Has the digital world led to skewed income distribution?

Asoke K Laha, President & MD, Interra Information Technologies

The other day I was speaking to someone who is running a popular portal, which he boasts of having over a million followers across the world. He claims that the portal, which is updated 24/7 has several features unique to itself.

As a fellow entrepreneur, I asked him a question: how the portal was doing financially?    I noticed he looked not so happy. Sir, financially, it has not been yielding much revenue so far. But he added that it could turn into a profitable venture. Our conversation came to the bottom-line of the portal; whether it is making enough money to stay afloat. He said that as a portal it is getting some traction across the world over. Having a followers list of over one million across the world is not a minor  achievement. But how much money the portal is making? I thought he would be coming out with some interesting statistics that could captivate the people and term it as a success story and an aspirational venture for others to enter in.

His story was not at all depressing but instructed me on how irrelevant statistics can be in a digital world. He said he is running all right and has not borrowed money from others to run it. Nor he has invested any huge money into its running except for his hard work of close to seven or eight hours a day. What about the revenue flow? His response was that he and his team are expecting a turnaround that is yet to happen. To my counter that the portal is attracting a lot of advertisements from Google and every story has at least three or four insertions from Google, the ubiquitous leader in digital advertising on its own platform, he revealed that the parameters of Google advertising are different from the rest. Because an advertisement insertion is there,  does not lead to revenue generation unlike in the physical media, where every ad inserted carries a price tag, whether it would lead to results such as how many times an ad is seen, how many times people clicked on that, how many people ordered that product through Amazon or any other e-commerce platform after clicking on the ad etc. The configurations and tenor of a digital ad are different from ads appearing in physical format.  Frankly speaking,  it was a knowledge to me although I have been in the digital world for a long time.

I asked him how that is possible when Google ad itself is making huge profits in billions of dollars every quarter. Not to fall behind, its main competitors Facebook, Yahoo,  and X (earlier known as Twitter) are mopping up profits, may not be to the tune of Google but at a lesser scale. He narrated the story of digital advertisement. Not only that, he came out with some of the not-so-known facts in digital advertisements. He revealed there are several news portals like his operating 24/7 and providing quality content that fetches minuscule income after lending their content to Google or any other entity.

That sordid story of a net entrepreneur has forced me to pen this month’s column. My thread line is: Are Digital Platforms Inclusive? I will be more explicit about my line of thinking rather than using hyperbolas. The question boils down to the equitable proposition in the business model of digital platforms. Alphabet, the parent company of Google’s net worth as of October 5, 2023, is over US$1.7 trillion, which is the sum of the current stock price multiplied by the number of stocks. Available statistics indicate that in 2022, Google generated nearly US$ 60 billion in net profits, a drop compared to US$ 76 billion in 2021. The gross earnings for 2022 was US$ 156 billion. Of that, the profit was US$ 60 billion.  I must add that these figures I have collated from Google and presume that they could be, by and large, accurate.

From where the profits of Google flow? There are a number of verticals that generate profits. But most of the profits come from Google Ads. Many of my esteemed readers would know the content for the Google ads or the narratives where the Google ads are placed are not developed by Google. It is developed by thousands of content writers, published materials, newspapers, and periodicals around the world like that of my friend that I had referred. My friend is asking a pertinent question: Why Google is making profits in billions, while content writers like him are getting pittance? Is it not exploitation? Can they legitimately claim a better treatment? It is not my friend alone who is asking this question, but multitudes of content writers who provide the platform for Google to place their ads. Some of them include big names. From India, there are several national dailies where Google places the ads. I do not know how much is their total flows from Google ads. It may be more than what my friend gets.  But I am sure it will be much less than what they earn from the physical edition of their newspapers.

Does it mean that print editions of newspapers and periodicals are on the verge of extinction? I do not know the media economics and dynamics. However, several people whom I have spoken to corroborate the worries of the print editions. A number of Print editions like New York Times, Wall Street Journal , Times of India are going to stay. Some of them have gone to the extent of predicting the longevity of a majority of print editions for only a few years. It is a fact that the new generation no longer looks forward to reading the papers.

Is Google the only villain of the piece? No, it has many competitors or alternatives such as Adobe, Amazon, Meta, Adform, Oracle, AdRoll,  Yahoo, and Amobee. All of them carry advertisements on the content provided by the multitude of contributors. But Google is the market leader and has the largest number of clientele and advertisements.

Does this type of inequity exist only among content pushers and digital platforms? I do not think so. Let us take for instance smartphones, where Apple has the advantage and is the undisputed market leader. Look at the market capitalization of Apple. To be precise,  it is US $2.77 trillion as of 9th October 2023. Apple’s gross profit for the 12 months ending June 30, 2023 was US $167 billion. Does Apple manufacture its brand of smartphones? An emphatic no. it is involved only in R&D, branding, and of course marketing. No doubt, it has spent billions of dollars in R&D, innovation, and promotion of the project. Manufacturing is not its headache but that of the contract manufacturers. Who are the contract manufacturers of Apple: Foremost is Foxconn, a Taiwan-based company, followed by Pegatron, and Wistron which operate in various geographies including India. Tata is now a newcomer to the Apple assembly line. Similarly, Samsung, Xiaomi, Oppo, etc. have their contract manufacturers spread across various countries including India. Now, the question is from where the contract manufacturers are sourcing their products. In the case of Apple, the US-based IT giant shortlists every year more than 200 component and ancillary manufacturers, who act as their component manufacturers after highly rigorous quality tests. In short, we see only the Apple brand name on the product. But there are numerous players in the background. Some of them, like my content writer friend, may be getting a pittance for the hard work they put in.