#49 - Digital Kingmaking
How tech giants help influence winners and losers
Concentration is a hallmark of the internet economy. By deciding where to route traffic or what content to recommend, a small number of companies like Google and Netflix have the ability to play digital kingmaker. The decisions these companies make increasingly influence everything from the way we spend our leisure time to the viability of business models.
King (of the Apps) for a Day
App stores provide an example of digital kingmaking. There are roughly 1.8 million apps in the iOS app store, making discovery a challenge. To help consumers sift through this deluge, Apple provides a rotating selection of curated apps and games. For instance, Curio, an app that provides long-form journalism in audio, was recently featured as the app of the day.
Source: iOS App Store
Being featured provides a material boost to app developers. Apps and games featured in the iOS app store see downloads increase roughly 7x and 8x respectively in the featured week compared to the prior week, according to data analytics firm Sensor Tower. Being featured in the Google Play Store has a similar impact.
Source: Sensor Tower, iOS 11’s App Store Increases Downloads of Featured Apps up to 800%, April 20, 2018.
Deciding which apps to feature gives Apple and Google the ability to boost developers as well as their own products, like Apple Arcade. While the criteria for determining what apps are featured aren’t public knowledge, iOS exclusivity and utilizing Apple’s most recent hardware capabilities give apps a slight advantage.
Control the menu, control the choices.
Source: iOS App Store
Digital Toll Roads
Google is the dominant search engine in the US by a wide margin. As the star quarterback of web traffic, changes to Google’s algorithm and layout have the potential to make or break businesses.
Over the past decade, the company has been on an unrelenting march to monetize ever larger chunks of its real estate. It has increased the number of ad units shown in desktop and mobile search from two to three to four, introduced ads in Gmail and Google Maps, and launched vertical specific modules in areas like local search and travel. In broad strokes, high visibility areas that were once free are now accessible only through advertising. This is a bonanza for the company’s ad revenue and shareholders, but a growing chorus of businesses on the receiving end of these changes are speaking up about potential abuse of market power.
Vacation rental aggregator HomeToGo recently found itself on the wrong end of this trade. Last year, Google launched a vacation rental booking module, showing pictures and a map of nearby vacation rentals. This module sits below ads and above organic results, effectively decreasing organic visibility for companies like HomeToGo.
Source: Google Search
As a result, the number of people clicking on HomeToGo links fell dramatically. The company saw click-through rates around 8% in search results when the vacation rental module didn’t appear versus roughly 3% when it did, according to data shared with The Wall Street Journal. In general, the lower down a link is in search results, the fewer clicks it’ll get. HomeToGo estimates that its traffic is 20% to 30% lower because of the vacation rental module.
Source: HomeToGo data via The Wall Street Journal, Google Was a Godsend for These Companies. Now It’s a Rival., October 14, 2020.
While it runs an impressive free food program for employees, Google is no charity. We should expect it to erect more digital toll roads in the future. Relying on the largess of another company's algorithm has always been a risky proposition. Just ask Buzzfeed. For businesses like HomeToGo, the best defense is bypassing Google entirely by building a direct relationship with consumers. Easy to say, hard to do.
Cool Cats and Kittens
Netflix manufactures hits. It’s hard to imagine shows like Tiger King or Emily in Paris taking off if they were launched on CBS All Access or Peacock. The company’s ability to do this is underwritten by its recommendation engine and deep pool of content.
Source: Netflix
It’s easy to find something entertaining to watch on Netflix. An incredible amount of technical work has gone into making this happen. The company tracks what you watch, when you watch, when you rewind, fast forward, or pause, and a litany of other data. It manually tags every show and movie from a catalogue of over 20,000 possible micro-genres, including absurd cult comedies from the 1980s and critically-acclaimed dark mid-life crisis movies. Netflix analyzes this and other data to inform decision making around recommendations and green-lighting content.
In 2013, about 75% of viewing came from recommendations. In 2018, this figure increased to 80%. Netflix presents users with a personalized menu of content and most of the time users stick with these choices. Personalization means that there are tens of millions of different versions of Netflix. The company has over 180 million subscribers, and each is bucketed into various taste groups which determine what genres and shows are recommended, the order they’re recommended in, and even what thumbnail images are displayed.
Source: Josefina Blattmann, Netflix: Binging on the Algorithm, August 2, 2018.
The amount of time spent online continues to grow while online activity is increasingly dominated by platforms like Facebook and Google. The decisions these companies make influence the information we see, how we spend our leisure time, the success or failure of businesses, and a host of other factors. Some of these decisions are obvious, others are not. The ability to manufacture hits is certainty beneficial for companies. The broader economic and societal implications are less clear.
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