A few weeks ago, John Michelsen had a piece of advice for companies wanting to innovate in the application economy:

“Leaders start”.

I believe that HBO has just decided it’s time to start.

Cutting the cord

HBO is much more like Netflix than a regular cable channel. By creating it’s own original content, Netflix and HBO look like almost exactly the same companies (to my non-professional eye). Cable TV is simply HBO’s distribution model. By moving into streaming, HBO is experimenting with a new model of distribution.

HBO’s future is not necessarily that of the cable industry

While this isn’t the place for an analysis of the cable industry, I highly recommend the Exponent Podcast episode 21 for such an analysis, HBO is not a synonym for cable TV distribution.

In short, HBO is not bundled. The only time it gets paid is when customers choose to add HBO to their package. HBO has “outsourced” billing, distribution, customer service and some of marketing to the cable companies who in turn take a cut of the revenues and own the customer relationship.

By moving to the Internet, HBO needs to figure out all those things the cable companies provide today and in return will have a direct customer connection through which they can start to build their own insight-models into customer behavior. If their models are better, they’ll beat Netflix. If not, not

That’s where software comes in to play. Both companies need to get the technical implementation details out of the way in order to best leverage the totality of data collected, and enable employees to infer insights that in turn improve the jobs they’re being hired to do by customers.

That means the data needs to be accessible. Software that derives insight needs to be quickly adaptable, and of high quality. Since they’re gathering consumer data, it must be secure (not because the data is necessarily sensitive, but because it’s connected to the real world).

I’m glad to see that HBO is starting. They’re not the only ones. Swisscom is starting too. I find it very exciting to see how software is blending into the business to influence companies and the way they deliver solutions to the market. It’s easy for a startup to innovate, it’s much more complicated for established companies to do so.

Netflix understands their customers and adapts

Netflix, on the other hand, studies customer behavior using their own proprietary understanding of movie content, developed in order to create insight into viewing patterns.

There’s a lot of conversation around the challenges of discovery in mobile app stores. One can think of Netflix’ value being dependent on people discovering good content; a job Netflix customers hire Netflix to do is discover content they might like. The better Netflix does, the more people watch and the more value they get from their subscription.

I like how Netflix has taken advantage of their method of distribution (the Internet) to gain deeper insight into customer behavior. Software not only enables this, but it’s “under the covers.” It’s a system that learns consumer behavior and enables them to adapt both their content and their business model.

Tangent towards banking

Imagine a bank. What’s customer service doing all day? How many of each sort of transaction do they help customers with? It’s more difficult to track than if customers are interacting with a mobile app.

With the right mobile analytics, it becomes very easy to observe customer behavior to improve the app and the underlying banking services offered.

This is the opportunity that HBO has as they move towards content distribution over the Internet. Any company that can digitize their distribution chain can gain better customer insight than they do today. Those that digitize “better” will be able to serve customers better.

I wish there were more leaders out there experimenting with new models, and in turn learning how to improve customer value. That said, it’s a software world – and you’re not going to be able to innovate well until you embrace the software company inside of you.

Image credit: Flavio

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