Tuesday, March 22, 2011

Hulu

How do network effects (cross-side and same-side) impact Hulu’s business model?

Hulu has three major groups of customers: content owners, users, and advertisers, who have strong network effects towards one another.


Content owners:
There's a Penguin Problem here since this is a relatively new market and therefore, the uncertainty is high and each individual content owner has their own long-term expectations. 
No-one moves unless everyone moves. 
Same-side impact
- The more content owners, especially those of popular content, join Hulu, the more likely others will join. The more owners join, the better for Hulu brand. That's why Hulu invested in a "long courting process" for Disney to join and offered Disney a stake of about 30%, similar to that of the founding partners because Disney was a reluctant but very influential player that can bring significant benefits to Hulu network.
- The more content owners join Hulu, the less power they have on Hulu since Hulu will not depend on just a few owners.
Cross-side impact: 
- If owners of popular content do not join the network, fewer users will visit Hulu and the network growth will stall and may drive Hulu to failures. On the contrary, with many popular content providers, Hulu can attract a large use base.
- With many popular content providers and bigger user bases, advertisers are more willing to pay for Hulu.
- If more content owners give exclusive licenses to Hulu, they will create more values for users and advertisers, which helps Hulu attract and retain more users and gain more advertising revenues.

Users:
Users play a crucial role in Hulu's successes.
Same-side impact
- More users can create more values to other users by helping Hulu learn more about users and give more relevant content and services, which helps Hulu.
- More users help one another through discussion boards, ratings and reviews, which also helps Hulu.
- More users can make network slower, which has negative impact on other users and Hulu.
Cross-side impact
- More users create more values for content owners and advertisers.

Advertisers:
Similar to content owners, there's a challenge of uncertainty felt by advertisers.
Same-side impact
- More advertisers will bring in more money for Hulu. Furthermore, more advertisers will increase competition among one another and Hulu can raise the rate and earn more advertising revenues.
Cross-side impact: 
- More advertisers will attract more content owners to join, which helps Hulu succeed.
- More advertisers may annoy users and drive them away, which hurts Hulu.

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