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The Three Syndication Roles
Traditionally, companies have connected with one another in simple, linear chains, running from raw-material producers to manufacturers to distributors to retailers. In syndication, the connections between companies proliferate. The network replaces the chain as the organizing model for business relationships. Within a syndication network, there are three roles that businesses can play. Originators create original content. Syndicators package that content for distribution, often integrating it with content from other originators. Distributors deliver the content to customers. A company can play one role in a syndication network, or it can play two or three roles simultaneously. It can also shift from one role to another over time.
Here's a simple example of a syndication network from the media business. Scott Adams, an originator, draws the popular Dilbert cartoon strip. He licenses it to a syndicator, United Features, which packages it with other comic strips and sells them to a variety of print publications. A newspaper, such as the Washington Post, acts as a distributor by printing the syndicated cartoons, together with articles, photographs, television listings, advertisements, and many other pieces of content, and delivering the entire package to the doorsteps of readers.
Now, let's look at how the syndication roles are emerging on the Internet:
Originators
The Internet broadens the originator category in two ways. It expands the scope of original content that can be syndicated, and it makes it easier for any company or individual to disseminate that content globally. Anything that can exist as information—from products and services to business processes to corporate brands—can be syndicated.
A good example of an Internet originator is Inktomi, a start-up that created a powerful Internet search engine using its proprietary technologies for connecting many inexpensive computers to act as a virtual supercomputer. By the time Inktomi was ready to enter the market, other companies such as Yahoo! and Excite already had well-established search engine brands. Inktomi's executives knew that it would be difficult for a new competitor to take them on directly. But the executives also saw that many other large Web sites wanted to offer search engine functionality but didn't have the technology. Rather than sell itself to any one of these companies, Inktomi decided to syndicate its application to all of them. Web sites are able to customize the Inktomi service for their users, offer it under their own brands, and combine it with other functions and content that they develop on their own or purchase from other originators.
Inktomi generates revenues through per-query charges and by sharing the dollars its customers generate from selling banner advertisements on their search pages. The company has applied the same business model and core technologies to other services such as content caching and comparison shopping. Last quarter, it answered 3.4 billion search queries, its quarterly revenues hit $36 million, and its market capitalization surpassed $10 billion.
Syndicators
By bringing together content from a variety of sources and making it available through standard formats and contracts, syndicators free distributors from having to find and negotiate with dozens or hundreds of different originators to gather the content they want. In other words, syndicators are a form of infomediary, collecting and packaging digital information in a way that adds value to it. In the physical world, stand-alone syndicators are rare outside the entertainment field, but this business model is becoming increasingly prominent on the Net.
Screaming Media is a leading content syndicator. It collects articles in electronic form from some 400 originators and, using a combination of automated filtering software and human editors, categorizes each article as it flows through its servers. It then delivers to its customers—currently, more than 500 different sites—only the content relevant to their target audience. A site catering to auto-racing enthusiasts, for example, would receive a steady stream of up-to-date racing news and features. The site could license content directly from originators such as the Associated Press, but the vast majority of that content would be irrelevant to its audience. Screaming Media charges monthly fees based on the volume of filtered content its customers desire. It pays some of that money back to the content originators as royalties, allowing everyone involved to benefit from the transaction.
LinkShare is another on-line syndicator, but unlike Screaming Media, it syndicates commerce rather than traditional content. More than 400 on-line retailers have contracted with LinkShare to administer their affiliate programs—programs that enable other sites to provide links to the e-tailers in return for a small cut of any sales those links generate. LinkShare aggregates all the programs on its own site, providing an easy, one-stop marketplace for affiliate sites. In this network, the e-tailers act as the originators, LinkShare is the syndicator, and the content sites are the distributors. LinkShare also provides the technical infrastructure for monitoring transactions and tracking and paying affiliate commissions, and it offers ancillary services such as reporting for both affiliates and retailers. The e-tailers pay LinkShare a combination of up-front fees and per-sale commissions.
Distributors
Distributors are the customer-facing businesses. They use syndication to lower their costs for acquiring content and to expand the value they provide to consumers. E*Trade is one example of a distributor. Another is Women.com, an on-line destination for women. Women.com's staff creates its own content, which it integrates with syndicated information from partners such as ABC News and Good Housekeeping magazine. Women.com also offers a range of syndicated services, including free Web-based e-mail accounts from WhoWhere, a subsidiary of Lycos, and weather forecasts from AccuWeather. As a distributor, Women.com's role is to organize all this material into a compelling, targeted offering that attracts visitors.
At the same time, Women.com also distributes shopping services syndicated from a variety of partners, including eToys, NeimanMarcus.com, RedEnvelope, and FogDog. Much like a traditional department store, Women.com organizes these on-line retailers' merchandise into relevant categories, such as gifts, clothing, cosmetics, and electronics, and it promotes featured products with pictures and descriptions. There are two important differences from the physical world, however. First, when a customer makes a purchase, she does so through a special hyperlinked connection to the partner site rather than through Women.com. Women.com need not hold inventory, process transactions, or manage fulfillment, but it receives a percentage of each sale for bringing in the customer. Second, distributors have far more flexibility on the Web. If PlanetRx offers Women.com a better commission on cosmetics than Eve.com, or if one set of products sells better than another, Women.com can quickly swap the products it promotes to maximize its revenues. It never has to worry about unsold inventory or a time lag in reconfiguring its supply chain.
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