The case for business model innovation: A sports story

Read on to find out how that disrupted industry needs to innovate – and then apply it to your world. It all works out. Stephen makes it so. Take it away, Stephen.

Introduction

Amid all of the behavioral change brought about by technological advancements, it is the business model of organizations, and even industries as a whole, that are on the front line of digital disruption.

Simply put, a business model is the sum of the parts that create an organization’s viable products or services. It follows that innovating on any business model can involve the development of new offerings, new markets, and ways to market that disrupts the organization from within (which is much better than the external alternative).

Informed leaders and agents of change will often discuss their business model in context of innovation rather than a static definition of a calmer analog past.

Nearly 75 percent of Fortune 1000 companies of the past decade are no longer on the list, which makes the need for enterprises to act on business model innovation a strategic requirement. According to a 2015 Forbes survey, only 20 percent of chief strategy officers felt ‘highly prepared’ for disruption at that time.

To offer another insight into the currency of business model innovation, Source Global Research found that in 2016 the global digital transformation consultancy market was worth around $23 billion. This figure represents more than 15 percent of the world’s consultancy industry with the highest interest coming from the US, UK and Australia.

Based on feedback from client organisations, Source found that growth was the biggest driver for engaging with digital transformation consultants,and that changing business models was the number one approach that organizations were taking to fuel their growth. Improving underlying technology investment was the next highest priority.

These findings reflect the importance of business model innovation to transformation efforts. Although applying digital technologies to automate processes may improve existing operations, they won’t lead to growth and sustainability.

Digital transformation is a function of management intensity and technological intensity with best results coming from their harmony.

To illustrate these points, this article considers business model innovation of a specific industry, the sports industry. It is both a case study of the sports business and a lesson for other industries since, as my sports history professor would say, ‘sport is a microcosm of society’.

This theme is also inspired by the opening words of Paul Greenberg’s keynote at Sport and Entertainment Alliance in Technology Conference, Dallas 2018, where he declared that society has had a “digital communication revolution rather than a business revolution.”

This seemingly simple statement provides a powerful clarification of digital disruption’s impact. The rise of digital platforms and technologies have fundamentally changed our behaviors, including how we gain information, communicate with others, and entertain ourselves. Business then needs to consider these factors in context of how we value brands and make purchasing decisions.

As Nike CEO Mark Parker has observed, “We used to sell you a pair of shoes and some advertising, now it’s about building a relationship.”

The market is what has changed so business has to change how it markets. Digital marketing is not separate from marketing; it just happens that most marketing is now digital. In years to come, digital marketing will simply be marketing in the same way that digital transformation will be business-as-usual and big data will be just data (if it isn’t already).

Sports Business Model Innovation

Given that digital disruption started with the market, it makes sense for business model innovation to start here too.

Here we look at the digital marketing based approach of sport organizations such as teams, leagues, federations, venues and events.

The 2016 strategy+business article “How to Choose the Right Digital Marketing Model” proposes four paths to wining and retaining modern customers. Following is an overview of how each model can be applied to sports business, or more relevantly, sports fans.

First, sports marketers’ Holy Grail is pursuit of a Customer Experience Designer strategic purpose. Sport even has its own term for this: fan engagement.

In this model, the brand relies on customer data and insights to elevate the end-to-end customer experience. The brand is typically built around customer service and creating memorable experiences at multiple touch points to create deep and loyal customers.

There are a host of teams re-defining Customer Experience Designer standards through relentless fan-first thinking, analytics inspired innovation, and a strategy for the digital age. Teams such as AS Roma, FC Barcelona and Orlando Magic are among those in this echelon.

Next up are Digital Branders, which are mainly consumer products that focus on building brand equity and deepening consumer engagement. They have replaced traditional advertising with immersive multi-media experiences that connect with consumers in new ways. Some retailers leverage their association with the image of sports and lifestyle incredibly well as Digital Branders.

Red Bull, for instance, created their own category based on excitement and adrenaline, then crafted leadership by owning teams and events to retain control over multi-media content, publishing and distribution. Similarly, Coca-Cola elevates its status from that of a soda drink to provider of “happiness” through brand storytelling across multi-media channels.

Then there are those organizations that prioritize volume and efficiency over the deeper emotional experiences of other business models. These are the Demand Generators and they do so because they focus on driving online traffic and converting as many sales as possible across multiple channels with the back-end of the business focused on operational efficiency.

This is the strategy of ticket agencies such as Stubhub, and Tiketek. Through the process of buying event tickets online, we have all experienced this strategy in action. The process is transaction- and ecosystem-based; it will be followed up with offers to future events the agency is selling (unless we unsubscribe).

Finally, if your organization chooses to be a Product Innovator you would prioritize the capturing and analysis of data from consumer interactions for new digital product and service innovations.

The philosophy of Product Innovators is captured in the quote from Nike Founder, Phil Knight;

“We used to think that everything started in the lab. Now we realize that everything spins off the consumer. And while technology is still important the consumer has to lead innovation. We have to innovate for a specific reason, and that reason comes from the market. Otherwise, we’ll end up making museum pieces.”

In the industry of sports, leading stadiums of the world such as Levi’s Stadium in San Francisco, The O2 London and Real Madrid’s Santiago Bernabeu are pioneers of the Product Innovators business model. In fact, they do so as tactile Customer Experience Designers since their value proposition is physical asset based experience rather than rights holder activation.

Impact of Business Model Innovation

Each digital marketing model requires a different mix of marketing capabilities because operational priorities and processes vary.

Sports rights holders almost exclusively focus on being a Customer Experience Designers, which requires specialists in segmentation and needs assessment as well as content and innovation talent. Other digital marketing models may require these capabilities to different degrees in addition to analytics and real-time decision-making skills.

Here are five ways that leading sports businesses embrace their role as a Customer Experience Designers;

New Markets

Part of being a Customer Experience Designer in sports is leveraging the team, league or event brand to new international markets via digital touch points. Leagues such as the NBA and La Liga are carving a path into other territories, such as Asia, by developing an in-country presence, broadcast deals and corporate partnerships. Their teams are then able to exploit this awareness through their own brand of tailored content- and platform-relevant activations.

Women’s sport is another growth market. EUFA’s #WePlayStrong, modeled on the acclaimed British Sport #ThisGirlCan campaign, demonstrates the value of connecting the right sentiment to the audience when it comes to encouraging girls to play football.

New Revenues

Linked to internationalization, growing the brand’s online followers can create new revenue streams in direct and indirect ways. Digital assets such as social media categories can be saleable assets with a corporate partner or advertiser attached to ‘man of the match’, ‘injury report’ or ‘team line-up’ posts. Indirectly, increasing the team’s followership online can in turn be leveraged to enhance sponsorship valuations.

Developing great content that broadens awareness and creates engagement takes investment in budget, culture and, more than anything else, a mindset shift away from digital and social media as a cost center to it being recognized as the catalyst of digital transformation value.

To give weight to this theory, Altimeter’s 2018 State of Digital Content Report revealed that, across all industries, 41 percent of organizations are able to tie revenue to content. Their study also found that people and talent related issues are the major barriers to performance whilst metrics are changing from views, to interactions and efficiency.

Improved Products

In a previous ZDNet post with Paul Greenberg on Why Sport is One of the Most Disrupted IndustriesI proposed that lack of transparency in purchasing arrangements is one of the indicators of an industries business model at risk. I used ticket purchasing as a sports industry example of a product that needs to evolve now that consumers demand Uber and Netflix-like on-demand subscription services.

Recently, a number of teams and venues have aligned to the market by breaking down confusing ticket buying processes products. These innovators understand that given modern fans more control over what they are purchasing is the way to breathe new life into event attendance. Reducing the pesky secondary market and gaining valuable personal data are also engineered outcomes.

In particular, rights holders are including ticketing features into their mobile app so that fans can use their smartphone as the “the remote control to the game” to quote an Orlando Magic term. Teams such as the Jacksonville Jaguars now let fans buy tickets in-app, forward them to friends and family, and even retract or resell them if they are unable to attend.

The San Antonio Spurs recently launched a mobile subscription-based ticket service that allows fans entry to every game for a monthly fee including upgrade offers. Beyond the ease of use for fans, the team also benefits from fan data, which can translate into more personalized offers in the future since uptake of the service will provide ongoing insights.

New Consumption

Once again, Netflix shows us that people now prefer to view content in their own way. During the 2018 FIFA World Cup in Russia as many people streamed pool matches as those that watched the entire 2014 championships online. In the US, around half of NBCUniversal’s live digital viewers watched the games on their smartphones with the rest switching between connected TV and desktop modes.

YouTube is also influencing fragmentation of sports viewing. There has been a 50 percent increase in ‘funny sport’ searches, 60 percent increase in ‘sports interviews’ along with an 80 percent rise in ‘sports highlights’.

Where consumer attention goes, so to do rights holders who want to keep and catch the next generation of connected fans. NBA Commissioner Adam Silver describes their strategy towards fragmentation as follows, shortly before announcing “snackable” content options their League Pass;

We promote the posting of our highlights. The highlights are identified through YouTube’s software, and when ads are sold against them, we share in the revenue. We analogize our strategy to snacks versus meals. If we provide those snacks to our fans on a free basis, they’re still going to want to eat meals — which are our games. There is no substitute for the live game experience. We believe that greater fan engagement through social media helps drive television ratings.

Brand Transformation

What is market re-alignment if not accompanied by a new brand position?

One of sports motivation as a Customer Experience Designer is to extend the experience beyond match time to every other to hour and day. Competitive gaming, social media and video-on-demand are always available and since sport is in a constant battle for attention, it needs to meet the competition here too.

Perhaps one of sports unintended consequences from this always-on approach – through social storytelling and access-all-areas content across multiple touch points – is a transformation beyond sports and entertainment brand to that of a lifestyle brand.

As a lifestyle brand, teams are able to inspire their followers through a sense of belonging that contributes to each individuals own identify and way of life. Organizations are defining their vision and strategy in terms of the unique emotional connection that belonging to the team means for its community of fans.

Being a lifestyle brand takes a media company approach to content development and publishing. In fact, some teams are now creating their own bricks-and-mortar media house to make content creativity, design and innovation core business processes.

In doing so, they enable collaboration around their Customer Experience Designer model to enable the organization to reach new standards of excellence. For example, FC Bayern Munich integrated the media and technology aspects of their business to include editorial activities, digital marketing and CRM, digital platforms and digital innovation, IT and technology.

Lifestyle brand thinking helps teams to consider corporate partnership opportunities in new ways based on fan living. AS Roma partnered with Uber to transport fans to matches better and Waze to help others navigate to Stadia Olimpico and around Roma, while Arsenal FC offers travel insurance benefits for away matches.

Conclusion

Sport has the power to make individuals’ lives better and unify communities now that digital technologies can close the gap between brand and fan.

Connecting enterprise objectives with a deliberate marketing model are a good starting point to getting the organisation in a flow state of business model innovation. Leadership and people united in purpose are key ingredients in making digital transformation the organization’s business-as-usual state.

Thanks Stephen! I’m sure we’ll be hearing more from him here so stay tuned.

In the meantime, the manuscript for my new book, The Commonwealth of Self-Interest: Customer Engagement, Business Benefit, is done. Has been for awhile. I’m interested in one or two citizen editors – meaning a couple of readers who would volunteer to be editors (though I am bringing in a professional copyeditor to do the heavy lifting). This isn’t meant to be a cursory look at the manuscript. It will require some actual results and as a thank you, you needless to say will get a copy of the book as soon as it is off the press – ahead of the pack. But also my undying gratitude. I need maybe 2 or 3 people at the most. If you are interested preliminarily, please email me at [email protected] by Friday October 26. I’ll email you back with what I am looking for and if you are willing to do it, will send you the manuscript. Again, only 2 or maybe 3 so the first 2 or 3 will be the recipients of the book. Thanks for even reading this, much less considering it.

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