U.S. News & World Report: Driving Value to a Multisided Market
Once just an editorial company, U.S. News & World Report has transformed itself into a multi-platform publisher of rankings and datasets that occupies the heart of a vibrant ecosystem.
For more than three decades U.S. News & World Report (USNWR) has published the rankings college students and hospitals love to hate.[1] The past several years, however, have seen a proliferation of imitators, from Forbes to the Princeton Review, Truven to the Economist. Nevertheless, in spite of intensifying competition, the U.S. News Best Colleges and Best Hospitals rankings remain the most oft-cited and influential in the United States. The reason may have less to do with editorial considerations—after all, USNWR publishes its methodologies in full, including data sources and mathematical transformations—than with its careful cultivation of a multisided market.
Consider USNWR’s customers. The most obvious and visible are ordinary consumers; however, there are also the institutions being ranked. Consumers rely on USNWR for recommendations about where to seek care or what schools to apply to given their grades and academic interests. Because these individuals are making decisions about how to spend money, USNWR becomes an attractive place for education- or healthcare-related providers to advertise their wares. A pacemaker manufacturer has good reason to pay for page views on USNWR’s Cardiology rankings, since the site’s readers may be deciding what devices will best support their lifestyles after implantation. Advertising is one of USNWR’s principal revenue streams and the first prong of its business model.
Central to this revenue source is an operating model which supports a broad and engaged readership with unbiased advice. To maintain this “asset,” USNWR must uphold the public’s confidence in the independence and impartiality of its editorial function. Only in that way will advertisers continue to see value in USNWR’s community. Thus, the operating model beautifully supports USNWR’s goal of driving value to its two customers, consumers and advertisers, because ad revenue supports, rather than undermines, USNWR’s mission. But there is third player in the ecosystem to which USNWR must also cater: hospitals and universities.
USNWR strives to promote a productive relationship with the institutions it ranks. And for good reason. Although USNWR collects most of the data on which it bases its rankings from publically available sources, some of it also comes from universities and hospitals themselves. To encourage those institutions to participate, USNWR must also drive value to those organizations. To that end, USNWR formats its website as a sort-of consumer directory. Users of the site can search by geography and specialty to get referrals to programs which offer the services they want or need. In a sense, by taking part in the rankings hospitals and colleges get free advertising on a heavily trafficked consumer advice website.
Of course, USNWR benefits from its relationships with schools and medical centers in other ways, too. Experts from within those communities serve on USNWR advisory boards to ensure that the rankings avail themselves of the best thinking and most up-to-date research on quality and outcomes measurement. That in turn serves as a basis for sustainable differentiation. Because USNWR has access to reputable data that its competitors do not and because USNWR can draw on the collective expertise of many hundreds of thought leaders to produce the most meaningful results, USNWR can tell a compelling story to its consumer and advertiser audiences about the value of its real estate. Again, the operating model strongly reinforces the business model.
There is an additional subtler benefit to these relationships with hospitals and universities, as well. Since they contribute directly to the creation of the rankings, they are more inclined to lend credibility to their results. This fact tempers the resistance of administrators whose institutions perform badly and creates evangelists of those whose institutions perform well.
Given the beneficial reciprocity inherent in this marketplace, it’s not surprising that USNWR is careful not to disrupt the ecosystem’s balance, even as it seeks to monetize the value its website and rankings drive to hospitals and universities. To accomplish this, the second prong of USNWR’s business model consists of two distinct elements. The first is badge licensing. Hospitals or universities which perform well in the rankings may purchase “badges” from U.S. News & World Report for use in external advertisements. Beyond the sales benefit, the visibility of the badges among consumers have the resultant effect of raising the profile of USNWR’s rankings as a whole. This in turn boosts web traffic, which increases the prices of ads on USNWR’s website. Again, each element of the operating model mutually and collectively reinforces each element of the business model.
The second is the sale of exhaust data to hospitals and universities. Because USNWR collects data directly from the institutions it ranks, its dataset is unique. And because USNWR uses the data for quality measurement, it is tailor-made for peer benchmarking. As such, USNWR can actively promote the sale of its data archive to improve market transparency and drive quality improvement without risking criticism as a “pay-to-play” provider.
As an editorial outfit U.S. News & World Report is an unusual intermediary. Nonetheless, it is a great example an organization which sits at the center of an ecosystem and manages to drive individual value to all of the players in its market: hospitals and universities, consumers, and advertisers. It supports these value propositions with a robust business and operating model so aligned with one another that each player extracts value from the system without weakening the positions of other participants.
[1] http://theairspace.net/commentary/u-s-news-best-college-rankings-1983-2013/
It would be interesting to examine the effect that so much shared prosperity between USNWR and the organizations it ranks has on the impartiality of the material. Is it possible that the quality and unbiased nature of the rankings are influenced by these relationships? Given the extent to which USNWR is considered a reputable source for data on these institutions, it is only logical that those institutions would have a strong interest in boosting their ranking, perhaps undeservingly. Does USNWR take any specific steps to make sure they maintain their independence from the organizations they rank? A lot of credibility could be lost almost overnight if one particular case of rankings manipulations came to light.
They’re great questions. I’ll start with the second. USNWR, like the Times or Post, maintains a very robust “firewall” between revenue-generating centers and editorial centers. As you rightly point out it’s critical to objectivity that those two sides of the business not work together. To that end, the organization is led not by a CEO but by an Editor-in-Chief. That way, when conflict exists he–and the rest of senior leadership–can resolve it such that journalists are assured independence.
I think your first question is asking, if colleges and universities know the criteria on which they’re being judged, what is to stop them from “gaming” the rankings (if I have that wrong, please let me know). The answer, I think, is twofold. First, USNWR tries to balance its measures to prevent manipulation. You can imagine, for example, that yield and SAT scores are strongly inversely correlated (the more rock stars a school accepts, the harder it is to ensure each one of them matriculates). Since an organization must optimize for the equilibrium, it’s ill-advised to over index for a single measure.
Second, USNWR attempts to uncover the best proxies for quality. Of course, how “good” a college or medical center is can be tough to measure. Since there is no perfect yardstick for “quality,” USNWR has to rely on judgement and research to create a basket of measures which together tell a statistically meaningful story about how the organizations it ranks are doing. Things like “30-day” mortality seem like a slam dunk, since most people would prefer to go to hospitals where on a risk-adjusted basis patients have a better outcome.
But there are grey areas. Among the “technology” measures USNWR uses for hospitals is whether the institution has a gamma knife. Gamma knives are stupidly expensive surgical tools which have several advantages over scalpels or other forms of radiation for certain kinds of procedures. Having a gamma knife IS a proxy for quality in so far as brain surgeries conducted under gamma knife tend (statistically) to have slightly better outcomes. But that raises two questions: 1) is having a gamma knife itself a proxy for institutions with tons of cash? And if so, “is tons of cash” a better measure? 2) Does the inclusion of gamma knife in the rankings create a two-tiered system of have and have-nots? In other words, are there hospitals which will never be eligible because they simply cannot afford the most-up-to-date expensive tools? 3) Finally, if a hospital has the money, don’t the rankings incentivize them to buy a gamma knife, even if it’s not the best use of the money for patients?
The first two questions are similar in that they concern themselves with the normative aspects of rankings; for instance, is it fair that Harvard has the most money and therefore can spend it on student programs? I am not qualified to answer those questions, except to say that the outcomes of Harvard students tend to be very good, and while they may have lots of advantages other students do not, USNWR attempts to measure results not the net societal benefit.
The third question is perhaps a bit specious, because it assumes USNWR erects the only incentive scheme hospital boards have. In fact, most hospitals have an explicit mission to serve their patients and communities. When USNWR can provide evidence of areas they are lacking vis-a-vis their peers, it is perhaps a good thing. Moreover, there is very little evidence to suggest (and USNWR HAS studied the question extensively) that simply improving the technological offerings at a hospital will put that hospital in rankings contention. On the contrary, because outcomes and process measures account for more than do individual structural measures, a hospital would be much better served–if that were its sole aim–reducing post operative hip fractures than buying a single-photon-emission CT scanner.
Great post and discussion. I never thought about US News as a multi-sided market but you are completely right. This makes total sense. It’s interesting how the market maker is always under the gun for proving their lack of bias. Whether you are US News or Google, their is definitely a financial incentive that can distort the editorial impartiality. Sergei and Larry wrote about this while they were students…. and then kind of forgot their own message – in essence: that to remain impartial the editor should not sell ads… 🙂