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By Thomas Baekdal - July 2015

We Don't Need More Tech Platforms Built Around Scale

It's no secret that I cannot stand VC backed tech companies trying to disrupt the media industry with their inane definition of scale before anything else, and today we saw the perfect example of this.

Scribd, the Netflix of ebooks, told publishers that it would cut the most popular titles because people were reading them too much. And the reason for this insane move? Well, read for yourself:

Dear Publisher

As you know, in starting Scribd, we bore the majority of the risk when establishing a business model that paid publishers the same amount as the retail model for each book read by a Scribd subscriber. Now, nearly two years later, the Scribd catalog has grown from 100,000 titles to more than one million. We're proud of the service we've built and we're constantly working to expand the selection across genres to give our readers the broadest possible list of books for $8.99 per month.

We've grown to a point where we are beginning to adjust the proportion of titles across genres to ensure that we can continue to expand the overall size and variety of our service. We will be making some adjustments, particularly to romance, and as a result, some previously available titles may no longer be available.

We look forward to continuing to grow subscribers, increase overall reading, and increase total publisher payouts in a way that works for everyone over the long term. We of course want to keep as many of your authors and titles on Scribd as we can, so we'd love to discuss our plans and how we can best work with you going forward.

Thank you for your business.

The result of this being that they will cut away the most popular and most read content... to scale faster.

As Smashwords, the indie distributor wrote:

Effective immediately, I estimate 80-90 percent of Smashwords titles will be dropped by Scribd, including nearly all of our most popular romance titles. Books priced at free are safe and will remain in their catalog.

Based on what I've been able to glean, the lower the price and the higher the word count, the better the odds the book will remain. Few books priced $3.99 and above will remain.

So Scribd has removed all the books that are worth reading, keeping those it can publish for free or for very little money.

How insane is that? Name me any business that would decide to drop its most popular products like this.

Would Nike ever do that? No, of course not.

Would H&M ever do that? Not a chance!

Would Ford? No way!

Something is fundamentally wrong with the business model when you decide to cut away what people like the most, so that you can better focus on the mediocrity of the masses instead.

And it's not like Scribd is small either. In January, they raised another round of VC funding, and announced they had reached 80 million uniques. And they have trouble making money? With 80 million uniques? What the frak?

Scribd's CEO also says:

We'll be tweaking our catalog on an ongoing basis, rotating titles in and out, so that romance readers always have something fresh to read.

In other words, once something gets so popular that we have to pay for it, we will replace it with something less popular that we can offer cheaper.

And, he said:

We're working hard to establish more mutually beneficial terms with our publishing partners, so that we can continue to grow our catalog.

Which is, as NiemanLab puts it, "Mutually beneficial" is a nice way of saying "less generous for publishers."

The reason why Scribd is in trouble is obvious. Its business model was moronic from the start. It's based on a fixed income with unfixed payout to publishers. It earns $8.99/month per subscriber, but must pay out to the publisher every time a book is read.

This works well if people don't read that much, but it works terribly when people become loyal readers. It's simple math.

If you earn $10, but have to pay $1 per read... you have to find a way to keep people from reading more than 10 books. And this is exactly what Scribd is now doing, by taking away the popular content.

Just think how moronic that model is. It works against the publishers and against the readers.

Scribd's entire business model is based on creating a reading platform for people who do not really want to read that much at all. And we see this so many times with so many VC backed tech companies. They are focusing on scale at the expense of everything that makes that scale worth something.

We need to stop this madness.

We don't need tech platforms that encourage mediocrity and disloyal consumer behavior. We need the exact opposite of that. We need tech platforms that encourage value and lust for 'the good stuff'.

But the problem is that the good stuff doesn't scale. Value doesn't scale.

This is why when you go to sites like BuzzFeed that you will find that most of their articles are low-end mediocre types of articles. Those articles are very easy to make, at a very low price, and they scale well.

But valuable content doesn't work this way. Valuable content is defined around an entirely different type of reader behavior.

Can we create a business model that does work? Sure we can. We have been doing that for hundreds of years.

Take Audible, which works brilliantly. At Audible, you become a member by choosing how active you are. The more active you are, the higher the price, but you also get a discount for your loyalty.

Scribd could do something similar.

It's all about defining your business model around the lifetime value of your customers. What many of these tech startups are doing is that they are fixing the lifetime value to a single amount, regardless of how loyal you are. This means that they are forced to keep costs low at all times to optimize for the lack of growth in value.

Think about it like this:

Over at Ford, you can find this line-up of cars (among others)

Why is Ford offering more than one version of its cars? The answer is obvious. They want to offer choices based on how loyal and interested you are, and the more you would like to have. Many people might simply choose to buy the SE version, but what makes it valuable is that you have the ability to do more.

Now imagine if Ford went out and said:

We have looked at our numbers, and decided to offer a new price for all our cars. From now on, all our cars will be sold at the same fixed price of $19,000.

What would happen?

Obviously, everyone would stop buying the S Sedan, because why buy a car that is only worth $17,170 if you are paying $19,000? Same with the SE models.

Instead, everyone would suddenly start buying either the maxed out Titanium models, the ST, or electric versions... or likely the Mustang GT Premium Fastback model. If you only have to pay $19,000, why not get the best?

But, of course, this isn't sustainable for Ford. They can't keep selling cars that used to costs $20,000+ for a fixed price of $19,000. It just doesn't work. Something has to be done. And they do.

They go out and say:

We're so proud that we've attracted such a passionate, voracious audience of drivers. We've grown to a point where we are beginning to adjust the proportion of models to ensure that we can continue to expand the overall size of our service. We will be making some adjustments and, as a result, some previously available models may no longer be available.

As such, we will reduce our model lineup to these:

And just like that, Ford lost its own future. They have lost all that made Ford worth caring about. They lost all their loyal drivers. And they lost all their uniqueness and distinction.

Sure, people loved it when Ford started offering all the cars at a much lower fixed price, but that was only because they could get something better for a lower price. If you take away what made it better, you end up with mediocrity.

You end up with nothing.

This is what has happened to Scribd. Instead of realizing that their business model is wrong, they are so blindly focusing on scale that they discarded all the things that made it worth using, at the expense of the authors.

We see this problem with so many of the tech startups. They are all based on the concept of optimizing the cost at the expense of individual value, all in the name of building scale as quickly as possible.

But, in doing so, they are forgetting that this value doesn't come from offering a fixed price for as wide an offering as possible. Value comes from the special items. The books that stand out from the rest. The products that are worth more than others. And the brands that know how to focus and put in the effort to make it worthwhile to use.

If your platform is designed so that those types of products can't stand out from the rest, you have failed.

I don't care how much scale Scribd is able to produce with mediocrity. I don't care how many other lower-quality products that Scribd may have to offer. I don't care that it has grown so many percent since launch, or that it has raised another round of VC funding.

The very concept of what Scribd is doing is fundamentally broken, just like with so many other tech platforms.

Stop focusing on scale at the expense of value. It's a terrible model for everyone involved, but especially for the creators who are sucked into it.

Scribd's CEO said:

With over 80 million users in nearly every country, the Scribd team is well positioned to grow to a massive global audience.

No!

You already have a massive global audience. You have 80 million uniques! Get off the scale train, and start turning those 80 million into a sustainable business. Imagine any retail chain saying that they have an audience of 80 million, but they still can't make money?

This is insane!

Stop focusing on scale, and start transforming your audience into something that creates actual value!

 
 
 

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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé

 

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