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There Are Only Two Parts Of The Content Value Chain You Cannot Remove

There are only two parts of the content value chain you cannot remove: the content creator and content consumer.

This post originally appeared on Point Line Square on January 2, 2012.

There are only two parts of the content value chain you cannot remove:  the content creator and content consumer.  That’s a paraphrase of an unknown journalist from the June 5, 2008 issue of the Economist who said:

“Publishing has only two indispensable participants:  authors and readers.  As with music, any technology that brings these two groups closer makes the whole industry more efficient– but hurts those who benefit from the distance between them.”

So if you want to play in the space between, you need to provide some value in reducing one or more of the following four barriers:

  • Existence.  How difficult is it to actually create the product?  Am I coding in assembly or can I just use Flash?
  • Discovery.  How does a consumer find out about the product?  Banner ads, google keywords or the social graph?
  • Delivery.  How does the consumer get the product?  Do I have to drive down to the mall or can I just download it?
  • Commercialization.  How does the content creator monetize the product?  Do I have to pay $20 or can I try it for free and pay for stuff in smaller chunks later?

We use talent and money to overcome these barriers.  In recent years, there’s been a tremendous decline across the board in all of them.  Modern development tools and increased hardware power have put a huge dent in the existence barrier.  Delivery friction is virtually zero given modern bandwidth costs.   Commercialization is almost plug-n-play.  Even discovery has been dramatically improved with the advent of Facebook’s viral channels.

As these barriers drop, a number of interesting things happen:

  • Lower barriers mean lower capital requirements to bring a product to fruition.
  • Lower capital requirements mean the volume of product that makes it over these hurdles increases substantially.
  • More product means more competition, driving down prices.
  • More product also means more niche products that address previously underserved interests.  These products can charge a premium over mainstream content.
  • The closer these value chain barriers get to zero, the more they commoditize and become hyper-efficient.
  • The more they commoditize, the more the costs start to backload, further reducing capital requirements for the content creator.
  • As capital requirements drop, the sources of capital change and their influence over the content creation process falls.

There’s a bit of a feedback loop here.  If more products make it over the transom the discovery barrier goes up, for example.  And when a company has an effective monopoly over one solution (e.g. Facebook’s discovery advantage) they can intentionally raise barriers in other parts of the value chain, so long as the net gain is still positive for content creators.

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