Editor’s note: Harvard Nieman Fellow and INMA Board Member Grzegorz Piechota is working on an in-depth report for INMA on distributed content. As part of that report, which will be released later this month, Piechota interviewed Sangeet Paul Choudary, CEO of Platform Strategy Labs, co-chair of Platform Strategy Summit at MIT Media Labs, author of Platform Scale and Platform Revolution. Here is an excerpt from that interview:
Piechota: How do you think the rise of platforms changed the competition in the digital content market?
Choudary: Platforms change rules of the game in many industries like transportation or hospitality, but the most prevalent and painful are changes in the media. Media industry thrived on ownership of scarce resources. Basically, its business model worked like a pipe: the value has been created by the producer and flowed to the consumer.
Platforms work differently. They provide infrastructure for producers and consumers to interact with each other. Platforms collect and analyse the data on these interactions, and they set rules for this marketplace. That’s why they have full control over the ecosystem.
Piechota: Why have platforms like Facebook grown so quickly and become so powerful?
Choudary: They basically grow differently than traditional businesses. Pipes grow by scaling processes that run through the pipe while platforms grow by scaling the ecosystem interactions.
The most important activity of the platform is to increase efficiency, repeatability, and quality of interactions. To succeed platforms need to encourage both sides — producers and consumers — to participate more, more often, and contribute more.
Piechota: No wonder Facebook and Snapchat have recently offered to host news publishers’ content directly on their platforms. Publishers struggle. They want to grow audiences, a new revenue opportunity is out there, but they are concerned too with loosing control over their business. What are the strategic issues publishers should consider?
Choudary: They need to unpack what platforms really want from them. And what is in the deal for publishers.
Piechota: They say they want to improve mobile user experience. Obviously, the news content drives frequent use. Publishers guarantee both quantity and quality that may help the platform to further grow.
Choudary: Firstly, publishers need to stop thinking about platforms just as channels to distribute their content. I don’t believe at all in the strategy in which you give away some content via the social network and then try to monetise some more content on your Web site. I am afraid publishers need to fundamentally rethink their product and business model.
Think about platforms as fishing places where you can find large, engaged audiences and build a relationship with them by providing content. Then offer these users some other services off-platform. No publishers’ strategy will be complete with a clear plan to take users out of platform and bring them to publishers’ turf for monetisation.
Look at Schibsted, one of the most successful media companies today. Most of their revenue comes from digital marketplaces. They use their own media or platforms like Facebook as means to acquire users for their own classified or e-commerce sites.
Look at Nike and how they grow their successful digital sports business. Nike is no longer just about making sports shoes or even gadgets. It has built a platform that tracks athletes’ performance and engages them via social networks.
Piechota: So instead of trying to compete with platforms should news publishers learn how to live with them, or even better to build their own platforms?
Choudary: I haven’t seen any pipe business that succeeded by attacking the platform head on. Building a clone platform is not going to be a big success either, as strong network effects in two-side markets often lead to the situations where one winner takes all.
You rather need to build a different set of services that address the same users. If you solve their pain points, your platform will get traction. The data you acquire will help you to grow even further, and one day you will be able to start competing with other platforms.
So to fight Facebook you don’t create another Facebook but rather Instagram that could one day eat Facebook if it had not bought it.
Piechota: Before publishers build their platforms, how should they do business with Facebook and others? What criteria could they use to evaluate their recent offers?
Choudary: Firstly, publishers should check whether they can attract users out of platform to offer them services that will allow monetise the relationship. If these services won’t directly compete with platforms’ business, they should accept that.
Secondly, publishers need to get access to data on interactions on platforms with their content. Data ownership, terms and conditions of use are very important.
Thirdly, check the policies of communication with users on the platform. How publishers can engage with them to build stronger relationships?
Fourthly, publishers need to look forward: What platforms will learn and do with the data on interactions with their content. One day the platform will know enough about the ecosystem to act against it to squeeze more profits.
Look at Amazon. It invited third-party merchants to its ecosystem, learn about what was selling well and what didn’t, and then started to compete with its own partners.
Again terms and conditions of use of the data — you may predict threats by looking at them.
Piechota: What is the future of platforms? What are their limits? Any vulnerabilities?
Choudary: I think we will see more regulation. There’s a growing concern in Europe and the world that a few U.S. companies have data about almost every person. Basically, governments cannot stand that somebody knows more about their citizens than they do. So they will set more rules of what platforms can and cannot do with the data, for example whether data on citizens of a particular country should be stored in this very country.
Another pushback for big U.S. platforms will be the rise of new forms of ownership and governance — platform cooperatives where users, not a corporation, set transparent rules of interactions between producers and consumers.
Piechota: Cooperatives like in my socialist Poland before 1989? Seriously?
Choudary: It’s one of the hottest topics among platform scholars right now. Cooperatives could be real alternatives to Ubers or Facebooks of the corporate world. People would regain control over their private data, digital content, work relationships etc. I really think we will see co-operatives getting scale in five-years time.
The business world will also see industries converging around the same data they acquire. Look at traditional health-care providers like Kaiser Permanente and pharmaceutical supermarkets like Walgreens. They basically collect similar data about patients and their treatment. Add Apple and Google to that mix, as they track and build profiles about people’s health. Add Philips with its suite of devices for both consumers and healthcare companies.
Sooner or later they will all compete each other building services upon the data they have.