The concept of the value chain was first devised by strategy guru professor Michael Porter in his 1985 book “Competitive Advantage”. It has probably served millions of business managers to understand and design their business processes.
But given it was invented with traditional businesses in mind, the question is whether it is still relevant in our times? Can we use it for our endeavours to create digital business models and create apps?
My answer is a clear yes! We will use Apple News as our example and see how this tool can provide great value to us.
- The Value Chain
- Aggregator apps
- Apple News: Monetisation
- Value Chain example: Apple News+
- Step 1: Creation of articles & managing “suppliers”
- Step 2: Content sourcing
- Step 3: Content distribution & presentation
- Step 4: Generate traffic and engagement
- Step 5: Service to users, publishers, advertisers
- Value creation
The Value Chain
The value chain describes a set (and sequence) of activities that are performed to deliver valuable products/services to a market of consumers/users.
The value chain distinguishes between primary activities (the actual chain) and supporting activities (the ones on the side). Many businesses are centred around an app. And the value chain tool can well be used to describe the value creation process of the app and the activities involved.
It’s important to note that value chains are to be applied on business unit level (not corporate level). With this, you can create several value chains for your business / app. As an example, you could create a value chain from the perspective of developing the News app and it would look different to the one you see here.
In this article, I am focussing on the activities that Apple News needs to carry out continuously (either daily or at least regularly) for News to create value for their subscribers.
I do this because as innovators we may be more prone to forget (or at least underestimate) the ongoing efforts required to make our ideas, businesses and apps create value and ultimately succeed.
The business model canvas
I have used the business model canvas extensively on my blog pages. The value chain can be a useful tool to further structure the key activities section in the canvas.
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Aggregator-type apps are very popular and exist across many goods, services and industries. You can aggregate almost anything.
Today, we are looking at Apple News which is one of the largest aggregators of professionally created regular content (news articles, magazines).
A large majority of the value creation actions are executed by algorithms. But Apple News is a great example of adding human work to the mix in order to enhance the created value.
Apple News: Monetisation
Before we get started, let’s just have a quick look at the monetisation model:
- Apple News is the freemium version that has some monetisation through ads.
- Apple News+ is a subscription model ($9.95/month in the US). Of this, Apple keeps 50% and the remaining 50% are distributed among participating publishers based on the engagement they create.
- If users subscribe to any of the publishers through Apple News, Apple takes 30% of year 1 subscription revenues and 15% in subsequent years.
- Ads: Apple News placed ads (publisher keeps 70% of ad revenue).
- Ads: Ads placed through the publisher (publisher keeps 100% of ad revenue).
Apple News has 125m DAU (daily active users) as of May 2020 and they are using their clout to achieve favourable terms with their “vendors” (publishers). The Verge was very sceptical at first then came around a bit saying “it could have been worse”.
Apart from the financial terms, Apple also does not share any subscriber data with the publisher, not even their email addresses. We know this from most platform businesses that they keep a hold on the customer relationship (and data).
Value Chain example: Apple News+
(1) Creation of articles & managing “suppliers”
The whole point of being a news aggregator is that content creation is done by news companies. But that does not mean we can ignore this process step.
Our initial thought would be that News will have its automated crawlers that add news articles to its repository from which to present to users.
But this is not quite the case, especially not for Apple News (as opposed to many other news aggregators).
The reality - esp for Apple News+ (note the Plus) - sits somewhere in between a traditional supplier relationship and an automated crawler that “goes around” and algorithmically adds existing articles to a repository and from there to respective user feeds.
Here is how this process step really works:
- Apple News selects publishers from whom they source publications (news articles, magazine articles, etc).
- For News+, Apple has clear contracts with detailed terms and conditions that both sides need to agree to.
- Not all publishers join News+. The times of content harvesting without consent are (slowly) coming to an end which is important for many aggregators to realise. And with that, the content of those not joining is simply not available on News.
- Notably, the New York Times (NYT) has not joined News+ and recently even completely removed their articles from News (the freemium offering). NYT is the largest daily news publication in the US (by subscribers).
- On the opposite end, there are magazines which are available cover-to-cover on through Apple News+.
- Most others sit somewhere in-between.
- The Wall Street Journal, for example, allows only the use of general-topic articles and to some extent seems to create news just for Apple News+ thereby protecting their own subscription offering (which costs >$350 per annum).
- Other publishers may allow News to select from certain articles.
- It’s important to note that Apple News can’t just cherry pick any article they want from publishers that have joined.
- On the opposite end, it is also clear that not any publisher can join at will. The News editors will decide which they take into consideration. Smaller and fringe players will have a hard time joining. Even Google News has recently gone over to not open their News platform to any and every news-type site.
We may now think that this is a one-off process step that does not play a further role in the daily operations. So why do we list it in the primary activities and not supporting activities?
There is discretion in how you create your value chain and you can add this to the secondary tasks if you prefer (I wanted you to know about the “supplier”/partner joining process).
But it is also very important to note that there is an ongoing component in managing the “suppliers”. No platform business model can stay static on its input side.
- Apple News needs to monitor which types of content are popular and adjust. This also includes monitoring internal data as well as industry trends.
- News is constantly reviewing this and adding new publishers. A recent focus area was local news as we will see shortly. This also includes managing undesired / poor quality content and publishers.
- The other reason is that content aggregation platforms increasingly share responsibility for the content that is distributed through their platform (even if not created by them).
- As with any supplier relationship, taking supplier-created products/services and passing them onto the end-user always comes with some responsibility. In the user’s mind the content will reflect on Apple News even if not created by them. This requires constant monitoring and occasional action.
These steps may not be executed daily but they surely will be done regularly and will add to the value creation in terms of identifying valuable content publishers and adding them to the offering and keeping nuisance out.
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(2) Content sourcing
We always have the thought that aggregators are 100% algorithm-driven and the algorithm fine tuned over time. And while it’s almost true, Apple News+ is a great example of human involvement in this process:
- Apple News has human-curation when it comes to Top Stories, Spotlight, and other collections. The selection of stories changes a number of times daily (part of their editorial team works in other timezones than the US).
- Apple News has expanded human-curation even to local news (in select cities only).
- Facebook went the other way. Their human editors choosing “trending topics” were replaced by humans after some havoc around alleged (politically) biased curation.
- The increasing responsibility of aggregators for the content distributed through their platforms involves additional work. I have explained some of the impacts in previous articles (here for Twitter, here Facebook and in far more detail in my premium resources).
- One should not underestimate this. Facebook stated to have 30,000 employees working on this (of course, not just news content but covering basically all content on their platform).
- On a broader note, the content they source and present (or don't), creates positive or negative network effects. Network effects are the most important ingredient for platform businesses.
- Another sourcing task pertains to ads (also mostly automated as explained in my premium resources). Apple News allows a combination of ads sourced by themselves but also by the content creator.
Local news have gained more importance and it has been the area where Apple News has added more publishers and content.
(3) Content distribution & presentation
The sourcing step builds a repository of publications to draw from. Now, the content needs to be presented.
- The presentation is mostly automated In Apple News, users can select favourite topics, news outlets, etc.
- Presentation in user feeds is a crucial part of aggregator apps. Some apps make a great point in presenting beautiful ways. But in the long run, it is more important to present relevant content for the right user. Too much irrelevant content will get users off the app. Different apps use different complex algorithms which are informed by captured user data as well as selected preferences.
- One fascinating aspect of Apple News is that these algorithms are on the client-side (i.e. on-device) and not server/cloud-side by default (though users can allow cloud-side AI data capture). Apple is one of the leading privacy advocates among large tech players. They are risking slightly less relevance for the sake of privacy (my personal experience is that they are doing a far better job than others in presenting relevant content).
- Apple says: “We never share it with others or allow advertisers to track you.” this also ties to the feedback of publishers which state that advertising dollars from Apple News are typically a fraction of what they can achieve on their own properties (website / app)
This is another process step where Apple is adding more human intervention as many other aggregator platforms:
- Human-curated featured stories are displayed in more prominent spots and get more clicks accordingly.
- What’s more: they have human hosts who provide an audio briefing to the day’s top headlines (weekdays only as of this writing), called “Apple News Today” (also available as a podcast).
- They further create ~20 audio stories a week from across various publishers in long-form narrated by professional voice actors.
- Audio briefings / stories are targeting people on the go, in particular people commuting to/from work in their car. This can be an essential part of people’s habits which is a crucial way of keeping traffic coming back and reducing churn.
Again, Facebook decided to go a different path:
Facebook has started to “separate social from media”. They have found that users value time spent on content from people they know more highly (“time well spent”). Some news outlets have reported that their traffic from Facebook has reduced. Slate has reported it to have crashed by almost 90% in 2018 (for their site). I have covered “separation of social from media” in more detail in our premium resources because of its great importance.
(4) Generate traffic and engagement
Traffic is the lifeblood for all platform businesses and apps. Its acquisition is a daily battle that can never be taken for granted.
- Apple preinstalls Apple News on users’ iPhones. Having conquered a huge installed base (the traditional term for iPhone adopters in this case) helps to get considerable usage. But the app needs to convince people for them to come back.
- This task is far more difficult for other aggregators and yet crucial: platform business models connect several participant types with each other. Hence, they need to generate value for all sides. The value that they are generating for publishers is incremental traffic and subscriptions. If they don’t do this sufficiently, publishers will not join (or leave) and network effects never materialise.
- It’s not that publishers love having to share revenue with Apple. But the incremental traffic (if it really is incremental) would justify this (though long-term concerns remain - which is a complex topic in itself).
- The irony is that publishers will join the platform but also compete with it at the same time. For small players, this is difficult.
- Another source of traffic is the sharing function in the aggregator app with deep-links back to the app or direct links to the URL. Apple News has both: links to the URL on the publisher’s page and deep-links to their app.
- Notifications are another important source of traffic. Google News allows people to set up curation on news topics directly mailed into their inbox. Apple News is relatively non-pushy in this respect if that makes sense.
This step also has an ongoing human component:
- Apple News has their own social media accounts of which only their Twitter account seems to be used regularly (but pretty insignificant followership at 300k followers relative to their 128m DAUs). And they are inactive on the other social media platforms.
- This step can be more pertinent for smaller aggregators and in the early days, this step can well be the most involved step. Activities performed for the engagement of users can be seen as primary activities in our value chain. Marketing activities for the purpose of growing the platform can be added to supporting tasks (the latter can include promoting the app on the app stores and other activities, on Apple’s product presentation, etc).
- The separation of social from media on Facebook (Snapchat and potentially on other social platforms) does not help aggregators. In the (distant) past, they used to be able to reach their followers for free. This also explains why Apple News is not using very many social platforms actively.
Generating traffic is necessary but not sufficient. Engagement is important for people to come back. These are some of the most important and challenging tasks for aggregator platforms.
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(5) Service to users, publishers, advertisers
Typically, value chains end with a service component. Some examples are:
- Daily feedback from users which may require responses or other actions.
- Feedback, requests, etc from the publishers’ side.
- General housekeeping activities in relation to the content.
- Data analysis and improvement: while we have said that Apple News collects less data than others from individuals, they still have a ton of data that they can analyse to make improvements to the app or the content, etc.
The main value created by Apple News+ (and similar aggregator platforms) is that users can access a broad variety of publications with one, low-priced, subscription and in one place.
Subscribers can enjoy reading the occasional article from different publishers without having to pay subscription fees to read 1-2 articles every few weeks. Apple promotes the idea that News+ equates to subscriptions adding up to $8,000. It’s not a comparison that holds but it does drive the point home.
This is what Apple says on the Google Play Store: "Apple News brings you the world’s best journalism, all in one place. Trusted sources, curated by editors, and personalized for you. An Apple News+ subscription makes it even better with access to hundreds of premium magazines and leading newspapers."
With so many publications on one platform one of the biggest risks is clutter and attention-seeking clickbait (e.g. sensationalist headlines, etc).
Many of the value chain steps above are to weed out such noise, nuisance, low-quality and low-interest content off the platform so that users can focus on reaping the benefits.
Most of the activities (by transaction volumes) are obviously automated. But I have found that Apple News+ is a great example to further enhance value creation through human-led activities.
All put together, Apple News - like many other aggregator platforms - create value for users. The value chain is a great tool to help you to analyse and design such processes,
I hope this article has added value to your endeavours!