Disney, Pixar and Jobs

Disney’s purchase of Pixar is exciting a lot of media attention, including a cover story from Business Week. The coverage generally welcomes the acquisition. What’s interesting to me, though, is that most of the attention seems to be on the energizing effect that Steve Jobs’ arrival at Disney (as Board member and the company’s largest shareholder) might have on the company, rather than the specific creative assets being purchased at Pixar.

Here’s what Business Week had to say:

The alliance between Jobs and Disney is full of promise. If he can bring to Disney the same kind of industry-shaking, boundary-busting energy that has lifted Apple and Pixar sky-high, he could help the staid company become the leading laboratory for media convergence.

Let me offer a somewhat different perspective.  Pixar is a great product company. The creative talent at Pixar offers great potential in strengthening Disney’s product offerings in the animation arena.  But I am frankly skeptical about the broader benefits of this acquisition that seem to be exciting the reporters and analysts covering this event.  In particular, I am skeptical about the role that Jobs can play in a broader turnaround of Disney.

There’s no question about it, Steve Jobs is an extremely accomplished entrepreneur – he is brilliant, energetic and has an instinctive feel for great product design. In many respects, though, Jobs’ greatest strengths are also his greatest weaknesses. These weaknesses could undermine the turnaround that Disney so badly needs. Here are four concerns:

Jobs is a product guy when large media companies need to figure out how to become relationship companies. As I have written before, today’s large media conglomerates emerged in an environment of scarce distribution.  Scale and scope mattered in negotiations with distribution channels. Distribution scarcity is rapidly eroding and being replaced by attention scarcity.  As these changes play out, if media companies want to maintain scale and scope, they will need to build relationships with specific audience segments (and use the Internet to build relationships with individual members of the audience segments). They will then need to develop the skills required to use the deep understanding of these audience members to become ever more helpful in connecting them with content (and other relationships) regardless of who produced the content. The mindset shift required to do this should not be under-estimated.

Pixar produces great content that appeals to broad audiences, but its entire culture and mindset is that of a product company: build insanely great products and audiences will come.  The notion of offering somebody else’s products to their customers would be anathema, yet this is the hallmark of the customer relationship businesses that will sustain scale and scope in the next wave of the media business.

Don’t get me wrong. Great product companies in the media business will still be enormously profitable. The question will be whether they can scale.  Creative talent generally seeks smaller, more intimate organizational homes.  Many of the most creative folks at Pixar today are refugees from larger organizations (including, ironically, Disney). As competition intensifies in the media business, it will also be harder to sustain success as a product business – continuously coming up with compelling products that can rise above the flood of other products will become more and more challenging. Unless Disney plans to unbundle into a set of independent product businesses, it has to find a way to leverage scale and scope economies.

Jobs knows and loves products.  In his mind, relationships only exist to support products.  He will help Disney to create great products, but he is likely to undermine efforts to shift the focus to audience relationships. The irony is that Disney’s early success hinged on a very clear audience segment focus (parents with small children) and its ability to mobilize great content across many different media to serve the needs of that audience segment. Through a series of acquisitions and diversification initiatives, Disney has lost its audience segment focus. Disney needs to re-discover that heritage. Jobs is not likely to help Disney in this quest.

Jobs is a product guy at a time when media products need to become platforms. In a world of scarce attention, creators of media products will need to compete with those who re-conceive media products as platforms.  What is the difference? Products are designed to be used on a standalone basis – you buy it and you view it or listen to it in the specific way the content creator intended.  Platforms are designed to be built upon – they create opportunities for the original creator, third parties or the customers themselves to extend, enhance and tailor the content in ways that the original creator never anticipated. Offered as a platform, content can create far more value than any equivalent standalone product.

Jobs is such a passionate product guy that he has trouble embracing platforms.  After all, if the product is perfect (and he won’t tolerate anything less), how could anyone possibly make it better? Perfection is the enemy of platforms.

The story of Apple’s decline as a computer company can be traced to Jobs’ efforts to close up the early Apple computers in the transition from the Apple II line to the Lisa and Macintosh product lines.  Jobs had similar instincts with his NeXT Computer venture – a beautiful but largely standalone computer that made it difficult to connect peripherals. The iPod is tied to a service (iTunes) but it steers far short of being an open platform.  In working with Disney, Jobs is likely to push the company to create insanely great media products, but not platforms.

Jobs builds tightly integrated products when the future of large media companies hinges upon the mindset and skills required to build loosely coupled products. In a world of distribution scarcity, the game was all about creating large, integrated products that could justify the large distribution expense involved in reaching the customer.  As just one simple example, this is why singles gave way to albums in the music business. As distribution scarcity erodes, the advantage shifts to content creators that can modularize their products to facilitate broader reach and re-use – what Umair Haque refers to as micro-chunking (in fact, a lot of my concerns about Steve Jobs could be summarized in his lack of “edge competencies” – another Haqueism).

From the beginning, Jobs resolutely resisted efforts to unbundle the Macintosh operating system from the hardware. This contributed significantly to the long-term erosion of both Apple’s hardware and software market share in the computer business relative to more focused players like Microsoft and Dell.  From his perspective, perfection requires tight integration. In working with Disney, Jobs is likely to push for larger, more tightly integrated content – exactly the opposite direction from the one required to maximize returns on content development in a world of attention scarcity. 

Jobs tends to focus inward in building talent rather than creating networks to get better faster. The media business has always relied on assembling creative talent.  The trend in the media business over time, though, has been for creative talent to unbundle from larger institutions and establish more loosely coupled relationships, coming together for specific projects but maintaining independence.

My colleague, John Seely Brown, pointed me to an interesting article by Bill Taylor and Polly LaBarre entitled “How Pixar Adds a New School of Thought to Disney” that appeared in the January 29 issue of the New York Times.  In this article, Bill and Polly explain how Pixar took a different approach to organizing talent relative to Hollywood:

In the Hollywood model, the energy and investment revolves around the big idea — the script — and the fine print of the deal. Highly talented people agree to terms, do their jobs, and move on to the next project. The model allows for maximum flexibility, to be sure, but it inspires minimum loyalty and endless jockeying for advantage.

Turn that model on its head and you get the Pixar version: a tightknit company of long-term collaborators who stick together, learn from one another and strive to improve with every production.

The article quotes Randy S. Nelson, the Dean of Pixar University, the company’s education and training arm, as follows:

The problem with the Hollywood model is that it's generally the day you wrap production that you realize you've finally figured out how to work together. We've made the leap from an idea-centered business to a people-centered business. Instead of developing ideas, we develop people. Instead of investing in ideas, we invest in people. We're trying to create a culture of learning, filled with lifelong learners.

Wow!  This is a big red flag.  Don’t get me wrong, it is really great that Jobs and his colleagues at Pixar have such a great focus on attracting, developing and retaining talent. Jobs in particular has a reputation for recruiting and motivating teams with great talent, pushing them hard to discover and go beyond their performance limits.

But the red flag is the narrowness of the vision.  No matter how many smart people Jobs manages to recruit, there needs to be a recognition that, in the words of Bill Joy, "there are always more smart people outside your organization than inside." The challenge is to find ways to connect with as many smart people as possible, wherever they reside, and to develop relationships that motivate and enable all participants to get better faster by working together.

The quote from Randy Nelson paints a much too narrow picture: either you bring talent inside and hold on to them or you are doomed to live in a project world where relationships are short-lived.  The challenge and opportunity for all companies, not just media companies, is to develop a much richer network of long-term, trust-based relationships extending well beyond any individual firm that can accelerate capability building.

Disney desperately needs to build these kinds of relationships to tap into creative talent wherever it resides. If Jobs leads Disney to focus primarily on internal talent, he will distract Disney from another key imperative.

A key lesson out of all of this is that companies need to approach acquisitions explicitly in the context of the most basic question of all: what business should we be in?  The acquisition of Pixar and the arrival of Steve Jobs in the halls of Disney suggests that Iger and Disney’s Board believe Disney’s future is ultimately in the product innovation and commercialization business.  If they are right, Jobs will be a great addition. He is a brilliant product guy.

On the other hand, I believe scale and scope economies in the media business are migrating away from products. Media companies that want to remain large and drive even more growth need to focus on establishing platforms and relationships designed to more deeply connect with specific audience segments and individual audience members.  If that is the most promising direction for Disney, then Jobs may not be the man for the job.    

Comments

[Sivaraman Swaminathan]

I agree with Fred Parnon's comments on this post and that your thoughts on 'platform vs products' being applicable to most companies.

Fantastic Post.

[Arnie McKinnis]

I seem to remember a few years back when GM purchased EDS - and there were several articles about how Ross Perot was going to help the GM board see things differently. Never happened, Mr. Perot finally left GM alone, walked away from the company he created, and started another company. Hopefully, Mr. Jobs has a better run at Disney.

[Corrie Bergeron]

A good analysis. Both Apple and Disney are closed societies, and likely to remain so. That doesn't mean they will be unsuccessful, though.

You missed a key point. Another word for "relationship" is brand. And Disney and Apple are ALL ABOUT branding.

[David]

Three things:

1) You fell into the common trap of using the word "ironically," when you really mean "not surprisingly."

2) I've worked for Steve Jobs. It's no fun. There's not a lot of appreciation. He rules by fiat and fear, not by building consensus.

3) Disney is known far and wide as being one of the worst companies in the world to work for. Their culture is extremely suppressive. They take two years to pay even small consultants. Their culture needs improvement before anything else mentioned above can take place.

Is Steve Jobs the right guy for that?

Let's just say I'm not buying any Disney stock.

[Fred Parnon]

Excellent analysis. But I'm wondering whether your analysis applies much more broadly -- not just to media companies (where distribution costs are fast converging towards zero) but also to industries where distribution costs/scarcity are still significant. Consider, for example, the crisis in the American automotive industry. Distribution costs are, of course, still signficant for cars and trucks, and probably always will be. But isn't there still a great need (and opportunity) for struggling companies like GM and Ford to use the Internet to become "relationship companies" and not just product companies? Don't car companies need to treat cars (and automotive software) as more of a "platform" where third-parties can contribute value? Don't car companies, like media companies, have to build networks to get better faster? If so, is distribution cost/scarcity really the key? Or rather is it just one factor, among many, pushing practically all companies in the same direction -- to use the Internet to build closer relationships with customers, partners, suppliers, and everyone else?

[Alexander Osterwalder]

Wow - This "contrarian" view is excellent. To me this sounds a lot like the (buzz-) talk of Web2.0 which is all about fostering the collective intelligence of large scale networks. With the end of distriubtion scarcity media companies have to aim at becoming platforms that attract global (independant) micro-chunk creativity on the one side and build customer relationships on the other side. Could MySpace.com be the model?

[Rajan]

Excellent post !! I enjoyed reading this very much.