It will be winner takes all — but with many winners!

Very large companies with their products being used across the world are emerging around us. The market has become efficient due to the internet — if you have a killer product or service [1], it can sell across the world on the internet providing high returns on innovation. This makes the company super rich and the entrepreneur gets a high upside for the innovation.

However, this also displaces the local players –everyone now uses the search engine from google, the facebook social network, the whatsapp messaging app, the uber taxi (?) and the list goes on. The same goes for B2B products, if there is a super good software that help companies manage their taxes, there is little reason to use a less effective local tax software from a local player. Piketty, Brynjolfsson and others tell us that this is one of the reasons for rising inequality and it will continue to dominate for the next many years. Few superstar innovators and managers will make all the money and profit. This is the same fear which our old friends including Marx had about the industrial revolution–. The worry then was that land or capital owners will accumulate wealth (in a simplifying way) and now it will be the super smart. Super smart, who? Simply stated, the ones with ability to create great digital or digitizable products and those who can manage huge companies.

There are many arguments about how this will balance out. There is and there will continue to be competition among products leading to segmentation by features — no product will be good at everything and there will be inherent trade-offs (the no free lunch theorem). Local intelligence and knowledge may also be required for some products, keeping local players relevant — say, for recruitment services. These factors do make sense, but they are as true for the current market and will only attenuate a little the impact of the efficient winner taking all the market. The one factor which is more interesting is that the winners will change fast — technology is changing fast, new innovations will be needed every now and then, old technologies and companies will be replaced by companies led by fresh innovations. This is in contrast to earlier times, where companies retain their strong market positions for years. Thus, there will be many winners ‘temporally’ (excuse my mathy takeaway here!).

What is more interesting — the many winners that will emerge in the product/service dimension. Services and products are getting sliced and diced to very small units. For instance, if one can make an extremely good surveying tool, just a surveying tool, one can become big selling it to a huge global market. The sales cost on the internet is low and one can target a large market, i.e. the whole world — this helps pay back the investment in innovation and continuous development of very specific products. This was not possible before when the sales channel were controlled by large companies (for instance those selling ERP). The large sales cost and limited market size did not warrant investment in a narrow service or product. Thus these companies could not exist and if they did, they had to pass on the lion’s share of profit to a controlling sales behemoth.

Image: Frits Ahlefeldt-Laurvig (CC BY-ND 2.0)

Today, you use a different app each for managing your photographs, adding effect to them, your email, your schedule, your songs and what not. In fact even large company such as those in ecommerce use specific services from different vendors — those who do the best payment management, the best referral management, the best image processing, etc. Thus even a large winner may have lot of winners behind him — each of these a winner in its own product domain. Why couldn’t the same company do all these great products by using their millions of dollars? This is one thing about innovation, it happens in distributed crazy ways — as multiple crowdsourcing platforms show.

This phenomenon has an interesting neutralizing effect on the winner takes all — the same efficiency which creates a winner, also creates room for lot of winners by enabling narrow products being amenable to a sensible and profitable business. Unfortunately or fortunately, even in such case, “smart people” will be the winners — a new kind of inequality shifting the elite from a New York (those with capital) to a California (those with digital skills). However, the spread of wealth will be among a lot more people, hopefully we can train many, than a few winners. Thus, we need smart people across the world and not just California — our focus and that of Nations should be on training and developing human capital.

Other than creating these many winners, the market efficiency is spurring greater innovation by providing incentives to do it in many narrow areas. Think of it this way, many things combine to enable different tasks. Earlier, a single company would do many of these tasks and only concentrate on those which led to a non-incremental economic benefit. They may not even discover all the areas they could innovate in. Now, each small component can get focus by a separate business and achieve its best form, spurring greater innovation and making the whole system way more efficient. The new innovation ecosystem thus makes us all a winner!

What would happen with all these thousands of very effective services and products — it` will be an integration nightmare? Well, firstly integrators will emerge as new businesses. But more importantly, these services will talk to each based on a service oriented architecture with all transaction happening over http (the web). Common standards and protocols will emerge to enable them to talk to each other. A lean integrating skeleton will bring together the many very good products built by different businesses.

What about end users? I really do not know how many apps would become a cognitive load for us– may be new OS’s will solve this problem — probably we can use 100s of app, if we can just search by voice!

There is a reason to rejoice — given the shrinking cost of sales and marketing and the whole world becoming a market, we are going to enter an era of very narrow functional slicing in products and services — that means a lot more innovation and efficiency. What each one of us should do– find one narrow thing which is useful (or uselessly addictive) to people which we can do very very well and put our heart and soul into it. Probably we will have millions of innovators and businessmen, taking us back to the good (did I say that?) old days — where also there were millions of entrepreneurs each catering to a small geographic region — now each building something different but selling to the whole world.

We need to make sure each of us can participate in this new ecosystem by proper human capital development and meritocracy — may the best (wo)men win!

[1] The product should be either digital, like a surveying app or easily amenable to digital replication, like a video of one’s performance. In this article, I use the ‘product’ to mean products or services of this kind.