There’s been a lot of discussion recently about Facebook’s increasing role in how people get their news, and whether or not that is a good thing and/or what to do about it. But one of the smartest things I’ve read on the topic comes from freelance tech analyst Ben Thompson, who writes a blog called Stratechery — and who put Facebook’s dominance into context with a post about how value in the media industry is moving to the edges, and publishers are stuck in the middle.
Since Thompson is a technology analyst and his blog is about strategy, he starts off by talking about how the IT business has changed over time, and in particular the rise of specialized component makers such as Largan Precision of Taiwan (which makes the camera components for the iPhone).
Thompson explains how companies like Largan have gained power, just as chip makers and software providers like Microsoft and Intel did during the rise of the personal computer — leaving the companies who actually assembled and sold computers in the middle, their profit margins dwindling as value moved to the ends: specialized manufacturers on one side, and services on the other.
So what does any of that have to do with publishing or media? It’s easy to get distracted by the analogy to Largan Precision, or the X and Y graph that Thompson uses, which shows what Acer’s founder called the “smiling curve” of value distribution (a curve that sliced Acer’s business to ribbons, as Thompson points out). But the point is that the internet has moved value — and the market power that comes with it — to the edges rather than the middle.
Publishers lose value as social platforms gain
So for example, in the analog world in which newspapers, magazines and other forms of publishing controlled the distribution platform and therefore the channels through which content flowed, they also controlled much of the value. But new platforms have emerged — such as Facebook and Twitter and LinkedIn and dozens of others — and they have accumulated much of the value and market power that used to accrue to publishers and media companies. As Thompson puts it:
In other words, Thompson believes that because of the disintermediating effect that the internet has on content, value is moving towards the individual creators of that content — writers, editors, artists, etc. — and towards the platforms that allow for discovery and/or distribution of that content (Facebook, etc.) and away from publishers and media companies of various kinds.
It should be noted that Thompson has a horse in this particular race: as he described in an interview with me earlier this year, he is betting that by running his own website using a membership-based subscription model, he can generate enough revenue to pay his bills and make a living, instead of having to work for a larger media or analysis outfit. And so far, he says it is working pretty well.
So what does the future look like for those media companies in the middle of the “smiling curve?” Thompson doesn’t say, but it probably isn’t going to involve a lot of smiling — instead, it presumably involves trying to squeeze less and less revenue out of a market where they are rapidly losing control, and trying to form relationships with platforms like Facebook without losing even more. How that will ultimately play out is anyone’s guess at this point.