Own the Channel

Having control of distribution is one of the most powerful cards a business can hold in its proverbial hand of poker.  It allows you to greatly influence the rules of the game and determine how draconian or democratic they will be.  Either way, this power pays off in spades.  According to quantcast, Comcast.com gets over 14 million unique visitors per month to its site (Compete puts this number at a little over 6 million).  Splitting the difference, we can estimate that 10 million people visit that homepage at least once per month.  10 million???  Are you kidding me?  And why do 10 million people visit that useless site?  Because it is the default start page for Comcast’s 14.9 million internet subscribers.  The only way this stops being a Comcast subscriber’s browser homepage is if he or she actively changes it, which clearly is not a frequent occurrence.  So let’s say that of the 10 million montly uniques, 8 million of those are internet subscribers who probably open their browsers 20 times per month, and the other 2 million uniques just land on the site once in that month.  That’s 162 million visits to comcast.com each month.  At a $10 CPM, with 2 ads on the page, that’s $3.2 million per month and almost $40 million per year.  Owning the channel sure has its privileges!

Liquor distributors control the distribution of alcohol in most states and thus benefit from huge margins.

Twitter owns the channel and thus can control who gets access to the real-time conversation and how often.

Facebook owns its respective channel.  Though they have taken quite a bit of heat for trying to control users’ data, it is hard to deny that Facebook has the ultimate say up until users revolt by closing accounts.  Microsoft and Google both acknowledged the power of owning this channel, but Microsoft won with an expensive ownership stake in the social network.

Hulu owns the channel.  Yes, content providers strong-armed the company and demanded they discontinue streaming videos through Boxee, but very soon we will see that Hulu will win the battle.  It’s just too obvious.  Hulu can ultimately do whatever it wants because it has incredible distribution and the content providers will have to bend to the company’s wishes.  It’s just that right now young Hulu is still figuring out how to play in the tug-of-war between supplier and consumer.  Boxee will eventually own the computer-to-TV channel.

Apple owns music distribution through its iTunes application, which locks consumers into using an iPod.  The company makes no money on the music and doesn’t really care whether you buy music through the iTunes store or other sources, but they make plenty of money on the player (i.e. counter to many other business models, they make most of the money from the razor and not the blades).

Newspapers used to own the channel.  Their prowess depended on it.  Once they lost control of distribution, they became rudderless ships at sea.

Owning the channel is why Amazon created the Kindle.

Owning a channel is not synonymous with being a monopoly, though the associated power is similar.  Owning a channel is about providing access.  OpenTable owns the channel of access to diners.  Sysco owns the channel of access to restaurants.  ZocDoc will one day own the channel for doctor appointments.  Outside.in will one day own the channel for local news.  If you find a potential channel you can control, get in there fast.  And if you can’t own the channel, at least try to move upstream.  Otherwise you have to hope that you won’t get crushed when dancing with the elephants.

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