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Business Model Analysis
Ben Bacon
MBAX 6100
June 18th, 2003
Digital Metropolis, Inc.
A leading interactive agency at the
forefront of new media technologies
Opportunity/Need
Market Opportunity
- Colorado is a Top 5 New Economy State; high percentage of companies receptive to multimedia
solutions for both their internal employees (training) and external customers (online transactions)
- Favorable trends include: 80% of new US jobs are in services - e.g. “Knowledge Workers” (white-collar
services type jobs); telecommuting (employees becoming more dispersed); terrorist attacks preventing
ease of travel; the emergence of the Internet as a platform for customer transactions
- Market potential: worldwide corporate spending on e-commerce applications expected to reach $5.7
trillion by 2006; recent survey indicates that 93% of major corporations are considering online learning;
Web-based training is growing at a rate of 95% per year and is expected to be $5.5 billion in 2003.
Market Structure
- Multimedia production industry in Colorado is dominated by 4 large players: 23airmail, Texture Media,
Leopard, and Digital Metropolis (in past 3 years there has been a mass exodus out of this industry as
smaller companies could not compete with these companies on quality, price and service)
- No standard channels exist in this market; products and services are sold direct to business (and very
few individual customers); no intermediaries involved in the sale
- Industry has low barriers to entry. Any designer could start their own multimedia company; startup
software and equipment could be purchased for less than $2000. Main barrier to entry is stiff competition.
Compelling Need:
- Companies looking at how they can efficiently build knowledge in their workforce (industry/product
knowledge) without the huge costs of travel or the dryness of printed manuals
- Companies looking to create compelling, attractive Web sites using audio, video, graphics, etc. that will
generate leads, increase sales, simplify communication, and create a unique online experience
- Emotional: the “Wow” factor
- Economic: productivity, cost savings
- Financial: ROI
Target Market - B2B
Buying Decisions
- The typical consumer for Digital Metropolis is a Product/Marketing Manager or Marketing VP
- These buyers come from a wide range of companies (their client list ranges from Fortune 50 companies
to local Mom and Pop stores; industries are also extremely diverse)
- Clients are usually those who like to use technology as a differentiator in their industry; industry thoughtleaders
- Client contacts usually have their own budget within a larger corporate budget and can initially
approve/negotiate prices on-site
- However, two-thirds of purchases need to be approved at a higher level (CFO or senior VP level) and
this process generally takes between 1-4 weeks
- Entire sales process from initial client meeting to receipt of first check usually takes 3-6 months
Purchase Criteria
- A strong, personal relationship is the primary driver for these types of purchase decisions
- Secondary drivers include quality of products, service during the production phase, and trust
- Target market generally sees multimedia products as a luxury item; great to have when business is going
well, first to cut when budgets are tight
- Target market also weary of the instability of this industry as many vendors have closed shop in the past
couple of years
Nature of Purchase
- Purchases are made direct without use of a distributor, wholesaler or retail store
- Digital Metropolis owner generates leads through prospecting and referrals
Product/Services Features
Product Lineup and Associated Features:
- As a full-service multimedia design and production studio, Digital Metropolis combines CD-ROM, DVD,
Print, Video, and Web technologies into integrated marketing and training products. Below is a closer
look at the individual products:
1) CD-ROM: generally used for corporate training and development modules, digital business cards (this
makes up 80% of DM’s CD-ROM business); and trade show/conferences kiosks. Prices range from
$2,000 to $75,000. Personal CD-ROM business cards are used to impress clients by showing tech
savvy; they link into the corporate web site and are used to help drive sales. Training & Development
CD-ROMs are delivered to create engaging, flexible and customizable course content by integrating
audio/video. Key product attributes: durability, style, unique packaging, status, image.
2) DVD: generally used as marketing material, sales presentations. Services include DVD authoring, CDROM conversion, WebDVD, Plasma Displays & Video Walls. Prices range from $2,500 to $100,000.
Key product attributes include: high tech atmosphere, style, popularity with associates, image.
3) Print: Digital Metropolis staffs a team of experienced designers; print services are typically for the fast
and/or affordable projects. Items include brochures, ads, logos, corporate ID packages, direct mail
campaigns. Prices typically start at $1000, dependent upon size and quality. Key product attributes
include: cost, quantity discounts, functional, layout.
4) Video: DM markets this as a dependable medium for a dynamic presentation, with multiple formatting
options. Services include video production, video editing, video compression, AVI & Quicktime, on-site
video shoots, professional voiceovers, motion graphics, and Quicktime VR. Prices range from $1,000 to
$100,000. Key product attributes include: dependability, safety, availability (everyone has a VCR).
5) Web: flexible medium for developing sales/marketing materials, training and development programs,
corporate communications, etc. DM promises a unique Web presence for each client. Services include
e-commerce solutions, video editing, online training, web site hosting, database development, Flash &
Shockwave, streaming audio & video. Prices range from $1,000 to $250,000. Key product attributes
include: status, image, online transactions, operating cost reduction, promotion of brand.
Product/Service Benefits
Major Benefits of Products and Services:
- Below is a list of benefits broken down by market, with attention given to the type of media:
1) Sales and Marketing Materials
- Multimedia solutions (DVD, Web, CD-ROM, etc.) helps companies achieve a competitive advantage
in many “older” industries (e.g. insurance, manufacturing)
- Allowing customers to perform online transactions will result in lower operating costs
- DM creates products that are interactive, intuitive and visually engaging, so users stay online and
complete transactions or users become persuaded to contact company
- Companies are able to create and deepen relationships with customers through interactive polls and
easy to access product guidance
2) Training and Development:
- DM’s online learning systems can allow an organization to deliver globally accessible learning
programs in weeks, not months, as would be the case with either text or live classroom materials.
- DM’s allows companies to run customizable reports to evaluate the usage and effectiveness of the
multimedia training sessions (useful in determining ROI)
- Using audio and video can promote engagement of multiple brain channels, resulting in increased
retention by the user
3) Integrated Knowledge Management:
- Corporate communication websites provide company employees with visual, holistic views of
budgets, marketing plans, sales goals, etc. leading to better decisions within the company
Competitive Advantage
Competitors:
- 23airmail: competes on quality of design work; also slightly differs on philosophy - less consultative;
wants to take existing strategy from the customer and enhance it; DM wants to take more of a role in
creating the strategy from scratch
- Texture Media: focuses on enhancing the customer experience (B2C); competes on client portfolio
strength, personal relationships
- Leopard: focuses on the consultative side, competes with DM on price
- Indirect competitors: individual employees learning how to build web sites, multimedia presentations and
deliver them to their own companies at a lower cost
- Future competitors: current designers could spin-off into their own multimedia company
Sustainability:
- It should be noted that all of the above companies have the same software and media equipment and
produce essentially the same products. Most often, competition comes down to the personal
relationships developed by the account reps at each respective company.
- Prices are fairly stable throughout the industry. Customers have little bargaining strength.
- There are no separate channels of distribution in this industry. Companies prospect directly to clients.
Digital Metropolis Resources and Capabilities:
- Physical assets: main office is a beautiful, impressive loft in LoDo, downtown Denver
- Human assets: DM had three designers named to the Top 100 Multimedia Producers List in 2002; it’s
common for multimedia companies to have 1 named to the list, very unique and quite a differentiator to
have three employees on the list.
- DM has been in operation since 1995, well-established contact list and impressive client portfolio
Conclusions
Value Proposition:
- By letting us understand the way your business operates, we will be able to provide you with customized
multimedia solutions that will greatly enhance your marketing mix/training efforts.
Difference in Observations:
- Owner felt that individual employees learning to create multimedia solutions for their company was a
great threat to a company like DM. My opinion was that as individuals learn to make simple Web sites
and Flash movies, they would better understand the benefits of multimedia solutions and promote the
services of a company like DM.
- Owner also didn’t seemed too concerned at the risk of his top designers spinning off into their own
company. I disagreed. They are the real competitive advantage this company has. The work they do is
phenomenal and truly separates DM from the pack. Owner also seemed more focused on personal
relationships. While important, this doesn’t seem to be as sustainable over time.
Successful?:
- Digital Metropolis is very successful; they have grown each of their 7 years in business, actually gaining
market share in a recession
- They have excelled thanks to a tremendous level of customer service and being stable in an unstable
industry. They do an effective job of explaining the benefits of digital media to their customers (a hard
task in itself).
- Clients are always overly pleased with their end product. The design work is unparalleled and efficient in
matching the client’s original objectives (e.g.- it’s not just pretty, but practical too!)
Room for Improvement:
- Protect your advantages by ensuring that employee satisfaction is high at DM.
- Proactively promote the benefits of multimedia by hosting free seminars for clients on the latest
technologies
- Hire an experienced, dedicated sales representative to drum up business; currently the owners are
responsible and they aren’t truly salespeople.