Algorithms clearly influence the distribution of consumption and they will become increasingly important. According to Spotify, 1/3 of new music discovery occurs through algorithmic recommendation. Netflix says that 80% of watch time comes from its recommendations and 20% from direct search (but it also concedes that “users tend to come to the service with a specific show, movie, or genre in mind”). All things equal, the more choice, the more consumers will seek help in choosing, whether from the organic social signals that emerge from the network or recommendation systems. Platforms have a strong incentive to surface the best recommendations. More usage increases consumer affinity, improves retention, and, for ad supported platforms, increases revenue. But, at least on the margin, they may have other incentives. Spotify and Netflix both have an incentive to reduce their reliance on their largest suppliers. Both Spotify and TikTok disclose that “commercial considerations” influence their recommendations. Not much can or will likely be done about this, but the opacity and importance of algorithms will become an increasingly important competitive advantage for content aggregators over time.
