Today’s competitive market has made it both trendy — and necessary — for corporations to invest in digital transformation and innovation. However, the ways in which they focus and collaborate with the innovation ecosystem can be very different. In recent years, we have observed more and more enterprises attracting, interacting, and investing in startups that don’t operate within their core business. Instead of concentrating on their principal markets and relevant technologies, they cast their net wide — a strategy known as “spray and pray” in the venture capital world, which has been adopted by a myriad of companies.

Most corporations using the “spray and pray” method have disorganized innovation strategies. By addressing a broader range of startups, these corporations feel more in tune with the market. In most cases, such tactics prove unsuccessful, yet few companies seem to have learned any lesson. While mapping over 160 corporate innovation programs for the CREATORS Corporate Innovation Report 2017, we came across some successful examples of “spray and pray” elements in innovation strategy: Coca Cola invested in Spotify. Intel recently acquired the Israeli automotive startup MobilEye, and is also running an Education Tech innovation program. Lastly, there is Axel Springer, boasting not one or two, but dozens of successful investments over the last two decades.

A German publishing company with 15,000 employees, Axel Springer, is neither a part of the Fortune 1000 nor listed in the major German stock index. Axel Springer was once a major German publishing company, and is still famous for its flagship newspaper Bild, a popular German tabloid. A decade ago, the Financial Times Germany characterized the company as “a mere internet midget”. Today, Financial Times Germany has ceased to exist (more specifically, closed all its operations on December 7th 2012), yet Axel Springer — the “midget” — has quietly become Europe’s leader in digital media, generating 75% of its revenues through digital channels and reaching 200 million unique users monthly. Their radical and successful transformation encouraged us to dig deeper into their external innovation strategy and its implementation.

The “Mere Internet Midget” Becoming a Digital Media Giant

In 2001, Axel Springer presented its first ever net loss to shareholders. The following year, Matthias Döpfner became CEO, and radically transformed the business model. Since then, Axel Springer acquired over 80 companies, substantially increasing profits each year. In a short time, Axel Springer became the leading digital media powerhouse in Europe. All this is happening in an industry regarded as a “sinking ship” and highly exposed to disruption.

Transformation by Cannibalization

Axel Springer pivoted from the brink of bankruptcy by mimicking the strategies of other companies previously exposed to disruption. It cannibalized its own core business. The same strategy was used by IBM in the 1950’s, when it was transformed from a tabulating to a computing company. Axel Springer started its transformation by selling major, traditional brands from their printing press portfolio, replacing them with digital journalism, as well as radically digitizing their major brands.

“The only way to survive is to cannibalize yourself”
Andreas Wiele, President Marketing and Classified Ad Models @ Axel Springer

Axel Springer restructured its business by shifting its primary focus away from the printing press, and reorganizing it around diverse revenue models: In addition to paid models such as subscriptions or press sales, they restructured two areas: Marketing Models (revenues generated through advertisers, e.g. radio stations or content websites) and Classified Ads (revenue generated through paid classifieds such as real estate or job platforms). Though once linked through a common medium — the printed newspaper — these two areas are now treated as independent businesses. Throughout the process, Axel Springer acquired existing players to grow their business model globally. Recently, Axel Springer invested in the U.S. market by acquiring Business Insider and establishing a new U.S. headquarters in New York.

Different Innovation Vehicles for Different Needs

Axel Springer created external innovation mechanisms to lead its innovation revolution. It founded a Plug ’n’ Play Accelerator in Berlin, a 100-day-long accelerator aimed at engaging annually with 45 early-stage startups from different industries. Most of the startups that took part in the program operate in e-commerce and advertising. Axel Springer Digital Ventures — the company’s VC arm — was founded to interact with innovators and scout for new technologies. Axel Springer Digital Ventures enables the company to further develop its digital portfolio through investments in more mature startups, including graduated startups from the accelerators. Axel Springer also created a Silicon Valley outpost. This diversification strategy surely contributed to the success of the company’s transformation.

A New Pattern Beyond the Pattern

While screening Axel Springer’s recent innovation activity, we discovered a few radical departures from the external innovation strategy described above. In 2013, Axel Springer made a minority investment in AirBnB upon the company’s leadership visit to the Silicon Valley.

“We never made a bet. It was always very calculated”
Uli Schmitz, Managing Director @ Axel Springer Digital Ventures

In the same year, it made a few more breakthrough decisions: The company invested in A Ventures, a Berlin-based company builder and VC, which focuses on a variety of sectors including digital health, industry 4.0, and FinTech. Axel Springer also invested in Runtastic, a fitness startup that sold for 220 million Euros in 2015. Finally, the company started the first batch of its Accelerator Program. One of these companies — N26 — became a leading FinTech startup in Germany. In 2015, Axel Springer established a corporate partnership between its accelerator program and Ergo, a German insurance company. In 2016, the Accelerator strengthened its network in the financial industry by building a similar collaboration with Deutsche Bank. Axel Springer’s digital ventures fund also invested in a German InsurTech startup.

Today, Axel Springer is recognized as a leading German digital platform. It uses external innovation vehicles to interact with startups in areas such as FinTech, VR, and Automotive. All sectors that diverge from their original core business.

Concept or Coincidence

Axel Springer has successfully expanded its innovation activities into peripheral verticals. Was it a deliberate strategy or a series of random, lucky decisions? Whatever the answer, the company did make it possible to “spray and succeed”.

What contributed to the winning model is the fact that Axel Springer has very clear innovation goals that are distinctly aligned with the general strategy of the company. Very early in its transformation journey, the company identified the need for different mechanisms to address distinct external innovation needs. In short — different goals were answered using tailored strategies. It’s worth noting that Plug’n’Play accelerator and Axel Springer Digital Ventures were launched at almost the same time, and still work together to address various needs and provide operational tools for startup engagement.

The success of this approach wouldn’t be possible without the support and engagement of Axel Springer’s C-suite. The management understood from the very beginning of the company’s transformation to external innovation is crucial to its survival. Today, Axel Springer’s leadership continues to develop the company’s growth strategy not just through M&A activity, but also through partnership models with early and later stage startups, as well as select corporates from various verticals. This allows the company to be more than a publisher, content creator or advertiser. Such approach to innovation enables Axel Springer to identify growth opportunities in new markets for both existing solutions that may fit its core business, and new technologies.

Under the right circumstances, “spray and pray” can be turned into impactful “spray and succeed”. The “mere internet midget” grew to become a digital media giant and is only getting stronger. What is needed to achieve similar success? Vision, boldness, and a leap of faith.

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