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Intervention by Denise Caruso Read Intervention by Denise Caruso, Executive Director of the Hybrid Vigor Silver Award Winner, 2007 Independent Publisher Book Awards; Best Business Books 2007, Strategy+Business Magazine


by Mary Adams ~ June 9, 2008.
Permalink | Filed under: Hybrid Vigor.

Paul Krugman’s opinion piece in the New York Times, “Bits, Bands and Books”  talks about one of the paradox of the intangibles economy: to monetize intangibles, it is often necessary to give away part of your offering.

He quotes Esther Dyson who said in 1994 that the digital content products such as software, books, music, and movies, would eventually be distributed for “free in order to sell services and relationships.” Krugman marvels at how fast this has happened and explains how the Grateful Dead were pioneers of this new business model because they allowed people to tape their performances in the logic that they would make up the difference through sales of “hats, T-shirts and performance tickets.” This business model is slowly being adopted by many authors and performers.

But Krugman rightly asks the question about what this means to traditional content intermediaries like publishers of books or of newspapers like the New York Times. This kind of business has been basically facilitating the movement of content between creators and consumers. Digital media, including the internet, has disintermediated much of the role of these publishers. Or has it? What is the true function of a publisher in today’s world? Or, put another way, what is their knowledge capital and how could they change the business model and get paid another way?

In thinking about this question, I can’t help but think of the example of the railroad industry. The railroads suffered greatly when trucking and air transportation emerged. I have seen the case made (I don’t remember where I first read about this example—write me if you know where it comes from) that the strategic failure of industry leaders was that they didn’t understand that they were in the transportation business, rather than just the railroad business. Admittedly, this is one of those things that is easier to see in hindsight but hard to see when you are in the middle of it. But it is the kind of thinking that the publishing industry needs today.

We all need to get better at understanding the intangible side of our businesses (even if we are not the publishers of the New York Times). Not just the tangible intangibles like intellectual property.

Let’s use the example of the Grateful Dead to illustrate what I mean. I would describe their intangibles as:

Human Capital: The basic talent of the band—writing songs and singing—as well as their crew which had years of experience of staging live performances. Somewhere in their team, there were also people that knew how to create physical products — records, T-shirts, etc. — that reflected the style and brand of the band.

Structural Capital: The rights to the huge catalog of Dead songs fall in this category. In fact, intellectual property is what usually springs to mind when people hear the word “intangibles” but there is really much more to this category. The business processes that support the business are usually even more important than IP. In this case, key processes probably include booking, ticketing, logistics, product production and merchandising, although some of this is probably outsourced, which leads to the final category.

Relationship Capital: The Dead is famous for its truly fanatical followers. But the success of their business also relies on strong relationships with suppliers, owners of performance venues, distribution companies and probably many more. All this leads to the bottom line of a very strong brand. The strength of the brand is an indicator of the strength of all the other intangibles in the Grateful Dead portfolio.

I’m sure that the Dead never sat down and used this structure to build their business. They did it right intuitively. But, sometimes, if you are in the railroad business or the publication business, your intuition may lead you in the wrong direction.

If that’s the case, you can always sit down with your management team and make a list of all these assets. Then you ask yourselves questions like:

  • What do people really value about us?
  • What are we really getting paid for?
  • Are we charging at the right point in the value chain?
  • Is there a different way to get paid for our intangibles?

For a while now, I have been thinking about how to turn this into a game. I bought a set of Legos® and I occasionally “build” models of intangibles businesses. Haven’t put anything out there yet. I keep thinking about using YouTube or posting photos somewhere. Would that kind of exercise help you in your thinking?


  1. What Can You Give Away for Free? | IC Knowledge Center

    [...] This post by Stephen Shapiro is a great companion piece to my recent essay on Giving Away Intangibles: What You Can Learn from the Grateful Dead. Steve proposes the following question to a trainer friend, “What if you gave away your intellectual property? How would you need to re-invent your business?” He proposes different approaches: “tell me,” “enable me” and “do it for me.” Fun thoughts on the challenges of business strategy in the intangibles age. Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages. [...]

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