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Platforms cannibalize industries that feed them

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Digital platforms (the marketplace kind), once they reach a certain size and scale, tend to erode the
 
August 16 · Issue #55 · View online
iAfrikan Daily Brief
Digital platforms (the marketplace kind), once they reach a certain size and scale, tend to erode the value of the very industry that supplies them. - Tefo Mohapi

Earlier this week, a music artist shared with me a letter from a digital music distribution company (DistroKid) that essentially was telling them that they were not allowed to upload their music to digital music stores and music streaming services such as Apple Music and Spotify. What caught my attention is the reason given being “due to editorial discretion.”
Typically, when something like this happens, it is usually related to a non-music artist who uploads sounds or random audio that doesn’t exactly qualify as music. However, in this specific case, it appears that one specific platform (Apple iTunes) had an issue with some of the artist’s artwork.
This is some of Cain MacWitish's songs and albums as they are available Bandcamp. DistroKid and Apple iTunes apparently turned down and removed his music
When I read the letter from DistroKid as well as Cain’s message, it reminded of another digital platform and some of its suppliers who I have heard complain about temporarily or permanently being banned from using it, despite it being their sole source of income, for one arbitrary reason or another.
The letter that DistroKid sent to Cain after he recently uploaded his latest song for distribution across different digital music stores and music streaming platforms.
In this second instance I am speaking specifically about ride hailing services. Many a driver I have spoken to while on a trip will complain about how the platform has changed rules (with no consultation with them, the suppliers). Some times, these are rules that directly affect their income, like how much commission the ride hailing company now takes from their fees, or rules around how long they are allowed to take trips for without being forcibly stopped to take a break until such a time the platform decides is enough. In some cases, based on the stories I’ve heard from drivers, the platform can decide, without much justification or reasons given to the drivers, that they have been suspended for good, all rights reserved.
It is not only that digital (multi-sided) platforms, once they become monopolies or duopolies, can ban and censor whoever they want at will, it is also that they display another quite worrying characteristic over time. They tend to cannibalize their own suppliers after “disrupting” the very industry. To be specific, they seem to erode a lot of the little value that remains in the very industries they operate in. The above two examples and industries are good examples of this as music artists have seen declining revenues from direct music sales especially with the introduction of music streaming. Same with cab drivers, who just like music artists have seen more trips (more songs being streamed) but less income.
A quick glance across industries where multi-sided digital platforms have been disruptive reveals similar trends. Interestingly though, the customers are always happy. I love the convenience and affordability of ride hailing (vs. hiring a personal driver) and having the world’s music catalog at my fingertips whenever I want to listen is quite cool, but I just wonder how long this can be sustained until the platforms literally eat up the supply side.
To understand this and see where this could go, I had to briefly delve into the murky, dark, and somewhat considered unethical and repulsive world on Internet pornography platforms. It didn’t take long to learn that one company, MindGeek (this link has no adult content, just some details on the company), has a huge monopoly on Internet porn traffic, specifically, MindGeek’s free porn streaming sites account for the 3rd largest amount of Internet bandwidth behind Google and Netflix. The question though, in the bid to understand the effects of digital platforms, is how did they achieve such dominance and at whose expense? Secondly, does MindGeek produce any movies or like other Internet platforms it is just a multi-sided platform?
MindGeek is one of the largest digital tech companies in the world that you will hardly hear about.
As I suspected, MindGeek merely owns some of the world’s most popular (by traffic volumes) free porn streaming sites such as Pornhub, RedTube, Brazzers, et al. More interestingly, the majority (by some research it’s apparently over 80%) of content on MindGeek related websites is not their content but rather content that has been pirated and illegally uploaded from other studios, i.e. they don’t hold any copyright to the videos. As a result, what has happened, to cut a long story short, is that many adult film studios have completely shut down because it is near impossible to make money from the videos they make. As such, in some cases, MindGeek, through some of its companies and thanks to its monopoly, has entered the adult film production side and is able to get talent on the cheap because after all, they control the majority of the distribution and are the monopoly.
The case of Internet porn presents a rather unlikely cautionary tale of the trajectory of some of our favourite digital platforms.
You don’t believe this?
The hints are there; Apple Music and Spotify have already started offering artists’ deals and even looking into music production. Ride hailing? Some of the ride hailing companies have started investing in and exploring self-driving cars.
Is this trajectory right or wrong? Is it ethical?
I don’t know, you decide but I do know it is important that we, in Africa, a continent with high unemployment, pay close attention to the long term effects of some of the solutions (e.g. gig economy) that are being punted as solving the unemployment problem.
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Read This Book
Clayton M. Christensen, the author of such business classics such as The Innovator’s Dilemma and the New York Times bestseller How Will You Measure Your Life, and co-authors Efosa Ojomo and Karen Dillon reveal why so many investments in economic development fail to generate sustainable prosperity. In their book, The Properity Paradox, they offer a groundbreaking solution for true and lasting change.
Global poverty is one of the world’s most vexing problems. For decades, we’ve assumed smart, well-intentioned people will eventually be able to change the economic trajectory of poor countries. From education to healthcare, infrastructure to eradicating corruption, too many solutions rely on trial and error. Essentially, the plan is often to identify areas that need help, flood them with resources, and hope to see change over time.
Hope is not an effective strategy.
Hope is not an effective strategy.
The authors reveal a paradox at the heart of our approach to solving poverty. While noble, our current solutions are not producing consistent results, and in some cases, have exacerbated the problem. At least twenty countries that have received billions of dollars’ worth of aid are poorer now.
Applying the rigorous and theory-driven analysis he is known for, Christensen suggests a better way. The right kind of innovation not only builds companies—but also builds countries. The Prosperity Paradox Identifies the limits of common economic development models, which tend to be top-down efforts, and offers a new framework for economic growth based on entrepreneurship and market-creating innovation. Christensen, Ojomo, and Dillon use successful examples from America’s own economic development, including Ford, Eastman Kodak, and Singer Sewing Machines, and shows how similar models have worked in other regions such as Japan, South Korea, Nigeria, Rwanda, India, Argentina, and Mexico.
One example that the authors cite is Tolaram Group, a Singapore-based conglomerate that created the instant-noodle market in Nigeria, pushing out 4.5 billion packets annually and generating revenue of almost $1 billion a year. Sourcing, manufacturing, distributing and selling its Indomie-branded noodles required that Tolaram invest in a broad and deep logistics and distribution chain; create a retail network; develop specialized training; acquire its own electricity generation; build a water and sewage-treatment plant; and construct a deep-water port in the city of Lekki. Had Tolaram waited for the Nigerian government to address these infrastructure and institutional challenges before investing in the country, the company would still be waiting.
Other examples include British businessman Mo Ibrahim’s pan-African Celtel, which built a cell phone network across 13 African countries and gained 5.2 million customers in six years, and India’s Narayana Health, which has brought the cost of open-heart surgery down to $1,000.
The ideas in this book will help companies desperate for real, long-term growth see actual, sustainable progress where they’ve failed before. But The Prosperity Paradox is more than a business book; it is a call to action for anyone who wants a fresh take for making the world a better and more prosperous place.
The Prosperity Paradox
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