The No. 1 criticism (and compliment) I get about my company's horizontal multi-category strategy is that it's a a mile wide but inches deep. Truth be told, that may have been correct when we launched, but not anymore; some of our verticals have more depth than many vertical category-specific producers.
Nonetheless, people ask me if I had to do it all again, would I adopt a horizontal or vertical strategy? That’s a great question. Let’s dive in.
Pivoting into Content
Increasingly, tech firms and ad networks are pivoting and morphing into content creators. Specific Media has begun the metamorphosis; Hulu, Netflix, YouTube are in transit; SAY Media is there, to name a few examples.
Paradox of Advertising
As they pivot into content, some underwrite a horizontal strategy, others go vertical and focus on the most engaged and passionate audiences, identifying the categories with the largest advertisers and the highest CPMs. Unfortunately, those are usually not the same categories. Ultimately what advertisers prefer is different from what from users like and distributors need. It’s important not to put the cart ahead of the horse since advertisers only care about a publisher once they’re huge.
The Challenge of Scale
I’m all for the principle of specialization; I wrote a book about it. However, having worked a decade in the content business, I can tell you that while content isn’t a zero-sum game, unless you cover multiple categories, you end up writing about the same thing in five different ways. As such, scale in content doesn’t actually come via producing more content, but rather, distributing your content in more places (but more on distribution in a bit.)
The Problem with Passionate Audiences
The reality, however, is that while video is a rich media, the most engaged audiences will always prefer articles over video, as text is ironically a deeper and richer experience, with words and metaphors leaving something to the imagination. So if you want to produce articles, sure, go ahead and pick a vertical and go deep.
But if you decide to produce videos with a vertical strategy, you run the risk of hitting a wall by running out of topics to produce. After all, you can technically write an article on any topic, but you cannot produce a video on any topic; it boils down to the visuals.
More important, to scale in as a vertical video maker, you will need to take a step back and add articles in that vertical. Once you do that, you may conclude that it’s cheaper to produce articles. Considering that text is better-indexed by search engines, you will start to ask yourself, “Why am I producing videos?”
Challenges of Video
You produce videos because there are thousands of existing great content businesses that publish articles, but very few that produce videos. However, as evidenced by the declining proportion of video producers who maintain their own-and-operated website, video is all about distribution over destination. As such, to maximize distribution, you need to have as many content pieces in as many categories because the largest aggregators of traffic are all horizontal plays (think YouTube, which eventually added Channels).
Distribution vs. IP
It’s paramount to understand that there’s a difference between “not owning your distribution” and “not owning your intellectual property.” In other words, just because video producers rely on distribution doesn’t mean they don’t have defensible IP. Moreover, horizontal libraries open up more distribution opportunities.
In the end, what matters is if you can build i) a profitable business that ii) produces quality content and iii) generates a positive return to investors when the company exits.
When it comes to liquidity events: while it’s easier to think of a buyer for vertical producers, in reality you may have fewer options. By having more categories, you may not be the “must-buy” for a vertical competitor or larger text-based publisher that is looking at getting into video, but you can create more tension among wider cast of would-be buyers.
Furthermore, a large text publisher, for example, may prefer to build its video strategy internally and not necessarily buy its way into videos, because the reality is that most (if not all) video content companies have underwhelming revenues relative to their reach and their funding. Search engines were in the same boat pre-2002.
Ultimately, you tend to get courted by suitors that like your strategy, so each strategy will garner interest.
So, what’s the Answer, Ash?
Both strategies have pros and cons. It may ultimately boil down to your interests and strengths. So if I had to pull a Mulligan, I would keep the horizontal approach, but I would launch new verticals progressively.