“It’s like three-dimensional chess!”
Professor Geoffrey Parker enjoyed his metaphor for a while, and then he explained: “Platforms don’t shake up markets and incumbent businesses only. They change the very nature of competition.”
At the first level of this chess, one digital platform competes with another. For example, Facebook against YouTube in video.
At the second level, a platform competes with its own partners. For example, when Amazon sells products in the same category as independent merchants on its marketplace.
At the third level, two unrelated platform partners compete with each other for a position within the platform ecosystem. For example, when media outlets fight for a precious spot in the Snapchat Discover section.
We discussed all this recently at a Middle Eastern bistro near Parker’s office at the Massachusetts Institute of Technology in Cambridge.
We were joined by Professor Marshall Van Alstyne. They are both research fellows at the MIT Initiative for the Digital Economy. And they are both world-renowned experts in digital platforms that disrupt industries like media, transportation, hospitality, and finance. We talked over hummus, tabbouleh, and shawarma. This cuisine felt perfect for debating multi-level conflicts on such a hot day (it was more than 90F degrees).
Software eats the media … and publishers’ profits
The recent surveys and reports showed the scale of the rise of platforms in digital media.
A majority of U.S. adults — 62% — got news on social media platforms in 2015, according to Pew Research Centre. Facebook became the biggest single source of news in the country: 44% Americans were getting their news there.
Across 26 countries, surveyed by Oxford University’s Reuters Institute for the Study of Journalism, half of the adults (51%) said they used social media platforms as a source of news each week.
The money followed users.
Five technology companies — Google, Facebook, Yahoo, Microsoft, and Twitter — dominated the U.S. digital advertising market in 2015, accounting for 65% of all revenue, or US$38.5 billion out of US$59.6 billion.
And just two companies — Google and Facebook — grabbed 76% of any new dollars spent on digital advertising last year, according to data presented by KPCB analyst Mary Meeker in her Internet Trends 2016 report.
Platform Revolution by Van Alstyne, Parker, and Sangeet Choudary lists some features of industries prone to disruption by platforms:
- They are information-intensive (like news media).
- They are fragmented due to old technology constraints (like printing or delivery of print copies).
- They have employed expensive, non-scalable human gatekeepers (like editors).
“Platform Revolution is really about software companies expanding into other industries and swallowing most of their profits,” Van Alstyne said when we lunched together.
How bosses of Apple, Google, and Facebook learned the platform game
“So how can news publishers compete with digital media platforms?” I asked the MIT fellows.
“They can learn a lot from the history of software business,” Parker answered. “Look at the most successful people in Silicon Valley: Steve Jobs, Eric Schmidt, Marc Andreessen. They have all learned the hard way while competing with platforms since the ’80s.”
Jobs, founder of Apple, lost the PC market to Microsoft because he kept its desktop operating system closed, while Windows became a platform open to outside developers and computer manufacturers.
Schmidt, chairman of Alphabet (formerly Google), ran Novell in the ’90s and lost to Microsoft; again, the result of competition for dominance in network operating systems.
Andreessen, an influential venture capitalist and Facebook’s investor and board member, learned the power of platforms when his Netscape Navigator lost browser wars to Internet Explorer.
What can we learn from the Silicon Valley’s business history that relates to news media challenges of today?
Let’s dive into the hot topic of the rising cost of creation of distributed content. The history of software business suggests this cost is set to rise even further, up to unsustainable levels for publishers, as platforms will take publishers hostage in their wars for dominance.
The rising cost of distributed content
Publishers all over the world are devoting more and more resources to forming teams dedicated to each and every platform — and creating or adapting content to formats, styles, or audiences of each one.
For example, Hearst’s Refinery29, a lifestyle site for young women, recently announced its intention to build a team of 10 for its Facebook Live video channel alone. It already has 11 people handling its Snapchat Discover channel.
For publishers, expanding social media teams is both an investment (they wish to accelerate growth in user base and engagement on these platforms) and an insurance policy (by distributing content to many platforms, they are “hedging” their dependence on any single one).
Platforms see “multi-homing” as a threat so they discourage this practice by rewarding loyalty or developing barriers. Sometimes platforms force partners to choose sides, said both Parker and Van Alstyne.
What does it look like in the media?
- Rewards: As the Wall Street Journal reported recently, Facebook signed nearly 140 contracts valued at more than US$50 million with video creators, including established media outlets like CNN and the New York Times, and digital publishers like BuzzFeed and Vox Media, to secure their commitment to live video.
- Barriers: Each major platform develops its own presentation formats, as well as content management systems and analytics that, effectively, make it harder and costlier to publishers to distribute their content on many platforms at the same time.
- Penalties: If a publisher doesn’t invest enough resources and doesn’t follow the platform’s demands, she may be punished. Last year, Yahoo was axed by Snapchat from its exclusive Discover section for running an “old-school news broadcast” because “it didn’t appeal to a young Snapchat audience.”
Gone in a flash
The history of software is full of examples like that.
One is the famous story of Adobe Flash Player, analysed by professors Parker and Van Alstyne in their book on platforms. Flash was widely used by developers and publishers to deliver multi-media experiences on the Web. In the 2000s, it was tremendously popular with more than one billion desktop installations worldwide.
Surprisingly, in 2010, Apple made the mobile operating system iOS that ran iPhones and iPads incompatible with Flash. Officially, Jobs said that Flash was technically inferior to other options, consuming excessive energy and otherwise delivering poor performance on mobile devices.
“The real reasons were much deeper and more strategic,” wrote professors Parker and Van Alstyne in their book. “Adobe had designed Flash developer tools to allow content and programme porting from Apple iOS to Google Android and to Web pages more generally. Apps developed in Flash could multi-home, reducing the iPhone’s distinctiveness.”
“What’s the moral?” I asked the MIT fellows. “Do you think sooner or later the biggest platforms will force publishers to choose, and the era of widely distributed content will be over?”
“That’s a very good question,” Parker answered.
“How do we keep platforms open?” I dwelled on the question.
“Regulation?” he suggested and paused.
Note from the blog’s author: Over the last year as a Nieman Fellow at Harvard University, I studied the rise of digital platforms and their influence on the media industry. My analysis on distributed content strategies by publishers was published in April by INMA (“Evaluating distributed content in the new media ecosystem”) and presented at the INMA World Congress in London in May.
Since then I have been invited to join several academic research networks and industry groups worldwide that study platforms and look for new ways to collaborate and compete in the media.
On this blog and in my further research, I will focus on the platforms’ influence on news publishers’ strategy, newsroom management, and journalism work.