Niche Niche Niche is The New Location Location Location

Ben Thompson is on a roll this past week writing about the ‘aggregators’ and ‘niches’.

Long story short…the future of publishing is niche, the only way to build a thriving business in a space dominated by an Aggregator is to go around them, and the outsized returns will continue to go to the ‘aggregators’ (Netflix, Google, Apple, Facebook, Amazon).

Longer story…

Ben’s Buzzfeed Lesson‘ is a must read. Ben really nails it here:

Avoiding Aggregators

While I know a lot of journalists disagree, I don’t think Facebook or Google did anything untoward: what happened to publishers was that the Internet made their business models — both print advertising and digital advertising — fundamentally unviable. That Facebook and Google picked up the resultant revenue was effect, not cause. To that end, to the extent there is concern about how dominant these companies are, even the most extreme remedies (like breakups) would not change the fact that publishers face infinite competition and have uncompetitive advertising offerings.

What is clear, though, is that the only way to build a thriving business in a space dominated by an Aggregator is to go around them, not to work with them. In the case of publishers, that means subscriptions, or finding ways to monetize, like the Ringer, beyond text. For web properties it means building destination sites that are not completely reliant on Google. For manufacturers it means building relationships with retailers other than Amazon and building brands that compel customers to go elsewhere. And for digital content providers…well, this is why I view Apple’s policies as the most egregious of all.

In a follow up to the Buzzfeed piece Ben added this today:

The Future is Niche

This is a point I have thought a lot about when it comes to my belief in the power of niches: the reality is that because of zero distribution costs there will only ever be a few winners in any one niche — power laws rule the day. By extension, when it comes to publications, trying to do the same thing as everyone else — which was basically the newspaper approach, in a world gated by geography — is a recipe for failure for anyone but the best. On the flipside, though, the ability to reach the entire world means that there are massively more niches that can be served, simply because the addressable market is so much larger.

To put it another way, success used to come from being broad-based with a geographic monopoly; the content of the vast majority of newspapers was largely duplicative (as the success of the wire services proved). On the Internet, though, success comes from being narrow while reaching the whole world. It is the exact opposite.

To that end, BuzzFeed’s struggles ought not be taken as an indication that journalism on the Internet is doomed: broad-based general interest publications without an established brand and subscription model like the New York Times are probably not as viable as once hoped, but if anything that fact only accentuates the degree to which narrowly focused publications make more sense than ever.

That leads to one more takeaway: it seems quite clear now that venture capital style funding simply doesn’t make sense for publications. Broad-based publications that are succeeding with new business models like The New York Times had a 150 year head start on building a brand; that’s a time horizon that is a bit longer than most venture capital funds. The more obvious route today is to be more narrow, but that simply doesn’t result in venture level returns.

On the topic of ‘aggregators’ Ben’s post on Netflix titled ‘Netflix Flexes‘ is also a must read.

Note to self…buy every 30 percent Netflix dip.