It was Bill Gates who coined the term, “content is king” back in an article written in 1996. The idea defines where the money comes from on the Internet. Gates wrote:
Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting.
The article is interesting because it Gates struggles with the same issues people struggle with today: what mix of advertising, subscriptions and micro-payments will fund content on the Internet. However, in each case, the question is posed in the form: because content is king, how do we fund it?
A few years ago, I found the alternative position put forward by Andrew Odlyzko in 2001 that “content is not king” to be quite persuasive (and still do). He started with the notion that content is not king for the Internet because the killer app of the Internet was email and that is hardly about selling content. Instead, it is about communication. Odlyzko builds the case that ‘connectivity’ rather than content drives Internet adoption. Indeed, expenditure on communications has always well outpaced expenditure on content (broadly construed). Odlyzko makes the then radical case that funding the network costs of the Internet will not be primarily done by content but by some form of connectivity.
Now one of the implications of the “content is not king” argument is that there is less need to worry about instant access to content. Odlyzko argues that the costs of the network are driven by a desire to handle to peaks in bandwidth use but, in actuality, those peaks should be driven by connectivity rather than content. His idea is that streaming video will prove less economic than downloaded video. You may think that this is premised on the idea that people won’t be impatient. In fact, that isn’t the case. Downloads can occur at a rate faster than consumption (and do for iTunes downloads for example) and so both streaming and downloads can satisfy the impatient. Instead, the difference rests on the costs of local storage versus remote storage. Either way the content will have to be distributed.
This debate continues. In many respects, since Odlyzko wrote the streamers have been winning. YouTube and Netflix are prime examples of that. And not surprisingly, it is that very fact that has raised the spectre of network costs. But at the same time, connectivity has taken off in extremely strong ways. Facebook and Twitter being prime examples. People pay lots for access to these services but they actually are relatively bandwidth friendly.
But right now big bets are being taken precisely on this issue. Apple’s iPad is still premised on local storage. Amazon’s Kindle Fire is premised on remote storage. One has an advantage for downloaded content. The other has an advantage for streamed content. Ironically, these strategic choices guide almost completely the pricing strategies of the two. The iPad makes its money from selling iPads (the apps and content aren’t big earners for Apple) while the Kindle makes money from the content (with Amazon possibly selling the devices at a loss). Amazon’s strategy is premised on content being king and that is what people pay for. Apple’s strategy is not premised on that. And it is really interesting to see how those choices guide both product design (local versus cloud storage) and pricing (device versus content pricing). To be sure, in each case, a pivot is possible and neither has taken an irreversible bet. However, each has ceded a first mover advantage on the alternative option to the other. Expect to see Apple push for tools that emphasise connectivity of users and Amazon to push for content tools in the near future.