Medium: The Medium Is The Message
By: Leroi Yu
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
After a successful year in 2016, 50 of Medium’s staff, equivalent to one-third of Medium’s employees, were shocked to discover that they were being let go. Along with the layoffs would be the closure of Medium’s New York and Washington D.C. offices. Evan Williams, CEO of Medium and co-founder of Twitter and Blogger, explained that this was meant to be part of the search for a new business model without a reliance on sponsored content, with specifics that still needed to be defined.
Similar to Twitter and Blogger, Medium is a social media and publication platform that allows anybody to share their opinions via posts on the website. What differentiates it is its writing platform versus Twitter’s 140-character broadcast approach, and its ability to aggregate content versus the separation found on Blogger. While its focus on advertising and partnerships with small publications led to 300 per cent reader and post count growth, this focus detracted from Medium’s core mission: to build a publishing platform that would allow anyone to share their ideas via written post and help the high quality pieces rise to the top. Since Medium was no longer interested in selling sponsored content, it no longer needed the employees in those business functions. William’s concern was not immediate profitability. Rather, he was in search of a model that would provide long-term sustainability and improve Medium’s incentive system for publishers.
COMPANY OVERVIEW
A Divergence from its Core Mission
Despite its growth story, Medium’s approach to monetization and partnerships lead to a divergence from its core mission. In the advertising industry, success is measured primarily based on impressions. As a result, Medium authors are incentivized to maximize page views rather than strive for content quality. Specifically, the use of sponsored content, where stories from partner brands are added to author posts, and advertisements move the focus of an article from generating discourse to generating page views. In response, Medium recently announced a shift from advertisements and sponsored content in favour of a consumer subscription product released in March 2017. The consumer subscription product is expected to give readers access to premium content from multiple publishers. While it is an improvement on the current incentive system, Medium must overcome two significant hurdles in order to realize its core mission in the mainstream consumer market. First, it must develop a strong enough value proposition to encourage its user base to adopt the subscription product. Second, it must make up for lost revenue that will result from the discontinuation of their advertising strategy.
Industry Challenges
While Medium and the broader journalism industry focus on different content, they face similar challenges. The inherent issue that both parties face is that customers do not find favourable value in paying for journalism content. Social media has become the preferred distribution point for news as 44 per cent of sampled people around the world use Facebook for free news. Consumption has shifted, with distribution points moving away from newspapers and television to headline skimming and interactions on social media. Traditional sources, like digital newspapers, can no longer depend solely on content to drive traffic and engagement on their websites.
In response, publications are becoming increasingly aware of the benefits of user engagement, with 9 of 10 newspapers listing user engagement as their top priority. For example, The New Zealand Herald’s incorporation of tailored content, another aspect of engagement, resulted in 24 per cent growth in number of weekly unique web visitors. An increase in web visitors subsequently increased the Herald’s revenue from targeted advertisements by 47 per cent. For traditional news outlets, the challenge comes from motivating users to do more than just leave a comment or skim through the comment section.
Medium’s Strengths
Medium is different on this front. It is the common platform that anyone can use to directly present their views to a mass audience. In 2015, The New York Times wrote a scathing article about Amazon’s workplace practices. Amazon responded to it in a Medium post, to which The New York Times rebutted on its Medium account as well. This not only sparked engagement between two globally renowned institutions, but started multiple threads of input amongst thousands of common users. In addition, Medium’s platform emphasizes the social media aspect, allowing users to follow the activities of others, mention other users in the comment sections of stories, and highlight important or impactful sections of posts. Mentions are like tagging in other platforms. Highlights emphasize certain parts of stories the reader labels as important. These are viewable to followers, with the most common highlights displayed to all readers, encouraging further interaction and user engagement. This level of engagement leads to network effects in the user base, where more established writers choose to write on Medium and more readers are captured and retained.
In addition, authors and publications benefit from being able to outsource design and hosting requirements to Medium, streamlining the publication process and allowing them to focus on producing quality content. For independent authors and indie publishers, an existing platform saves both time and money.
Evaluating the Planned Subscription Product
Friction occurs when consumers make conscious decisions on payment. Subscription models have reduced friction compared to individual paywalls or microtransactions. However, even with reduced friction, subscriptions only make a small portion of revenues for publishers. As an example, one of Medium’s partnering publications, Film School Rejects, generated only 10 per cent of its revenues from subscribers. The majority of the business is subsidized by revenues from sponsored stories and advertisements. Despite decreasing emphasis on the partnership program at Medium, publishers will still play a crucial role, adding legitimacy and professionalism to the platform. Even with a hit on margins, publisher posts typically account for the most popular posts, driving a large portion of the traffic and discourse that Medium needs to retain its network effect. This can only continue happening if the value proposition holds true for this stakeholder group.
On the platform side, projected revenues from the subscription product is calculated. Based on Medium’s 60 million monthly unique visitors, a conversion rate of 0.05 per cent based on the digital newspaper industry average, and a price of five dollars, Medium could generate $1.8-million annually.
On the publisher side, the amount of revenue the revenue beta program currently generates for publishers is calculated. Film School Rejects currently has around 200 members. This is used as a proxy for the average publication on the basis of size. Additional assumptions include a default price of five dollars as set by Medium, membership revenue representing 10 per cent of total revenue, and 30 publishers in the revenue program. Based on these factors, publishers require a total of $3.6-million to maintain steady state and not lose revenues. This represents a deficit of $1.8-million.
While sensitive to price and conversion rate, this analysis provides information regarding feasibility. Even with added premium features, it would be difficult to convince customers to commit at price points required to breakeven. While conversion is difficult to predict, stronger monetization options will be needed as Medium scales, and more revenues need to be distributed to a larger pool of writers. For this to happen, Medium needs to pursue a supplementary revenue source that can subsidize the mass publication portion of the company. Medium is about attracting top-end content, which is a direct supply issue. While a consumer subscription product helps monetize the platform, it fails to directly address this challenge.
Reconsidering Medium’s Strategy
Medium currently focuses on a select target market. The most common tags on top stories are entrepreneurship or technology focused, being included in most top stories. While there are topics such as sports, fitness, cars, weddings, and finance, these occurred zero times in the top stories. The observed pattern of top story topics is driven primarily by the reader demographics. Readers are predominantly college graduates aged 18 to 34, a large portion of whom earn salaries over $100,000. The concentrated reader base and article scope are directly linked as readers determine the popularity of top articles. While certain newspapers and publications have succeeded using a targeted approach, Medium is different. It benefits from not being pigeonholed into certain topics based on core expertise. Instead, its expertise is only limited by the readers and writers it can attract and retain. By expanding the scope of topics it targets from its current state, Medium can attract a larger pool of readers with differing interests. As a result, Medium can benefit from stronger readership and engagement.
In addition, despite strong growth, the current business model under-emphasizes the independent writer. In 2016, independent writers represented 26 per cent of the most popular articles. However, only publishers have access to monetization options or other incentive models. Medium lacks a dedicated strategy to develop individuals and incentivize proven independents to continue writing thought-provoking articles. What results is a pool of proven contributors who use Medium as a tangential platform for their work, one they can be less committed to once discovered by more established organizations. Medium should instead target a diverse range of contributors, from influencers, publishers, and independent writers. If Medium is to develop a sustainable and democratic approach to online journalism, it needs to develop a community that encourages independent production as much it encourages professional publication.
Establishing a New Enterprise Strategy and Incentive Program
The issues that the platform faces are two-fold: generating enough revenue to maintain steady state for publishers and incentivizing independent authors to generate content. Both areas are affected by content distribution, which serves as an important lever for Medium’s sustainability going forward. Given Medium’s proven expertise in user engagement and the need for stronger author incentives, the platform should establish a two-sided partnership program.
First, Medium should pursue an enterprise strategy by selling its platform as a service to leading publications within specialized areas, such as sports or business. This decentralizes content distribution and repositions the platform as a revenue generator, which holds stronger value than the content itself from network effects. Specifically, this means integrating the Medium platform and non-premium Medium content into other publications, such as Politico, which focuses on politics, and conversely integrating the publications’ content into Medium. With over 1,337 newspapers and 7,293 magazines in the U.S. alone, there is a wide pool of targetable partners. Medium originally attracted 400 of them to its revenue beta program. If Medium can attract a similar number to this product at an average annual price of $4,500, Medium can cover the net deficit. As readers from these external sources join the platform and are converted to premium users, Medium can expect additional revenue increases.
Such publications lack the environment Medium has set up that drives user engagement and community. This would be beneficial to external publications as they look to bolster their digital strategy by increasing user engagement. Furthermore, it encourages stronger reader retention with Medium’s reflection pieces in addition to traditional news reporting. For Medium, it would be an opportunity to increase content distribution by gaining the audience of these established platforms. Moreover, it would offer authors greater incentive to write, given the increased reach.
Second, Medium should incentivize independent author participation. By creating an author partnership program that rewards consistently top-performing authors across a variety of topics, it encourages consistent authorship and activity on the platform. Compensation can be monetary, funded using the additional revenues from the enterprise strategy. It would be paid out using a balanced scorecard of metrics including total time read, recommends, etc. For Medium, this would mean increased retention of top-performing independent writers that want to keep their own individuality. It would also mean more consistent writing on topics writers find important.
Overall, Medium’s current advertisement and partnership-driven strategy is causing the media platform to diverge from its core mission of promoting better writing. While a consumer subscription product shifts the incentive system away from page views, it is not significant enough to make up for lost revenues or improve content quality. In addition, Medium lacks a dedicated strategy to incentivize and retain proven independent authors. To fix the stated issues, Medium should create a two-sided partnership program by selling the platform as a service to external publications and adding a monetization program for top independent writers. In doing so, Medium can expect a stronger growth strategy that aligns with its core mission of facilitating great online writing’s rise to the top.
