Publishers and the Smiling Curve: The Shift in Value in the Publishing Industry

Publishers and the Smiling Curve: The Shift in Value in the Publishing Industry

In the world of IT-related manufacturing industries, there is a concept known as the smiling curve. This curve illustrates the value-adding potentials of different components of the value chain. Interestingly, in the personal computer industry, it has been observed that both ends of the value chain command higher values added to the product than the middle part of the value chain. This phenomenon can be visualized as a "smile" when graphed with a Y-axis for value-added and an X-axis for the stage of production in the value chain.

Acer, a well-known company in the IT industry, serves as an epitome of this concept. They specialize in putting PCs together, but it is the critical component makers like Intel and Windows that capture most of the value on the left side of the curve. On the other end, systems integrators and value-added resellers like IBM or Accenture capture the rest of the value on the right side. Acer and its OEMs find themselves competing for single-digit margins and facing stagnant growth. It becomes apparent that there simply isn't much money to be made in the undifferentiated middle.

This phenomenon is not exclusive to the IT manufacturing industry. Traditional publishers are also experiencing a similar shift in value. The home page, which used to be the primary attraction for readers, is now becoming akin to the print edition - nice to have, but not the main source of traffic. More than half of the visitors to The New York Times, and many other publishers, are now coming via mobile devices. The percentage of mobile traffic continues to increase with each passing month.

The shift in value is evident when people follow links on social media platforms or through search engines. The page views generated from these links are not because of any particular affinity for the hosting publication. It is uncertain whether their affinity will increase once they've read the article. In fact, readers are more likely to ascribe any positive feelings to the author rather than the publication itself. Over time, as this cycle repeats and people become accustomed to getting their news primarily from social media platforms, value moves to the ends - just like it did in the IT manufacturing industry and smartphone industry. Traditional publishers, unfortunately, find themselves stuck in the middle.

The financial prospects of newspapers, in particular, present a great paradox. Despite falling advertising revenues, newspapers have the ability to reach audiences all over the world. However, the problem lies in the fact that the free distribution provided by the internet is not exclusive. Every other newspaper has access to the same distribution channels. Publishers no longer have an exclusive on anything.

This shift in value has led to a realization that publishers provide no value to their writers. The most successful writers and publications are now pursuing a different strategy. They focus on doing what they do best and accrue outsized value relative to publishers who are rapidly shifting from being a platform to becoming an obstacle.

This shift in value is a direct result of the internet. By removing friction, the internet eliminates the need for intermediaries. As a result, value flows to the edges. In the case of publishing, we see aggregators on one side capturing value while focused, responsive, and differentiated writers and publications capture value on the other.

In conclusion, the publishing industry is currently experiencing a significant shift in value. Traditional publishers find themselves struggling to compete as value moves to the ends of the value chain. To adapt to this changing landscape, publishers need to rethink their strategies and focus on providing unique value to both readers and writers. Here are three actionable pieces of advice for publishers:

1. Embrace digital platforms: Instead of resisting the shift towards digital platforms, publishers should embrace them. This means optimizing their content for mobile devices and social media platforms, where the majority of readers are now accessing their news.

2. Foster strong relationships with writers: Publishers should focus on building strong relationships with their writers. By providing them with the support they need to create high-quality content, publishers can differentiate themselves from the competition and attract top talent.

3. Innovate and experiment: The publishing industry needs to innovate and experiment with new business models and revenue streams. This could involve exploring subscription-based models, sponsored content, or partnerships with other organizations. By embracing change and taking risks, publishers can stay ahead of the curve and remain relevant in the digital age.

In conclusion, the smiling curve concept applies not only to IT manufacturing industries but also to the publishing industry. As value shifts to the ends of the value chain, traditional publishers must adapt their strategies to remain competitive. By embracing digital platforms, fostering strong relationships with writers, and innovating their business models, publishers can navigate the changing landscape and continue to thrive in the digital age.