Publishers and the Smiling Curve: How the Internet is Shifting Value to the Edges and What it Means for Traditional Publishers

Publishers and the Smiling Curve: How the Internet is Shifting Value to the Edges and What it Means for Traditional Publishers

In the world of IT-related manufacturing, there exists a concept known as the smiling curve. This curve represents the value-adding potentials of different components along the value chain. Interestingly, in the personal computer industry, it has been observed that both ends of the value chain, specifically the critical component makers and the systems integrators, command higher values added to the product than the middle part of the value chain. This phenomenon results in a curve that resembles a smile.

One company that exemplifies the bottom of this curve is Acer. They are primarily involved 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, while systems integrators and value-added resellers like IBM or Accenture capture the rest of the value on the right side. As a result, Acer and other OEMs find themselves competing for single-digit margins and facing stagnant growth. The undifferentiated middle simply does not hold much value.

Interestingly, this shift in value from the middle to the ends of the value chain is not limited to the IT manufacturing industry. Traditional publishers are also experiencing a similar phenomenon. The home page, once the primary attraction for readers, is becoming less relevant as more than half of the visitors to The New York Times, and many other publishers, come via mobile devices. When people follow a link on social media or through email, their affinity for the publication hosting the link is uncertain. In fact, any positive feelings are more likely to be attributed to the author of the article.

Over time, as people increasingly rely on platforms like Facebook, Google, and Twitter for their news consumption, value moves to the ends of the publishing industry, leaving traditional publishers stuck in the middle. The New York Times, the epitome of a prestigious publisher, is worth a mere $2.03 billion, reflecting the challenges faced by publishers in this new landscape.

One of the key challenges for publishers is the fact that the free distribution provided by the internet is not exclusive. Every other publisher has access to the same distribution channels. Publishers no longer have an exclusive on anything. This has led to a realization that publishers provide little value to their writers. As a result, successful writers and publications are pursuing strategies that allow them to accrue outsized value relative to publishers that are struggling to adapt.

The internet has played a significant role in removing friction from various industries. By doing so, it eliminates the need for intermediaries and allows value to flow to the edges. This is evident in the publishing industry, where aggregators like Facebook, Google, and Twitter capture value on one side, while focused, responsive, and differentiated writers and publications capture value on the other side.

So, what can traditional publishers do to navigate this shifting landscape and find success in the age of the internet? Here are three actionable pieces of advice:

1. Embrace the Power of Differentiation: To stand out in a crowded market, publishers must find ways to differentiate themselves from the competition. This could involve focusing on niche topics or providing unique perspectives that cater to specific audience segments. By offering something that sets them apart, publishers can attract readers who are looking for specialized content and are more likely to develop an affinity for their publication.

2. Leverage Technology and Data: Technology and data can be powerful tools for publishers to understand their audience better and deliver personalized experiences. By analyzing reader behavior and preferences, publishers can tailor their content and offerings to meet the specific needs and interests of their audience. This can lead to increased engagement, loyalty, and ultimately, value.

3. Explore New Business Models: As the traditional advertising model continues to decline, publishers need to explore alternative revenue streams. This could involve experimenting with subscription models, partnerships, events, or even diversifying into related industries. By diversifying their revenue sources, publishers can reduce their reliance on advertising and create new opportunities for growth.

In conclusion, the internet has disrupted the publishing industry, shifting value to the edges and leaving traditional publishers struggling to adapt. However, by embracing differentiation, leveraging technology and data, and exploring new business models, publishers can position themselves for success in this evolving landscape. The key is to understand the changing dynamics and proactively adapt to meet the needs of the modern reader.