Aggregation is the new business model. While this is not hot new, it still is hot. Many companies that have multi-billion valuation play in this space. To name a few Uber, Swiggy, Zomato, Netflix, Spotify are all aggregators. Before I dive into aggregation in publishing space, I’d like to take a step back and examine how aggregators come to be.
We have users at one end of the spectrum and suppliers (publishers in facebook, content owners in Netflix, drivers in Uber, Musicians in Spotify, etc. ) at the other end of the spectrum in the value chain. Aggregators happily sit between users and suppliers and make these exchanges happen. Aggregators make the user experience so compelling that they attract lot of users to the platform. Companies like Facebook do this by making the connection between the users as a starting point and bring suppliers (Publishers in this case) little later in the game while companies like Netflix start by making deals with Suppliers (Content owners like AXN, HBO, etc) and ask users to try the platform.
Because users are with the aggregators, suppliers have no option but to sign up for the platform. As more suppliers sign up, the value a user derives out of a platform increases and more users get attracted to the platform. This is a virtuous cycle.
Free to use platforms like Facebook, Twitter, etc.. pay suppliers through ad revenue while subscription based or service based companies like Netflix, uber require users to shell money out for the services suppliers have to offer and take a cut for facilitating this exchange.
Different aggregators have varied negotiating power based on the number and dependency of suppliers on the platform, network effects, etc.. In case of Spotify, there are only a handful of suppliers in the form of record labels and they can gang up against Spotify in case of any unfavorable terms. But for a company like Facebook, every user is a supplier of content and Facebook will have a higher negotiating power on the decisions of incentives.
This is aggregation theory. While every industry has its own dynamics of aggregator behavior, I’d like to touch upon publishing industry. Challenges with aggregation in publishing industry is manifold:
1. Click bait and Sensationalism
As a news publisher, the right thing to do is write better informed articles that educate users and not sensationalize things. But the incentive mechanism today (in Facebook, Medium, etc.) in Free to use and sadly, Paid services as well is grossly misaligned. You get paid based on views, clicks and engagement and not on quality.
Apple, through Apple News, hopes to change this by incentivising the publishers based on time spent instead of no of clicks. This solves the problem to a certain extent because users tend to spend less times on articles with sensationalist headlines in comparison with 3000-4000 word editorials written after deep research and conviction. But the problems with aggregation in publishing are much deeper..
2. Articles are Substitutable
Different authors have different opinions on a same subject matter. A reader, after reading an article on a subject might not be willing to read several articles on same theme (Unlike Netflix/Spotify where every Movie/Song is different and watching one movie wouldn’t discourage a user to watch another movie. It is not a zero sum game there! Everyone has a fair chance of making it to the top.)
This makes the timing of the publishing crucial. In a situation where being first is critical, quality might suffer.
3. Investment vs Purchase
I saw the following ad on my facebook feed:
Here, The New York times is not asking the users to purchase a news article or a set of editorials. They are asking users to invest in their ability of “holding the powerful to account.” We see similar advertisements from Wall street Journal appealing subscribers to help them “save democracy” vs “read great news.” It is about Journalism and not Journalistic output!
Aggregation by theory, modularises the publishers and makes it about the news article and not about the credibility of publishing house reporting it. A well reported nytimes article will have to compete against an article written by a rookie in buzzfeed. This will have negative effects on Journalism as distinction in incentives drive entirely different behaviors. Sometimes to an extent of defining organizational culture.
4. Bottom line vs Cannibalization
Discarding all the problems above, some critics and analysts are in an opinion that the big publishing houses like nytimes and WSJ should participate in aggregation platforms as they need not dedicate extra resources on publishing as the content is already there and any additional reader they reach is a value add for the bottom line. While this sounds tempting, this might work bad in the long term for the following reasons:
In the long term, existing subscribers will start noticing that they’d get news articles from other publishers in addition to the ones they get from publishers they are subscribing to if they pay to an aggregator instead of the publishing house at the same price. Cannibalization is a threat
The ownership of the relation with the user currently stays with the publishing house. If they sign up to be the suppliers for an aggregator, aggregator holds the relationship with the reader and they gain the ability to dictate incentives to the publishers. Aggregators gaining this power will be bad for the above mentioned 3 reasons
While all of the above mentioned reasons discourage publishers from entering the aggregator space, there’s always a “Collective Action Problem.” A publisher’s absence from an aggregator wouldn’t hurt the aggregator as much as the publisher for not being there and missing on so many potential readers. While being in an aggregation platform has its fair share of challenges, the fact is that the aggregators still remain great vehicles to reach the users.
Whether publishers resist this change or decide to jump on this aggregation bandwagon is something to look out for.
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