I like audience builders as platform. They have interesting complexities and variations. They are more interesting than marketplaces and payment platforms. Plus, audience builder platforms are combining with e-commerce quite nicely.
Spotify, TikTok, and China Literature are all audience builders I like. But they are really different, even though they all basically connect content creators with viewers. Of these, I think people know Spotify and TikTok. But China Literature probably not.
An Introduction to Tencent’s China Literature Ltd.
China Literature Ltd. went public in Hong Kong in 2017 with the kind of numbers that investors love (and that make me suspicious).
- Rapid revenue growth. From 0.47B RMB in 2014 to 4.1B in 2017.
- Gross profit of 50% and operating profit of 12.5%.
- MAU of 191M viewers interacting with 6.9M writers covering 200 genres of literature.
The main idea of the business was to connect professional and amateur writers with readers. So kind of like YouTube for literature at first glance. But with a couple of important differences.
- It uses a freemium business model where most of the content is free but you pay for more services and access. About 6% of users are subscribers. Most of the monetization is advertising on free content.
- It has a strategic partnership with Tencent which gets the company access to readers at very low customer acquisition costs (and other benefits).
- It has an increasing content library that the company can monetize through content adaptation partners. They can use their IP to create movies, tv shows, comics, music, and gaming. As of 2017, the company had 9.7M original literary works and 200 content adaption partners.
And this basically gets you the below chart for this business model.
Note there is the typical interaction between content creators and viewers in an audience-builder platform. And most of the content is more serious user generated content. It is not by media companies and publishing houses like on Spotify. But it is also not by amateurs making short videos like TikTok. The content is books and short stories by serious writers.
The value to the readers on China Literature is compelling. A reader gets:
- A huge library of literature, covering hundreds of genres and millions of writers. And this likely includes their favorite writers.
- They can interact directly with they favorite writers – and with other readers. You can hear what they are working on. Do Q&As.
- The site is personalized to the reader.
- It is mostly free.
But I think the pitch to writers is actually more compelling. A writer gets:
- Access to a massive audience of hundreds of millions of people. This is why I call these platforms audience-builders.
- The ability to interact and actually build relationships with their fans.
- The ability to monetize through sales and through content adaptation partners.
- Other types of support from the site, which actively recruits, supports and markets authors.
On the graphic, note the interactions between Content Adaptation Partners and Content Creators. It’s a small marketplace.
And finally, note how viewers use content to engage social media their social connections.
Overall, it is a really compelling business model for literature.
But how is this different than Spotify and TikTok? Ask 6 questions.
Question 1: Is the network effect local, national / regional or international?
Audience builders have obvious network effects. The more viewers (or listeners) on the platform, the more valuable it is to content creators who want an audience and maybe monetization. And the more content on a platform, the more valuable it is to viewers (or listeners). So it’s a two-sided (also called an indirect) network effect.
But do TikTok viewers in the US like to watch short videos made in China? And do Chinese viewers like to watch Indonesia short videos? Is the value to viewers limited to short videos made by regional content creators?
And the answer is yes.
TikTok / Douyin is mostly a national or regional network effect. Videos from outside the region don’t add value to that region.
The case with China Literature is different. The value of literature tends to be based on language. The English speaking world reads books written in English, regardless of where they are from. And Chinese like books written in Chinese. The network effect is mostly limited by the language. Although, some really popular books (say Harry Potter) get translated and go international.
And then there is Spotify, with music being the universal language. It turns out music is pretty much international and the network effect is both global and local. Some music is definitely local, like Arabic music. Some is international, like the Beatles.
Not all network effects are equal. Some are strong. Some are weak. Some are international. Some are regional or local.
Question 2: Is the supply fragmented or consolidated?
Platforms are usually more powerful in fragmented, inefficient markets (i.e., markets with large coordination / transaction costs). So marketplace platforms are great when you have tons of small and niche merchants and brands. Think a downtown bazaar or marketplace. In theory, this should be true for content creators as well. You want an audience builder where the content is being produced by millions of users, writers, musicians, vloggers and so on.
And this is one of Spotify’s big problems. It turns out a handful of companies control most of the popular music rights in the world. And consumers don’t really want to hear lots of user generated music by random people. They want the popular songs by the popular artists. So this market is largely consolidated to 6-10 companies and that changes the dynamics of the platform.
So is Spotify even a multi-sided platform? Maybe it’s just mostly a streaming service? This is why Spotify is going for podcasts.
TikTok is the strongest in this regard. Short videos are totally democratic as a form of content. It is a completely fragmented market.
China Literature is in the middle. Consumers want the popular writers, but will also read UGC.
Question 3: Is the supply standardized or differentiated?
Platforms are also more powerful when the viewer / consumer cares about one type of content versus another. When the supply is more differentiated. If the content, product or service is a commodity (like a ride on Uber or a flight on Expedia), consumers mostly care about price. And the platform is much less robust.
And this is where Spotify has some real strengths. People really don’t want to just listen to just any songs. It’s not a commodity. They want very specific musicians that they personally like. It is highly differentiated. And China Literature is somewhat the same. Writing is specific to the writer or his / her characters. Although sometimes readers will just read anything within a genre, like comedy or horror.
This is a problem for TikTok because most of their content is like a commodity. Sometimes people just want to watch comedy so any funny video will do. Sometimes they just want mindless entertainment so any random dancing and silly videos will do. Viewers don’t really care about one particular content creator versus another. But they do have a good long-tail of content so they can be hyper personalized.
Netflix is actually an interesting example of this. Have you ever noticed that like 10% of Netflix is content you want to see specifically (Avengers, Narcos, etc.) but the other 90% is just mediocre content to turn on and veg out to mindlessly? It’s like 10% differentiated content and 90% commodity. This is why YouTube and TikTok are more powerful than Netflix. They all have mindless, commodity content but the marketplaces have a big long tail.
Question 4: Does the platform turn users into marketing or sales agents?
This is a super important lever for these businesses. Do viewers share the content a lot? Via social media? Via word of mouth?
Pinterest, Instagram and TikTok all get tons of shares on social media. It’s about the type of content. In contrast, pretty much nobody shares podcasts. And articles (like this one) are in the middle. But if you can get your viewers to share the content, they effectively become marketing agents for the platform.
For audience builder platforms, this tends to be particularly powerful on the content creator side (the other user group). Content creators want to have their work seen, so they share it widely. They try and get people to come to the platform to view their videos and articles. Content creators can be an unpaid marketing army for a platform.
An even more powerful form of this is when the users start becoming sales agents. This is what live streaming is about. Not only are the live streamers on Taobao Live creating content, they are actively selling during their broadcasts. They are not just generating traffic for the platform as marketing agents, they are generating revenue as sales agents. Pinduoduo and Groupon are good examples of what happens when users become the sales agents for the platform.
Question 5: Are there linked businesses?
How much does China Literature’s relationship with Tencent help the platform?
Huge. It’s really important.
Tencent can shift users and daily activity from their services over to China Literature. The platform can get users, marketing capabilities, technology and capital. Compare that to Spotify, which is a stand-alone company.
Traditional conglomerates have lots of trade-offs in the physical world (increased bureaucracy and decreased focus are problems). But digital conglomerates seem to work quite well. In an increasingly connected world, how many other companies and services you connect to matters.
This is why I don’t like Spotify nearly as much as the other two. Western digital giants like Spotify tend to stay stand-alone companies. Chinese companies form conglomerates like Tencent, Alibaba and Baidu. It’s a real strength.
Final Question: How emotional vs. needed is the content?
The best type of content is the kind that customers absolutely need. An example is how hedge funds, banks and hospitals always need to buy content about regulatory updates. It’s just required. But we don’t really see this in audience builder platforms. Most all of the content is about entertainment, not needs.
So the question is usually how emotional are the consumers about this type of content? How much do they care? Do they love it or just like it?
And this is where I tend to like China Literature. People really, really like the authors they like. They like their characters. They read everything a favorite author writes. They follow them for years, if not decades. That is a huge difference with TikTok, which has nice, funny content but no deep emotional connection. This is the difference between having fans and having a tribe of devoted, loyal followers.
So the point is, you have to take apart these audience builder platforms at the detail level. It turns out they are very different creatures, with lots of strengths and weaknesses. Even though they have roughly the same business model.
That’s it for today. Cheers, jeff
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From the Concept Library, concepts for this article are:
- Audience Builder Platform
From the Company Library, companies for this article are:
- China Literature
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
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