There was an exceptional article in The New York Times about 2 weeks ago that likened Apple’s iPad to America’s interstate highway system. In it, the author quoted Michael Cusumano, professor at the Sloan School of Management at M.I.T., saying “Apple has hit that magical combination of gradually shifting from a product to a platform strategy.”
Mr. Cusumano made a brilliant observation, as shared by Times author Steve Lohr: “Successful platforms aren’t confined to the technology industry. America’s interstate highway system, built by the government, could also be seen as platform. The more that people traveled it, the more opportunity it created for businesses and towns linked to its transportation network.”
In this analogy Apple is the Interstate system, or platform, of course. Content providers like Condé Nast, Hearst, and Time Inc are the small shops setting up for business along the roadside. Their viability as successful companies depends on the health and welfare of the system itself. Whoever brings the buyer is in control. In this model the buyers come because they’re driving on the highway and the publishers happen to be there, plying their wares.
Apple announced this week that it is going to allow subscriptions for publishers, which had been a tremendous point of contention for months. Subscriptions are crucial in the publishing business. From my days in magazines, I recall that the formula was about $35 per reader to acquire the reader. Why would any publisher invest that kind of money to acquire one reader, often paying less than $20, through multiple tiers of direct mail solicitations?
Well, it’s true. They lost money in year one of the subscription, but when that reader renewed, they usually did so for the cost of one renewal offer, or less than 50 cents in a direct marketing campaign. The second year subscription was still $19.95, however. That renewal was the way that publishers began to build a profit line with their customers. It was all about the relationship. Subscribers that canceled after one year (sometimes leaving in arrears) were the worst possible result.
Price of the app was another issue. Publishers were not giving up 30% of the price of the app back to Apple — which could be a deal breaker to begin with, depending on the cost of developing desirable content — but the price of the single edition app was turning away customers who could purchase the print product for the same price or for even less, in some cases.
Perhaps most importantly, Apple has not been sharing the ever-golden customer data with its publishing partners. This too, is often a tertiary revenue stream for publishers as they rent their lists out for a premium in some cases, or as they analyze and apply insightful tactics to the information gleaned in those volumes of reader demographics.
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As the online content model continues to develop, there’s been a bit of a dance between the channel operators (think: Apple, Kindle, Nook, Android based devices, etc.) and the publishers.
In my last post, I shared an analogy that was made about contributors of free content to websites like The Huffington Post or Tumblr, who were not really in control of their destinies. I mean, are we really building our own brands on these and other social media sites? Among Bloggers and journalists, there was a small uprising resembling the start of the revolt in Cairo, who suddenly realized that AOL paid $315 million for The Huffington Post, which is an aggregation of contributed content that is executed mostly for free. It’s as if we all chose to work, grow and cultivate small organic farms or at least our own small patches of garden — on somebody else’s land.
Apple’s announcement to allow subscriptions has not endeared publishers to the company. The terms are one-sided and the plan continues to retain all customer information in Apple’s data centers. Most publishers are now hoping for more platforms to emerge to aggressively compete with Apple, which may work to even the playing field for content providers.
At the end of the day, Apple has the leverage and is in control of the customer relationship. It’s Apple’s product, after all, that serves as the channel. Steve Jobs was quoted as saying, “Our philosophy is simple — when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.”
Spoken exactly like the man who is behind the wheel and driving the bus.
This entry was posted on Wednesday, February 16th, 2011 at 8:13 pm and is filed under Business, Media, Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.