There is an old adage I heard many years ago…
As categories mature from the early market to the mainstream to a mature Main Street phase, crowded playing fields with tens or hundreds of competitors ultimately resolve into a small set of 2-4 winners and many losers. The online media category is a case in point.
Using our parlance at Chasm Group, the “early market” is populated with visionary buyers seeking competitive advantage. Recall the pioneering advertisers that delved into digital and social media ad buying. When categories cross the chasm, there is a pitched battle to win “early mainstream pragmatist buyers” seeking safe proven offerings with tangible ROI. The war then escalates during the “tornado mainstream stage” when category growth rapidly accelerates and winning at all costs is everything. When the war is won, categories enter “Main Street” where one is wonderful indeed and two is terrific.
The online media category is now at “Main Street”. At this stage, there are a handful of winners (the kings), some smaller players (the princes), and many losers (the serfs) who, as in medieval times, exercise no power over their own destinies and exert little influence individually.
Today, Facebook and Google are the category gorillas, obviating the need for other general audience online media. Verizon is perhaps vying to become a category prince through its Yahoo! acquisition. All remaining players are monkeys that will scramble to be acquired or face death, as investor funds will dry up. Yahoo! was the canary (or dodo bird?) in the coal mine. Now it is game over for all other also-rans.
A few highly specialized properties will survive in this new world order with their highly niche audiences…such as WebMD, Realtor.com, and Waterfowler.com. But the online media war has been won, as anyone who attended the Advertising Cannes Festival this past year will tell you.
Last Thursday, it was Mode Media that bit the proverbial dust. Formerly known as Glam, the company was once a unicorn with a valuation north of $1 Billion on $100 Million in annual revenues. IPO talk was on the horizon since 2013 as the company bought social network Ning (owned by Mark Andreesson who joined the Mode Board), and later announced investments in video programming to offset declining ad banner revenues.
The sad part of the Mode story is that the company could have seen this coming given what transpired at Yahoo! and positioned itself to be on the acquisition block versus death row. In Mode’s case, a lack of foresight, sloppy and myopic management practices, and a cavalier attitude towards cash flow led to certain death.
CEO and founder Samir Arora was (finally) ousted in March 2016 after years of purportedly squandering millions on lavish personal perks thinly tied to winning client business. Soon after, interim CEO Jack Rotolo and a Mode Board dominated by German media investor Hubert Burda embarked on a desperate and misguided cost cutting effort that included losing its top leaders in Products, Marketing, and Sales. And a slow bleed in cash flow transformed into a roaring gusher…scaring off any potential acquirers.
In this sad parable, the company lost more than the $230 Million invested over its 13-year life span. It has now also earned a reputation of callous disregard for its loyal employees. As remaining employees were told to stick around a rosy rebirth after ousting the founder, their reward for their loyalty, as conveyed at the company’s all hands meeting last Thursday was: no severance, no insurance, no transition support, and sorry we lied to you about the company’s imminent death spiral.
The category maturity lifecycle, as we use it here at Chasm Group, explains why Four is Fatal. There are prescriptive steps for companies to take at different stages of category maturity, and as we have entered the Main Street stage, it’s time for the remaining digital ad network players to find acquirers or seize a small, profitable, and highly niche audience to own.
Farewell Mode Media. You will not be alone.
Image Credit: Doug Mills/The New York Times