10 Book Review V I D E O A G E March/April 2022 The prominence of digital platforms in the contemporary moment (one instance could be offered by content aggregators) has led to several conclusions that are mistakenly assumed as fact. One example is that these digital platforms are unstoppable, operating on business models that are revolutionary. Another is that they are inherently better than previous models, such as analog ones. This is the groupthink that Jonathan A. Knee sees pervading today and that he diagnoses in his latest book. The Platform Delusion: Who Wins and Who Loses in the Age of Tech Titans (384 pgs., Portfolio, 2021, U.S. $28) is a case study of the biggest tech companies, explaining how they work and their greatest disadvantages. In his book, Knee demystifies the tenets of what he calls “Platform Delusion.” In addition to believing that platforms are revolutionary and superior, the tenets maintain that all platforms boast network effects, the idea that suggests that the value of the platform increases when the number of users increases, which then leads to a winner-take-all market. This logic has, in part, aided themisuse of language around platform business models, and the book dissects the qualities that distinguish great platform businesses from bad ones. As he notes early on, “this new breed of socalled platform companies are sucking all the value, returns, and growth out of the companies that actually do things.” For the last two decades, Knee has worked in both academia and investment banking. In addition to being a professor of Finance and Economics at the Columbia Graduate School of Business, he is a senior advisor at the boutique investment firm Evercore Partners. He is also the author of the books The Accidental Investment Banker: Inside the Decade that Transformed Wall Street and Class Clowns: How the Smartest Investors Lost Billions in Education, as well as the co-author of The Curse of TheMogul:What’sWrong With the World’s Leading Media Companies? His latest book, The Platform Delusion, builds on his extensive work in economics. Knee organizes The Platform Delusion by first laying out a framework to understand platform businesses, defining and exploring concepts of competitive advantage, scale, and network effects in digital environments. Competitive advantage is key in his framework, and it refers to “the structural characteristics that allow a company to do what its rivals cannot.” How platforms are talked about and the mystery around them often leads the platform deluded into ignoring these fundamental concepts in economics. “What is alarming, however,” writes Knee, “is the extent to which the euphoria triggered by the Platform Delusion has led investors to forget that, ultimately, the existence of competitive advantage is what drives the ability of any business, digital or analog, to produce consistently superior results.” In the last two-thirds of the book, Knee then uses this framework to analyze the five FAANG companies (Facebook, Apple Amazon, Netflix, and Google), followed by a study of the businesses falling in their shadow. He focuses on a range of companies, covering business models in travel, big data, e-commerce, and the sharing economy. One of the more relevant takeaways for the television industry is Knee’s discussion on the streaming giant Netflix. He begins by discussing the mantra “content is king,” a phrase that is sometimes used to suggest that “the business of creating compelling content is responsible for a disproportionate share of value,” writes Knee. “This could not be farther from the truth.” “In fact,” Knee continues, “the dirty little secret of the media industry is that content aggregators, not content creators, are the overwhelming source of value creation.” He adds, “It had long been the case that the cash flows generated by the aggregation and distribution businesses of the media conglomerates dwarfed those of their content creation activities, despite the film and television studios’ outsized place in the public imagination.” The platform deluded would argue that Netflix’s competitive advantage in the market is due to its network effects gainedby its algorithmic learning-technology, referring to its utilization of customer data. However, Knee goes on to discredit this theory. In doing so, he also suggests that since Netflix entered the content-creation game, the company’s strategy has declined. “Netflix does not enjoy meaningful network effects and its decision to enter the original content arena is not justified or supported by the imagined ability of artificial intelligence to systematically deliver ‘hits.’ The abandonment of the previously articulated strategy of avoiding creative risk, while justified by the dramatically increased competition in the sector, has made Netflix a worse, not a better, business.” Netflix, by novelty of being one of the first to get into SVoD, made itself a leader in the global content market. However, Knee suggests that the market cannot sustain more than a handful of streamers doing what Netflix does. Other than Disney+ and Amazon’s Prime Video, he notes that “[n]one of the other emerging competitors seem to have the combination of skills, resources, or commitment required to become a long-term global Netflix competitor.” With The PlatformDelusion, Knee has deepened the conversation around digital platforms, calling for greater scrutiny of the mythmaking behind them. Much of the book is a reminder of the foundational concepts in business for a new generation of entrepreneurs and investors. He aims to dismiss the simplistic explanations and magical thinking of the platform deluded in order to more fully consider what competitive advantage means in the digital age. Columbia University Business professor and investment banker Jonathan Knee complicates the understanding of platform businesses with nuanced insights. Debunking the Myths of Platform Businesses In the Era of Tech Giants By Luis Polanco “In fact, the dirty little secret of the media industry is that content aggregators, not content creators, are the overwhelming source of value creation.”
RkJQdWJsaXNoZXIy MTI4OTA5