these are the next 34 % of individuals to adopt an innovation. Adoption may well be forced upon them by peers. They do not adopt until most of the others have done so, because of a feeling of uncertainty.

e) Laggards: the last 16 % of individuals to adopt a new idea. They posses no opinion leadership, are near isolates of their system and are suspicious to innovations.

The last element of diffusion (number 4) is the social system, which is defined as ‘a set of interrelated units that are engaged in joint problem-solving to accomplish a common goal’.

Members may be individuals, groups or organizations.

According to Rogers (2003), early adopters are crucial in getting an innovation to the point of critical mass, and hence, in the successful diffusion of a new idea or product. A goal of this research is to identify whom the early adopters of the music industry are in order to provide Media Catalyst with recommendations on which companies of that particular social system are interesting to target.

1.5 Problem definition

Given the management problem and the literature review as stated in 1.3 and 1.4, the core of this research is to provide Media Catalyst with four categories of information.

By means of an internal analysis it will become clear what the core competences of Media Catalyst are that set them apart from their competitors and form the basis on which the company can start the process of attracting new clients.

An environmental analysis will comprise high-level data on the benefits that the internet and mobile devices deliver to businesses and consumers, while the competitor analysis serves to distinguish even further what the capabilities of Media Catalyst are compared to its competitors. The customer analysis serves to provide specific insight in the digital marketing strategy of organisations within the music industry (the customers of Media Catalyst) and their level of innovativeness. The information gathered within the three categories is combined to meet the following research objective:

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14 Research objective

To provide Media Catalyst with recommendations on how they can best support which international companies in the music industry with their marketing and brand communication via the internet and mobile phone. This will be based on an analysis of general technological and consumer developments with regard to the internet and mobile phone, and the adoption level of these channels by companies within the music industry.

This objective has been translated into the following research question:

Research question:

“Which companies in the music industry are the most progressive in the use of internet and mobile phone as marketing and distribution channels and in what way can Media Catalyst best support these companies with the marketing of their products and the communication of their brands?”

In order to answer the main research question as stated above, a breakdown of the question has been made into a number of sub-questions. These research related questions will address different but interrelated parts of the research that are to result in a consistent and clear answer to the main question.

Sub questions:

It has been argued that the quality of offerings depends on the specific capabilities that a company owns. To provide potential clients with interesting and appropriate business proposals, Media Catalyst needs to be clear on how it distinguishes itself from its competitors and how their own competences will be able to deliver value to clients. The first sub question is therefore:

1. What are the core competences of Media Catalyst?

In order to get a more in-depth picture of Media Catalyst’s relative strengths and weaknesses, a competitor analysis has to be done. Knowing who the competition is and the direction they are headed provides insight in chances of success in certain areas of business, with an emphasis on the music industry. Sub question number two has been formulated as following:

2. Who are Media Catalyst’s direct competitors and what are their strengths and weaknesses?

When having distinguished on the distinct and specific features of the solutions that Media Catalyst offers, a further examination of the market becomes necessary. Media Catalyst wants to have early adopters as clients. In order to serve these clients properly, they need to offer a business proposal that anticipates on the most recent applications available worldwide. The combination of general business and consumer benefits of the internet and mobile phone, and specific new opportunities provided by these channels, forms a basis for future business proposals.

The third sub question therefore is:

3. Which technological developments in the area of marketing via the internet and mobile phone are taking place and how are these affecting consumers?

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15 The specific content of a proper business proposal is dependent on the client that is targeted.

For Media Catalyst to know whether a company is interesting in the first place, they need to know to what extent the potential client is progressive in the use of internet and mobile phones for marketing and brand communication purposes. As indicated in the literature review, it will have to become clear whether a company is an early adopter, or not. The following question needs to be answered:

4. Which companies are dominating the music industry and what is their adoption level of the internet and mobile phone as a marketing and distribution channel?

In order to support new clients with their digital marketing and brand communication, Media Catalyst needs to know its own strengths and capabilities. These have been made concrete in the first sub question. Based on a competitor analysis, media Catalyst will have a better idea of the direction that their competitors are headed and thus what direction they should not head so it will stay a unique company with a unique proposition. Based on the general developments, technological as well as consumer, and the customer analysis, Media Catalyst can design a highly appropriate and interesting business proposal for the early adopters of the music industry. The following question it then the last sub question necessary:

5. In what way can Media Catalyst support the early adopters of the music industry with their digital marketing strategy and brand communication?

1.6 Research design and method

Each of the five sub questions will be addressed in its own chapter.

The core competences of Media Catalyst are distinguished in chapter 2. An in-depth analysis of the company’s relative strengths and weaknesses will indicate the competitive position of the organization. This becomes clearer after a review of Media Catalyst’s competitors, which is done in Chapter 3. In chapter 4, the environmental trends and developments that are to be taken into consideration in business proposals when Media Catalyst seeks out new clients are discussed. A customer analysis gives a clear picture of the motivations and unmet needs of potential clients, and an attempt will be made at indicating whether the dominating, international companies of the music industry are either innovators or early adopters, or not.

This analysis can be found in Chapter 5.

A comparison of the environmental and customer analysis, and the competitive advantages of Media Catalyst, will provide conclusions on how Media Catalyst can support the early adopters of the music industry with their marketing and brand communication via the internet and mobile phone. These conclusions, and recommendations on how to proceed, can be read in Chapter 6.

Data collection

In order to obtain the required information as spelled out in the previous paragraphs, a number of steps of data collection need to be undertaken. The four parts of the research require different kinds of information input, which is illustrated in table 1.1.

The internal analysis will be based on a combination of desk and field research. Company presentations and a literature review will characterize the organization of Media Catalyst by its processes and core competences. Interviews with key people inside the organization extend this characterization beyond the highest level to a more in-depth description of the direction

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16 that Media Catalyst is, and actually wants to be, going. The interviews will have a semi- structured character. The topics must cover a number of areas that require extensive discussion to get a full understanding of the core competences of the company. According to Baarda & de Goede (1999), interviews should then be semi- or non-structured and be taken in person.

The competitor analysis will be structured by Alsem’s theory (2001), and the data will come from external documentation, such as market reports and the competitors’ websites.

Data collected through desk research will form the input for the environmental analysis. A literature review is necessary to structure this analysis. Scientific articles provide input in developments within the mobile market and music industry. This will be combined with external documentation such as market reports, annual reports and publications of consultancy or branch organizations.

With respect to the customer analysis, literature, external documentation and interviews need to provide input. Interviews with (digital) marketing managers of the different companies of the music industry are of crucial importance to actually get a clear overview of their level of progressiveness in digital marketing. Just as the internal interviews, these external interviews will have a semi-structured character because the goal of this research is to ‘find out what’s happening and to seek new insights’ in the area of internet and mobile devices for marketing purposes (Saunders, 2003:248). The goal is to have face-to-face interviews to prevent interpretation difficulties, however if this is not possible due to time or space limitations, the interview will be held via the telephone.

Internal Competitor Environmental Customer A. Desk research

Literature research x x x x

Internal documentation x

External documentation x x x

B. Field research

Interviews x x

Table 1.1: Data collection

In order to ensure a decent interpretation of the primary data, a structure indicated by Saunders will be followed (Saunders, 2003). The data that have been gathered during the interviews are to be categorised and unitized to have a clear overview of the different

‘chunks’ of information that have been gathered. Once the categories are clear, patterns and relationships between the data will be recognized which accordingly will form the input for answering the research goal.

1.7 Research limitations

Even though Media Catalyst has a subsidiary in Los Angeles, the description of the organisation and its strategic outline is limited to the Amsterdam office.

The research will not comprise a full external analysis but merely parts of it. A market analysis is superfluous since the goal of this research is not about researching the level of

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17 attractiveness of the music industry in total. It has already been indicated by Media Catalyst to be an interesting sector.

The conduct of the research is limited to companies in the music industry that are based in the Benelux. Companies that have been indicated to be interesting therefore must have an office in the Benelux.

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Chapter 2. Internal analysis Media Catalyst

It has been argued that the quality of product or service offerings depends on the specific capabilities that a company owns. To provide potential clients with interesting and appropriate business proposals, Media Catalyst needs to be clear on how it distinguishes itself from its competitors and how their own competences will be able to deliver value to clients. This chapter therefore serves to identify the strengths and weaknesses of the organization. In paragraph 2.1, the current strategy of Media Catalyst is discussed, followed by an explanation of the core competences of the firm in paragraph 2.2. The firm’s strengths and weaknesses at a functional level are discussed in 2.3 and conclusions are drawn in the last paragraph, 2.4.

2.1 Strategy

There is no single definition of strategy. Classical, evolutionary, processualist, and systematic theory all have different approaches to describing a company’s strategy of which not one is specifically and objectively right or wrong (Whittington, 1993). As Kanter puts it, the essence of strategy is that it embodies the ‘deliberate and conscious articulation of a direction’

(1983:294). The reason to describe a firm’s strategy is to get a clear understanding of the direction that the organization is headed and how it has planned on getting there.

Strategies can be formulated at a number of levels in an organization, of which three are common in the research literature (Johnson & Scholes, 2002); corporate, business and operational. In order to understand the overall strategy of an organization including the basic goals and objectives, the corporate strategy is to be defined.

According to Alsem (2001), strategy at corporate level entails three aspects:

1. Where to compete?

2. How to compete?

3. Who to compete with?

All three questions will be answered for Media Catalyst in that order.

Media Catalyst competes in the market of digital marketing. The firm delivers an analysis of a client’s business, as well as the design, development and implementation of interactive marketing solutions. The company has not formulated a clear mission statement; however its vision is as following: “Media Catalyst wants to be the expert, on the forefront of how the world is changing, using the optimal combination of marketing and technology to be the most fit for the job and come up with the best solution”.

Currently the organization is serving clients in the different markets with different kinds of products; however the company does not have a number of clients within one particular market. Up until 2004, Sony Ericsson was the only client of Media Catalyst; however this dependency was somewhat reduced by attracting (small) projects of new clients such as World Press Photo, Canon and Yamaha. The goal for 2005 is to attract more clients, preferably within in one or more of the following markets:

- Transportation - Telecommunications - Media & Entertainment - Consumer electronics - Retail

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19 The most interesting clients to attract are either smaller creative firms, most likely in the Dutch market, or European-wide strong consumer brands (Wright 2005).

Investments in these markets will be made in the form of attending particular conferences, researching the markets and more specifically, competing in so called ‘pitches’. A pitch is an order from a client to come up with a proposal for a solution to the client’s wishes. It is custom that a certain number of digital marketing agencies are invited to pitch for the order of which one of these agencies will actually receive the order. There is no guarantee that the company will get the order up front, but investments do have to be made to have a good chance of winning, in the form of personnel, photography and perhaps software.

The competition within the area of digital marketing is intensive. On a national as well as international level, Media Catalyst has competitors that offer more or less the same services.

In order to differentiate the organization from its competitors, companies can focus on a particular differentiation strategy: customer intimacy, operational excellence or product leadership (Treacy & Wiersema, 1993).

The question of what Media Catalyst’s strategy is was hesitantly answered, both by the information architect as well as by the managing director. The company attempts to work as efficient and cost effective possible by reducing overhead and transaction costs, which can be titled ‘operational excellence’. More focus is however put on establishing a relationship with the client, offering tailored solutions to match exactly the demands of the client that the company is serving. ‘Pushing our ambition to drive yours’ indicates the way that Media Catalyst feels about its relationship to its clients. The organization aims at enabling the clients to achieve their ambitions in digital marketing. According to Treacy & Wiersema, companies that excel in customer intimacy ‘combine detailed customer knowledge with operational flexibility so they can respond quickly to almost any need, from customizing a product to fulfilling special requests’ (1993:84). Media Catalyst puts itself at the service of its clients by starting with extensively analysing its business after which a digital marketing strategy is drawn up. During this analysis and the initial phase of developing the information architecture for the solution, the scope and scale of the project can still be altered if this is what the client wishes. All in all, ‘customer intimacy’ seems to come closest to describing Media Catalyst’s strategy.

In chapter 3, the strategies of the competitors will be discussed extensively. Here it will become clear that most of the competitors focus on customer intimacy too, which might make it necessary for Media Catalyst to re-evaluate its own differentiation strategy.

The goal of growing into new markets is intended to be realized through a combination of internal and external developments. Internally, training, collaboration and education are necessary to offer proper service to new clients. On the other hand, the goal of being innovative can be realized well in collaboration with strategic partners. Akamai, Cybercom and Teleca are partners of Media Catalyst whose technological expertise is used to achieve the highest level of quality service. The relationship with 20/20 offers the possibility of extending Media Catalyst’s online and mobile offerings with 20/20’s offline retail experience.

Abuzz delivers kiosks that, in combination with Media Catalyst expertise, offer another valuable marketing channel to clients.

2.2 Core competences

The strategy of the organization is built on the products and services that Media Catalyst delivers. A large list of core products can be cited that can be seen as the physical embodiments of the companies’ core competences (Prahalad & Hamel, 1990:85).

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20 Hamel and Heene argue that a competence is “a bundle of constituent skills and technologies, rather than a single, discrete skill or technology” (1994: 11). To be considered a core competence of a company, capabilities need to meet five requirements (Prahalad & Hamel 1990, Hamel & Heene 1994):

1. an integration of skills

2. more than a(n) (physical) asset 3. deliver customer value

4. competitor differentiation 5. gateway to new markets

The core products of Media Catalyst are:

» Digital strategy and business analysis

» Digital branding & creative concepts

» User centered interface design

» Program and project management

» Usability reviews and testing

» Interface development

» Application development

» Systems integration

After extensive discussion with multiple employees, it has become clear that the opinions on what the core competences of Media Catalyst are, are diverse. According to the managing director, the core competences of the organization are digital marketing and interactive solutions (Howarth, 2005). The technical project manager extends this to ‘being the one who gets the job done’. Efficiency, goal orientation and customer orientation are the core values of the firm that underpin the strategy of creating customer intimacy (van Koekenberg, 2005).

Media Catalyst excels in analysing and simplifying the clients’ issues and constructing a proper strategy and according product. Delivering strategy to clients, specifically in the mobile area can therefore be considered a core competence also (Wright, 2005).

Comparing the perceived core competences to the five requirements of Prahalad & Hamel (1990), the following can be noted. Digital marketing, interactive solutions and strategy design do form an integration of skills. Visual design, technology and information architecture (also referred to as IA) are combined to provide the solution to the digital marketing questions of the clients; customer value is the end result. These three functions are more than an asset, in the sense that they do not just entail photography or software, but also expertise and experience of the employees, commitment and collaboration. The offerings of Media Catalyst are not restricted to any specific market since theoretically almost any business could use the internet and mobile devices for their digital marketing. The only requirement that is not met is the competitor differentiation. There are many competitors that deliver more or less the same products and/or services.

2.3 Strengths and weaknesses at organizational level

Core competences are the capabilities of a company at the highest level. In order to determine what the functional strengths of an organization are, it is useful to look at the organizational level, i.e. what are the firm’s strengths and weaknesses per functional area (Alsem, 2001: 202).

The following functional areas have been defined and are discussed in that order for the organization of Media Catalyst:

a) Production

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21 b) Innovation

c) Management and organization d) Personnel

e) Finance f) Marketing

In reference to a) Production

An organization is built up around one core process that can be seen as the essence of the firm.

This primary process can be defined as “those activities that directly contribute to the import, conversion, and export processes which define the nature of the enterprise or unit and differentiate it from other enterprises or units” (Miller et al., 1971).

Media Catalyst’s offering of digital marketing and interactive solutions comprises a number of production activities that are displayed in the following figure.

Figure 2.1: Primary process

An order will not be accepted if it is not within the vision and goals of Media Catalyst. Once it has been accepted, the vision and goals are supposed to serve as the catalysts of the rest of the production process. An analysis of the project’s requirements is followed by the design of the information architecture, visual design and copyright. The proposed designs are evaluated and if they are approved, development of the solution will begin. Once the development process has been agreed to, the testing of the solution will take place to assure the quality and functionality. Not every project requires the use of every activity of this process. For a smaller project, a full analysis of requirements is superfluous and mere visual design will suffice.

Larger projects however may require extensive input from each of the different departments.

The fact that different steps can easily be used in or kept out of the production process makes the organization flexible and responsive to clients’ needs. It however also makes it harder for Media Catalyst’s internal organization. Continuously altering the scope of the project makes it harder for the employees to make a planning, make the deadlines, and stay within budget.

This also puts a strain on other projects since employees are often involved in several projects at a time.

Testing, print and media buying, hosting and application management have been outsourced.

The reason for this is that these particular parts have no added value to the proposition of the company. Other firms are already experienced in testing or application management and are therefore more capable of handling that part of the production process. By outsourcing these functions, Media Catalyst also achieves a cost advantage; they do not have to invest in learning how to do it themselves (Howarth, 2005).

The technology-part of projects is usually the most expensive to set up. This includes setting up servers, development and testing environments, and investing in software. For the visual design of a project, stock photography usually needs to be bought. These assets require quite a large investment also. Furthermore, the sales department forms a big part of production costs.

Evaluate

Vision & goals Analysis Design Develop Test

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22 Actually attracting new clients requires visiting them in foreign countries, investing in making presentations and doing research and following up initial contacts.

An important aspect of production is the production capacity that a firm has. An appropriate balance between capacity and demand can generate high profits, whereas an imbalance can be potentially disastrous. The capacity of an operation is defined as ‘the maximum level of value-added activity over a period of time’ (Slack et al., 2001). Since Media Catalyst does not produce a standard product, it cannot be said that one particular machine or resource restrains the level of output. There are however two limitations to the production capacity of Media Catalyst:

- office space - proposition

Even though freelancers can quickly be hired when a project requires so, office space limits the number of employees that Media Catalyst can put to work. If it is physically impossible to house more people in the building, personnel becomes a limiting factor. There is a limit to the amount of projects that a certain amount of employees can handle at the same time (Howarth, 2005). Currently it appears however that new orders keep being accepted because of the need for a more diverse client portfolio and a reduced dependency on Sony Ericsson. Employees (including a lot of freelancers) will have to be hired in large numbers in a rather short timeframe. This seems more of a problem than the actual office space limitation.

Furthermore, the proposition of the organization limits the production capacity. Media Catalyst does not want to grow beyond a certain size in the Netherlands and therefore does not take on every project that might present itself. This is indeed something that the management of the company is very specific about. Small, local clients will most likely not be supported with their digital marketing since they do not fall into the desired client categories.

In reference to b) Innovation

According to most authors, innovation refers to the process of bringing an invention to use.

The forefather of innovation theory, Schumpeter, splits innovation into two types: product innovation and process innovation. The type that is applicable to this research is product innovation, which is defined as ‘innovation mainly recognized in the characteristics and effects of the product, going back to the introduction of a new good’ (Schumpeter, 1934).

Rogers defines innovation as ‘an idea, practice, or object that is perceived as new by an individual or other unit of adoption’ (2003:12). It is not of relevance whether the idea is objectively new, rather it is important that the idea seems new to the individual. Innovations that are perceived by receivers as having greater relative advantage, compatibility, trialability, observability, and less complexity will be adopted more rapidly than other innovations.

Greater relative advantage refers to the degree to which an innovation is perceived as better than the idea it supersedes. The products that Media Catalyst offers are made to improve the marketing and communication of specific business clients. The goal of a redesign of a website is usually to make it better in the sense of improving usability, look-and-feel, and interactive options. The technology and IA of the product are designed to be as new as possible by challenging the standard patterns and rules, but at the same time the compatibility with existing values, past experiences, and needs of consumers are kept in mind. If the website for example would be structured in a completely new way, it would be innovative but not attractive since most consumers would probably not understand its functionality.

Complexity is the degree to which an innovation is perceived as difficult to understand and use. Media Catalyst offers services and products that from a technological perspective might

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23 seem very complex. The most innovative part about the technology that the company uses is the scalability and compatibility of it. These two terms imply that platforms can be extended easily with new and more applications, respectively the platforms are easily compatible to other systems (van Koekenberg, 2005). For the average consumer, this is too complex too understand, however it is not about them understanding the technology behind the site, it is about them being able to access it everywhere in the world within a matter of seconds. This makes the product innovative and not too complex to understand.

Products are designed and developed in consensus and discussion with the client. During the initial (pitch) phase, the idea for a new product (a website, WAP site, or newsletter) is presented after which the product can be tested if this is required. In some instances, the client will agree to the ‘drawings’ of the new product (solution) after which development is immediately initiated. In other instances, the client will first test the product to check for example how consumers will respond to it. This option of trialability makes the products of Media Catalyst more viable for adoption.

Observability is the last characteristic of innovations and refers to the degree to which the results of the innovation are visible to others. The degree to which this is applicable to the offering of Media Catalyst differs per product. The implementation of Edge Java computing for Sony Ericsson on a global scale is new in the world; however this is not particularly visible to end-consumers. Only for people who are knowledgeable in this area, this is interesting and might increase the speed of adoption if it gets noticed. The use of Flash on a mobile WAP site however is much easier to notice because it is there for consumers to see immediately. Once word-of-mouth takes over, this innovative application might be adopted much quicker.

Contrary to the expectations (given the fact that Media Catalyst offers innovative services,) there is no specific R&D-department or -system. Keeping up with developments in the market are dependent on the level of proactiveness of the employees. In order to stay up to date, the IA department attends conferences, searches the web and communicates with other information architects. The technology department does this to a much lesser extent. Based on the requirements of a project of a certain client, the technology department researches what the best solution might be based on prior experience and knowledge. If a project requires technology that has not been used before, employees at the technology department search the web to learn about it.

The fact that Media Catalyst offers relatively new and unknown products and solutions implies a certain susceptibility to ‘illegitimacy’. A product should conform to an audience’s minimal criteria for what product offers should look like in order to sell products. Offers that do not meet these criteria will most probably not be evaluated and therefore stand no chance of competing (Zuckerman, 1999). Cognitive legitimacy refers to the spread of knowledge about a new venture; ‘the highest form of cognitive legitimacy a product can achieve is being taken for granted by the consumer’ (Aldrich & Fiol, 1994: 648).

Since Media Catalyst does not deliver products directly to end-consumers, getting legitimacy is more dependent on convincing the business clients that the product or service is interesting.

There is no standard way of convincing a client that it is interesting; this is merely based on psychology, i.e. how does one convince another of something. The only thing that Media Catalyst does to make the ‘new’ offering more attractive is making it into something that people recognize. For example, WAP sites are being designed more like magazines in order to make it understandable for the end-consumer what the application offers. This is based on research into retail standards in the physical world.

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24 Furthermore, once the business client has been convinced of the attractiveness of the product or solution, the consumer will most probably perceive it as legitimate, since it has been offered by a legitimate company (Wright, 2005).

In reference to c) Management and organization

Media Catalyst, though 4 years old, can still be considered to be in its ‘birth phase’ (Greiner, 1972). The emphasis of the organization is on creating both a product and a market. The company’s founder and managing director seems to have a mostly technical background and orientation, and disdains marketing activities. The making and selling of Media Catalyst’s offerings takes up the lion’s share of physical and mental energy. The communication between employees is very frequent and informal and long hours of work are not necessarily rewarded with bonuses. The market, where the management gets feedback as the customers react, mainly exercises control over the organization.

Where Greiner sees this as a stage in (almost) every organization, Mintzberg (1989) handles more or less the same characteristics but sees this not as a stage in a lifecycle, but as a type of organization: the entrepreneurial organization. He describes this type of firm as one with a simple and dynamic environment that requires a flexible structure, which in turn enables this organization to outmanoeuvre the bureaucracies.

Media Catalyst uses the following figure as a graphical representation of the structure:

Figure 2.2: Structure of Media Catalyst

The managing director is owner of and end-responsible for the complete organization of Media Catalyst. Operations and business development are staff functions that support the operational departments of client services, project management, creative design, information architecture and technology. The operations department exists out of five employees and comprises human resource management, finance, administration, and office management.

Business development is the responsibility of the managing director together with one other employee.

Business analysis and account management fall under the heading of client services, which employs seven employees. There are four project managers, eight designers under which a large number of freelancers, and three information architects. The technology department is

Managing director

Client services Project management

Creative Design Information architecture

Technology Operations Business

development

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25 by far the largest, comprising almost twenty employees who are developers, testers or programmers. In total, some forty people are employed at Media Catalyst in the Netherlands.

All employees report to the director of their department, who in their turn report to the managing director. Renewals of contracts and job evaluations are generally done by the managing director also.

Even though the figure might not be a perfect representation, it does convey to Minztberg’s

‘simple structure’ that is custom for the entrepreneurial organization. There is little staff and a small managerial hierarchy. Strategy and power are more or less centred on the managing director, who personally controls the firm through direct supervision. In the end, everyone reports to the managing director. The culture and personnel of Media Catalyst are discussed in detail under the heading ‘personnel’.

In reference to d) Personnel

Traditionally the instruments for personnel policy are divided into three parts (Kluytmans et al., 1990):

1. Recruitment and selection 2. Assessment and reward 3. Training and education

Recruitment at Media Catalyst is the responsibility of the team managers of the different departments in combination with the human resource department. If there is a job opening within a certain department, the team manager of the department determines how recruitment will take place. This can be the placement of a job opening on the Media Catalyst website, on Monsterboard, or via a temping agency. Based on the job description that has been drawn up by the team manager, the team manager himself and the Human Resource manager make an application review sheet, which is used in the interview to select the most qualified person for the job.

This system implies that the different team managers are responsible for the recruitment and selection of qualified and motivated people. Even though the team managers are employees that have experience and expertise in their area, a number of people has been hired that did not fit the job as expected. New employees get a test period of a month in which it can be determined if they have the skills for the job. This period is considered long enough to get good insight in the new employee’s skills. Three people have recently been fired during this period however, which makes it questionable how good the current recruitment and selection policy is working.

The personnel of Media Catalyst are considered to be the most valuable asset of the organization (Howarth, 2005). Employees carry an extensive amount of information and knowledge with them that is impossible to fully document. It is therefore of major importance to keep these people at the firm. This is realised through assessment and reward, and training and education.

According to both the managing director and the human resource assistant, motivation is mainly intrinsic. There are no monetary rewards for the achievement of a particular target.

Varied work, the constant shift of clients, and nice colleagues are considered to be more rewarding than bonuses. There is a yearly budget of 2000 euros for every employee to spend on training. This budget can however be shifted among employees of the same department;

seniors and members of the management team have priority.

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26 In 2004, nine people left the organisation and sixteen were hired. This indicates a high turnover of personnel, which might have several causes and a number of consequences.

Causes

In the first place, up until 2005, the amount of training that employees have actually received is very little. The growth process of the company has taken up time and energy and made it hard for employees to invest in their own education.

Secondly, the work pressure is high, because of the nature of the products that are delivered.

Projects might be short or long-term, but there is always a deadline that needs to be met, and during the end-phase of a project the workload tends to go up. Employees often need to work overtime, visit the client abroad and fix problems at the last minute. The percentage of sick leave is usually around the 4.3%, but this percentage often goes up during, or directly after the round off of the project (Spuesens, 2005). Thirdly, Media Catalyst has a distinct culture, which is mainly dominated by the internationality of it. There are sixteen different nationalities at work that is stimulating for the creativity, but might be difficult to cope with for certain employees. The culture is also very informal but at the same time quite individual, which makes it necessary for employees to be proactive in their attitude.

Finally, the previously mentioned quick and organic growth of the firm has led to a situation where there are only few standardized processes, little formal communication and a somewhat unstructured way of guiding new employees. Even though this might work for some people, the employee that needs more guidance in his work might feel insecure or uncertain in this company.

Consequences

Part of Media Catalyst’s proposition is delivering quality. The high turnover might reduce this quality level since expertise leaves the firm. If managers leave, responsibilities are shifted and lines of communication might become unclear. Some of the work that needs to be done, such as staying in contact with the PR agency, comes to a halt until a new manager has been found.

This in itself might be difficult because of the high level of competition in this area of business and distinct corporate culture that Media Catalyst has.

In reference to e) Finance

Media Catalyst has been financed with equity capital completely. The company has been profitable ever since it was founded as can be seen in the financial recapitulation on the next page.

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