Legacy plays can disrupt from within – or just buy into it

Published at Jun 9, 2016, in Features

Legacy companies are taking part in their own disruption and investing in start-ups.

This week’s news that legacy media player Seven West Media (ASX:SWM) has emerged as the lead investor on Airtasker’s latest funding round may turn a few heads tuning – but it shouldn’t.

SWM has emerged as an investor in a raft of smaller plays, including hyper-local social media network Nabo and crowdsourcing platform NewZulu (ASX:NWZ).

In the case of both Nabo and Airtasker, SWM has effectively leveraged its media platforms as central to the deal.

You’ve probably already seen ‘integrations’ into Nabo’s programming – most notably its Sunrise and Morning Show shows.

Central to the terms of buying into the companies, SWM offered itself up as an advertising platform using airtime as a contra deal.

It’s a smart play, and beneficial to the companies involved as they’re consumer-facing propositions; one of the better ways to reach consumers is through television advertising.

SWM teamed up with Westpac to invest in Nabo and has been quiet with regard to its plans on whether it will be a passive investor or a driver of the strategic focus of the business.

The possibilities for SWM lay in the data a service such as Nabo generates and its potential to be used as a hyperlocal advertising platform.

The curious case of SWM’s investment into the start-up space is systemic of the thinking legacy players – particularly in the media space where technological disruption is the norm – are having around disrupting their own business models.

SWM has realised that the pace at which the start-up space in Australia is evolving means that it needs to either invest in in-house disruption, buy into the disruption, or do a little bit of both.

In the case of SWM, it’s probably doing a little bit of both.

McLean Delmo Bentleys partner Andrew Pearce previously told Finfeed that larger companies may actually have an advantage when it comes to in-house innovation – as they generally have more resources than a small-to-medium enterprise to dedicate to a particular idea.

“[Some] SMEs are identifying the need to have that start-up mentality, but how do you do that when you’re really busy? They’re trying to survive day to day in a touch competitive market,” he said.

“They hear from Malcolm Turnbull and co that we need to be the Innovation country, the ideas country, but the SMEs are thinking ‘How do I actually do that when I have an existing business to run?’

“They’re just busy trying to do their stuff.”

This, however, does overlook one thing in a start-up context: that start-ups may be small operation but they have a laser-focus on solving one particular issue.

In a larger organisation they may allocate some people to solve a particular issue with the business – but it will be one of many things on their plate.

With start-ups, they are trying to solve one issue 24 hours a day.

This naturally lends itself to solving an issue quicker than a large company may be able to – despite the disparity in resources.

Take SWM’s investment in NewZulu, for instance.

NewZulu isn’t quite a start-up, but it is a small company focused on solving one particular problem.

It’s building a news platform where publishers can connect with citizen journalists who are on the scene of unfolding news taking footage with their mobile phones.

In the past, citizen journalists had to connect with the individual newsroom and wait for a response.

Publishers then had to verify the content was real.

NewZulu, however, takes a lot of the gruntwork out of the process and makes things easier for both publisher and citizen journalist.

Citizen journalists simply log onto the Newzulu platform, upload the footage and wait for the cash to roll in.

NewZulu verifies the content to make sure it’s legitimate, and then pays the citizen journalist a fee for the content.

Its sole focus has been on building a content platform for news – something the likes of SWM may be interested in.

Interested to the point where it emerged as a key investor in April.

It’s a demonstration of how the start-up or small business sector can focus on one issue with a laser-like focus, and then grab the attention of a larger fish.

As the pace of start-up activity ratchets up in the coming years, expect to see many more legacy players in all sorts of industries appear as lead investors in start-ups.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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