Platforms’ AI Dilemma
The typical segments found in a traditional value chain often include suppliers, distributors, and customers. In the past, companies would try to win the race by capturing the lion’s share of value through vertical integration. For example, transitional newspapers often employ the best journalists, own printing plants, and have exclusive distribution channels to reach customers. This model helps them establish a stronghold regionally and fend off new entrants. Furthermore, by adding horizontal expansion to their strategies, these companies were able to build powerful corporations and enjoy substantial profits.
Then there came platforms and aggregators, the disruptors who focused on creating tremendous value for one specific part of the value chain and monopolised in that area through new technologies, net network effect and superior customer experience. The near-zero distribution cost of the Internet-enabled them to focus on customer accusations. By holding the key to the customers, they had stronger bargaining power over supplies. Take traditional newspapers as an example. Google and Facebook make information distribution fast and free. They attracted users through ‘free’ service and network effects. It enabled them to use free content from publishers in exchange for referral traffic and enjoy a disproportional large slide of advertising revenue. In a sense, they created a new distribution protocol and controlled how services could reach customers. Some also created physical devices as the new distribution channel and built empires in walled-garden. Apple is the most successful one in this category with iPhones.
AI is the current big thing. It is creating issues for platforms and aggregators.
Instead of being a distribution vehicle where suppliers must vie for attention, aggregators suddenly found themselves responsible for the end product - the chatbots (and APIs), a nascent and sometimes unsatisfying one, too. Worse, this wiped out the monopolistic power that gave them a barging advantage over suppliers. For example, news publishers are now suing AI companies for stealing their work, worrying that a chatbot-style search will not bring much traffic to the original suppliers. This is no surprise. Search is a distribution channel for finding information, while the chatbot’s value lies in the knowledge it produces. In other words, the two things have completely different value propositions.
It will be interesting to see how this pans out.