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Media, Aggregators and the Link Economy:
Strategic Hyperlink Formation in ContentNetworks
Chris Dellarocas
Boston [email protected]
William Rand
University of Maryland
[email protected]
Zsolt Katona
U. C. Berkeley
[email protected]
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Hyperlinks have transformed the notion of content
From
to
From collection to network Traffic and revenue not only
function ofcontent qualitybut also ofnetwork position
In-links are essential for asite to be discovered
Out-links allow sites togenerate traffic and revenuewithout
investing in owncontent
New players such as Google,HuffingtonPost and otheraggregators
are thriving
Traditional content producersare struggling
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And this has caused a big controversy
Changecopyrightlaws?
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Central questions of interest to this work
How can content producers strategically combineoriginal content
and links to maximize influence andrevenue?
How does the presence of content aggregators affectthe payoffs
and content quality of content producers?
More broadly
What are the micro and macro implications ofuninhibited
unilateral linking across content nodes?
What would be the consequences of institutingalternative linking
policies? (e.g. permission requiredby the target, payments attached
to links)
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A simple model of the link economy:Nodes
Nnodes (media sites) Only one topic Sites can create content
and/orlink to third-
party content
Cost of content creation is kici2/2ki = cost parameter
(efficiency) of node i
ci = content quality of node i
Links are free and cannot be refused by target
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A simple model of the link economy:Consumers
Consumers begin their news consumption processfrom an anchor
node
They consume original content contained in that nodeand/or
content directly pointed to by links present there
Different pieces of content on same topic aresubstitutes Utility
from accessing a site that has own content
ci and links to sites j1,,jl is
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A simple model of the link economy:Anchor traffic
Consumers choose anchor nodes seeking tomaximize the utility zi
they receive
Anchor traffic tAi is given by
where is the quality of an outside alternative
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Consumer behavior at anchor node
Link source Link target
cS 0
Link source Link target
0 cT
1-
User clicks right away
and reads link target
content
User reads link source
content and link description
but does not click
Revenue
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A simple model of the link economy:Revenue
Number ofDirect visitors
Revenue perdirect visitor
Number of linkvisitors
Revenue per linkvisitorRevenue = X X+
ti
AX c
i+X=
Advantages of linking Disadvantages of
linking
Link source Increased anchortraffic Decreased revenueper direct
visitor
Link target Additional traffic
through link visitors
Reduced anchor
traffic
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Model: Key parameters
k cost (efficiency) of content production
quality of outside alternative
probability of retaining anchor traffic
(i.e. probability ofnotclicking a link)
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Baseline models
Two identical nodes Two unequal nodes Two nodes + aggregator
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Baseline Scenario: Two identical nodes
When links are not possible
Symmetric equilibrium Competition forces both nodes to
overproduce content,
which hurts their profits
When links are possible
Sometimes no links are formed above symmetricequilibrium
persists
When links are formed equilibrium is asymmetric If not too high
link target produces higher quality Link target always makes higher
profits Link source sometimes makes higher profits
relative to symmetric equilibrium
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cNL cT cS NL T S
(a) Content (b) Payoffs
Two equal nodes:Content and payoffs when =0.5
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k
Symmetric
no-linksequilibrium
Asymmetric
linkequilibria
Both equilibria
sustainable
No
pure
equilibrium
Two equal nodes: Equilibrium regions
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Two unequal nodes
Nodes differ with respect to their content production cost
When links are not possible
(As before) competition forces both nodes to overproducecontent,
which hurts their profits
When nodes are very unequal, less efficient node cannotstay on
the marketWhen links are possible
Less efficient node can always stay on the market bylinking to
efficient node
When nodes are very unequal, this ends up hurting theprofits and
reducing the content quality of the efficientnode
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Aggregators
Modeled as nodes with zero own content Place a single link to
the best content Two main effects
1. Increase attractiveness of entire content ecosystemrelative
to outside alternative
2. Appropriate part of the revenue that would otherwisego to the
link targets (thanks to the fraction ofconsumers who dont click the
link)
Net impact = sum of both effects Can be positive or negative
=
z jj=1
k
z j + j=1
k
Total traffic flowing
into content ecosystem
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Impact of aggregators on traffic and revenue
Aggregators are beneficial iff is substantiallylarge compared
to
When =0 aggregators are never beneficial forany >0
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The competitive impact of aggregators
Aggregators typically place links to a subset ofthe best
available content
In the absence of links this intensifies competitionamong sites
further reducing profits but
benefiting consumers
However, intensified competition also implies thatthe parameter
region where the competing nodeswill be willing to form link
equilibria expands
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Alternative link formation policies:Links that can be refused by
targets
The good
Allows efficient sites to keep inefficientcompetitors out of the
market
The bad
Reduces the parameter range where linkequilibria form
May lead to a hold up problem whereby the linksource is forced
to overinvest in (unnecessary)content to avoid having its link
refused by thetarget
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k
Symmetric
no-linksequilibrium
Asymmetric
linkequilibria
Both equilibria
sustainable
No
pure
equilibrium
Two equal nodes: Equilibrium regions
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What happens when we allow links to berefused
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Summary of initial findings:Basic properties of link
equilibria
Links can allow sites to avoid overproducingredundant
content
But competing sites are often reluctant to formlinks even in
settings where it would be mutuallybeneficial
Furthermore links allow low quality nodes toremain on the
market, free-riding on high qualitynodes
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Summary of initial findings:Aggregators
Aggregators improve the attractiveness of theentire ecosystem
but take a slice of profits awayfrom content producers
Their net impact depends on the balance between thesetwo
forces
Aggregators further intensify the competitionamong content nodes
but this makes it moreplausible that nodes will form a link
equilibrium
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Implications for the industry
Linking is a promising coordination tool that canreduce
redundant effort and improve socialoutcomes in a hypercompetitive
industry
Current free for all linking practices aresuboptimal link
equilibria dont always form in cases where they
would increase profits and efficiency
free riding is not prevented More efficient link formation
policies are possible;
these would involve bilateral link formationagreements and
payments
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Ongoing work
Multidimensional content Associating payments with links
Coalition strategies How do these results scale in larger systems
Empirical analyses of the above!
