tl;dr: the rules of the game have changed over the past 20 years. Jeff Bezos is a grandmaster.
You don’t need me to link to articles and videos about the deforestation and destruction of the “lungs of the earth” in the Amazon river basin.
Yet, the Amazon is actually expanding exponentially.
I received a text from my brother the other day.
“Amazon is a beast. I’m watching TV on a Kindle Fire. Rebecca just ordered from Whole Foods and my friend is going to AWS.”
I texted him back.
“Amazon is the scariest of them all.”
Honestly, even at their super high price now, I have moments where I think “oh man, Amazon is undervalued.”
Particularly after I visited the Amazon fulfillment center and was teleported to the future.
Winner-take-all Digital Markets
I’ve been working my way through Albert Wenger’s book, World After Capital and enjoying it a great deal.
Albert has a wonderful ability to explain big trends in consumable ways.
In the “Digital” section of the book, he talks about three things that are critical.
- Zero marginal cost goods in digital
- Universal computation, accelerated by better processors
- Universality at zero marginal cost…which in this case is where 1+1=3.
Throw in network effects as a force multiplier and attention as the single most valuable asset in the world.
When you put all of that together, you see that digital-native companies today have a chance to accomplish something faster and more dramatically than ever before.
As one entrepreneur said to me recently, “we think we can achieve market annihilation.”
It’s like a game of Risk. One person wins. Everyone else loses.
There’s another word for this.
The path to winner-take-all markets leverages zero marginal costs, universal computation, network effects, and scarce attention.
Then, it wraps it all in a world-class UX experience.
Amazon does this with speed. Once upon a time “1-click buy” was a huge innovation. So was 2-day shipping. So was Prime.
Apple does it with design.
And you’re seeing this play out in markets that are not necessarily consumer-only.
All along, this was the Sprinklr* plan.
It’s why productboard just raised $45 million in a Series B for the “product manager” market.*
Heck, one of productboard’s customers, UiPath, went from $0 in recurring monthly revenue to $100 million..in 21 months. You don’t do that unless you follow that playbook.
Winners and Losers
Of course, this type of growth can be extremely lucrative for the winners. It also delivers huge value to customers…until it doesn’t, because monopolies don’t really need to innovate as much.
But the big losers are all of the other companies in the space who get zero pieces of the pie.
In a pre-digital world, you had big players- GE, Sears, Chevrolet, but the “long tail” part of the market was fatter.
Now it’s much thinner.
As this trend grows, and it will in the short term, I suspect there will be fewer and fewer big players.
This leads to more of the wealth concentration and the problems that are associated with it including reduced choice and centralized control of data, which makes us all more vulnerable.
I suppose there’s an alternative in a different form of capitalism that spreads things more equally.
Or, if everyone can find their own “winner take all” market for something.
But, just like you get a 5 armies for every turn that you hold onto North America and 3 for Europe**, these are all rules of the game right now.
And Jeff Bezos understands them as well as anyone.
[One key point…everything is different in China. Same rules of ‘winner take all’ but different players.]
*I’m ex-Sprinklr and an advisor to ProductBoard.
**Risk board game reference, for those not familiar.