Spotify, Netflix, and Peloton share several strategies: they go direct-to-consumer, run a subscription model, and leverage influencers to create pull audiences in. The most recent example comes from Peloton.
"Beyoncé and Peloton are teaming up for a “multi-year partnership” with the aims of boosting the fitness platform’s music credentials and building “pro-social initiatives.” The first project as part of the team-up will see Peloton commemorating Homecoming season at Historically Black Colleges and Universities (HBCUs). Students at 10 of these universities, including Bennett College and Howard University, will be given a two-year subscription to Peloton’s subscription-based fitness platform for free.
These two-year subscriptions will enable students to take classes through the Peloton App, without having to buy any of the company’s fancy workout gear. The partnership will also see Beyoncé curate a series of “themed workout experiences” that will compensate for the fact that Homecoming’s traditional in-person events can’t take place this year. Peloton will also work with those institutions to recruit students as both interns and undergraduate employees."
Peloton engages in social activities but also partners with Beyonce to get more users on its platform. "Big names move people" is a paradigm that Spotify and Netflix understand very well. In May, Spotify signed podcasting giant Joe Rogan (the most popular podcast) for $100M. In 2016, Netflix signed a $60M contract with Dave Chappelle (top Youtube video in 2020) for 3 comedy specials.
Why do such successful companies invest so much money into things that don't scale? Shouldn't they think about Growth Rate and accelerating their flywheels?
Doing things that don't scale can still have significant impact
Paul Graham's famous quote and essay, "do things that don't scale", was, at the time, aimed at recruiting early adopters manually and with dedication for young startups to get the ball rolling. Netflix, Spotify, Peloton & co apply this idea beyond their early stage. The reason is a simple but powerful principle.
The method to the madness is the 90/9/1 rule. On most online platforms, 90% of users don't contribute and just watch (lurkers), 9% contribute a little, and 1% contribute significantly. This, of course, is a power law, an asymmetry appears on almost every online platform, from Wikipedia to Amazon reviews, and that companies can use to drive growth.
Buy or breed
Think of a user or content platform as a triangle with the top 1% at the top (power users), 9% in the middle, and 90% at the bottom. In reality, the 1% move the platform forward. Power Users are the ones who provide or create the most impactful content.
Pushing the 1% of content or users forward creates ripple effects through the whole eco-system and is a serious leverage point. You can do that either by "buying" more influential users, such as Joe Rogan on Spotify, or "breeding" them yourself as Tik Tok did with Charli D'Amelio. Content platforms do the former, user platforms the latter.
When breeding influencers, user platforms need to ask themselves:
- What are the biggest hurdles to contribution?
- How to reward users for contribution?
- Who are power users and how to promote them?
When buying content, content platforms need to ask themselves:
- What content is missing on the platforms and the audience would love to see?
- What is Land (brings users to the platform) and what is Expand content (keeps them there)?
- What unique content can we provide?
Influencers and content are almost interchangeable in this context. People sign up for a single piece of content and stay for the rest. You sign up for Disney+ to watch the Mandalorian and stay to see other Star Wars movies. You might be intrigued by Beyonce's curated classes and sign up for Peloton. You're an avid Joe Rogan fan and want to keep listening to his content, so you sign up for Spotify. Or, you love Malcolm Gladwell and get an annual Masterclass membership (guilty).
The advantage of bringing content in from the outside over breeding influencers is confidence in success. You already know people want the content, now you just need to pay for it. On the other side, you don't know which influencers will be successful in the future when breeding them yourself, so you have to pay close attention.
When using content to drive user acquisition, user expectations for content quality have to match either the money they pay for the platform, i.e., subscription cost, or the time they invest. Users are more willing to invest if they can anticipate content quality.
For Netflix, it's reason enough to invest over $17b in content in 2020.