Wednesday, November 16, 2011

The Strategic Role of IT at the Financial Times


The Financial Times Limited (FT) is a business news and information organisation. Its objective is to provide news, comment, data and analysis to the global business community (Financial Times, 2011b). Although the FT is incorporated as a newspaper publisher (Companies House, 2011) and its object includes the printing, publishing and circulation of newspapers (Memorandum of Association of The Financial Times Limited, 1st December 1981, clause 3(B)), its products are not newspapers. Rather, the newspaper is a vehicle used to deliver its products, which are business news and information. Hence I will be analysing the extent to which IT plays a strategic role in the FT’s delivery of business information to its global audience as opposed to the strategic role of IT in its publication of newspapers. The impact of IT on advertising will also be included in the analysis, as subscribers and advertisers are the FT’s sources of revenue.

Hindle (2010, l.6229) described strategy as ‘matching external demands with internal capabilities.’ Recent or ongoing IT projects which impact external stakeholders indicate the FT’s strategic focus, a deductive process discussed by Robson (1997, p.5). Since launching a paid meter access model for FT.com in 2007, the FT has been developing additional digital circulation channels including a mobile website, smartphone apps and tablet apps (Financial Times, 2011, e). The realisation of the financial and technical resources required to support multiple mobile devices has led to a tactical change and a HTML5 web app is being developed for all platforms (Financial Times, 2011, d). Editorially, the newsroom has been integrated to ensure all journalists work in print and online (Barber, 2011). Thus it can be inferred that the FT views the digital distribution of its content as a strategic growth area. The competitive context of this strategy can be examined using Porter’s five forces framework, cited in Avison and Fitzgerald (2006, p.57), and five corresponding questions proposed by Applegate et al. (2007, p.41).

Laudon and Laudon (2011, p.38) claimed that newspaper readership is declining as online news consumption expands and Standage (2011, a) asserted that newspaper ‘readers have shifted their attention to other media, quickly followed by advertisers.’ In 2008, the Internet surpassed newspapers as Americans’ source of news (Standage 2011, b) and a severe drop in advertising revenue since 2006 has sharply reduced profits at U.S. newspapers (Pressure on the Presses n.d.). Business news providers need to develop their digital distribution channels to remain competitive and sustain revenue from subscribers and advertisers. It is necessary for business survival due to industry-level changes (Laudon and Laudon, 2011, p.46). The FT’s industry rivals include the Wall Street Journal (WSJ), Reuters and Bloomberg. Figure 1 presents the latest audience statistics[1] for the firms, indicating competitors have significantly larger online readership than the FT. Hence digital distribution does not differentiate the FT from its rivals and therefore does not change the basis of competition.
Figure 1
Average Daily Global Audience
On the other hand, the FT’s reputation for authority, integrity and accuracy (Financial Times, 2011, b) could be a source of competitive advantage. Online and mobile access to premium content which users are willing to pay for increases entry barriers for news distributed through social media and aggregators such as Twitter and the Huffington Post. Barber (2011) described the FT’s response to new entrants as commitment to journalistic quality, development of online subscription business by charging for content and restriction of aggregators’ access to proprietary information. IT is used to erect a ‘paywall’ which compels business users, who value accurate information and authoritative analysis, to subscribe to the FT digitally and this strategy contributed to a nine percent growth in audience from May 2010 to May 2011 (Financial Times, 2011, a).

Digital channels enable users to engage with one another. Christie, quoted in Behling (2011), states “there is an appetite for FT readers to talk to other FT readers,” and this is being harnessed to build a user community. The loyalty engendered by an online community could create a barrier for competitors, as claimed by Applegate et al. (2007, p.45). The FT has embedded user interaction in its website by integrating reader comments at the end of each article. The ability of the audience to exchange opinions directly on the website increases the immediacy of their communication and thus the vibrancy of the community. On-site interactions are complemented by the use of third-party sites to build its community. The Social Media Hub, comprising Facebook, LinkedIn, Twitter, YouTube and Flickr channels, expands membership of the FT community beyond active subscribers and drives traffic to FT.com. Reuters makes similar use of external social media and on-site user comments to engage its audience, seventy-nine percent of whom do not visit rival financial websites (Reuters, 2011a). However interacting on third-party sites with varied content from several sources potentially makes users more likely to divert their attention away from the FT.

The nature of the relationship between the FT and its sources of news and data could be transformed by social media. Fortune Global 100 companies’ use of Twitter, Facebook and YouTube stands at sixty-five percent, fifty-four percent and fifty percent respectively (Burson-Marsteller, 2010, p.3). Laudon and Laudon (2011, p.38) mentioned that businesses are increasingly using social networks to engage with their customers. The direct communication between companies and stakeholders potentially bypasses news organisations, shifting the balance of power to corporations. However corporations’ use of social media could be a source of raw information on which news organisations build their analysis and commentaries. As Standage (2011, b) reported, ‘non-journalists are acting as sources for a growing number of news organisations...’ The FT ‘follows’ organisations including the European Commission, NASDAQ and Research In Motion (Twitter, 2011) which gives it instant access to official news updates.

The interactive features of the Internet add value to the FT’s news, comment, data and analysis while enabling the creation of new products or services. The IT infrastructure deployed to give users digital access to content also transform the FT into a research tool. The indexing and storing of data enable users to search information archives and retrieve relevant results, extending the financial value of its markets data and news analysis beyond the shelf life of newsprints. Furthermore, twenty-five percent of FT readers take six or more international flights a year and sixty-seven percent conduct business internationally (Financial Times, 2011a). Globally mobile customers are able to derive maximum value from their subscriptions by having digital access to FT content from foreign countries.  

Data on customer preferences and behaviour is a valued resource which could be sold to market research firms, as discussed by Applegate et al. (2007, p.48), or used for targeted advertising. The FT creates a profile of each customer by analysing his/her registration data, preference data, behaviour on FT.com, behaviour on other FT group websites, behaviour across the web and broader profiling. The profile is used to attract advertisers to target their campaigns at specific audiences, a strategy claimed to be almost four times more effective than un-targeted advertising (Financial Times, 2011c). Additionally, the audience demographics inform the development of specialist products such as FT Alphaville and MBA Newslines.

The use of non-proprietary Internet technologies lowers customers’ switching costs, a postulation made by Applegate et al. (2007, p.47). Although it aids market penetration, the ability to use the same technology to access content from the FT’s competitors reduces the potential to lock in customers, unlike proprietary technologies such as Bloomberg Terminal. Conversely, subscribers can construct a customised investment portfolio on FT.com, using markets data to track performance, follow related news, create interactive charts, build equity screens and configure market alerts. This raises the switching costs for customers who have invested time and effort in creating their portfolio. However, the feature is not compelling enough to lock in customers as websites such as Reuters, Yahoo Finance and MSN Money offer comparable, free services.

The FT’s competitive advantage lies in the quality of its business news and information rather than its use of IT for content delivery. Digital distribution is not a differentiator yet it increases the FT’s capacity to meet the current and future needs of its customers. The industry-level changes require the development of online and mobile channels to reach customers and attract advertisers. Nevertheless the statistics in Figure 1 reveal that the FT newspaper has 1.4 times the circulation and 2.8 times the readership of FT.com while subscription-based WSJ newspaper has 1.3 times the readership of free Bloomberg.com. Even as digital distribution gains momentum, the larger subscription and advertising revenues of newspapers underline their continued importance. Thus newspapers are unlikely to be completely replaced after the penetration of smartphones and tablets, as well as users’ reading habits, reaches critical mass. As Barber (2011) stated, the FT’s “task is to ensure the newspaper evolves in step with the mobile and digital products.”


REFERENCE LIST
Posted by at No comments:
Subscribe to: Posts (Atom)